[LOGO]DYNASIL[/LOGO]
Contacts:
Patty Kehe
Dynasil Corporation of America
Phone: 617.668.6855
Email: pkehe@dynasil.com
David Calusdian
Executive Vice President and Partner
Sharon Merrill
617.542.5300
DYSL@InvestorRelations.com
Dynasil Corporation of America Fails to Meet Financial Covenants
in Loan Agreements
Delays filing Annual Report on Form 10-K
Pursuant to Form 12b-25 Extension
Watertown, MA, December 31, 2012 Dynasil Corporation of America (NASDAQ: DYSL)
today announced that the Company has failed to comply with the financial
covenants set forth in the terms of its outstanding indebtedness for its fiscal
fourth quarter ended September 30, 2012. 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.
The Company continues to be current with all principal and interest payments due
on all its outstanding indebtedness and management expects to continue
discussions with its lenders to address the financial covenant situation.
These financial covenant defaults give the lenders the right to
accelerate the maturity of the indebtedness outstanding and
foreclose on any security interest. 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.
As of September 30, 2012, the Company had total indebtedness outstanding of
approximately $12.0 million, consisting of approximately $9.0 million of senior
debt owed to Sovereign Bank and approximately $3.0 million of subordinated debt
owed to Massachusetts Capital Resources Company. The Company's indebtedness is
secured by substantially all the accounts and assets of the Company and is
guaranteed by its subsidiaries.
The causes for the covenant violations are lower revenue and higher than
expected expenses in the Company's Dynasil Products and RMD divisions during
the fiscal quarter ended September 30, 2012, combined with the continued
investment in Dynasil Biomedical Corp. and the Company's Dual Mode nuclear
detection initiative. In addition, the Company incurred a significant, non-
recurring charge of approximately $466,000 to its selling, general and
administrative expenses during that quarter related to costs incurred as a
result of a review, under the direction of the Audit Committee of the Board, of
certain cash application processes and billing practices of the RMD division.
This investigation has been completed and has resulted in modifications in the
division's practices and internal controls. The Company does not anticipate
additional expenses for this matter.
The Company has recently 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
expects to engage an investment bank as financial advisors to assist it in
evaluating strategic and restructuring alternatives.
However, because of the uncertainty of any resolution of the covenant
violations and possibility of an acceleration of the indebtedness by the
lenders, the Company will reclassify all of its outstanding indebtedness as a
current liability when it reports its results for the fiscal year ended
September 30, 2012. As a result, the Company's independent registered public
accountants, McGladrey LLP, will include a "going concern" qualification in its
audit opinion with respect to such financial statements. Furthermore, as a
result of the decline in the fair value of certain business operations, the
Company expects it will record significant non-cash goodwill and long-lived
asset impairment charges as of September 30, 2012, though at this time it is
unable to provide any estimate of such impairment charges.
The Company plans to file a Notification of Late Filing on Form 12b-25 with
the SEC on January 2, 2013 that will allow the Company to extend the deadline
to file its Annual Report on Form 10-K by 15 calendar days. The Company has
taken this step in order to have more time to finalize the preparation of its
financial statements for the fiscal year ended September 30, 2012 and
complete the audit process. With this extension, the Company's Form 10-K
will be deemed timely filed if it is filed not later January 15, 2013. The
Company intends to file the Form 10-K as soon as practicable.
About Dynasil
Dynasil Corporation of America (NASDAQ: DYSL) develops and manufactures
detection and analysis technology, precision instruments and optical
components for the homeland security, medical and industrial markets.
Combining world-class technology with expertise in research and materials
science, Dynasil is commercializing products including dual-mode radiation
detection solutions for Homeland Security and commercial applications, probes
for medical imaging and sensors for non-destructive testing. Dynasil has an
impressive and growing portfolio of issued and pending U.S. patents. The
Company is based in Watertown, Massachusetts, with additional operations in
Mass., Minn., NY, NJ and the United Kingdom. More information about the
Company is available at www.dynasil.com.
Forward-Looking Statements
This press release contains statements which are not historical facts and which
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements may
be identified by the use of words such as "may," "could," "expect," "estimate,"
"anticipate," "continue" or similar terms, though not all forward-looking
statements contain such words. These forward-looking statements are based on
current expectations, estimates, forecasts, and projections and the beliefs and
assumptions of our management. Examples of forward-looking statements include,
without limitation, statements regarding our future results of operations, our
future compliance with the financial covenants under our loan agreements with
Sovereign Bank and Massachusetts Capital Resources Company, our efforts to seek
an amendment or waiver of compliance with such financial covenants and to avoid
the acceleration of our indebtedness, the adequacy of our working capital for
future operational needs, our efforts to improve operations and liquidity, the
anticipate timeline for the commercialization of our products including our dual
mode detectors, our development of new technologies including at Dynasil
Biomedical, our growth initiatives, our future capital expenditures and the
strength of our intellectual property portfolio. The actual results of the
future events described in such forward-looking statements could differ
materially from those stated in such forward-looking statements due to a number
of important factors. These factors that could cause actual results to differ
from those anticipated or predicted include, without limitation, our ability to
develop and commercialize our products, the size and growth of the potential
markets for our products and our ability to serve those markets, the rate and
degree of market acceptance of any of our products, general economic conditions,
costs and availability of raw materials and management information systems, our
ability to obtain and maintain intellectual property protection for our
products, competition, the loss of key management and technical personnel, our
ability to obtain timely payment of our invoices to governmental customers,
litigation, the effect of governmental regulatory developments, the availability
of financing sources, our ability to identify and execute on acquisition
opportunities and integrate such acquisitions into our business, and
seasonality, as well as the uncertainties set forth in our Quarterly Report on
Form 10-Q and from time to time in the Company's other filings with the
Securities and Exchange Commission. The Company disclaims any intention or
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.