Dynasil Corporation of America Fails to Meet Financial Covenants in Loan Agreements

  Dynasil Corporation of America Fails to Meet Financial Covenants in Loan
  Agreements

  Delays filing Annual Report on Form 10-K Pursuant to Form 12b-25 Extension

Business Wire

WATERTOWN, Mass. -- December 31, 2012

Dynasil Corporation of America (NASDAQ: DYSL) today announced that the Company
has failed to comply with the financial covenants set forth in the terms of
its outstanding indebtedness for its fiscal fourth quarter ended September 30,
2012. These covenants require the Company to maintain specified ratios of
earnings before interest, taxes, depreciation and amortization (EBITDA) to
fixed charges and to total/senior debt.

The Company continues to be current with all principal and interest payments
due on all its outstanding indebtedness and management expects to continue
discussions with its lenders to address the financial covenant situation.

These financial covenant defaults give the lenders the right to accelerate the
maturity of the indebtedness outstanding and foreclose on any security
interest. Furthermore, Sovereign Bank, N.A., the Company’s senior lender, may,
at its option, impose a default interest rate with respect to the senior debt
outstanding, which is 5% higher than the rate otherwise in effect. To date,
the lenders have not taken any such actions. However, the Company cannot
predict when or whether a resolution of this situation will be achieved.

As of September 30, 2012, the Company had total indebtedness outstanding of
approximately $12.0 million, consisting of approximately $9.0 million of
senior debt owed to Sovereign Bank and approximately $3.0 million of
subordinated debt owed to Massachusetts Capital Resources Company. The
Company’s indebtedness is secured by substantially all the accounts and assets
of the Company and is guaranteed by its subsidiaries.

The causes for the covenant violations are lower revenue and higher than
expected expenses in the Company’s Dynasil Products and RMD divisions during
the fiscal quarter ended September 30, 2012, combined with the continued
investment in Dynasil Biomedical Corp. and the Company’s Dual Mode nuclear
detection initiative. In addition, the Company incurred a significant,
non-recurring charge of approximately $466,000 to its selling, general and
administrative expenses during that quarter related to costs incurred as a
result of a review, under the direction of the Audit Committee of the Board,
of certain cash application processes and billing practices of the RMD
division. This investigation has been completed and has resulted in
modifications in the division’s practices and internal controls. The Company
does not anticipate additional expenses for this matter.

The Company has recently taken and will continue to take actions to improve
its liquidity, including the implementation of a number of initiatives
designed to conserve cash, optimize profitability and right-size the cost
structure of its various businesses. The Company has retained Argus Management
Corporation and expects to engage an investment bank as financial advisors to
assist it in evaluating strategic and restructuring alternatives.

However, because of the uncertainty of any resolution of the covenant
violations and possibility of an acceleration of the indebtedness by the
lenders, the Company will reclassify all of its outstanding indebtedness as a
current liability when it reports its results for the fiscal year ended
September 30, 2012. As a result, the Company’s independent registered public
accountants, McGladrey LLP, will include a “going concern” qualification in
its audit opinion with respect to such financial statements. Furthermore, as a
result of the decline in the fair value of certain business operations, the
Company expects it will record significant non-cash goodwill and long-lived
asset impairment charges as of September 30, 2012, though at this time it is
unable to provide any estimate of such impairment charges.

The Company plans to file a Notification of Late Filing on Form 12b-25 with
the SEC on January 2, 2013 that will allow the Company to extend the deadline
to file its Annual Report on Form 10-K by 15 calendar days. The Company has
taken this step in order to have more time to finalize the preparation of its
financial statements for the fiscal year ended September 30, 2012 and complete
the audit process. With this extension, the Company’s Form 10-K will be deemed
timely filed if it is filed not later January 15, 2013. The Company intends to
file the Form 10-K as soon as practicable.

About Dynasil

Dynasil Corporation of America (NASDAQ: DYSL) develops and manufactures
detection and analysis technology, precision instruments and optical
components for the homeland security, medical and industrial markets.
Combining world-class technology with expertise in research and materials
science, Dynasil is commercializing products including dual-mode radiation
detection solutions for Homeland Security and commercial applications, probes
for medical imaging and sensors for non-destructive testing. Dynasil has an
impressive and growing portfolio of issued and pending U.S. patents. The
Company is based in Watertown, Massachusetts, with additional operations in
Mass., Minn., NY, NJ and the United Kingdom. More information about the
Company is available at www.dynasil.com.

Forward-Looking Statements

This press release contains statements which are not historical facts and
which constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements may
be identified by the use of words such as “may,” “could,” “expect,”
“estimate,” “anticipate,” “continue” or similar terms, though not all
forward-looking statements contain such words. These forward-looking
statements are based on current expectations, estimates, forecasts, and
projections and the beliefs and assumptions of our management. Examples of
forward-looking statements include, without limitation, statements regarding
our future results of operations, our future compliance with the financial
covenants under our loan agreements with Sovereign Bank and Massachusetts
Capital Resources Company, our efforts to seek an amendment or waiver of
compliance with such financial covenants and to avoid the acceleration of our
indebtedness, the adequacy of our working capital for future operational
needs, our efforts to improve operations and liquidity, the anticipate
timeline for the commercialization of our products including our dual mode
detectors, our development of new technologies including at Dynasil
Biomedical, our growth initiatives, our future capital expenditures and the
strength of our intellectual property portfolio. The actual results of the
future events described in such forward-looking statements could differ
materially from those stated in such forward-looking statements due to a
number of important factors. These factors that could cause actual results to
differ from those anticipated or predicted include, without limitation, our
ability to develop and commercialize our products, the size and growth of the
potential markets for our products and our ability to serve those markets, the
rate and degree of market acceptance of any of our products, general economic
conditions, costs and availability of raw materials and management information
systems, our ability to obtain and maintain intellectual property protection
for our products, competition, the loss of key management and technical
personnel, our ability to obtain timely payment of our invoices to
governmental customers, litigation, the effect of governmental regulatory
developments, the availability of financing sources, our ability to identify
and execute on acquisition opportunities and integrate such acquisitions into
our business, and seasonality, as well as the uncertainties set forth in our
Quarterly Report on Form 10-Q and from time to time in the Company's other
filings with the Securities and Exchange Commission. The Company disclaims any
intention or obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise.

Contact:

Dynasil Corporation of America
Patty Kehe
617-668-6855
pkehe@dynasil.com
or
Sharon Merrill
David Calusdian
Executive Vice President and Partner
617-542-5300
DYSL@InvestorRelations.com