8-K/A 1 dyn-rmd8ka070108.txt DYNASIL CORPORATION OF AMERICA FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 Date of Report (Date of earliest event reported) July 1, 2008 -------------------------- Dynasil Corporation of America ------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 000-27503 22-1734088 --------------------------- ---------- ----------- (State or other (Commission (IRS Employer jurisdiction of incorporation) File Number) Identification No.) 385 Cooper Road, West Berlin, New Jersey, 08091 ------------------------------------------------------------ (Address of principal executive offices) (856)-767-4600 ---------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------ (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below): [] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 1 Item 1.01 Entry into a Material Definitive Agreement On July 1, 2008, Dynasil Corporation of America, a Delaware corporation ("Dynasil"), completed the acquisition of certain assets of RMD Instruments, LLC and acquired the stock of Radiation Monitoring Devices, Inc. on terms, conditions and provisions that are consistent with, but that replaced and superseded, a Letter of Intent dated December 18, 2007 (the "Letter of Intent"). In order to provide financing for this acquisition, Dynasil completed a bank financing with Susquehanna Bank DV and sold shares of Series C 10% Cumulative Convertible Preferred Stock. In addition, Dynasil entered into former owner work continuation agreements with two former owners of the acquired businesses and entered into five year leases for the space currently occupied by the businesses being acquired. Dynasil entered into the following material definitive agreements: 1. An Asset Purchase Agreement dated July 1, 2008 (the "Asset Purchase Agreement") by and among Dynasil, RMD Instruments Corp., a Delaware corporation that is a wholly- owned subsidiary of Dynasil ("RMD Instruments"), RMD Instruments LLC, a Massachusetts limited liability company that manufactures and sells photonics related instruments and components (the "Seller"), the Gerald Entine 1988 Family Trust (the "Entine Trust"), Fritz Wald and Doris Wald (together, the "Walds") and Jacob H. Paster ("Paster"); 2. An Agreement and Plan of Merger dated July 1, 2008 (the "Merger Agreement") by and among Dynasil, RMD Acquisition Sub, Inc., a Delaware corporation and a wholly- owned subsidiary of Dynasil ("RMD Acquisition"), Radiation Monitoring Devices, Inc., a Massachusetts corporation that performs research under government contracts such as SBIRs ("RMD"), the Entine Trust, the Walds and Paster; 3. a Former Owner Work Continuation Agreement dated July 1, 2008 (the "Entine Former Owner Work Continuation Agreement") by and between Dynasil and Gerald Entine ("Entine"); 4. a Former Owner Work Continuation Agreement dated July 1, 2008 (the "Paster Former Owner Work Continuation Agreement") by and between Dynasil and Paster; 5. a Standard Form Commercial Lease - RMD-I dated July 1, 2008 by and between Charles River Realty, d/b/a Bachrach, Inc. (the "Lessor"), and RMD Instruments (the "RMD Instruments Lease"); 6. a Standard Form Commercial Lease - RMD-S dated July 1, 2008 by and between the "Lessor" and RMD (the "RMD Lease"); and 7. a Term Loan and Line of Credit Agreement along with supporting agreements dated July 1, 2008 (the "Bank Loan Agreement") by and among Susquehanna Bank DV (the "Bank"), Dynasil, Evaporated Metal Films Corporation, a New York corporation and a wholly-owned subsidiary of Dynasil ("EMF"), Optometrics Corporation, a Delaware corporation and a wholly-owned subsidiary of Dynasil ("Optometrics"), RMD Instruments and RMD Acquisition. Dynasil and its subsidiaries had no previous relationship with the Seller, RMD, the Entine Trust, Entine, the Walds or Paster. Pursuant to the Asset Purchase Agreement, Dynasil, acting through RMD Instruments, acquired key business assets used by the Seller in its business of manufacturing and selling photonics related instruments and components for a purchase price comprised of $12,500,000 in cash and 1,000,000 shares of Dynasil's common stock (the "acquisition stock"). The assets acquired from the Seller included its inventory, equipment, proprietary assets, contracts, goodwill, miscellaneous property, licenses, prepaid expenses, rights under unfilled customer orders and certain accounts receivable. The assets acquired were acquired subject to the following liabilities: accrued vacation, accrued bonus, and sales tax accrual, in each case limited to the amounts indicated on the Seller's June 30, 2008 balance sheet. The Seller did not transfer to RMD Instruments the following assets: cash, investments, and certain accounts receivable. The Seller's members may tender the shares of the acquisition stock to Dynasil for repurchase by it at a repurchase price of $2.00 per share during a two year period starting July 1, 2010. The Asset Purchase Agreement contained representations, warranties, covenants (including mutual indemnification rights and obligations), and other terms, conditions and provisions that are customary for these kinds of transactions. Reference is made to the complete and final form of the Asset Purchase Agreement which is filed as an Exhibit to this Report and which is incorporated herein by reference. Pursuant to the Merger Agreement, Dynasil, acting through RMD Acquisition acquired all of RMD's outstanding equity securities and merged into RMD in exchange for an aggregate of 3,582,000 shares of Dynasil's common stock. The Merger Agreement contained representations, warranties, covenants (including post-closing adjustments and mutual indemnification rights and obligations), and other terms, conditions and provisions that are customary for these kinds of transactions. Reference is made to the complete and final form of the Merger Agreement which is filed as an Exhibit to this Report and which is incorporated herein by reference. The Entine Former Owner Work Continuation Agreement provides for the employment of Entine 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, Entine will receive a base salary of $325,000 per year, business expense reimbursements (including reimbursement for home office expenses) and customary employee benefits. The agreement also requires 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), Entine will be entitled to receive 20% of his base salary at the time of termination. The terms of the agreement are similar to Entine's pre-transaction compensation package which is being continued as per the Letter of Intent although it is not consistent with Dynasil's current executive compensation policies. Reference is made to the complete and final form of the Entine Former Owner Work Continuation Agreement which is filed as an Exhibit to this Report and which is incorporated herein by reference. The Paster Former Owner Work Continuation Agreement provides for the employment of Paster as Vice President of RMD Instruments for a period of 24 months starting July 1, 2008. Under that agreement, Paster will receive 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 that will vest on October 15, 2009 if RMD Instruments meets a certain revenue objective, 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 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), Paster will be entitled to receive the greater of the balance of the first twelve (12) months of base pay or 20% of his annual base pay at the time of termination. The base compensation in the agreement is similar to Paster's pre-transaction compensation package which is being continued as per the Letter of Intent although it is not consistent with Dynasil's current executive compensation policies. Reference is made to the complete and final form of the Paster Former Owner Work Continuation Agreement which is filed as an Exhibit to this Report and which is incorporated herein by reference. The RMD Instruments Lease provides for the rent by RMD Instruments of approximately 7,700 square feet of space and related facilities that it currently occupies on several floors of a building located at 44 Hunt Street, Watertown, Massachusetts 02472 for a 5 year term starting July 1, 2008 for an annual rent of $153,230, payable in monthly installments of $12,769, increasing by 4% per year for each new lease year after the first one. RMD Instruments also is obligated to pay as additional rent its pro-rata share (19.2%) of maintaining the interior portions of the building and of any increase or decrease in the building's real estate taxes, water and sewer use charges and heating oil costs over the charges and costs of each of these items for calendar year 2007. RMD Instruments is also obligated to pay for its own electricity, gas and telephone services where such services are separately metered or for its pro-rata share as above for those expenses where there is not separate metering. The RMD Instruments Lease also grants RMD Instruments rights of first refusal to purchase the building during the lease term and to relet the premises after expiration of the initial lease term. Entine is a partner in the Lessor of the building. Reference is made to the complete and final form of the RMD Instruments Lease which is filed as an Exhibit to this Report and which is incorporated herein by reference. The RMD Lease provides for the rent by RMD of approximately 30,100 square feet of space and related facilities that it currently occupies on five floors of a building located at 44 Hunt Street, Watertown, Massachusetts 02472 for a 5 year term starting July 1, 2008 for an annual rent of $598,990, payable in monthly installments of $49,916, increasing by 4% per year for each new lease year after the first one. RMD also is obligated to pay as additional rent its pro-rata share (75.3%) of maintaining the interior portions of the building and of any increase or decrease in the building's real estate taxes, water and sewer use charges and heating oil costs over the charges and costs of each of these items for calendar year 2007. RMD is also obligated to pay for its own electricity, gas and telephone services where such services are separately metered or for its pro-rata share as above for those expenses where there is not separate metering. The RMD Lease also grants RMD rights of first refusal to purchase the building during the lease term and to relet the premises after expiration of the initial lease term. Entine is a partner in the Lessor of the building. Reference is made to the complete and final form of the RMD Lease which is filed as an Exhibit to this Report and which is incorporated herein by reference. In conjunction with that transaction and on the same day, Dynasil, EMF, Optometrics, RMD Instruments and RMD entered into the Bank Loan Agreement pursuant to which a portion of the funds used to finance the acquisitions described above were obtained. Under the Bank Loan Agreement, the Bank provided Dynasil with two borrowing facilities: a $9,000,000 term loan (the "Term Loan") and a $1,000,000 line of credit loan (the "Line of Credit"). The $9,000,000 proceeds of the Term Loan were used by Dynasil to finance consummation of the transactions contemplated by the Asset Purchase Agreement, to pay off $894,080 of existing indebtedness to Citizens Bank and the Bank, and for general working capital purposes. Proceeds of the Line of Credit will be used for general working capital purposes. The Term Loan bears interest at 6% per annum and is to be repaid at the rate of $174,359.49 per month over sixty equal, consecutive, monthly payments. The Line of Credit bears interest at The Wall Street Journal Prime Rate and it expires on January 31, 2010, although Dynasil anticipates that it will then be renewed annually by the Bank. The Bank Loan Agreement also contains terms, conditions and provisions that are customary for commercial lending transactions of this sort. That agreement requires Dynasil to maintain a debt service coverage ratio of at least 1.20 to 1 and to apply 20% of its earnings after taxes during its fiscal years ending September 30, 2009 and September 30, 2010 to mandatory prepayments of up to $300,000 in fiscal 2009 and $500,000 in fiscal 2010. Pursuant to the Bank Loan Agreement, Dynasil granted a mortgage in the Bank's favor and also pledged its other business assets as collateral. Further, Dynasil's EMF, Optometrics, RMD Instruments and RMD Acquisition subsidiaries have also guaranteed the indebtedness under the Bank Loan Agreement and mortgaged or pledged certain of their assets as collateral for their guarantees. The applicable borrowing documents were entered into at arms-length between Dynasil and its operating subsidiaries, on the one hand, and the Bank on the other hand, on commercial lending terms and conditions, including acceleration rights, events of default, the Bank's rights and remedies and similar provisions that Dynasil believes are customary for commercial loans of this sort. In connection with the Bank Loan Agreement, the borrower and the guarantors executed and delivered to the Bank customary forms of notes, mortgages, security agreements, guarantees and similar documents. Reference is made to the complete and final form of the Bank Term Loan and Line of Credit Agreement which is filed as an Exhibit to this Report and which is incorporated herein by reference. The information set forth under Items 2.01 and 3.02 is incorporated by reference thereto. Item 2.01. Completion of Acquisition or Disposition of Assets The transactions contemplated by the agreements described under Item 1.01 were consummated on July 1, 2008. In connection with the consummation of those transactions, indebtedness previously owed to Citizens Bank of Massachusetts by Optometrics and guaranteed by Dynasil of $468,620 was repaid and the liens associated with that indebtedness were released. In connection with the consummation of those transactions, indebtedness previously owed to the Bank in the amount of $425,460 also was repaid. In recognition of the time that Mr. James Saltzman spent above and beyond normal Director expectations to support the RMD transaction, Dynasil's Board authorized a total payment of $60,000 for consulting services which Mr. Saltzman has elected to receive 50% in cash and the other 50% in options to acquire 144,648 shares with a exercise price of $4.00 per share over a three year term. The information set forth under Items1.01 and 3.02 of this Report is incorporated herein by reference. Section 3 - Securities and Trading Markets Item 3.02 Unregistered Sales of Equity Securities The information set forth under Items1.01 and 2.01 of this Report is incorporated herein by reference. On July 1, 2008, Dynasil issued and sold an aggregate of 4,582,000 shares of its common stock pursuant to and in connection with the transactions described under Items 1.01 and 2.01 of this Report. These shares were sold in transactions exempt from the registration requirements of the Securities Act of 1933 (the "Act") pursuant to section 4(2) thereof. As a result of those transactions, Dynasil believes that Entine, including shares held in his family trust and trusts held in his children's names, owns beneficially or of record approximately 4,363,098 shares of Dynasil's common stock, which represents approximately 40% of its outstanding shares of common stock at the date of this Report. On July 1, 2008, Dynasil sold approximately 4.7 million shares of a Series C 10% Cumulative Convertible Preferred Stock (the "Series C Preferred Stock"). Through August 31, 2008, approximately 5.3 million shares of the Series C Preferred Stock had been sold. The shares of Series C Preferred Stock were sold at a price of $1.00 per share. No underwriting discounts or commissions were paid in connection with the sales. The securities were offered and sold only to accredited investors within the meaning of Rule 501(a) under the Securities Act of 1933, as amended (the "Act"), in a transaction conducted pursuant to section 4(2) of the Act and Regulation D thereunder. Each share of Series C Preferred Stock carries a 10% per annum dividend and is convertible to 0.4 share of Dynasil common stock, which translates into a conversion price of $2.50 per share, at any time by the holders, subject to adjustment for certain subsequent sales of common stock or securities convertible into or exchangeable for common stock, and is callable after two years by Dynasil at a redemption price of $1.05 per share. After two years, Dynasil can force conversion of the Series C Preferred Stock if the closing price of Dynasil common stock is $4.00 per share or higher. Dynasil will offer Series C Preferred Stock holders the option to receive dividends in cash or in common stock at $2.50 per share subject to a maximum of 480,000 shares to be issued under this arrangement. Dynasil estimates that the net proceeds to it of the offering of the Series C Preferred Stock sold to the date of this Report are approximately $5.3 million. Dynasil also intends to continue to offer shares of the Series C Preferred Stock for sale for the foreseeable future in order to sell a total amount in the $6 to $7 million range. Other financing alternatives are also being evaluated for additional working capital. As set forth under Items 1.01 and 2.01 above, the net proceeds of the sale of shares of the Series C Preferred Stock to date were used to consummate the transactions described under Items 1.01 and 2.01 of this Report. Information relating to previous sales of unregistered securities described in Dynasil's Reports on Form 8-K dated March 14, 2005 and October 6, 2006 are incorporated herein by reference. Item 3.03 Material Modifications to Rights of Securities Holders The information set forth under Item 1.01 of this Report is incorporated herein by reference. The requirements under the Bank Loan Agreement that Dynasil maintain a debt service coverage ratio of at least 1.20 to 1 and apply 20% of its earnings after taxes during its fiscal years ending September 30, 2009 and September 30, 2010 to mandatory prepayments of up to $300,000 in fiscal 2009 and $500,000 in fiscal 2010 may constitute material modifications of the rights of holders of shares of its common stock. Although Dynasil has no current plan or intention to pay dividends on shares of its common stock for the foreseeable future, the existence of that restriction under the Bank Loan Agreement, as well as the requirement that dividends on shares of the Series B and C Preferred Stock must be declared and paid prior to the declaration and payment of dividends on the shares of common stock, may as practical matters restrict or eliminate the possibility that dividends will be paid on shares of Dynasil's common stock. Item 5.01 Changes in Control of Registrant The information set forth under Item 1.01, 2.01 and 3.02 of this Report is incorporated herein by reference. As a consequence of receipt of an aggregate of 4,363,098 shares of Dynasil's common stock in connection with the transactions described under Items 1.01 and 2.01 of this Report, which represents approximately 40% of Dynasil's outstanding shares of common stock at the date of this Report, Entine and his family trust and trusts held in his children's names trusts now together constitute Dynasil's largest stockholders. Although Dynasil believes that by virtue of that stock ownership, a change of control of Dynasil has not occurred, the holding of such a large percentage of Dynasil's common stock may permit Entine and/or such trusts to exert a significant influence on Dynasil's management and policies. Section 8 - Other Events Item 8.01 Other Events On June 30, 2008, the Registrant's previously disclosed reincorporation to Delaware was completed. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of businesses acquired - Independent's Auditor's report - RMD, Inc. and Affiliate - Balance sheets - RMD, Inc. and Affiliate - Statements of Operations - RMD, Inc. and Affiliate - Statements of Changes in Equity - RMD, Inc. and Affiliate - Statements of Cash Flow - RMD, Inc. and Affiliate - Notes to Financial Statements - RMD, Inc. and Affiliate (b) Pro Forma financial information - Unaudited Pro Forma Condensed Consolidated Balance Sheet of Dynasil Corporation of America, as of June 30, 2008 - Unaudited Pro Forma Condensed Consolidated Statement of Operations of Dynasil Corporation of America for the nine months ending June 30, 2008 and the twelve months ending September 30, 2007. - Notes to the Unaudited Pro Forma Consolidated Financial Information. (c) Exhibits 10.1* Form of Asset Purchase Agreement dated July 1, 2008 (the "Asset Purchase Agreement") by and among Dynasil, RMD Instruments Corp., a Delaware corporation ("RMD Instruments"), RMD Instruments LLC, a Massachusetts limited liability company (the "Seller"), the Gerald Entine 1988 Family Trust (the "Entine Trust"), Fritz Wald and Doris Wald (together, the "Walds") and Jacob H. Paster ("Paster"); 10.2* Form of Agreement and Plan of Merger dated July 1, 2008 (the "Merger Agreement") by and among Dynasil, RMD Acquisition Sub, Inc., a Delaware corporation ("RMD Acquisition"), Radiation Monitoring Devices, Inc., a Massachusetts corporation ("RMD"), the Entine Trust, the Walds and Paster; 10.3* Form of Former Owner Work Continuation Agreement dated July 1, 2008 by and between Dynasil and Gerald Entine ("Entine"); 10.4* Form of Former Owner Work Continuation Agreement dated July 1, 2008 by and between Dynasil and Paster; 10.5* Form of Standard Form Commercial Lease - RMD-I dated July 1, 2008 by and between Charles River Realty, d/b/a Bachrach, Inc. (the "Lessor"), and RMD Instruments; 10.6* Form of Standard Form Commercial Lease - RMD-S dated July 1, 2008 by and between the Lessor and RMD; 10.7* Form of Term Loan and Line of Credit Agreement dated July 1, 2008 by and among Susquehanna Bank DV (the "Bank"), Dynasil, Evaporated Metal Films Corporation, a New York corporation ("EMF"), Optometrics Corporation, a Delaware corporation ("Optometrics"), RMD Instruments and RMD Acquisition. 23 Consent of Haefele, Flanagan & Co., p.c. 99.1* Dynasil Corporation of America press release dated July 2, 2008. * Incorporated herein by reference. (a) Financial Statements of businesses acquired INDEPENDENT AUDITORS' REPORT To the Stockholders Radiation Monitoring Devices, Inc. and Affiliate Watertown, Massachusetts We have audited the accompanying combined balance sheets of RADIATION MONITORING DEVICES, INC. AND AFFILIATE as of June 30, 2008 and September 30, 2007 and the related combined statements of operations, changes in equity, and cash flows for the nine months ended June 30, 2008 and the year ended September 30, 2007. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of RADIATION MONITORING DEVICES, INC. AND AFFILIATE as of June 30, 2008 and September 30, 2007, and the combined results of its operations and its combined cash flows for the nine months ended June 30, 2008 and the year ended September 30, 2007 in conformity with accounting principles generally accepted in the United States of America. HAEFELE, FLANAGAN & CO. p.c. Moorestown, New Jersey September 12, 2008 F-1 Radiation Monitoring Devices, Inc. and Affiliate Combined Balance Sheets June 30, 2008 and September 30, 2007 ASSETS 2008 2007 --------- --------- CURRENT ASSETS: Cash and equivalents $ 909,875 $ 2,165,317 Accounts receivable, net 1,530,598 932,967 Inventories 705,155 1,101,927 Costs in excess of billings 2,088,363 1,761,187 Investments 824,105 812,976 Prepaid expenses and other current assets 189,328 180,391 --------- --------- Total current assets 6,247,424 6,954,765 PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment , net 913,888 615,895 --------- --------- TOTAL ASSETS $ 7,161,312 $ 7,570,660 ========== ========== LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable $466,402 $328,433 Deferred revenue 0 190,225 Accrued expenses and other current liabilities 454,077 442,094 --------- --------- Total current liabilities 920,479 960,752 Stockholders' Equity Common stock, no par value, 12,500 shares authorized issued and outstanding 11,717 11,717 Accumulated other comprehensive income (loss) 13,034 (16,760) Retained earnings 3,802,033 2,963,744 --------- --------- 3,826,784 2,958,701 Members' equity 2,414,049 3,651,207 --------- --------- Total equity 6,240,833 6,609,908 --------- --------- Total Liabilities and Equity $ 7,161,312 $ 7,570,660 ========== ========== The accompanying notes are an integral part of these combined financial statements. F-2 Radiation Monitoring Devices, Inc. and Affiliate Combined Statements of Operations For the Nine Months Ended June 30, 2008 and for the Year Ended September 30, 2007 2008 2007 --------- --------- (Nine Months) Net revenues $ 17,177,275 $ 20,420,554 Cost of revenues 8,529,770 9,955,577 --------- --------- Gross Profit 8,647,505 10,464,977 Selling, general and administrative expenses 6,428,779 7,812,275 --------- --------- Income from operations 2,218,726 2,652,702 Other income (expense) Interest income 71,229 102,474 Investment income 23,634 66,190 Realized loss on sale of investments (6,674) -0- --------- --------- Total other income (expense) 88,189 168,664 Income before income taxes 2,306,915 2,821,366 Income taxes -0- -0- --------- --------- Net Income $ 2,306,915 $ 2,821,366 See accompanying notes which are an integral part of these combined financial statements. F-3 Radiation Monitoring Devices, Inc. and Affiliate Combined Statements of Changes in Equity For the Nine Months Ended June 30, 2008 and for the Year Ended September 30, 2007 Common Stock Retained Members' Accum Other Total Shares Amount Earnings Equity Comp Income Equity ------ ------ --------- --------- ------ ------- --------- Balance, October 1, 2006 12,500 $11,717 $3,076,022 $2,170,036 $(37,519) $5,220,256 Comprehensive income Net income 534,462 2,286,904 2,821,366 Unrealized gains from investments 20,759 20,759 --------- Total comprehensive income 2,842,125 Dividends (646,740) (646,740) Member's withdrawals (805,733) (805,733) ------ ------ --------- --------- ------ ------- --------- Balance, Sept 30, 2007 12,500 11,717 2,963,744 3,651,207 (16,760) 6,609,908 Comprehensive income Net income 853,571 1,453,344 2,306,915 Unrealized gains from investments 29,794 29,794 --------- Total comprehensive income 2,336,709 Dividends (15,282) (15,282) Members' withdrawals (2,690,502) (2,690,502) ------ ------ --------- --------- ------ ------- --------- Balance, June 30,2007 12,500 $11,717 $3,802,033 $2,414,049 $13,034 $6,240,833 ====== ====== ========= ========= ====== ======= =========
See accompanying notes which are an integral part of these combined financial statements. F-4 Radiation Monitoring Devices, Inc. and Affiliate Combined Statements of Cash Flows For the Nine Months Ended June 30, 2008 and the Year Ended September 30, 2007 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,306,915 $2,821,366 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 116,213 82,196 Bad debt allowance 12,772 (4,229) Realized loss on sale of investments 6,674 0 Net decrease in costs and estimated earnings in excess of billings on uncompleted contracts (327,176) (40,463) (Increase) decrease in: Accounts receivable (610,403) (489) Inventories 396,772 (790,585) Prepaid expenses and other current assets (8,937) (55,497) Increase (decrease) in: Accounts payable 137,969 249,870 Deferred revenue (190,225) (190,506) Accrued expenses and other current liabilities 11,983 (171,624) Net cash provided by operating activities 1,852,557 1,900,039 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments 11,991 886,561 Purchases of property and equipment (414,206) (376,043) Net cash used in investing activities (402,215) 510,518 CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (15,282) (646,740) Members' withdrawals (2,690,502) (805,733) Net cash used in financing activities (2,705,784) (1,452,473) Net increase (decrease) in cash and equivalents (1,255,442) 958,084 Cash and cash equivalents, beginning 2,165,317 1,207,233 Cash and cash equivalents, ending $909,875 $2,165,317 The accompanying notes are an integral part of these combined financial statements. F-5 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 1 - Summary of Significant Accounting Policies Nature of Operations The Companies are primarily engaged in the research, development, fabrication and marketing of components, materials and instruments. The Companies' products and services are sold and provided throughout the United States and internationally. Principles of Combination The accompanying combined financial statements include the activities of Radiation Monitoring Devices, Inc. (an "S" corporation) and RMD Instruments, LLC (a limited liability corporation), both of which are under common control. All significant inter-company transactions and balances have been eliminated in the combination. 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. Revenue Recognition The Companies record revenue from product sales at the time the product is shipped and title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, and collectability of the related receivable is reasonably assured. Returns of products shipped have historically not been material. 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 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. F-6 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 1 - Summary of Significant Accounting Policies (continued) 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. Accounts Receivable Accounts receivable are presented in the balance sheet, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. Such allowances are based upon our estimate of non-collectability due to customer factors such as payment history and customer classification. The Companies write off specific accounts receivable when they become uncollectible. The allowance for doubtful accounts as of June 30, 2008 and September 30, 2007 were $51,571 and $38,798. Inventories Inventories are stated at the lower of 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 Companies evaluate inventory levels and expected usage on a periodic basis and records adjustments for impairments as required. Investments The Companies determine the appropriate classification of marketable securities at the time of purchase and reevaluates designation at each balance sheet date. Marketable securities have been classified as available-for- sale and are carried at fair value, with unrealized holding gains and losses reported as a separate component of other comprehensive income. F-7 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 1 - Summary of Significant Accounting Policies (continued) Investments (continued) The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, interest income, realized gains and losses and declines in value judged to be other than temporary are included in interest and other income. The cost of securities sold is based on specific identification (FIFO). Property and Equipment and Depreciation Property and equipment are recorded at cost. Depreciation is provided using the straight line method over the estimated useful lives of the respective assets. The estimated useful lives of assets for financial reporting purposes are as follows: laboratory equipment, 3 to 7 years; machinery, 5 to 7 years; office equipment, 5 to 7 years; vehicles, 5 years; leasehold improvements, term of lease; furniture and fixtures, 5 to 7 years. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Impairment of Long-Lived Assets The Companies review 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 undiscounted 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 periods ended June 30, 2008 and September 30, 2007. Patent Costs (principally Legal Fees) Costs incurred in filing, prosecuting and maintaining patents are expensed as incurred. Such costs aggregated approximately $158,000 and $326,000 for the periods ended June 30, 2008 and September 30, 2007, respectively. F-8 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 1 - Summary of Significant Accounting Policies (continued) Research and Development Costs Research and development ("R&D") costs are expensed as incurred. Equipment purchased with alternative future benefit in R&D activities is capitalized and resulting depreciation is recorded as R&D expense. Additionally, R&D costs include employee salaries directly related to R&D efforts and all other costs directly allocable to R&D efforts, including equipment for which there is no alternative use. R&D costs, included in cost of revenues totaled $6,526,492 and $7,769,571 for the periods ended June 30, 2008 and September 30, 2007, respectively. Shipping Costs The Companies include shipping and costs billed to customers in net sales. Shipping and handling costs included in selling, general and administrative expenses totaled $90,783 and $67,504 for the periods ended June 30, 2008 and September 30, 1997, respectively. Income Taxes The stockholders and members have elected to have the Companies taxed as an "S" Corporation and a partnership for federal and state income tax purposes. Accordingly, no provisions for federal income taxes have been made for the Companies for the nine months ended June 30, 2008 and the year ended September 30, 2007. Income taxes are provided for state income taxes to the extent taxable by states recognizing "S" corporation status. There were no income taxes provided for the periods ended June 30, 2008 and September 30, 2007. Financial Instruments The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, investments and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Financial instruments that potentially subject the Companies to concentrations of credit risk consist of accounts receivable. In the normal course of business, the Companies extend 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 Companies maintain allowances for potential credit losses and has not experienced any significant losses related to the collection of its accounts receivable. As of June 30, 2008 and September 30, 2007 approximately $556,675 and $282,801 or 36% and 30%, respectively, of the Companies' accounts receivable are due from foreign sales. F-9 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 1 - Summary of Significant Accounting Policies (continued) Concentration of Credit Risk (continued) The Companies maintain cash and cash equivalents at various financial institutions in Massachusetts. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000 per depositor. At June 30, 2008 the Companies' uninsured bank balances totaled $697,586. The Companies have not experienced any significant losses on its cash and cash equivalents. Statement of Cash Flows For purposes of the statement of cash flows, the Companies generally consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. Note 2 - Inventories Inventory at June 30, 2008 and September 30, 2007 consisted of the following: 2008 2007 ------- --------- Finished goods $ 12,979 $ 18,197 Work-in-progress 188,766 189,287 Raw materials 503,410 894,443 ------- --------- $ 705,155 $1,011,927 ======= ========= Note 3 - Property and Equipment Property and Equipment at June 30, 2008 and September 30, 2007 consisted of the following: 2008 2007 ------- --------- Laboratory equipment $ 494,950 $ 434,662 Machinery 249,446 233,306 Office equipment 130,524 114,902 Vehicles 36,169 36,169 Furniture and fixtures 23,404 17,042 Leasehold improvements 898,240 582,446 --------- --------- 1,832,733 1,418,527 Less accumulated depreciation (918,845) (802,632) --------- --------- $ 913,888 $ 615,895 ========= ========= Depreciation expense for the nine months ended June 30, 2008 and the year ended September 30, 2007 was $116,213 and $82,187. F-10 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 4 - Investments The companies' investments consist of mutual funds containing government backed debt securities at June 30, 2008 and 2007 and are summarized as follows: Unrealized Unrealized Holding Holding Fair Cost Gains Losses Value -------- ---------- --------- -------- Value at June 30, 2008 $829,736 -0- 16,760 $812,976 Value at September 30, 2007 $811,071 13,034 -0- $824,105 Proceeds from the sale of marketable securities during the years ended amounted to $11,991 and $886,561 for the periods ended June 30, 2008 and September 30, 2007. Gross realized losses on sales of marketable securities were $6,674 and $ -0- for the periods ended June 30, 2008 and September 30, 2007. The net adjustments to unrealized gain on marketable securities included as a separate component of accumulated other comprehensive income totaled $29,794 in 2008 and $20,759 in 2007. Note 5 - Retirement Plan The Company also has a 401(k) plan which allows all employees who meet certain requirements to defer a percentage of their wages. The plan has no Company match. The Company's has no contributions to the plan. Note 6 - Related Party Transactions The Companies lease their office and production facility from the stockholder under an annual operating lease agreement. Rent expense paid to the stockholder for the nine months ended June 30, 2008 and the year ended September 30, 2007 was $572,682 and $649,671. Note 7 - Revenues The Companies' revenues from research and development activities for the periods ended June 30, 2008 and September 30, 2007 are comprised of: a) United States government cost- plus fixed-fee contracts (CPFF), and b) United States government, government related and non government related firm fixed price contracts (FFP). The Companies' revenues also include product sales. Revenues for the periods ended June 30, 3008 and September 30, 2007 are summarized as follows: F-11 RADIATION MONITORING DEVICES, INC. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS JUNE 30, 2008 AND SEPTEMBER 30, 2007 Note 7 - Revenues (continued) Research and Development Cost-plus fixed fee $10,436,124 $12,144,578 Firm fixed price 1,301,616 1,765,345 Product sales 5,439,535 6,510,631 ---------- ---------- Total revenues $17,177,275 $20,420,554 ========== ========== Revenues from research and development activities include Small Business Innovative Research ("SBIR") grants and other government related funding received from United States government and government related agencies (the "Government"). Government revenues totaled $10,949,538 and $12,404,422 for the periods ended June 30, 2008 and September 30, 2007. Accounts receivable includes $369,756 and $142,837 due from the Government as of June 30, 2008 and September 30, 2007. Costs and estimated earnings in excess of billings on uncompleted contracts included $1,706,458 and $1,433,706 due from the Government as of June 30, 2008 and September 30, 2007. Revenues from product sales include sales from two customers totaling approximately $1,890,000 and $4,199,000 or 35% and 64% of product sales for the periods ended June 30, 2008 and September 30, 2007. Accounts receivable from these customers totaled $598,521 and $356,107 as of June 30, 2008 and September 30, 2007. Note 8 - Supplemental Disclosure of Cash Flow Information Cash paid for interest and income taxes during the periods ended June 30, 2008 and September 30, 2007 was $-0- and $-0-. Note 9 - Subsequent Events On July 1, 2008, Dynasil Corporation of America acquired the Companies in a business combination accounted for as a purchase for consideration in the amount of $12,500,000 cash and 4,582,000 shares of Dynasil Corporation of America common stock valued at $7,552,100, for a total purchase price of $20,052,100. F-12 (b) Unaudited Pro Forma Condensed Consolidated Financial Information Introduction On July 1 2008, Dynasil acquired certain assets of RMD Instruments, LLC and the outstanding stock of Radiation Monitoring Devices, Inc. (together, "RMD") in a transaction accounted for as a purchase business combination. As consideration for the acquisition, Dynasil paid $12,500,000 in cash and issued 4,582,000 shares in Dynasil common stock to the seller and incurred acquisition-related costs of approximately $350,000. In order to provide financing for this acquisition, Dynasil completed a $10 million bank financing with Susquehanna Bank DV, issued 4.582 million shares of common stock and sold 5.3 million shares of Series C 10% cumulative convertible preferred stock. The unaudited pro forma condensed consolidated statements of operations for the nine months ended June 30, 2008 and the year ended September 30, 2007 have been prepared to give effect to the acquisition as if it had occurred on September 30, 2006. The unaudited pro forma condensed consolidated balance sheet as of June 30, 2008 has been prepared to give effect to the acquisition as if it had occurred as of September 30, 2006. The historical consolidated financial statements of RMD have been prepared in accordance with U.S. generally accepted accounting principles. The unaudited pro forma adjustments are based on preliminary estimates, available information and certain assumptions and may be revised as additional information becomes available. Management anticipates net savings from the combination of Dynasil and RMD which have not been included in the pro forma statements. The unaudited pro forma condensed consolidated financial information is not intended to represent Dynasil's financial position or results of operations for any future period. Since Dynasil and RMD were not under common control or management for any period presented, the unaudited pro forma condensed consolidated financial results may not be comparable to, or indicative of, future performance. This unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements of Dynasil as well as the RMD combined statements included in this report. Dynasil's historical consolidated financial statements can be found in its Annual Report on Form 10-K filed on September 30, 2007. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2008 ASSETS Consolidated Dynasil RMD Eliminations Dynasil --------- --------- ------------ ---------- Current assets Cash and equivalents $371,904 $950,000 $ 1,321,904 Accounts receivable, net 1,317,830 1,530,598 2,848,428 Inventory 2,036,849 705,155 2,742,004 Deferred tax asset 216,100 0 216,100 Costs in excess of billings 0 548,238 548,238 Other current assets 207,409 189,328 396,737 --------- --------- ------------ ---------- Total current assets 4,150,092 3,923,319 8,073,411 Property, Plant and Equipment, net 2,603,608 100,888 2,704,496 Investment in and Advances to Subsidiaries 21,852,100 0 (21,852,100) 0 Intangibles 0 18,748,372 18,748,372 Other Assets 232,374 232,374 --------- --------- ------------ ---------- Total other Assets 232,374 18,748,372 0 18,980,746 --------- --------- ------------ ---------- TOTAL ASSETS $28,838,174 22,772,579 $(21,852,100) $29,758,653 LIABILITIES Consolidated Dynasil RMD Eliminations Dynasil --------- --------- ------------ ---------- Current Liabilities Note payable to bank $ 560,070 $ 0 $ 560,070 Current portion of long-term debt 1,925,260 0 1,925,260 Accounts payable 496,109 466,402 962,511 Intercompany payable 0 1,450,000 (1,450,000) 0 Accrued expenses 571,260 454,077 1,025,337 --------- --------- ------------ ---------- Total current liabilities 3,552,699 2,370,479 (1,450,000) 4,473,178 Long-term Debt, net 8,705,221 0 8,705,221 Stockholders' Equity Common Stock 7,555 11,717 (11,717) 7,555 Preferred Stock 5,300,710 0 5,300,710 Additional paid in capital 10,748,006 20,390,383 (20,390,383) 10,748,006 Retained earnings 1,510,325 1,510,325 --------- --------- ------------ ---------- 17,566,596 20,402,100 (20,402,100) 17,566,596 Less treasury stock at cost (986,342) 0 (986,342) --------- --------- ------------ ---------- Total Stockholders' Equity 16,580,254 20,402,100 (20,402,100) 16,580,254 ========== ========== =========== ========== TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,838,174 $22,772,579 $(21,852,100) $29,758,653 ========== ========== =========== ========== See accompanying notes to the unaudited pro forma condensed consolidated financial statements. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2008 ProForma Pro Forma Dynasil RMD Adjustments Dynasil Sales $ 8,537,144 $17,177,275 $25,714,419 Cost of sales 5,867,317 8,529,770 14,397,087 --------- ---------- ----------- ---------- Gross profit 2,669,827 8,647,505 11,317,332 Selling, general and administrative expense 2,131,366 6,428,779 8,560,145 --------- ---------- ----------- ---------- Income from Operations 538,461 2,218,726 2,757,187 Interest and other expense (114,774) 88,189 $(276,985)b (303,570) --------- ---------- ----------- ---------- Income before income taxes 423,687 2,306,915 $(276,985) 2,453,617 Income tax expense (34,421) (883,020)c (917,441) --------- ---------- ----------- ---------- Net income $389,266 $2,306,915 $(1,160,005) $1,536,176 Basic net income per share $0.10 d Diluted net income per share $0.09 See accompanying notes to the unaudited pro forma condensed consolidated financial statements. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2007 ProForma Pro Forma Dynasil RMD Adjustments Dynasil --------- ---------- ----------- ---------- Sales $10,794,650 $20,420,554 $31,215,204 Cost of sales 7,498,691 9,955,577 17,454,268 --------- ---------- ----------- ---------- Gross profit 3,295,959 10,464,977 13,760,936 Selling, general and administrative expense 2,708,886 7,812,275 10,521,161 --------- ---------- ----------- ---------- Income from Operations 587,073 2,652,702 3,239,775 Interest and other expense, net (153,523) 168,664 (496,714)b (481,573) --------- ---------- ----------- ---------- Income before income taxes 433,550 2,821,366 (496,714) 2,758,202 Income tax expense 108,460 (1,011,224)c (902,764) --------- ---------- ----------- ---------- Net income $ 542,010 $2,821,366 $(1,507,938) $1,855,438 Basic net income per share $0.12 d Diluted net income per share $0.11 See accompanying notes to the unaudited pro forma condensed consolidated financial statements. Notes to Unaudited Pro Forma Condensed Consolidated Financial Information Note 1 - Pro Forma Adjustments and Assumptions The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial information: a) The RMD acquisition has been accounted for under the purchase method pursuant to the provisions of SFAS No. 141, Business Combinations. Accordingly, the identifiable net tangible and separately identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair values as of the date of combination. The unaudited pro forma adjustments herein are based on preliminary estimates of fair value by an independent appraiser. The final allocation of the purchase price, when completed, may differ materially from the preliminary purchase price allocation herein. The total consideration paid and preliminary purchase price allocation are as follows: Purchase price: Cash consideration paid at closing $12,500,000 Stock consideration paid 7,552,100 Estimated costs and expenses 350,000 Total consideration $20,402,100 Purchase price allocation: Fair market value of net tangible assets $1,653,728 of RMD Goodwill and intangible assets $18,748,372 Total consideration $20,402,100 In connection with the acquisition, the proforma reflects advances of $1,450,000 from the parent company required for working capital purposes. b) Additional interest expense is reflected to give effect to the interest that would have been incurred as a result of the increased borrowings totaling about $9 million that were used to finance the acquisition of RMD. c) Income taxes are provided to give effect to the additional income taxes that would have resulted from the operations of RMD. Based on the profitability of RMD reflected in these proforma financial statements, Dynasil's net operating losses will not be sufficient to cover its income. The proforma financial statements reflect additional federal income taxes of 34% and 9.5% Massachusetts state income taxes resulting from the RMD income. d) Earnings per share has been adjusted to give effect to the additional dividends payable on the Series C Preferred Stock issued. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DYNASIL CORPORATION OF AMERICA Date: September 13, 2008 By: /s/ Craig Dunham ------------------ Craig Dunham President and Chief Executive Officer