Debt

12 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 9 – Debt

Bank Debt

The Company has a Loan and Security Agreement (the "Bank Loan Agreement") with Sovereign Bank, N.A. (“Sovereign”, the “Bank” or the “Lender”) that provides three borrowing facilities: a five-year $9 million term loan (the "Term Loan") at an interest rate of 5.58%; a $3 million working capital line of credit (the "Working Capital Line of Credit") at an interest rate of Prime or one month LIBOR plus 2.75% and a monthly fee calculated at the rate of 0.25% per annum of the unused Working Capital Line of Credit; and a $5 million acquisition line of credit (the "Acquisition Line of Credit") at an interest rate of one month LIBOR plus 3.5% and a monthly fee calculated at the rate of 0.25% per annum of the unused Acquisition Line of Credit. Interest on advances under the Working Capital Line of Credit is payable monthly and such advances were required to be repaid in full by July 7, 2012 in accordance with the terms of the agreement.  The Acquisition Line of Credit is available to Dynasil for future acquisitions under the terms specified in the Bank Loan Agreement.  Advances under the Acquisition Line of Credit are repayable monthly based on a 7-year straight line amortization plus interest, with a balloon payment due on July 7, 2015.

Dynasil's obligations under the Bank Loan Agreement are guaranteed by EMF, Optometrics, Dynasil Products, RMD Research and Dynasil and each of such subsidiaries have granted the bank a security interest in substantially all its personal property.  In addition, EMF has granted a mortgage in the Bank's favor as to EMF's leasehold property in Ithaca, New York and 65% of the outstanding shares of Hilger are pledged as collateral to the Bank. The Bank Loan Agreement also requires maintenance of certain financial and nonfinancial covenants.

The Term Loan is to be repaid with equal principal payments of $107,142.85 per month plus interest and matures on July 7, 2015.

The Company borrowed $4 million under the Acquisition Line of Credit to fund the acquisition of Hilger Crystals in July 2010.  The Acquisition Loan is to be repaid with equal principal payments of $47,619 per month and matures on July 7, 2015.

As of September 30, 2012, the Company had no funds available under the Working Capital or Acquisition Lines of Credit. As of September 30, 2011, the Company had $3,000,000 and $1,000,000 available under the Working Capital and Acquisition Lines of Credit, respectively.

On June 29, 2012, the Company entered into a letter agreement (the “Waiver Letter”) with the Bank as well as Amendment No. 3 to the Loan and Security Agreement, dated July 7, 2010 as amended on April 1, 2011 and April 12, 2012 (the “Original Loan Agreement”). Under the Waiver Letter, the Lender agreed to waive non-compliance by the Company with certain financial covenants under the Bank Loan Agreement as of June 30, 2012, subject to the Company’s compliance with the terms of Amendment No. 3, including the requirement that the Company would raise, on or before September 30, 2012, at least $2,000,000 in gross proceeds from the sale of its capital stock and/or the incurrence of new indebtedness which is subordinated to the indebtedness in favor of the Lender, on terms and conditions acceptable to the Lender in its sole discretion.

Amendment No. 3 to the Bank Loan Agreement also included revisions to certain financial covenants as follows.

· Amendment to Leverage Ratio Covenants

For the Consolidated Maximum Leverage Ratio (Consolidated Total Funded Debt to Consolidated EBITDA, as defined in the Amendment), the Amendment (i) revised the required ratio for September 30, 2012 from 3.25x to 4.5x; (ii) revised the required ratio for December 31, 2012 from 3.00x to 4.5x; and (iii) revised the required ratio for March 31, 2013 and for each rolling four quarters thereafter from 3.00x to 4.0x.

The Amendment also includes a new Consolidated Maximum Adjusted Leverage Ratio covenant, which is Consolidated Total Funded Debt (excluding subordinated debt) to Consolidated EBITDA, as defined in the Amendment. The Amendment requires the Company to maintain a Consolidated Maximum Adjusted Leverage Ratio equal to or less than (i) 3.25x to 1.00x for each of the rolling four quarter periods ending on September 30, 2012 and December 31, 2012, and (ii) 3.00x to 1.00x for each rolling four quarter period ending on or after March 31, 2013.

For the purposes of calculating both the Consolidated Maximum Leverage Ratio and the Consolidated Maximum Adjusted Leverage Ratio, Consolidated EBITDA (as defined in the Amendment) will be (i) at September 30, 2012, the actual Consolidated EBITDA for the 3 months then ended times 4; (ii) at December 31, 2012, the actual Consolidated EBITDA for the 6 months then ended times 2; and (iii) at March 31, 2013, the actual Consolidated EBITDA for the 9 months then ended times 4/3 (provided that the add-backs for costs are not annualized).

· Amendment to Fixed Charge Coverage Ratio Covenants

For the Consolidated Fixed Charge Coverage Ratio, the Amendment (i) revised the required ratio for September 30, 2012 from 1.10x to 1.00x; (ii) revised the required ratio for December 31, 2012 from 1.20x to 1.00x; (iii) revised the required ratio for March 31, 2013 from 1.20x to 1.05x; (iv) revised the required ratio at 6/30/13 from 1.20x to 1.10x; and (v) did not change the required ratio at September 30, 2013 (remained at 1.20x).

The Consolidated Fixed Charge Coverage Ratio is defined as Consolidated EBITDA (as defined in the Amendment) for the applicable period divided by the sum of (a) the Company’s consolidated interest expense for such period, plus (b) the aggregate principal amount of scheduled payments on the Company’s indebtedness made during such period (excluding any repayment of the Entine Indebtedness discussed below), plus (c) the sum of all cash dividends and other cash distributions to the Company’s shareholders during such period, plus (d) the sum of all taxes paid in cash by the Company during such period, less (e) up to $75,000 paid to the IRS, to the extent characterized as interest expense, in connection with certain historical tax filings (the “IRS Payments”).

For the purposes of calculating the Consolidated Fixed Charge Coverage Ratio, Consolidated EBITDA will be (i) at September 30, 2012, the actual Consolidated EBITDA for the 3 months then ended times 4; (ii) at December 31, 2012, the actual Consolidated EBITDA for the 6 months then ended times 2; and (iii) at March 31, 2013, the actual Consolidated EBITDA for the 9 months then ended times 4/3 (provided that the add-backs for Entine Indebtedness discussed below repayment and the IRS Payments are not annualized).

See Current Debt Status below for discussion on Company default of these covenants as of September 30, 2012.

Subordinated Debt

On July 31, 2012, the Company entered into a Note Purchase Agreement (the “Agreement”) with Massachusetts Capital Resource Company (“MCRC”). Pursuant to the terms of the Agreement, the Company issued and sold to MCRC a $3,000,000 subordinated note (the “Subordinated Note”) for a purchase price of $3,000,000.

The Subordinated Note matures on July 31, 2017, unless accelerated pursuant to an event of default. The Subordinated Note bears interest at the rate of ten percent (10%) per annum, with interest to be payable monthly on the last day of each calendar month in each year, the first such payment was due and paid on August 31, 2012. Under the terms of the Agreement, beginning on and with September 30, 2015, and on the last day of each calendar month thereafter through and including July 31, 2017, the Company will redeem, without premium, $130,434 in principal amount of the Subordinated Note together with all accrued and unpaid interest then due on the amount redeemed.

See Current Debt Status below for discussion on Company default of these covenants as of September 30, 2012. 

Put Obligation

On February 27, 2012, Dr. Gerald Entine, a former owner of RMD Instruments, LLC and RMD Instruments Corp. (collectively, “RMD”), exercised a put right to require the repurchase of a total of 928,773 shares of Company common stock held by certain entities affiliated with Dr. Entine (collectively, “Entine”) for an aggregate purchase price of $1,857,546 (the “Entine Indebtedness”). This put right originated from the Company’s acquisition of RMD in July 2008 and is set forth in the Asset Purchase Agreement dated July 1, 2008 by and among the Company, RMD Instruments Corp., RMD Instruments, LLC and Gerald Entine 1988 Family Trust and the other parties named therein.

On June 7, 2012 the Company issued the Entine entities three separate promissory notes (the “Entine Promissory Notes”) for $1,857,546 which satisfied the put obligation. The Entine Promissory Notes had a three-year term with an interest rate of 10% per annum. In August 2012, the Company used a portion of the proceeds of the Subordinated Note (discussed above) to repay the Entine Promissory Notes in the aggregate principal amount of $1,857,546.

Current Debt Status

The Company is in default of certain financial covenants set forth in the terms of its outstanding indebtedness as of September 30, 2012. The Company continues to be current with all principal and interest payments due on all its outstanding indebtedness. Based on the covenant default situation, the Company has reclassified all of its outstanding indebtedness as current liabilities.

Debt at September 30, 2012 and 2011 is summarized as follows: 

	2012			2011
Note payable to bank in monthly installments of $107,143 through July, 2015 followed by a balloon payment of the remaining principal amount.  The interest rate is fixed at 5.58% for the life of the loan, and the note is secured by substantially all assets.		6,214,286			7,500,000
Note payable to bank in monthly installments of $47,619 through July, 2015 followed by a balloon payment of the remaining principal amount.  The interest rate is floating based on one month LIBOR plus 3.5%.  The rate at September 30, 2012 was 3.79%. The rate at September 30, 2011 was 3.76%, and the note is secured by substantially all assets.		2,761,905			3,333,333
Subordinated note payable to Masschusetts Capital Resource Corporation in monthly installments of $25,000 through July, 2015 for interest only, followed by monthly payments of interest and principle through July 2018.  The interest rate is fixed at 10.00% for the life of the loan.	$	3,000,000		$	0
Note payable to Ithaca Urban Renewal Agency for Lease of land in Ithaca, New York for 99 years with the options to purchase said land for $26,640 after May 2008.		8,301			11,837
Total Debt	$	11,984,492		$	10,845,170
Less current portion		(11,984,492	)		(1,859,728	)
Long term portion	$	0		$	8,985,442

As previously disclosed, all outstanding indebtedness as of September 30, 2012 has been classified as current based on default of covenants; however the aggregate maturities of debt based on the payment terms of the agreement are as follows: 

For the years ending on September 30:
2013	$	1,865,444
2014		1,857,143
2015		5,261,905
2016		1,565,208
2017		1,434,792
	$	11,984,492