U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2011
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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.) |
44 Hunt Street, Watertown, MA | 02472 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (617) 668-6855
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 o
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 such shorter period that the registrant was required to submit and post such files). Yes x No o
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 S |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes £ No S
As of February 2, 2012 there were 15,705,043 shares of common stock, par value $.0005 per share, outstanding.
1 |
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
Page
PART 1. FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES | |
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND SEPTEMBER 30, 2011 | 3 |
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010 | 5 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 | 6 |
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2011 AND 2010 | 7 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 8 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 20 |
Item 4. Controls and Procedures | 20 |
PART II. OTHER INFORMATION | 20 |
Item 6. Exhibits | 21 |
Signatures | 21 |
2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS | ||||||||||||||||
December 31, | September 30, | |||||||||||||||
2011 | 2011 | |||||||||||||||
(unaudited) | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 2,737,424 | $ | 4,479,840 | ||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $228,067 and $182,634 and sales returns allowance of $33,890 and $18,356 for December 31, 2011 and September 30, 2011, respectively | 7,426,283 | 5,837,139 | ||||||||||||||
Inventories | 2,978,189 | 3,250,539 | ||||||||||||||
Costs in excess of billings | 224,135 | 408,240 | ||||||||||||||
Deferred tax asset | 1,156,359 | 1,119,800 | ||||||||||||||
Prepaid income taxes | 341,825 | 341,825 | ||||||||||||||
Prepaid expenses and other current assets | 291,695 | 453,738 | ||||||||||||||
Total current assets | 15,155,910 | 15,891,121 | ||||||||||||||
Property, Plant and Equipment, net | 5,068,102 | 4,860,328 | ||||||||||||||
Other Assets | ||||||||||||||||
Intangibles, net | 6,211,526 | 6,374,329 | ||||||||||||||
Goodwill | 13,330,182 | 13,330,182 | ||||||||||||||
Deferred tax asset - non current | 807,932 | 694,800 | ||||||||||||||
Deferred financing costs, net | 140,678 | 150,656 | ||||||||||||||
Total other assets | 20,490,318 | 20,549,967 | ||||||||||||||
Total Assets | $ | 40,714,330 | $ | 41,301,416 | ||||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current portion of long-term debt | $ | 1,868,231 | $ | 1,859,728 | ||||||||||||
Accounts payable | 2,249,904 | 2,088,395 | ||||||||||||||
Accrued expenses and other liabilities | 1,575,976 | 2,322,459 | ||||||||||||||
Contingent consideration | 183,713 | 183,713 | ||||||||||||||
Total current liabilities | 5,877,824 | 6,454,295 | ||||||||||||||
Long-term Liabilities | ||||||||||||||||
Long-term debt, net | 8,501,780 | 8,985,442 | ||||||||||||||
Deferred tax liability | 1,619,637 | 1,619,637 | ||||||||||||||
Total long-term liabilities | 10,121,417 | 10,605,079 |
The accompanying notes are an integral part of these consolidated financial statements.
3 |
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (Continued) | ||||||||||||
December 31, | September 30, | |||||||||||
2011 | 2011 | |||||||||||
(unaudited) | ||||||||||||
Temporary Equity | ||||||||||||
Redeemable common stock, at redemption value of $2 per share or $2,000,000; put option on 1,000,000 shares issued and outstanding at December 31, 2011 and September 30, 2011, respectively | $ | 2,000,000 | $ | 2,000,000 | ||||||||
Stockholders' Equity | ||||||||||||
Common Stock, $0.0005 par value, 40,000,000 shares authorized,15,402,835 and 15,393,053 shares issued, 14,672,675 and and 14,582,893 shares outstanding at December 31, 2011 and September 30, 2011, respectively | 7,701 | 7,696 | ||||||||||
Additional paid in capital | 17,645,245 | 17,593,140 | ||||||||||
Deferred compensation | (1,460,155 | ) | (1,696,385 | ) | ||||||||
Accumulated other comprehensive income | 237,206 | 297,566 | ||||||||||
Retained earnings | 7,271,434 | 7,026,367 | ||||||||||
23,701,431 | 23,228,384 | |||||||||||
Less 810,160 shares of treasury stock - at cost | (986,342 | ) | (986,342 | ) | ||||||||
Total stockholders' equity | 22,715,089 | 22,242,042 | ||||||||||
Total Liabilities and Stockholders' Equity | $ | 40,714,330 | $ | 41,301,416 |
The accompanying notes are an integral part of these consolidated financial statements.
4 |
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | ||||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Net revenue | $ | 12,398,254 | $ | 11,626,507 | ||||
Cost of revenue | 7,095,036 | 6,719,783 | ||||||
Gross profit | 5,303,218 | 4,906,724 | ||||||
Selling, general and administrative expenses | 5,054,566 | 4,171,010 | ||||||
Income from operations | 248,652 | 735,714 | ||||||
Interest expense, net | 124,157 | 158,196 | ||||||
Income before income taxes | 124,495 | 577,518 | ||||||
Income taxes | (120,572 | ) | 202,341 | |||||
Net income | $ | 245,067 | $ | 375,177 | ||||
Net Income | $ | 245,067 | $ | 375,177 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation, net of $31,094 income tax benefit and $21,562 income taxes in 2011 and 2010 | (60,360 | ) | 41,681 | |||||
Total comprehensive income | $ | 184,707 | $ | 416,858 | ||||
Net income | $ | 245,067 | $ | 375,177 | ||||
Dividends on preferred stock | -0- | 131,400 | ||||||
Net income applicable to common stockholders | 245,067 | 243,777 | ||||||
Dividend add back due to preferred stock conversion | -0- | 131,400 | ||||||
Net income for diluted income per common share | $ | 245,067 | $ | 375,177 | ||||
Basic net income per common share | $ | 0.02 | $ | 0.03 | ||||
Diluted net income per common share | $ | 0.02 | $ | 0.02 | ||||
Weighted average shares outstanding | ||||||||
Basic | 15,583,103 | 12,979,939 | ||||||
Diluted | 15,683,834 | 15,497,495 |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Additional | Deferred | Other | Total | |||||||||||||||||||||||||||||||||||||||||
Common | Common | Preferred | Preferred | Paid-in | Stock | Retained | Comprehensive | Treasury Stock | Stockholders' | |||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Compensation | Earnings | Income | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||
Balance, October 1, 2011 | 15,393,053 | $ | 7,696 | 0 | $ | 0 | $ | 17,593,140 | ($ | 1,696,385 | ) | $ | 7,026,367 | $ | 297,566 | 810,160 | ($ | 986,342 | ) | $ | 22,242,042 | |||||||||||||||||||||||
Issuance of shares of common stock under employee stock purchase plan | 9,782 | 5 | -0- | -0- | 15,128 | -0- | -0- | -0- | -0- | -0- | 15,133 | |||||||||||||||||||||||||||||||||
Compensation costs recognized for directors | -0- | -0- | -0- | -0- | -0- | 60,281 | -0- | -0- | -0- | -0- | 60,281 | |||||||||||||||||||||||||||||||||
Compensation costs recognized in connection with stock options | -0- | -0- | -0- | -0- | 36,978 | -0- | -0- | -0- | -0- | -0- | 36,978 | |||||||||||||||||||||||||||||||||
Compensation costs recognized | -0- | -0- | -0- | -0- | -0- | 27,624 | -0- | -0- | -0- | -0- | 27,624 | |||||||||||||||||||||||||||||||||
Compensation costs recognized in connection with employment contracts | -0- | -0- | -0- | -0- | -0- | 148,325 | -0- | -0- | -0- | -0- | 148,325 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment net of income taxes | -0- | -0- | -0- | -0- | -0- | -0- | -0- | (60,360 | ) | -0- | -0- | (60,360 | ) | |||||||||||||||||||||||||||||||
Net income | -0- | -0- | -0- | -0- | -0- | -0- | 245,067 | -0- | -0- | -0- | 245,067 | |||||||||||||||||||||||||||||||||
Balance, December 31, 2011 | 15,402,835 | 7,701 | 0 | 0 | 17,645,245 | (1,460,155 | ) | 7,271,434 | 237,206 | 810,160 | (986,342 | ) | 22,715,089 |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended | ||||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 245,067 | $ | 375,177 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Stock compensation expense | 273,208 | 188,530 | ||||||
Provision for doubtful accounts and sales returns | 60,970 | 1,350 | ||||||
Depreciation and amortization | 370,347 | 327,596 | ||||||
Deferred income taxes | (113,132 | ) | (21,562 | ) | ||||
Net (increase) decrease in costs in excess of billings | 184,105 | (325,567 | ) | |||||
(Increase) decrease in: | ||||||||
Accounts receivable | (1,650,115 | ) | (490,491 | ) | ||||
Inventories | 272,350 | (206,597 | ) | |||||
Prepaid expenses and other current assets | 162,043 | 13,111 | ||||||
Increase (decrease) in: | ||||||||
Accounts payable and accrued expenses | (484,930 | ) | (712,403 | ) | ||||
Income taxes payable | (100,039 | ) | (69,569 | ) | ||||
Net cash used in operating activities | (780,126 | ) | (920,425 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (405,341 | ) | (124,124 | ) | ||||
Net cash used in investing activities | (405,341 | ) | (124,124 | ) | ||||
Cash flows from financing activities | ||||||||
Issuance of common stock | 15,133 | 83,159 | ||||||
Repayment of long term debt | (475,159 | ) | (465,036 | ) | ||||
Preferred stock dividends paid | -0- | (46,375 | ) | |||||
Net cash used in financing activities | (460,026 | ) | (428,252 | ) | ||||
Effect of exchange rates on cash and cash equivalents | (96,923 | ) | (14,976 | ) | ||||
Net decrease in cash and cash equivalents | (1,742,416 | ) | (1,487,777 | ) | ||||
Cash and cash equivalents, beginning | 4,479,840 | 4,111,966 | ||||||
Cash and cash equivalents, ending | $ | 2,737,424 | $ | 2,624,189 |
The accompanying notes are an integral part of these consolidated financial statements.
7 |
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The consolidated balance sheet as of September 30, 2011 was audited and appears in the Form 10-K previously filed by the Company. The consolidated balance sheet as of December 31, 2011, the consolidated statements of operations for the three months ended December 31, 2011 and 2010, changes in stockholders’ equity for the three months ended December 31, 2011 and cash flows for the three months ended December 31, 2011 and 2010, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of December 31, 2011 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.
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. It is suggested that these condensed consolidated financial statements 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.
Note 2 - 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 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.
Inventories consisted of the following:
December 31, | September 30, | |||||||
2011 | 2011 | |||||||
Raw Materials | $ | 1,950,558 | $ | 2,149,401 | ||||
Work-in-Process | 414,288 | 757,709 | ||||||
Finished Goods | 613,344 | 343,429 | ||||||
$ | 2,978,189 | $ | 3,250,539 |
Note 3 – Costs in Excess of Billings
Costs in excess of billings relates to research and development contracts and consists of actual costs incurred plus fees in excess of billings at provisional contract rates.
Note 4 – Intangible Assets
Intangible assets at December 31, 2011 and September 30, 2011 consist of the following:
Useful | Gross | Accumulated | ||||||||||
December 31, 2011 | Life (years) | Amount | Amortization | |||||||||
Acquired Customer Base | 5-15 | $ | 7,025,413 | $ | 1,697,589 | |||||||
Know How | 15 | 512,000 | 119,467 | |||||||||
Trade Names | 15 | 219,000 | 49,698 | |||||||||
Backlog | 4 | 182,000 | 145,133 | |||||||||
Biomedical Technologies | 5 | 300,000 | 15,000 | |||||||||
$ | 8,238,413 | $ | 2,026,887 |
8 |
Useful | Gross | Accumulated | ||||||||||
September 30, 2011 | Life (years) | Amount | Amortization | |||||||||
Acquired Customer Base | 5-15 | $ | 7,025,413 | $ | 1,579,001 | |||||||
Know How | 15 | 512,000 | 110,933 | |||||||||
Trade Names | 15 | 219,000 | 47,450 | |||||||||
Backlog | 4 | 182,000 | 126,700 | |||||||||
Biomedical Technologies | 5 | 300,000 | -0- | |||||||||
$ | 8,238,413 | $ | 1,864,084 |
Amortization expense for the three months ended December 31, 2011 and 2010 was $162,803 and $149,205 respectively. Estimated amortization expense for each of the next five fiscal years is as follows:
2012 (9 Months) | 2013 | 2014 | 2015 | 2016 | Total | |||||||||||||||||||
Acquired Customer Base | $ | 349,140 | $ | 463,133 | $ | 463,133 | $ | 463,133 | $ | 463,133 | $ | 2,201,672 | ||||||||||||
Know How | 55,300 | 73,733 | 73,733 | 73,733 | 73,733 | 350,232 | ||||||||||||||||||
Trade Names | 10,950 | 14,600 | 14,600 | 14,600 | 14,600 | 69,350 | ||||||||||||||||||
Backlog | 36,867 | -0- | -0- | -0- | -0- | 36,867 | ||||||||||||||||||
Biomedical Technologies | 45,000 | 60,000 | 60,000 | 60,000 | 60,000 | 285,000 | ||||||||||||||||||
$ | 452,257 | $ | 551,466 | $ | 551,466 | $ | 551,466 | $ | 551,466 | $ | 2,658,121 |
Note 5 – Goodwill
There were no changes in the carrying value of goodwill during the three months ended December 31, 2011.
Note 6 – 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, 100,731 and 2,517,556 common share equivalents were assumed to be outstanding for the three months ended December 31, 2011 and 2010, respectively. In addition, as of December 31, 2011, common stock options of 815,624 shares with exercise prices above current quarterly average market price per share have been excluded from the calculation of earnings per share since their effect is anti-dilutive. The Series C Preferred Stock was converted to common stock on December 21, 2010 thus is not part of the calculations for the three months ended December 31, 2011. The computation of the weighted shares outstanding for the three months ended December 31 is as follows:
December 31, 2011 | December 31, 2010 | |||||||
Weighted average shares outstanding | ||||||||
Basic | 15,583,103 | 12,979,939 | ||||||
Effect of dilutive securities | ||||||||
Stock Options | 100,731 | 663,870 | ||||||
Convertible Preferred Stock | -0- | 1,853,686 | ||||||
Dilutive Average Shares Outstanding | 15,683,834 | 15,497,495 |
9 |
Note 7 - Stock Based Compensation
The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes options pricing model.
December 2, 2010 (Date of most recent grant) | |
Expected term in years | 3 years |
Risk-free interest rate | 3.95% |
Expected volatility | 85.21% |
Expected dividend yield | 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 the 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.
During the three months ended December 31, 2011, no stock options were granted or exercised. During the three months ended December 31, 2011, 10,000 unvested stock options were cancelled with an exercise price of $5.65. For the three months ended December 31, 2011, stock-based compensation charged to operations for option-based arrangements amounted to $36,978. Additionally, during the three months ended December 31, 2011, 37,500 shares of restricted stock vested with a compensation value of $148,325. Total stock compensation charged to operations for the period ended December 31, 2011 was $273,208.
At December 31, 2011, there was approximately $160,467 of total unrecognized compensation expense related to non-exercisable option-based compensation arrangements under the 2010 Stock Incentive Plan.
Note 8 – Segment, Customer and Geographical Reporting
Segment Financial Information
Dynasil’s business breaks down into two segments: products and technology (“Products and Technology”) and contract research (“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 Products and Technology segment manufactures optical materials, components, coatings and specialized instruments used in various applications in the medical, industrial, and homeland security/defense sectors. Our recent new business venture, Dynasil Biomedical Corp. (“Dynasil Biomedical”) is reported within this segment. It has been determined that this new business venture will primarily pursue product commercialization of technologies and technology licensing opportunities, though there can be no assurances that any of these opportunities will become successfully commercialized. Dynasil’s Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Company’s segment information is summarized below:
Three Months Ended | ||||||||
December 31, | ||||||||
Segment | 2011 | 2010 | ||||||
Contract Research | ||||||||
Revenue | $ | 6,215,800 | $ | 6,067,119 | ||||
Income from Operations | 68,954 | 192,946 | ||||||
Income as a percent of revenue | 1.1 | % | 3.2 | % | ||||
Products and Technology | ||||||||
Revenue | $ | 6,182,454 | $ | 5,559,388 | ||||
Income from Operations | 179,698 | 542,768 | ||||||
Income as a percent of revenue | 2.9 | % | 9.8 | % | ||||
Total | ||||||||
Revenue | $ | 12,398,254 | $ | 11,626,507 | ||||
Income from Operations | 248,652 | $ | 735,714 | |||||
Income as a percent of revenue | 2.0 | % | 6.3 | % | ||||
Goodwill | ||||||||
Contract Research | $ | 4,938,625 | $ | 4,754,825 | ||||
Products and Technologies | $ | 8,391,557 | $ | 8,836,462 |
10 |
Customer Financial Information
For the three months ended December 31, 2011 and 2010, the top three customers for the Contract Research segment were each various agencies of the U.S. Government. For the three months ended December 31, 2011 and 2010, these customers made up 78% and 82%, respectively, of Contract Research revenue.
For the Products and Technology segment, there was no customer whose revenue represented more than 10% of the total segment revenue for the three months ended December 31, 2011 and 2010.
Geographic Financial Information
Revenue by geographic location in total and as a percentage of total revenue, for the three months ended December 31, 2011 and 2010 are as follows:
2011 | 2010 | |||||||||||||||
Geographic Location | Revenue | % of Total | Revenue | % of Total | ||||||||||||
United States | 10,028,479 | 80.9 | % | $ | 9,405,637 | 80.9 | % | |||||||||
Europe | 1,392,311 | 11.2 | % | 1,514,286 | 13.0 | % | ||||||||||
Other | 977,464 | 7.9 | % | 706,584 | 6.1 | % | ||||||||||
$ | 12,398,254 | 100.0 | % | $ | 11,626,507 | 100.0 | % |
Note 9 – Business Acquisition – Dynasil Biomedical
On April 14, 2011, Dynasil announced the incorporation of Dynasil Biomedical Corp. as a new business unit to pursue opportunities in the medical field. Through a purchase of assets, Dynasil Biomedical completed the purchase of specific rights to six biomedical technologies invented or co-invented by Dr. Daniel Ericson for $300,000 in cash. Dr. Ericson has joined Dynasil Biomedical as Scientific Lead for research and development. The asset purchase had no impact on the comparative financial information reported above.
Note 10 - Income Taxes
Dynasil Corporation of America and its wholly-owned subsidiaries file a consolidated federal income tax return.
The Company has Research and Experimentation tax credits available at both the state and local levels designed to encourage and reward companies for efforts in the areas of research and experimentation. As of December 31, 2011, the Company has federal and state tax credit carryovers totaling approximately $1,300,000.
The Company’s income tax provision includes a tax benefit of an estimated $113,000 for Research and Experimentation credits attributable to the three months ended December 31, 2011.
As of December 31, 2011 and 2010, the Company had no net operating loss carryforwards to offset future taxable income for federal income tax purposes. However, the Company has approximately $490,000 in net operating loss carryforwards to offset certain future state income taxes expiring through 2026.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s tax filings for federal and state jurisdictions for the years from 2009 to 2011 are still subject to examination.
11 |
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 applies the authoritative provisions related to accounting for uncertainty in income taxes. 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. The Company has 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 December 31, 2011 and 2010. As of December 31, 2011 and 2010, the Company had no unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in interest income tax expense, respectively. The Company currently has no federal or state tax examinations in progress.
Note 11 – Subsequent Events
The Company has evaluated subsequent events through the date that the financial statements were released.
ITEM 2. 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 in the Dynasil Corporation of America ("Dynasil", the "Company" or "we") Form 10-K for the fiscal year ended September 30, 2011.
General Business Overview
Revenue for the first quarter of fiscal year 2012, which ended December 31, 2011, was $12.4 million, an increase of 6.6% compared with revenue of $11.6 million for the quarter ended December 31, 2010. Income from Operations for the quarter was $248,652 compared with $735,714 for the quarter ended December 31, 2010. Income before Taxes for the quarter was $124,495 compared with $577,518 for the quarter ended December 31, 2010. Net Income was $245,067 or $0.02 per share for the quarter ended December 31, 2011, compared with $375,177, or $0.03 per share, for the quarter ended December 31, 2010. Included in our business unit costs were expenses to support our growth initiatives with organic product development of specific product lines within Dynasil Products (previously referred to as RMD Instruments), our dual mode detector commercialization effort and development of Dynasil Biomedical Corp (“Dynasil Biomedical”) technologies, all within our Products and Technology segment. We anticipate the dual mode detector business will produce revenue beginning this fiscal year. Commercialization of technology from our extensive research and development portfolio and acquisitions are expected to be the key drivers of our future growth and we plan to continue to invest in these growth opportunities. At the current time, the Company is actively exploring commercialization opportunities in thin film digital x-rays, sensors for non destructive testing and radiation dosimeters based on technologies developed at Radiation Monitoring Devices, Inc. (“RMD”). We are developing three specific technologies within Dynasil Biomedical with the goal to commercialize or license the most promising opportunities. Provisional patents have been filed. No determination has been made as to the Company’s entry into these market segments; however, we anticipate decisions will be made on these opportunities within fiscal year 2012.
12 |
Results of Operations
Results of Operations for the Three Months Ended December 31, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Contract Research | Products & Technology | Total | Contract Research | Products & Technology | Total | |||||||||||||||||||
Revenue | 6,215,800 | 6,182,454 | 12,398,254 | 6,067,119 | 5,559,388 | 11,626,507 | ||||||||||||||||||
Gross Profit | 2,430,805 | 2,872,413 | 5,303,218 | 2,532,209 | 2,374,515 | 4,906,724 | ||||||||||||||||||
SG&A | 2,361,851 | 2,692,715 | 5,054,566 | 2,339,263 | 1,831,747 | 4,171,010 | ||||||||||||||||||
Operating Income | 68,954 | 179,698 | 248,652 | 192,946 | 542,768 | 735,714 |
Revenue for the three months ended December 31, 2011 was $12,398,254, a 6.6% increase from $11,626,507 for the three months ended December 31, 2010. Revenue from our Contract Research segment (“Contract Research”) increased by 2.5%. Our Products and Technology segment (“Products and Technology”) had revenue growth of 11.2%. The Contract Research segment revenue growth of 2.5% was modest, but heartening in light of current pressures on government research funding. The research backlog is nearly 18 months and increased modestly as well. The Products and Technology segment growth of 11.2% was nearly all organic and was the result of increases for all business units within the segment.
Gross Profit for the three months ended December 31, 2011 was $5,303,218, or 42.8% of sales, a 8.1% increase from $4,906,724, or 42.2% of sales, for the three months ended December 31, 2010. Gross profit declined for the Contract Research segment as a result of higher direct labor costs required for the contract research during the quarter. Gross profit for the Products and Technology segment improved to 46.5% as a percent of sales at December 31, 2011 from 42.7% as a percent of sales for the quarter ended December 31, 2010 as a result of favorable sales mix.
Selling, general, and administrative (“SG&A”) expenses for the three months ended December 31, 2011 were $5,054,566, or 40.8% of sales. This was an increase from SG&A expenses of $4,171,010, or 35.9% of sales, for the three months ended December 31, 2010. The Contract Research segment had a small 1% increase in SG&A. The Products & Technology SG&A grew to 43.6% of sales for the three months ended December 31, 2011 compared to 32.9% for the three months ended December 31, 2010. Included in these costs is Dynasil Products’ initiative to revitalize all product lines with the goal of gaining market share through new product launches. Dynasil Products spent $185,000 on these research and development efforts in the three months ended December 31, 2011. The capital expenditures required for the dual mode crystal production initiative are largely complete. However, there were salaries, development and production costs in the three months ended December 31, 2011. Finally, there was $203,000 in SG&A expenses during the three months ended December 31, 2011 for additional development of the Dynasil Biomedical technologies purchased in April 2011.
Income from Operations for the three months ended December 31, 2011 was $248,652, a decrease of $487,062 from the prior year comparable period. As a percent of sales, the current quarter was 2.0% compared with 6.3% in 2010. The Contract Research segment had lower gross margin and slightly higher SG&A costs resulting in Income from Operations of 1.1% of sales for the three months ended December 31, 2011 compared to 3.2% of sales for the period ended December 31, 2010. The Products and Technology segment had Income from Operations of $179,698 or 2.9% of sales for the three months ended December 31, 2011, compared with $542,768 or 9.8% of sales for the three months ended December 31, 2010. Dynasil Biomedical experienced expenses during the quarter of $203,000 and Dynasil Products had $185,000 in new organic product development costs.
Net interest expense for the three months ended December 31, 2011 was $124,157, compared with $158,196 for the three months ended December 31, 2010. Debt was reduced by $1,869,000 to $10,370,011 at December 31, 2011 from $12,239,000 at December 31, 2010.
The Company recognized a tax benefit of $120,572 for the three months ended December 31, 2011 in recognition of specific state tax losses and current period Research and Experimentation tax credits.
Net Income for the three months ended December 31, 2011 was $245,067, or $0.02 in basic earnings per share, compared with $375,177, or $0.03 in basic earnings per share, for the quarter ended December 31, 2010.
13 |
Liquidity and Capital Resources
Cash decreased by $1,742,416 for the three months ended December 31, 2011 to $2,737,424. The primary sources of cash were net income of $245,067, non-cash stock compensation expense of $273,208 and depreciation and amortization of $370,347. These items totaled $888,622. There was a large increase in accounts receivable of $1,650,115 during the three months ended December 31, 2011. December 2011 revenues were high and collections on the accounts receivable had not yet occurred. An increase in the provision for doubtful accounts was recorded of $60,970. Days Sales Outstanding (DSO) increased to 56.4 days at December 31, 2011 from 46.1 days at the beginning of the year. Both segments had increases resulting from the high December revenues. Inventories declined by $272,350 and inventory turns improved to 4.6 turns from 4.0 turns at September 30, 2011 as a result of higher volumes in December drawing down inventories. Inventories are all within the Products and Technology segment. In total, net cash used by operating activities was $780,126. Cash used for the purchase of property, plant and equipment was $405,341. Payments on long term debt were $475,159 as part of regular scheduled payments to Sovereign Bank under the five year Term Debt and Acquisition Line of Credit.
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 twelve months. As of December 31, 2011, the Company had cash of $2,737,424 and available bank line of credit borrowings of $4 million, made up of $3 million available under a working capital line of credit and an additional $1 million remaining available under an acquisition line of credit. The current $3 million working capital line of credit with Sovereign/Santander Bank is scheduled to terminate on July 7, 2012. There are no borrowings under this line of credit and management is in discussions with Sovereign/Santander Bank to extend the termination date. However, there can be no assurance that we will be able to extend the termination on favorable terms, or at all. From July 1, 2010 until June 30, 2012, the former owners of RMD Instruments, LLC may tender to the Company up to 1,000,000 shares of Dynasil common stock at a repurchase price of $2.00 per share, which could require the Company to make cash payments of up to $2.0 million.
The Sovereign Bank Loan Agreement also contains other terms, conditions and provisions that are customary for commercial lending transactions of this sort. The Bank Loan Agreement requires Dynasil to maintain compliance at all times and report at the end of each fiscal quarter a Consolidated Maximum Leverage Ratio (Total Funded Debt to EBITDA, as defined in the Bank Loan Agreement) not to exceed 3 to 1 and a Fixed Charge Coverage Ratio of at least 1.2 to 1. The Bank Loan Agreement also provides for events of default customary for credit facilities of this type, including, but not limited to, non-payment, breach of covenants, insolvency and defaults on other debt.
The Company was in compliance with all covenants under the Sovereign Bank Loan Agreement at December 31, 2011. We believe that the Company will remain in compliance and maintain access to the Bank lines of credit. However, this belief is based upon many assumptions including the general business climate. A reoccurring worldwide economic slow-down could significantly impact the Company’s revenues and profits so that a returning recession could cause a cash shortage.
Strategy to Commercialize our Advanced Technology
Our principal business strategy is to employ our contract research, product development and technological capabilities to establish leading positions in markets including homeland security, industrial and medical. We believe that we can achieve this strategy by: 1) developing and expanding our research portfolio; 2) commercializing the technologies coming from our Contract Research segment; 3) growing organically through investment in existing products; 4) acquiring new technologies or pathways to market to help accelerate commercialization of our technologies into our primary security and medical markets; and 5) identifying and investing in those technologies with the greatest revenue and growth potential in the market.
To achieve our strategy we are focusing on:
· | Building a strong team of business and marketing leadership; |
· | Increasing our effectiveness across the organization through a series of operational initiatives, enabling us to expand into new product lines and penetrate new markets; |
· | Further strengthening our technology pipeline by expanding business development and by enhancing our intellectual property estate; and |
14 |
· | Executing a focused acquisition strategy that leverages our research and technology expertise and aligns acquisition dollars with projects closest to field readiness. |
Contract Research – the Science Behind our Technology
Our Contract Research business unit, RMD, is among the largest small business participants in U.S. government-funded research, performing research and development activities for government agencies including Department of Energy, Department of Defense, Department of Homeland Security, Domestic Nuclear Detection Office, National Institutes of Health, and NASA.
RMD develops advanced technology in materials, sensors and prototype instruments
that detect, use or measure radiation, light, magnetism or sound for use in security, medical and industrial applications. RMD
Research has technology practices in material science, radiation detection, digital imaging technology, magnetic imaging, laser
optics and photonics.
For more than 25 years, RMD Research has successfully conducted government research under the auspices of the Small Business Innovation Research (“SBIR”) program. In recent years, RMD has augmented its SBIR research with larger, competitively bid government research and development contracts. To grow our research portfolio within the federal government, we are broadening our relationships within key federal funding agencies and the U.S. military. Our research initiatives are aligned with our focus on the homeland security, medical and industrial markets. As of December 31, 2011, RMD had a contract backlog of approximately 18 months.
We believe that research projects provide an important source for new commercial products in areas such as medical imaging, industrial sensors, critical care and point of care diagnostics and homeland security. For example, precision instrumentation in our Products & Technology segment, including our lead paint analyzer and a medical probe for cancer surgery, emanated from the RMD portfolio. Our government-funded research work also has spawned programs such as our dual-mode radiation detection technology.
Intellectual Property
During FY 2011, we were granted five new U.S. patents and have filed 25 new patent applications. Our current portfolio is 40 issued and 40 pending applications. We believe that intellectual property represents an important strategic advantage for us. As a result, we recently established a patent committee to help broaden the value of our intellectual property estate. The committee is strengthening the identification of intellectual property within the Company by implementing a broad based vetting process to specifically understand product definition, technical maturity, the value proposition, competition, and market size to ensure that we develop IP that maximizes the market value of our research. This is consistent with our strategy and will allow us to protect selected technologies that we believe have commercial potential – either through product offerings or licensing agreements.
Products & Technology – Bringing Technology to Market
Our Products & Technology segment includes six business units that manufacture specialized precision instruments, optical materials,
components, and coatings for various applications in the medical, industrial, and homeland security/defense sectors.
The largest business unit within our Products & Technology segment manufactures precision instruments such as handheld lead paint analyzers, medical probes that help surgeons detect cancer tracers, thereby enabling more effective surgical procedures, and a radiation imaging camera system. Previously referred to as RMD Instruments, this business unit has been renamed Dynasil Products.
During the fiscal year ended September 30, 2011, we continued investments in our pipeline of commercial product opportunities in homeland security and medical technology. Our Products & Technology businesses are helping to fund the commercial launch of our dual mode detector as well as evaluation, development and testing of certain assets within our biomedical technology portfolio.
We have begun to implement a Product Realization Process designed to support the evaluation, assessment, development and commercialization
of our technologies. Concurrently, we will be screening technologies with this tool to develop Dynasil’s pipeline of commercial
technology opportunities. This process also will serve to identify licensing or acquisition opportunities to help speed our offerings
to market.
15 |
In conjunction with our Product Realization Process, we are building the foundation for an enhanced product development, engineering and management capability within Dynasil for those technologies that we choose to commercialize. This process also effectively provides a single resource to evaluate our design for manufacturability, contract manufacturing pathways, cost of goods and pricing, as well as our launch and distribution strategies.
These initiatives will be managed within our Dynasil Products business unit as it will be the commercial engine for the company
generating income through organic programs and technology licensing opportunities.
Dynasil is also investing in organic product development in 2012. Guided by our product realization process, our product development team is undertaking simultaneous and extensive product line updates to improve features and functionality on our lead paint analyzer, medical probe and radiation imaging camera.
Product Pipeline
One of our current commercialization programs is our dual mode radiation detection technology. Our dual mode technology was developed by RMD under a program for the Department of Homeland Security for use in locating nuclear bombs or nuclear materials at our nation’s ports and borders. This technology is of critical importance to our national security, as well as other radiation detection applications, such as nuclear power plant safety.
Our dual mode detector technology is designed to be a single detector that replaces two detector subsystems – the gamma radiation
detector and also the helium-3 detectors for neutrons. Increasing our value proposition is the fact that the stockpile of the chemical
element helium-3, a byproduct of nuclear weapons production, is in critically short supply. The stockpile of helium-3 has been
drawn down over the past ten years, as the federal government has increased its use in neutron detectors to help prevent nuclear
and radiological material from being smuggled into the U.S.
In order to accelerate the pace of this technology to market, and to establish manufacturing capacity, in July 2010 we acquired
Hilger Crystals, a leading manufacturer of scintillation crystals based in Margate, Kent, U.K. During the 2011 fiscal year, our
specialized furnaces began pilot production of our proprietary scintillation crystals. Additional furnaces have been fabricated
and tested and we plan to install and commission them in the first half of 2012.
Potential applications for our synthetic crystals include homeland security, baggage scanning, medical imaging, oil exploration
and military. During the fourth quarter of 2011, we made progress during developing commercial relationships with lead original
equipment manufacturer (“OEM”) customers to make the dual mode technology available to several markets. We expect to
deliver our dual mode detectors to OEM customers for beta testing with early adopters and begin to produce revenue in fiscal year
2012.
As part of our product pipeline review, we are continuing our efforts to evaluate additional promising technologies with commercial potential in the security, medical and industrial markets as we put our product realization process in place. Early stage opportunities currently under evaluation include dosimeters, thin film digital x-rays, sensors for non-destructive testing and certain biomedical technologies.
· | Dosimeters: We are developing compact, low cost radiation badges (dosimeters) for potential military, industrial, medical and consumer applications. The project is being funded by the DOD’s Defense Threat Reduction Agency. We have partially completed shipments of 150 prototypes for field evaluation. The Company is researching the potential customer base and marketability of this potential product. According to Introductory Profile 2010 on dosimetryimaging.com, the total dosimeter market size is currently about $500 million. |
· | Thin film digital X-rays: RMD Research is developing a family of thin film scintillators that – as a component – make possible digital X-ray detectors with higher image resolution and faster rates of image capture, all at a lower effective X-ray dose to the patient. Thicker variations of these films offer promise of lower-cost, higher-performance substitutes for use in CT, SPECT and PET imaging system detectors for medical, industrial and domestic security applications. An August 2011 report by Nanomarkets LC indicated that the area of thin film scintillators used is expected to grow from 72 million cm² in 2011 to 258 million cm² in 2018. According to the PET/SPECT Report dated November 10, 2010 from the firm Markets and Markets, the market for PET/SPECT imaging systems – of which our technology is a component -- is expected to grow from $6.8 billion in 2010 to $10.3 billion in 2015. |
16 |
· | Sensors for non-destructive testing: We are developing a product with an enhanced capability to detect cracks in high value components such as aircraft wings and jet engine turbine blades at a higher rate of speed. Unlike conventional probes that use hand wound coils, our advanced technology uses solid state sensors with high sensitivity to magnetic fields and low noise characteristics. When fully developed, this emerging technology could dramatically improve the ability and speed to inspect high value components. During the fourth quarter of 2011, we reached agreement to co-develop and evaluate the advanced technology on aircraft engine applications with an early adopter customer. |
· | Biomedical technologies: In April 2011, we acquired the rights to six biomedical technologies from Dr. Daniel Ericson, a former hematologist at the Mayo Clinic, which jointly owns rights to certain of the technologies acquired. The six purchased technology rights include a method that could significantly extend the storage time for red blood cells as well as enhancing the quality of those cells, a tuberculosis test with the potential to provide a rapid (one hour) test, a high tensile strength tissue sealant developed for both topical and internal bleeding that could accelerate clot formation, and a set of technologies focused on point of care diagnostics for assessing hemophilia, blood coagulation and cardiovascular risk. The Dynasil Biomedical technology portfolio will be managed by and become part of our Dynasil Products business unit which already has a presence and a proven track record in medical diagnostics. We will seek opportunities to license these technologies as well as obtain research grants with the Mayo Clinic to advance several of the development-stage technologies for various therapeutic applications. |
All of these technologies are in early stages of development and may require significant investment to support further development, regulatory approval and commercialization. While Dynasil currently believes that these technologies represent exciting opportunities, there can be no assurances that any of these technologies will be successfully commercialized.
Strategic Acquisition Targets
We are focused on completing new acquisitions in the homeland security, medical and industrial markets, where the Company has core competencies. Future acquisition targets will include businesses that enable us to acquire advanced products or technologies to expand our product portfolio, or to gain complementary capabilities, such as manufacturing and distribution, for our current businesses and for technologies originating from the Company’s research engine.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2011. We have not adopted any accounting policies since September 30, 2011 that have or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see the “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 as well as the notes in this Form 10-Q.
The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Revenue Recognition
Revenue from sales of products is recognized at the time title and the risks and rewards of ownership pass. Revenue from research and development activities is derived generally from the following types of contracts: reimbursement of costs plus fees, fixed price or time and material type contracts. Revenue is recognized when the products are shipped per customers’ instructions, the contract has been executed, the contract or sales price is fixed or determinable, delivery of services or products has occurred and the Company’s ability to collect the contract price is considered reasonably assured.
17 |
Government funded services revenues 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 contracts’ fixed fees. Revenue from fixed-type contracts is 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 is taken as soon as the loss is reasonably determinable. The Company has no current accrual provision for potential losses on existing research projects based on Management expectations as well as historical experience.
The majority of the Company’s contract research 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 Company believes that the results of such audits will not have a material adverse effect on its financial position or its results of operations.
Valuation of Long-Lived Assets, Intangible Assets and Goodwill
Goodwill
Goodwill and intangible assets which have indefinite lives are subject to annual impairment tests. Goodwill is tested by reviewing the carrying value compared to the fair value at the reporting unit level. Fair value for the reporting unit is derived using the income approach. Under the income approach, fair value is calculated based on the present value of estimated future cash flows. Assumptions by management are necessary to evaluate the impact of operating and economic changes and to estimate future cash flows. Management’s evaluation includes assumptions on future growth rates and cost of capital that are consistent with internal projections and operating plans.
The Company generally performs its annual impairment testing of goodwill during the fourth quarter of its fiscal year, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company tests impairment at the reporting unit level using the two-step process. The Company’s primary reporting units tested for impairment are RMD, which comprises our Contract Research segment, Dynasil Products (previously known as RMD Instruments), which is a component of our Products and Technology segment, and Hilger Crystals, also a component of our Products and Technology segment.
Step one of our impairment testing compares the carrying value of a reporting unit to its fair value. The carrying value represents the net book value of the net assets of the reporting unit or simply the equity of the reporting unit if the reporting unit is the entire entity. If the fair value of the reporting unit is greater than its carrying value, no impairment has been incurred and no further testing or analysis is necessary. The Company estimates fair value using a discounted cash flow methodology which calculates fair value based on the present value of estimated future cash flows. Estimating future cash flows requires significant judgment and includes making assumptions about projected growth rates, industry-specific factors, working capital requirements, weighted average cost of capital, and current and anticipated operating conditions. Assumptions by management are necessary to evaluate the impact of operating and economic changes. The Company’s evaluation includes assumptions on future growth rates and cost of capital that are consistent with internal projections and operating plans. The use of different assumptions or estimates for future cash flows could produce different results. The Company regularly assesses the estimates based on the actual performance of our reporting units.
If the carrying value of a reporting unit is greater than its fair value, step two of the impairment testing process is performed to determine the amount of impairment to be recognized. Step two requires the Company to estimate an implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill. An impairment then exists if the carrying value of the goodwill is greater than the goodwill’s implied fair value. With respect to the Company's annual goodwill impairment testing performed during the fourth quarter of fiscal year 2011, step one of the testing determined the estimated fair values of RMD Research and Hilger Crystals substantially exceeded their carrying values by more than 20%. The estimated fair value of the Dynasil Products (formerly known as RMD Instruments) reporting unit narrowly exceeded its carrying value. Therefore, the Company undertook a step two analysis by performing essentially a new purchase price allocation as of the date of the impairment test. Values were determined of both originally recognized assets and any new assets that may have been unrecognized at the time of the original transaction, but were developed between the acquisition date and the test date. The result was confirmation that the new residual value of goodwill was higher than the carrying value. Accordingly, the Company concluded that no impairment had occurred and no further testing was necessary.
18 |
Intangible Assets
The Company’s 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 Radiation Monitoring Devices, Inc. and provisionally patented technologies within Dynasil Biomedical Corp. The Company amortizes its intangible assets with definitive lives over their useful lives, which range from 4 to 15 years, based on the time period the Company expects to receive the economic benefit from these assets. No impairment charge was recorded during the periods ended December 31, 2011 and 2010.
Impairment of Long-Lived Assets
The Company’s long-lived assets include property, plant and equipment and intangible assets subject to amortization. The Company evaluates long-lived assets for recoverability whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. The Company reviewed its long-lived assets and determined there was no impairment charge during the periods ended December 31, 2011 and 2010.
Allowance 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.
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.
19 |
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity. All non-owner changes in shareholders’ equity instead must be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is to be adopted retrospectively and will be effective for annual periods beginning after December 2011. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial position, results of operations, or cash flows, as the guidance only changes the presentation of financial information. In December 2011, the FASB issued ASU 2011-12 deferring the effective date for implementation of ASU 2011-05 related only to reclassification out of accumulated other comprehensive income until a later date to be determined after further consideration by the FASB.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” ASU No. 2011-08 provides companies an option to perform a qualitative assessment to determine whether further goodwill impairment testing is necessary. If, as a result of the qualitative assessment, it is determined that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, the two-step quantitative impairment test is required. Otherwise, no further testing is required. ASU No. 2011-08 will be effective for the Company for goodwill impairment tests performed in the fiscal year ending September 30, 2013, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management, including, without limitation, our expectations regarding results of operations, the commercialization of our products including our dual mode detectors, our development of new technologies including at Dynasil Biomedical, the adequacy of our current financing sources, our capital expenditures and the strength of our intellectual property portfolio. 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. 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, 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 this 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.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk.
Dynasil, as a smaller reporting company, is not required to complete this item.
ITEM 4 Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report and have determined that, as of such date, such disclosure controls and procedures are effective.
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with this evaluation that occurred during our last fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
20 |
PART II – OTHER INFORMATION
ITEM 6 Exhibits
(a) Exhibits and index of Exhibits
10.1 Separation Agreement dated November 22, 2011 between the Company and Gerald Entine.
10.2 Form of Dynasil Corporation of America Indemnification Agreement with each Director and CEO, CFO and Corporate Secretary.
31.1(a) Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1(b) Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Section 1350 Certification pursuant to Section 906 of the Sarbanes-OxleyAct of 2002(furnished but not filed for purposes of the Securities Exchange Act of 1934)
99.1 Press release, dated February 14, 2012 issued by Dynasil Corporation of America announcing its financial results for the quarter ended December 31, 2011.
101** The following materials from Dynasil Corporation of America’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of December 31, 2011 and September 30, 2011, (ii) Consolidated Statements of Operations for the three months ended December 31, 2011 and 2010, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three months ended December 31, 2011; (iv) Consolidated Statements of Cash Flows for the three months ended December 31, 2011 and 2010, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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, thereunto duly authorized.
DYNASIL CORPORATION OF AMERICA
BY: /s/ Steven K. Ruggieri | DATED: February 14, 2012 |
Steven K. Ruggieri,
President and Chief Executive Officer
/s/ Richard A. Johnson | DATED: February 14, 2012 |
Richard A. Johnson,
Chief Financial Officer
21 |
SEPARATION AGREEMENT
This Separation Agreement (this “Agreement”), dated as of November 16, 2011, is entered into by and between Dynasil Corporation of America for itself and/or on behalf of any of its wholly-owned subsidiaries (collectively, the “Company”) and Dr. Gerald Entine, individually (the “Executive”).
RECITALS
WHEREAS, the Company and the Executive entered into an Employment Agreement as of July 1, 2008 (the “Employment Agreement”), which expired on January 1, 2010, and from such expiration the Executive has been an employee at will of the Company serving as the President of RMD Research, a division of the Company; and
WHEREAS, the Company and the Executive wish to provide for the termination of the Executive’s employment with the Company and his retirement from the Board of Directors under the terms and conditions set forth below.
NOW THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Executive do hereby covenant and agree as follows:
1. Termination of Employment.
1.1 Termination. The Company and the Executive each acknowledge and agree to the termination of the Executive’s employment with the Company as of November 30, 2011 (the “Separation Date”). Subject to the limited exceptions set forth in next sentence of this Section 1.1, from the Separation Date through March 31, 2012, the Executive will not enter the premises of the Company, including, without limitation, its offices at 44 Hunt Street, Watertown, Massachusetts, without the advance written approval of the Chairman of the Board of Directors of the Company (the “Chairman”) or the President of the Company. Notwithstanding the foregoing, the Executive may enter the premises of 44 Hunt Street, Watertown, Massachusetts solely in his capacity as a representative of Charles River Realty, the landlord of the Leases (as defined below) for business matters solely and directly related to the Leases, provided that such access complies with Section 15 and other terms of the Leases and the Executive must provide the President of the Company with advance written notice of at least one (1) business day prior to such access and must adhere to all applicable Company policies, procedures and directions during such access. Upon the request of the Chairman only, the Executive may enter into a consulting agreement with the Company on terms to be mutually agreed upon by the parties.
1.2 Severance Pay and Continuation of Certain Benefits; Accrued Obligations.
1.2.1 | Severance Pay and Continuation of Certain Benefits. Provided that the Executive signs and returns the irrevocable general release set forth as Exhibit A and subject to the continued compliance with the covenants set forth in this Agreement, from the Separation Date until December 31, 2012, the Company shall continue (i) to pay the Executive an amount of money equal to his current annual salary of $325,000, in accordance with its normal payroll practices and less legally required deductions, Executive’s contributions toward group benefits and those other deductions authorized by the Executive in writing (“Severance Pay”), and (ii) to provide to the Executive (and his eligible dependents) group health and dental benefits maintained or sponsored by the Company immediately prior to the Separation Date, at the same level and subject to terms at least as favorable to the Executive as in effect immediately prior to the Separation Date. Thereafter, the Company will respect the Executive’s rights, if any, to continued coverage, at his sole expense, under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). |
1.2.2 | Accrued Obligations. In addition to the foregoing, the Company shall pay or provide to the Executive all of the following (collectively the “Accrued Obligations”), reduced by any applicable withholding taxes: |
(a) | any accrued but unpaid base salary through the Separation Date, such amount to be paid on the Separation Date; |
(b) | any unpaid or unreimbursed expenses to which the Executive is entitled to reimbursement in accordance with normal Company policies; |
(c) | any benefits accrued under or pursuant to the Company’s 401(k) plan or any of the Company’s other employee benefit plans, payable at such times as provided under those plans; |
(d) | rights to indemnification by virtue of the Executive’s position as an officer or director of the Company or its subsidiaries and the benefits under any director’s and officer’s liability policy maintained by the Company, in accordance with the terms thereof. |
The Executive acknowledges that he has no accrued but unpaid vacation time through the Separation Date.
1.2.3 | No Additional Benefits. Other than the Severance Pay and the continuation of welfare benefits and the Accrued Obligations, each as set forth in this Agreement, the Executive acknowledges that he is not entitled to receive any separation pay or severance benefits under any plan, program or policy of the Company, including its parent, subsidiaries, affiliates, predecessors, successors and assigns. |
-2- |
2. Settlement of Lease Matter Between Radiation Monitoring Devices, Inc. and Charles River Realty, dba Bachrach, Inc. On the Separation Date, the Executive shall pay, or shall cause Charles River Realty, dba Bachrach, Inc. (“CRR”), to pay the Company the amount of $52,000 (the “Lease Settlement”), in addition to the $75,000 that CRR credited as rental payment as of September 11, 2011 on behalf of Radiation Monitoring Devices/RMD Instruments Corp. (collectively, “RMD”) with respect the leases at 44 Hunt Street, Watertown, Massachusetts (the “Leases”). The Lease Settlement shall resolve the dispute between the Company and CRR with respect which party bears the cost of the parking lot expenditures incurred in 2011 under Sections 11 and 12 of the Leases (the “Parking Lot Expenditures”).
3. Nondisclosure. Executive agrees to hold in strictest confidence, and not to use or to disclose to any person, firm, corporation, or organization without written authorization of the Board of Directors or President/CEO of Company, any Confidential Information of Company. Executive understands that “Confidential Information” means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of Company on whom Executive called or with whom Executive became acquainted during the term of Executive’s employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to the Executive by Company either directly or indirectly in writing, orally or by drawings or observation of parts or equipment. The parties understand that Confidential Information does not include any of the foregoing items that have become publicly known and made generally available through no wrongful act of Executive or of others who were under confidentiality obligations as to the item or items involved. In the event that Executive required by law to disclose any Confidential Information, Executive will give Company prompt advance written notice thereof and will provide Company with reasonable assistance in obtaining an order to protect the Confidential Information from public disclosure.
4. Return of Property. On or before the Separation Date, the Executive shall return all property belonging to Company, including but not limited to computers, papers, files, documents, reference guides, equipment, keys, access key tag/card, identification cards, credit cards, software, computer access codes, disks, supplies and institutional manuals, and the Executive shall not retain any copies, duplicates, reproductions or excerpts of any of the foregoing, whether in hardcopy, electronic or any other format. To the extent the Executive has any Company property stored in electronic format on the Executive’s personal home computer(s) or other personal electronic storage device(s), the Executive shall forward a copy of such property to Patty Kehe at pkehe@dynasilcorp.com and then shall irretrievably delete such property from the Executive's personal home computer or other electronic storage device(s) on or before the Separation Date.
-3- |
5. Nonsolicitation; Noncompetition; Cooperation with Litigation.
5.1 Nonsolicitation. To the extent permitted by law, the Executive agrees that beginning on the Separation Date and ending on December 31, 2012, the Executive shall not either directly or indirectly (i) solicit, induce, recruit or encourage any of the Company’s employees or consultants to leave their employment or cease consulting for Company, or take away any such employees or consultants, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of Company, either for himself or for any other person or entity, (ii) cause or attempt to cause any existing customer of the Company to divert, terminate, limit, modify adversely or not enter into any business relationship with the Company, or (iii) approach, contact or solicit any existing or potential partner of the Company, in an attempt to enter into a similar partnership as the one then currently in place between the Company and such partner, or offering to enter into an arrangement that would effectively eliminate or replace the then existing Company - partner relationship.
5.2 Noncompetition. To the extent permitted by law, the Executive agrees that beginning on the Separation Date and ending on December 31, 2012, the Executive shall not either directly or indirectly engage in (whether as an employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in the financing, operation, management or control of, any person, firm, corporation or business that engages in or proposes to engage in a business competitive with any business in which Company was engaged during the term of the Executive’s employment or in which, during the term of the Executive’s employment, the Company proposed to later become engaged. Notwithstanding the foregoing, the parties acknowledge that the Executive may engage in Small Business Innovation Research (SBIR) or other similar research projects in areas in which the Company is not currently engaged or in which, during the term of Executive’s employment, the Company did not propose to later become engaged. The scope of the covenant set forth in this Section 5.2 shall be worldwide. The Executive acknowledges that Company’s technology and products have worldwide application, including without limitation over the Internet, and that such scope is reasonable. It is agreed that ownership of no more than 2% of the outstanding voting stock of a publicly traded corporation shall not constitute a violation of this provision.
5.3 Cooperation with Litigation. The Executive agrees that he will cooperate fully with the Company in connection with any existing or future litigation and investigations against the Company, whether administrative, civil, or criminal in nature, and to the extent that the Company deems his cooperation necessary. The Company agrees that any requests for the Executive’s cooperation made pursuant to this Section will be made in good faith, and to the extent possible, the Company will provide reasonable notice of the need for such cooperation and will make a good faith effort to accommodate the Executive’s reasonable scheduling needs in coordinating such cooperation. The Company shall reimburse the Executive for all reasonable expenses (including reasonable attorney’s fees and costs) incurred consistent with Company policy (other than legal fees), for any such assistance provided by Executive pursuant to this Section 5.3 after the Separation Date.
-4- |
6. Standstill. From the date of this Agreement until September 30, 2012, unless the Company’s Board of Directors shall otherwise consent in advance, Executive will not (and Executive will not assist or encourage others) directly or indirectly, (i) acquire or offer to acquire, seek, propose or agree to acquire, by means of a purchase, agreement, business combination or in any other manner, beneficial ownership of any securities or assets of the Company, including rights or options to acquire such ownership, (ii) seek or propose to influence, advise, change or control the management, Board of Directors, governing instruments or policies or affairs of the Company, including, without limitation, by means of a solicitation of proxies (as such terms are defined in Rule 14a-1 of Regulation 14A promulgated pursuant to Section 14 of the Securities Exchange Act of 1934 (the “Exchange Act”), disregarding clause (iv) of Rule 14a-1(l)(2) and including any exempt solicitation pursuant to Rule 14a-2(b)( 1) or (2)), or seeking to influence, advise or direct the vote of any holder of voting securities of the Company, (iii) enter into any discussions, negotiations, arrangements or understandings with any third party with respect to the foregoing, or (iv) publicly disclose any intention, plan or arrangement to do any of the foregoing.
7. Nondisparagement. Executive agrees not to make or publish disparaging statements of any kind (whether written or oral) regarding the Company, its subsidiaries, related and affiliated companies and entities, or their respective present or past shareholders, directors, officers, or employees. The Company agrees not to make or publish disparaging statements of any kind (whether written or oral) about the Executive. Following September 30, 2012 if the Executive engages in any of the activities specified in Section 6, the parties acknowledge that engaging in such activities of and in themselves shall not constitute disparagement, provided that any related statements by the Executive are truthful.
8. General.
8.1 Equitable Remedies. The Executive agrees that it would be impossible or inadequate to measure and calculate Company’s damages from any breach of the covenants set forth herein. Accordingly, the Executive agrees that if he breaches any of such covenants, the Company will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such covenant of this Agreement. The Executive further agrees that no bond or other security shall be required in obtaining such equitable relief and hereby consents to the issuance of such injunction and to the ordering of specific performance.
8.2 Severability. The provisions of this Agreement are severable. If any provision of this Agreement is held invalid, the invalidity of such provision shall not affect other provisions of this Agreement.
-5- |
8.3 Non-Assignable. The terms of this Agreement shall be binding upon the parties hereto and their respective heirs, successors and assigns, provided that no Severance Pay shall be payable to the estate of the Executive in the event of the Executive’s death. Neither this Agreement nor any rights or interests hereunder shall be assignable by the Executive, his beneficiaries or legal representatives without the Company’s prior written consent.
8.4 No Admission. The execution of this Agreement does not represent and shall not be construed as an admission of a violation of any statute or law or breach of any duty or obligation by either the Executive or the Company.
8.5 Entire Agreement. This Agreement represents the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior understandings, written or oral, including the Employment Agreement. The terms of this Agreement may be changed, modified or discharged only by an instrument in writing signed by each of the parties hereto.
8.6 Counterparts; Signatures by Fax. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures sent by fax or PDF file shall constitute originals.
8.7 Governing Law. This Agreement shall be construed, enforced and interpreted in accordance with and governed by the laws of the State of Massachusetts, without reference to its principles of conflicts of law, except to the extent that federal law shall be deemed to preempt such state laws.
8.8 Confidentiality. This Agreement is confidential and neither the Agreement nor any of its terms or contents shall be made public by the Executive or the Company or otherwise disclosed by the Executive to any person other than his immediate family, or by the Executive or the Company to his or its, attorney, tax advisor or accountant, except as required by law, government or stock exchange regulation, or if necessary to enforce this Agreement.
[SIGNATURE PAGE TO FOLLOW]
-6- |
IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Company have executed this Agreement as of the date first written above.
DYNASIL CORPORATION OF AMERICA | ||
By: | ||
Title: | ||
EXECUTIVE | ||
Dr. Gerald Entine |
CHARLES RIVER REALTY (DBA BACHRACH, INC.),
solely with respect to Section 2 hereof
By:____________________________
Name: Dr. Gerald Entine
Title:
Signature Page for Separation Agreement
-7- |
Exhibit A
GENERAL RELEASE
I, Gerald Entine, individually, in consideration of and subject to the performance by Dynasil Corporation of America (the “Company”), of its obligations under the Separation Agreement by and between the Company and myself dated as of November 16, 2011 (the “Agreement”), do hereby release and forever discharge as of the date hereof, the Company and any of its respective present and former subsidiaries and affiliates and all present and former managers, directors, officers, agents, representatives, employees, successors and assigns of the Company, and its respective subsidiaries, affiliates and direct or indirect equityholders of the Company (collectively, the “Released Parties”) to the extent provided below.
1. | I understand that any payments or benefits paid or granted to me under paragraph 1.2 of the Agreement represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand that I will not receive the payments and benefits specified in paragraph 1.2 of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release. I also acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company and service as member of the Board of Directors of the Company. |
2. | Except as provided in paragraph 4 below and except for the obligations of the Company under the Agreement, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, individually, and on behalf of any of my heirs, executors, administrators or assigns, may have or are connected with any matter or thing relating in any way to my employment by the Company and/or my service as member of the Board of Directors of the Company that has occurred prior to my signing this General Release, including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Rehabilitation Act of 1973; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress or defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”). |
-8- |
3. | For the avoidance of doubt: (A) this General Release is given by me, individually (and on behalf of my heirs, executors, administrators or assigns as and to the extent expressly provided in paragraph 2 above), and not by me on behalf of any other person or entity in any representative or other capacity whatsoever, whether legal or beneficial, and (B) without limiting the foregoing, the term “Claims” expressly excludes: (i) any and all rights that the Gerald Entine 1988 Family Trust may have solely in its capacity as a member of RMD Instruments, LLC, Massachusetts limited liability (“Seller”) pursuant to Section 1.4(c) of the Asset Purchase Agreement dated July 1, 2008 by and among the Company, RMD Instruments Corp., a Delaware corporation and a wholly-owned subsidiary of the Company, Seller, Gerald Entine 1988 Family Trust and the other Principal Members identified therein; (ii) without limiting the provisions of Section 2 of the Agreement, any and all rights of CRR under the Leases relating to the premises located at 44 Hunt Street, Watertown, Massachusetts, other than with respect to the Parking Lot Expenditures which are addressed by Section 2 of the Agreement; (iii) any defenses which I may have to any subsequent claim asserted against me by the Company, including, without limitation, any relating in any way to my employment by the Company and/or my service as member of the Board of Directors of the Company; and/or (iv) any rights to indemnification that the Executive may have by virtue of the Executive’s position as an executive officer and/or director of Company or its subsidiaries. |
4. | I agree, and it is understood, that this General Release does not limit my right to file, cooperate with or participate in an age discrimination proceeding before a state or federal fair employment practices agency provided Employee does not recover any monetary benefits in such proceeding. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967). |
5. | I represent that I have not filed any claim against the Company in any forum up to the date of this General Release. |
6. | I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct. |
7. | I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone. |
8. | Whenever possible, each provision of this General Release shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. |
-9- |
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE AS FOLLOWS:
9. | I HAVE READ THIS GENERAL RELEASE CAREFULLY; |
10. | I UNDERSTAND ALL OF TERMS OF THIS GENERAL RELEASE AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED; |
11. | I VOLUNTARILY CONSENT TO EVERYTHING IN THIS GENERAL RELEASE; |
12. | I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING THIS GENERAL RELEASE AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION; |
13. | I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON NOVEMBER 8, 2011 TO CONSIDER IT; |
14. | I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS GENERAL RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED; |
15. | I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO HERETO; AND |
16. | I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME. |
Dr. Gerald Entine | |
Date: |
-10- |
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of ________ __, 20__ by and between Dynasil Corporation of America, a Delaware corporation (the "Company"), and ______________ ("Indemnitee"). This Agreement supersedes and replaces any and all previous Agreements between the Company and Indemnitee covering the subject matter of this Agreement.
RECITALS
WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as [directors] [officers] or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the By-laws of the Company (the “By-laws) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the "DGCL"). The By-laws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
WHEREAS, Indemnitee does not regard the protection available under the By-laws and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and
-1- |
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company. Indemnitee agrees to serve [as a [director] [officer] [employee] [agent] of the Company] [, at the request of the Company, as a [director] [officer] [employee] [agent] [fiduciary] of [another corporation, partnership, joint venture, trust or other enterprise]. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Certificate of Incorporation, the Company's By-laws, and the DGCL. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve [as an [officer] [director] [agent] [employee] of the Company] [, at the request of the Company, as a [director] [officer] [employee] [agent] [fiduciary] of [another corporation, partnership, joint venture, trust or other enterprise], as provided in Section 16 hereof.
Section 2. Definitions. As used in this Agreement:
(a) References to “agent” shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of the Company or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company.
(b) A "Change in Control" shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
i. Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities unless the change in relative Beneficial Ownership of the Company's securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;
ii. Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
-2- |
iii. Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
iv. Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; and
v. Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.
For purposes of this Section 2(b), the following terms shall have the following meanings:
(A) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(B) "Person" shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(C) "Beneficial Owner" shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(c) "Corporate Status" describes the status of a person who is or was a director, officer, employee or agent of the Company or of any other corporation, limited liability company, partnership or joint venture, trust or other enterprise which such person is or was serving at the request of the Company.
-3- |
(d) "Disinterested Director" shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) "Enterprise" shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.
(f) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee's rights under this Agreement, by litigation or otherwise. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g) "Independent Counsel" shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(h) The term "Proceeding" shall include any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him (or a failure to take action by him) or of any action (or failure to act) on his part while acting pursuant to his Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, this shall be considered a Proceeding under this paragraph.
-4- |
(i) Reference to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner "not opposed to the best interests of the Company" as referred to in this Agreement.
Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that his conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the By-laws, vote of its stockholders or disinterested directors or applicable law.
Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
-5- |
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness or otherwise asked to participate in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
Section 7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Section 8. Additional Indemnification.
(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.
(b) For purposes of Section 8(a), the meaning of the phrase "to the fullest extent permitted by applicable law" shall include, but not be limited to:
i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and
-6- |
ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
Section 9. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnification payment in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or
(b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or
(c) except as provided in Section 14(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
Section 10. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary (other than Section 14(d)), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee's ability to repay the Expenses and without regard to Indemnitee's ultimate entitlement to indemnification under the other provisions of this Agreement. In accordance with Section 14(d), advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. No other form of undertaking shall be required other than the execution of this Agreement. This Section 10 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.
-7- |
Section 11. Procedure for Notification and Defense of Claim.
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.
(b) The Company will be entitled to participate in the Proceeding at its own expense.
Section 12. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to Section 11(a), a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or Expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.
-8- |
(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
Section 13. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
-9- |
(b) Subject to Section 14(e), if the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 13(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
-10- |
(e) The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 14. Remedies of Indemnitee.
(a) Subject to Section 14(e), in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6 or 7 or the last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 8 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 14(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
-11- |
(d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee's rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors' and officers' liability insurance policies maintained by the Company if, in the case of indemnification, Indemnitee is wholly successful on the underlying claims; if Indemnitee is not wholly successful on the underlying claims, then such indemnification shall be only to the extent Indemnitee is successful on such underlying claims or otherwise as permitted by law, whichever is greater.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
Section 15. Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.
-12- |
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such other corporation, limited liability company, partnership, joint venture, trust or other enterprise.
Section 16. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve [as a [director] [officer] [employee] [agent] of the Company] [,at the request of the Company, as a [director] [officer] [employee] [agent] [fiduciary] of [another corporation, partnership, joint venture, trust or other enterprise] or (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement relating thereto. The indemnification and advancement of expenses rights provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
Section 17. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
-13- |
Section 18. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the By-laws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.
Section 21. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.
-14- |
(b) If to the Company to
Dynasil Corporation of America
44 Hunt Street
Watertown, Massachusetts 02472
Attention: Chief Executive Officer
or to any other address as may have been furnished to Indemnitee by the Company.
Section 22. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
Section 23. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably RL&F Service Corp., 920 North King Street, 2nd Floor, Wilmington, New Castle County, Delaware 19801 as its agent in the State of Delaware as such party's agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
-15- |
Section 25. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
DYNASIL CORPORATION | ||||
OF AMERICA | INDEMNITEE | |||
By: | ||||
Name: | Name: | |||
Office: | Address: | |||
-16- |
EXHIBIT 31.1 (a)
CERTIFICATION PURSUANT TO RULE 13a–14(a)/15d-14(a) and
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Steven Ruggieri, certify that:
1. I have reviewed this Form 10-Q of Dynasil Corporation of America;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f))for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 14, 2012 | /s/ Steven K. Ruggieri | |
Steven K. Ruggieri | ||
President and Chief Executive Officer |
EXHIBIT 31.1 (b)
CERTIFICATION PURSUANT TO RULE 13a–14(a)/15d-14(a) and
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Richard Johnson, certify that:
1. I have reviewed this Form 10-Q of Dynasil Corporation of America;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f))for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 14, | /s/ Richard A. Johnson | |
Richard A. Johnson | ||
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of DYNASIL CORPORATION OF AMERICA (the "Company") on Form 10Q for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Steven K. Ruggieri, President of the Company and Richard A. Johnson, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Steven K. Ruggieri | ||
Steven K. Ruggieri | ||
President and Chief Executive Officer | ||
/s/ Richard A. Johnson | ||
Richard A. Johnson | ||
Chief Financial Officer |
February 14, 2012
Contacts:
Patty
Kehe
Dynasil Corporation of America
Phone: (617) 668-6855
pkehe@dynasil.com
David
Calusdian
Executive Vice President and Partner
Sharon Merrill
617.542.5300
DYSL@InvestorRelations.com
Dynasil Corporation of America Reports Record
Net Revenue for the First Quarter Fiscal 2012
-Revenue of $12.4 Million, Up 7% From First Quarter 2011
- Company Hosts Earnings Conference Call at 5:00 p.m. (ET) Today
Watertown,
MA, February 14, 2012 – Dynasil Corporation of America
(NASDAQ: DYSL), a leading developer of sensing, detection and analysis technology for homeland security, medical
and industrial applications, today announced financial results for the fiscal 2012 first quarter ended December 31, 2011.
Net revenue for the first quarter of fiscal 2012 increased 7% to a record $12.4 million from $11.6 million for the first
quarter of fiscal 2011. Contract Research segment revenue increased to $6.2 million from $6.1 million in the first quarter of
fiscal 2011. The Products and Technology segment posted revenue of $6.2 million, up from $5.6 million a year earlier.
Gross margin improved to 42.8% of net revenue for the first quarter of fiscal 2012 from 42.2 % of net revenue for the same
period of fiscal 2011.
Selling, general and administrative expenses for the first quarter of fiscal 2012 totaled
$5.1 million, versus $4.2 million for the comparable period of 2011, reflecting significant investments in the
Company’s Product and Technology pipeline to support future growth. These investments include technology development
activities, depreciation of capital equipment, development of intellectual property and staff additions in support of organic
product development, dual mode nuclear detector technology and Dynasil’s recently acquired biomedical technology
portfolio. “While some of our technologies are in the evaluation and developmental stage, these investments are
indicative of the commitment that the Dynasil Board and Management Team are making to build shareholder value for the long
term,” said Steven Ruggieri, the Company’s President and Chief Executive Officer.
Net income for the first quarter of fiscal 2012 was approximately $245,000, or $0.02 earnings per share, compared with $375,000,
or $0.03 earnings per share, in the first quarter of fiscal 2011. “Favorable product mix drove higher gross profit in the
first quarter, as sales in both segments grew on a year-over-year basis,” Ruggieri said. “Our Contract Research segment
increased just over 2 % from the first quarter of 2011, and our backlog from that business remains steady. Our Products and Technology
segment grew about 11 percent for the quarter.
-1- |
“Strategic
investment is expected to remain an important theme for us in the coming months, as we develop and expand our product pipeline
and advance our dual-mode radiation detection technology to commercialization,” Ruggieri continued. “Enhancements
of products such as our handheld lead paint analyzer, Navigator medical probe and RadCam radiation imaging system are planned
for later this fiscal year. In addition, we are building the foundation for enhanced product development, engineering and management
capability for our commercial product lines. This investment will strengthen our ability to evaluate designs for manufacturability,
explore new contract manufacturing pathways, assess cost of goods and pricing, and implement launch and distribution strategies.”
Conference Call Information
Dynasil Corporation
will host a conference call for investors and analysts at 5:00 p.m. ET today. The call will be hosted by Dynasil President and
Chief Executive Officer Steven Ruggieri and Chief Financial Officer Richard Johnson. They will be joined on the call by Kanai
Shah, Ph.D., President of RMD, the Company’s Contract Research business unit. Those who wish to listen to the conference
call and view presentation slides should visit the Investor Information
section of the Company’s website at www.dynasil.com.
The call also may be accessed by dialing (877) 407-5790 or (201) 689-8328. For interested individuals unable to join the live
conference call, a webcast replay will be available on the Company’s website for one year.
About Dynasil
Dynasil Corporation of America (NASDAQ: DYSL) develops
and manufactures detection, sensing 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.
-2- |
Forward-looking Statements
This news release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements regarding future events and our future results, including those related to the future commercialization of our products, are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management. 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. 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 personnel, 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 the Company’s Annual Report on Form 10-K 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.
###
-3- |
Dynasil Corporation of America and Subsidiaries
Consolidated Balance Sheets
ASSETS | ||||||||||||
December 31, | September 30, | |||||||||||
2011 | 2011 | |||||||||||
(unaudited) | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 2,737,424 | $ | 4,479,840 | ||||||||
Accounts receivable, net | 7,426,283 | 5,837,139 | ||||||||||
Inventories | 2,978,189 | 3,250,539 | ||||||||||
Costs in excess of billings | 224,135 | 408,240 | ||||||||||
Deferred tax asset | 1,156,359 | 1,119,800 | ||||||||||
Prepaid income taxes | 341,825 | 341,825 | ||||||||||
Prepaid expenses and other current assets | 291,695 | 453,738 | ||||||||||
Total current assets | 15,155,910 | 15,891,121 | ||||||||||
Property, Plant and Equipment, net | 5,068,102 | 4,860,328 | ||||||||||
Other Assets | ||||||||||||
Intangibles, net | 6,211,526 | 6,374,329 | ||||||||||
Goodwill | 13,330,182 | 13,330,182 | ||||||||||
Deferred tax asset - non current | 807,932 | 694,800 | ||||||||||
Deferred financing costs, net | 140,678 | 150,656 | ||||||||||
Total other assets | 20,490,318 | 20,549,967 | ||||||||||
Total Assets | $ | 40,714,330 | $ | 41,301,416 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current Liabilities | ||||||||||||
Current portion of long-term debt | $ | 1,868,231 | $ | 1,859,728 | ||||||||
Accounts payable | 2,249,904 | 2,088,395 | ||||||||||
Accrued expenses and other liabilities | 1,575,976 | 2,322,459 | ||||||||||
Contingent consideration | 183,713 | 183,713 | ||||||||||
Total current liabilities | 5,877,824 | 6,454,295 | ||||||||||
Long-term Liabilities | ||||||||||||
Long-term debt, net | 8,501,780 | 8,985,442 | ||||||||||
Deferred tax liability | 1,619,637 | 1,619,637 | ||||||||||
Total long-term liabilities | 10,121,417 | 10,605,079 | ||||||||||
Temporary Equity | 2,000,000 | 2,000,000 | ||||||||||
Stockholders' Equity | 22,715,089 | 22,242,042 | ||||||||||
Total Liabilities and Stockholders' Equity | $ | 40,714,330 | $ | 41,301,416 |
-4- |
Dynasil Corporation of America
Consolidated Statement of Operations
Three Months Ended | ||||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Net revenue | $ | 12,398,254 | $ | 11,626,507 | ||||
Cost of revenue | 7,095,036 | 6,719,783 | ||||||
Gross profit | 5,303,218 | 4,906,724 | ||||||
Selling, general and administrative expenses | 5,054,566 | 4,171,010 | ||||||
Income from operations | 248,652 | 735,714 | ||||||
Interest expense, net | 124,157 | 158,196 | ||||||
Income before income taxes | 124,495 | 577,518 | ||||||
Income taxes | (120,572 | ) | 202,341 | |||||
Net income | $ | 245,067 | $ | 375,177 | ||||
Net Income | $ | 245,067 | $ | 375,177 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation, net of $31,094 income tax benefit and $21,562 income taxes in 2011 and 2010 | (60,360 | ) | 41,681 | |||||
Total comprehensive income | $ | 184,707 | $ | 416,858 | ||||
Net income | $ | 245,067 | $ | 375,177 | ||||
Dividends on preferred stock | -0- | 131,400 | ||||||
Net income applicable to common stockholders | 245,067 | 243,777 | ||||||
Dividend add back due to preferred stock conversion | -0- | 131,400 | ||||||
Net income for diluted income per common share | $ | 245,067 | $ | 375,177 | ||||
Basic net income per common share | $ | 0.02 | $ | 0.03 | ||||
Diluted net income per common share | $ | 0.02 | $ | 0.02 | ||||
Weighted average shares outstanding | ||||||||
Basic | 15,583,103 | 12,979,939 | ||||||
Diluted | 15,683,834 | 15,497,495 |
-5- |
Inventories
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Text Block] | Note 2 - 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 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.
Inventories consisted of the following:
|