DYNASIL CORP OF AMERICA - Quarter Report: 2014 June (Form 10-Q)

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

Commission file number: 000-27503

DYNASIL CORPORATION OF AMERICA

(Exact name of registrant as specified in its charter)

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   ¨

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   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes   ¨    No   x

As of August 5, 2014 there were 16,327,896 shares of common stock, par value $.0005 per share, outstanding.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

INDEX

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) (Continued)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

DYNASIL CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Basis of Presentation and Ability to Continue as a Going Concern

The accompanying consolidated balance sheet as of June 30, 2014, the consolidated statements of operations and comprehensive income (loss) for the three months and nine months ended June 30, 2014 and 2013, changes in stockholders’ equity for the nine months ended June 30, 2014 and cash flows for the nine months ended June 30, 2014 and 2013 of Dynasil Corporation of America and subsidiaries (“Dynasil” or the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications did not affect previously reported net loss or stockholders’ deficit. In the opinion of management, all adjustments (which include normal recurring and nonrecurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles for the periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

The preparation of unaudited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. 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. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2013 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company incurred substantial losses from operations for the fiscal years ended September 30, 2013 and 2012 and failed to comply with the financial covenants set forth in the terms of its outstanding loan agreements for the fiscal year ended September 30, 2012 and each of the quarters during the fiscal year ended September 30, 2013. These covenants required 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 returned to profitability for the three month period ended December 31, 2013 and regained compliance with the financial covenants described above. However Santander Bank, N.A. (“Santander”), the Company’s former senior lender, continued to require that it not pay interest due monthly to its subordinated lender, Massachusetts Capital Resource Company (“MCRC”), constituting a separate event of default. In addition, Santander advised the Company that it was unwilling to negotiate regarding waivers for its past covenant violations.

On May 1, 2014, the Company entered into a three year revolving line of credit arrangement with Middlesex Savings Bank (“Middlesex”) for up to $4.0 million with the amount available for advances determined monthly based on eligible billed and unbilled accounts receivable and inventory. The line of credit is secured by substantially all the Company’s assets. Upon the closing of the loan, the Company repaid the approximately $1.8 million owed the senior lender and the $600,000 of accrued interest due the subordinated lender through April 30, 2014. The subordinated lender issued a waiver to the Company for prior covenant violations. As a result, the Company is no longer in default of any of its loan obligations and has reclassified the subordinated debt to a long term liability based on its terms.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2014, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.

Note 2 – Formation of Xcede Technologies, Inc. Joint Venture

On or about October 1, 2013, the Company formed Xcede Technologies, Inc. (“Xcede”), a joint venture with Mayo Clinic, in order to spin out and separately fund the development of its tissue sealant technology which formerly comprised the majority of its Biomedical segment. Xcede had received a total of approximately $800,000 in funding as of June 30, 2014 in the form of Convertible Notes from individual investors including certain directors of the Company. The notes accrue interest at 5%. Upon the closing of a capital stock financing by Xcede, the outstanding principal amount of the notes plus all accrued but unpaid interest on the notes will be converted into shares of the same capital stock sold in the capital stock financing at a 20% discount to the price per share of that capital stock financing. Alternatively, at any time prior to a capital stock financing the note holders can convert at their option into common stock of Xcede based on a $5.0 million valuation.

Xcede is continuing its fund raising efforts as it will require additional funding in connection with human trials expected to commence in the Fall of 2014.

Xcede’s common stock is 90% owned by Dynasil Biomedical. Xcede is a subsidiary of Dynasil Biomedical and Dynasil, and is, therefore, included in the Company’s consolidated balance sheet, results of operations and cash flows. Dynasil holds a majority of the seats on Xcede’s board of directors.

Note 3 – Acquisitions and Divestitures

On June 26, 2014, Dynasil and its wholly owned subsidiary Evaporated Metal Films Corp., a New York corporation (“EMF”) completed the acquisition of substantially all of the assets of DichroTec Thin Films, LLC (“DichroTec”), a New York limited liability company and manufacturer of optical thin film coatings.

Pursuant to the Asset Purchase Agreement (the “APA”) by and among Dynasil, EMF, DichroTec and Syncrolite, LLC, a Texas limited liability company and the owner of DichroTec, EMF acquired substantially all of the assets of DichroTec for approximately $500,000 in cash and 700,000 shares of Dynasil Common Stock for a total purchase price of approximately $1.7 million. The APA contains customary representations, warranties, covenants and indemnification provisions for these types of transactions. The Company has not completed the allocation of the purchase price to the assets purchased which consist primarily of machinery and equipment, inventory and customer lists, in this filing it is all included in machinery and equipment. DichroTec reported unaudited revenue of approximately $1.9 million for the twelve months ended December 31, 2013.

On November 7, 2013, the Company sold its Lead Paint detector business to Protec Instrument Corporation (“Protec”), a wholly owned subsidiary of Laboratoires Protec S.A., a French corporation and former European distributor of the Company’s lead paint detector products. The sales price totaled approximately $1.2 million, including the assumption of certain liabilities by Protec. The transaction also resulted in payment to the Company of approximately $500,000 in satisfaction of outstanding accounts receivable. The Company used $1.2 million of the proceeds from the sale to reduce its bank indebtedness.

On December 23, 2013, the Company sold its Gamma Medical Probe business to Dilon Technologies, Inc., a Delaware corporation (“Dilon”), for $3.5 million, the assumption of certain liabilities of the Company, and a possible contingent payment. The Agreement also provided for $250,000 of the proceeds to be deposited in escrow for a year, which amount is included in accounts receivable in the Consolidated Balance Sheet. The Agreement contains customary representations, warranties, covenants and indemnification provisions. The Company used $2.8 million of the proceeds from the sale to reduce its bank indebtedness.

In connection with the sales of the businesses discussed above, the Company recorded a gain of $1.2 million which is included in Income from Operations in the three months ended December 31, 2013. The businesses sold constituted substantially all of Instruments segment but did not constitute a component of the business, and therefore did not qualify to be reported as discontinued operations. The assets held for sale at September 30, 2013 included fixed assets, inventory, and intangible customer assets totaling $2.9 million offset by customer deposits of approximately $100,000.

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

Note 5 – Intangible Assets

Intangible assets at June 30, 2014 and September 30, 2013 consist of the following:

Amortization expense for the three months ended June 30, 2014 and 2013 was $44,130 and $170,304, respectively. Amortization expense for the nine months ended June 30, 2014 and 2013 was $132,686 and $495,079, respectively. Estimated amortization expense for each of the next five fiscal years is as follows:

Note 6 – Goodwill

Goodwill is subject to an annual impairment test. The Company considers many factors which may indicate the requirement to perform additional, interim impairment tests. These include:

There were no changes, aside from foreign exchange rate fluctuations, in the carrying value of goodwill during the three and nine months ended June 30, 2014.

Note 7 – Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing the net income applicable or loss attributable to common shares by the weighted average number of common shares. 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 for the three and nine months ended June 30, 2014 and 2013, no common stock options were included in the calculation of dilutive shares as all of the 630,532 common stock options outstanding had exercise prices above the current quarterly average market price per share and their inclusion is anti-dilutive. Additionally, for the three and nine months ended June 30, 2013, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss from continuing operations and the inclusion of common share equivalents would have been anti-dilutive.

The computation of the weighted shares outstanding for the three months ended June 30 is as follows:

The computation of the weighted shares outstanding for the nine months ended June 30 is as follows:

Note 8 - Stock Based Compensation

The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model.

A summary of stock option activity for the nine months ended June 30, 2014 and 2013 is presented below:

A summary of restricted stock activity for the nine months ended June 30, 2014 and 2013 is presented below:

Stock Compensation Expense for the nine months ended June 30, 2014 and 2013 is as follows:

At June 30, 2014 there was approximately $63,000 in unrecognized stock compensation cost, which is expected to be recognized over a weighted average period of approximately six months.

Note 9 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil’s business is comprised of four segments: contract research (“Contract Research”), optics (“Optics”), instruments (“Instruments”) and biomedical (“Biomedical”). 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 Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Optics segment manufactures optical materials, components and coatings. The Instruments segment manufactures specialized instruments used in various applications in the medical, industrial, and homeland security/defense sectors. The Biomedical segment, through Xcede Technologies, Inc., a majority owned, joint venture (“Xcede”), is focused on developing a tissue sealant technology for a wide spectrum of applications though no assurance can be given that this technology will become successfully commercialized.

As discussed in Note 3, substantially all the operating assets of the Instruments segment were sold in the three months ended December 31, 2013.

The Company’s segment information for the three months ended June 30, 2014 and 2013 is summarized below:

The Company’s segment information for the nine months ended June 30, 2014 and 2013 is summarized below:

Customer Financial Information

For the three and nine months ended June 30, 2014 and 2013, the top three customers for the Contract Research segment were various agencies of the U.S. Government. For the three months ended June 30, 2014 and 2013, these customers made up 68% and 58%, respectively, of Contract Research revenue. For the nine months ended June 30, 2014 and 2013, these customers made up 67% and 59%, respectively, of Contract Research revenue.

For the three and nine months ended June 30, 2014, a single customer in the Optics segment made up 18% and 10%, respectively of the total segment revenue. For the three and nine months ended June 30, 2013, there was no customer in the Optics segment whose revenue represented more than 10% of the total segment revenue.

For the three months ended June 30, 2014, there was no revenue in the Instruments segment. For the three months ended June 30, 2013, the top three customers for the Instruments segment made up 28% of Instruments revenue. For the nine months ended June 30, 2014 and 2013, the top three customers for the Instruments segment made up 24% and 28%, respectively, of Instruments revenue.

For both the three and nine months ended June 30, 2014 and 2013, the Biomedical segment had one customer whose revenue represented 100% of the total segment revenue.

Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2014 and 2013 are as follows:

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2014 and 2013 are as follows:

Note 10 - Income Taxes

Dynasil Corporation of America and its wholly-owned U.S. subsidiaries file a consolidated federal income tax return and various state returns. The Company’s U.K. subsidiary files tax returns in the U.K.

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 carry forwards. 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.

In assessing the ability to realize the net deferred tax assets, management considers various factors including taxable income in carryback years, future reversals of existing taxable temporary differences, tax planning strategies and projections of future taxable income, to determine whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Based upon the Company’s recent losses and uncertainty of future profits, the Company has determined that the uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against its U.S. net deferred tax assets.

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 reached upon ultimate settlement with the relevant tax authority. As of June 30, 2014 and September 30, 2013, the Company has no unrecorded liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of June 30, 2014 and September 30, 2013, the Company had no accrued interest or penalties related to uncertain tax positions. The Company currently has no federal or state tax examinations in progress.

The effective tax rates were (152%) and (5%) for the three and nine months ended June 30, 2014, respectively, and 8% and 3% for the three and nine months ended June 30, 2013, respectively. The rates differ from the U.S. federal statutory income tax rate of 34% primarily due to a full valuation allowance against the Company’s U.S. deferred tax asset and the recognition of certain UK research tax credits.

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 tax years beginning with 2010 are still subject to examination.

Note 11 – New Senior Debt Agreement

On May 1, 2014, Dynasil entered into a loan and security agreement (the “Bank Loan Agreement”) and line of credit note (the “Note”) with Middlesex Savings Bank pursuant to which Middlesex agreed to provide up to $4 million, subject to the availability restrictions described below, under a revolving line of credit loan to Dynasil for general corporate purposes. The Bank Loan Agreement provides that the loan expires on May 1, 2017, at which time all outstanding principal and unpaid interest shall become due and payable. The Bank Loan Agreement and the Note are secured by (i) a security interest in substantially all of the Company’s personal property and (ii) a sixty-five percent (65%) of the Dynasil’s equity interests in its UK subsidiary, Hilger Crystals, Ltd. Under the note, the borrowing base is determined monthly based on eligible billed and unbilled accounts receivable and eligible inventory. The interest rate under the Note is equal the Prime Rate, but in no event less than 3.25%.

The 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, at the close of each fiscal quarter, to maintain a Debt Service Coverage ratio, as defined, of at least 1.20 to 1.00 on a trailing four quarter basis.

The Bank Loan Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy, change of management, as defined and the occurrence of a material adverse change, as defined. As a result of the material adverse change clause, the line of credit has been classified as a current liability in this filing.

Note 12 – 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, 2013.

General Business Overview

Bank Financing

The Company incurred substantial losses from operations for the years ended September 30, 2013 and 2012 and failed to comply with the financial covenants set forth in the terms of its outstanding loan agreements for the year ended September 30, 2012 and each of the quarters during the year ended September 30, 2013. These covenants required 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 returned to profitability for the three month period ended December 31, 2013 and regained compliance with the financial covenants referred to above. However our senior lender, continued to request that we not pay interest due monthly to our subordinated lender.

On May 1, 2014, the Company entered into a three year revolving line of credit arrangement with a new bank. The line of credit is secured by substantially all the Company’s assets and the amount available for advances is determined monthly based on eligible billed and unbilled accounts receivable and inventory. Upon the closing of the loan, the Company repaid approximately the $1.8 million owed to our senior lender and the $600,000 of accrued interest owed to our subordinated lender. The subordinated lender issued a waiver for our prior covenant violations.

As a result, the Company is in compliance with all of its loan obligations and has reclassified the subordinated debt to a long term liability based on its terms.

Overall Operating Results

Revenue for the third quarter of fiscal year 2014, which ended June 30, 2014, was $10.6 million, a decrease of $700,000 or 6% compared with revenue of $11.3 million for the quarter ended June 30, 2013. The decrease was a result of a $1.5 million decrease in revenues related to the lead paint and medical instruments businesses which were sold in the first quarter ended December 31, 2013, and a $400,000 decrease in revenues of the Contract Research Segment offset by a $1.3 million increase in revenues in the Optics segment.

Cost of Revenue for the third quarter of 2014 was $6.7 million, an increase of 2% compared with $6.6 million for the quarter ended June 30, 2013 primarily as a result of the increased cost of revenue associated with the Optics segment revenue increase that was partially offset by lower cost of revenue associated with the lead paint and medical instruments businesses which were sold.

Total operating expenses decreased $1.1 million or 22% to $3.8 million compared to $4.9 million for the three month period ended June 30, 2013 primarily as a result of lower operating expenses as the result of the sale of the lead paint and medical instruments businesses, as well as cost reductions in the Contract Research segment.

Income from Operations for the quarter ended June 30, 2014 was approximately $200,000 compared with Loss from Operations of ($200,000) for the quarter ended June 30, 2013. The Company was approximately breakeven for the quarter ended June 30, 2014, compared with a Net Loss of ($400,000), or ($0.02) per share, for the quarter ended June 30, 2013.

Commercialization of technology from our research and development activities and strategic acquisitions are drivers of our future growth and we plan to continue to invest in these growth opportunities, depending upon the availability of capital to fund these endeavors.

Results of Operations

Total revenue for the three months ended June 30, 2014 decreased to $10.6 million for the three months ended June 30, 2014 from $11.3 million for the three months ended June 30, 2013. Revenue from our Contract Research segment decreased approximately $400,000 or 7% as a result of a reduction in new contract research awards to replace contract research projects completed during the quarter.  Contract Research revenues have declined due to a general slowdown in the timing of award grants and award funding. As a result, the Company expects quarterly revenue to decline further in the fourth quarter. The research backlog for the Contracts Research segment was $33 million at June 30, 2014, unchanged from March 31, 2014.  The Company continues to closely monitor Federal government R&D spending levels.

The Optics segment revenue increased approximately $1.3 million or 33% for the three months ended June 30, 2014, as a result of increased volume of sales in each of the four businesses included in the Optics segment. The Instruments segment had no revenue for the three months ended June 30, 2014, as a result of the sale of the lead paint and medical product businesses in the first quarter ended December 31, 2013.

Gross profit for the three months ended June 30, 2014 was $3.9 million, or 37% of sales, compared to $4.7 million or 42% of sales for the three months ended June 30, 2013. Gross profit as a percent of sales decreased for the Contract Research segment to 38% at June 30, 2014 from 42% at June 30, 2013, primarily as a result of lower revenues without a corresponding decrease in overhead costs.

Gross profit for the Optics segment increased $400,000 for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The gross profit margin decreased to 34% of sales at June 30, 2014 compared to 36% of sales for the quarter ended June 30, 2013, as a result of start-up training and inefficiencies associated with a large new customer contract as well as a change in mix due to increased sales of certain lower margin optical products. The Biomedical segment, through Xcede, is developing a tissue sealant technology which has not been approved for commercial use and consequently has no gross profit.

Total operating expenses for the three months ended June 30, 2014 decreased to $3.8 million, or 36% of sales, compared to $4.9 million, or 43% of sales, for the three months ended June 30, 2013. The decrease in total operating expenses is primarily a result of the sale of the lead paint and medical products businesses in the Instruments segment. In addition, the Contract Research segment has reduced its operating expenses to better align with its lower revenue level. The Company expects to maintain its operating expenses at the current levels.

Income from Operations for the three months ended June 30, 2014 was $200,000 compared to loss from operations of ($200,000) for the three months ended June 30, 2013.

Net interest expense decreased slightly for the three months ended June 30, 2014 compared with the three months ended June 30, 2013 as the Company is no longer accruing default interest on the MCRC loan.

Income tax expense for the three months ended June 30, 2014 consisted primarily of state tax expense offset by the recognition of certain U.K. tax research credits.

Net Income for the three months ended June 30, 2014 was approximately break-even, compared with Net Loss of ($400,000), or ($0.02) in basic earnings per share, for the quarter ended June 30, 2013.

Results of Operations – Year to Date

Revenue for the nine months ended June 30, 2014 was down slightly to $31.8 million compared to $32.4 million for the nine months ended June 30, 2013.

Revenue from our Contract Research segment increased $600,000 or 4% for the nine months ended June 30, 2014 compared to the same period in 2013. The change in Contract Research segment revenue reflects normal variations in the start-up and completion of research contracts.

The Optics segment revenue increased $2.1 million or 18% for the nine months ended June 30, 2014, as a result of a large contract with a new customer that included a $350,000 nonrefundable payment associated with previous engineering and design efforts, a significant increase in sales to another customer as well as volume increases at the other two businesses included in the Optics segment.

Revenue from our Instruments segment decreased $3.0 million or 79% for the nine months ended June 30, 2014 compared to the same period in 2013. The Instruments segment revenue decline is primarily a result of the sale of the lead paint and medical product businesses in the first quarter ending December 31, 2013.

Gross profit for the nine months ended June 30, 2014 was $12.7 million, or 40% of sales, compared to $13.8 million or 43% of sales for the nine months ended June 30, 2013.

Gross profit as a percent of sales decreased for the Contract Research segment to 42% at June 30, 2014 from 45% at June 30, 2013 primarily as a result of lower direct billable hours which have a higher gross profit margin than other billable material and subcontractor costs.

Gross profit for the Optics segment increased approximately $900,000 to $5.3 million for the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013 primarily as a result of higher product revenues and the $350,000 nonrefundable payment described above.

Gross profit for the Instruments segment decreased $1.6 million to $300,000 for the nine months ended June 30, 2014 from $1.9 million for the nine months ended June 30, 2013 primarily a result of the sale of the lead paint and medical product businesses in the first quarter ending December 31, 2013.

The Biomedical segment gross profit equals its revenue because the cost of the funded research is included in research and development expense.

Total operating expenses for the nine months ended June 30, 2014 were $11.7 million compared to $21.5 million for the nine months ended June 30, 2013, which period included an impairment charge of $6.8 million associated with an interim impairment evaluation performed on the Company’s Products business unit in the Instruments segment. See “Impairment of Long-Lived Assets” under “Critical Accounting Policies and Estimates”. The remaining decrease in operating expenses of $3.0 million is primarily a result of the elimination of operating expenses associated with the Instruments segment businesses which were sold in the first quarter ending December 31, 2013, as well as a lower level of legal and consulting costs incurred in 2014 compared to 2013.

Income from operations for the nine months ended June 30, 2014 was $2.2 million compared to a loss from operations of ($7.7 million) for the prior year comparable period. The increase in income of $9.9 million is primarily associated with the elimination of the $6.8 million interim impairment charge discussed above and a $1.2 million gain on the sale of the businesses in the Instruments segment as well as a $900,000 reduction in losses from operations of the Instruments segment businesses which were sold in the first quarter ended December 31, 2013. The Contract Research and Optics segments had improvements in income from operations for the nine months ended June 30, 2014 compared to the nine months ended June 30, 2013 of $400,000 and $700,000, respectively.

Net interest expense for the nine months ended June 30, 2014 increased slightly to $600,000, primarily as a result of the accrual of default interest for seven months during 2014 compared to five months in 2013.

Income tax expense for the nine months ended June 30, 2014 consisted primarily of state tax expense offset by the recognition of certain U.K. tax research credits.

Net income for the nine months ended June 30, 2014 was $1.8 million or $0.12 per share, compared with a net loss of ($8.0 million), or ($0.54) per share for the nine months ended June 30, 2013.

Liquidity and Capital Resources

New Senior Loan Agreement

On May 1, 2014, Dynasil entered into a loan and security agreement (the “Bank Loan Agreement”) and line of credit note (the “Note”) with Middlesex Savings Bank ("Middlesex") pursuant to which Middlesex agreed to provide up to $4 million, subject to the availability restrictions described below, under a revolving line of credit loan to Dynasil for general corporate purposes. The Bank Loan Agreement provides that the loan expires on May 1, 2017, at which time all outstanding principal and unpaid interest shall become due and payable. The Bank Loan Agreement and the Note are secured by (i) a security interest in substantially all of the Company’s personal property and (ii) a sixty-five percent (65%) of the Dynasil’s equity interests in its UK subsidiary, Hilger Crystals, Ltd. Under the note, the borrowing base is determined monthly based on eligible billed and unbilled accounts receivable and eligible inventory. The interest rate under the Note is equal the Prime Rate, but in no event less than 3.25%.

Upon the closing of the Bank Loan Agreement on May 1, 2014, Dynasil repaid in full the approximately $1.8 million of principal and accrued interest and fees owed to Santander Bank under the Company’s existing Loan and Security Agreement dated as of July 7, 2010, as amended (the “Santander Loan Agreement”), by and between the Company and Santander Bank, N.A. (formerly known as Sovereign Bank, N.A.). In addition, Dynasil used a portion of the proceeds from the Bank Loan Agreement to repay $600,000 of accrued interest due to Massachusetts Capital Resource Company. As a result, as of May 1, 2014, the Company had total indebtedness outstanding consisting of $2.4 million newly drawn senior debt owed to Middlesex Savings Bank and approximately $3.0 million of existing subordinated debt owed to Massachusetts Capital Resource Company due July 2017. Such amounts remain outstanding as of June 30, 2014.

The Bank Loan Agreement contains customary representations, warranties and covenants. The Bank Loan Agreement limits Dynasil and its subsidiaries' ability to, among other things: be a party to a merger, incur additional indebtedness, incur liens and make investments, without the prior written consent of the Bank. So long as Dynasil will, after payment, be in compliance with the financial covenant referenced below, the Bank Loan Agreement permits Dynasil to pay dividends and make other distributions. In other circumstances, Dynasil may pay dividends and make other distributions with the prior written consent of the Bank.

The 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, at the close of each fiscal quarter, Dynasil to maintain a Debt Service Coverage ratio, as defined, of at least 1.20 to 1.00 on a trailing four quarter basis.

The Bank Loan Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy, change of management, as defined and the occurrence of a material adverse change, as defined. Upon an event of default, the amounts outstanding under the Bank Loan Agreement may be declared by the Bank to be immediately due and payable and the Bank’s agreement to make advances under the Note may be terminated.

Liquidity Outlook

Cash as of June 30, 2014 was $3.1 million or approximately $700,000 more than the cash of $2.4 million at September 30, 2013. Based on the collateral calculation as of June 30, 2014, the Company had $ 3.6 million of availability under the line of credit under which it has borrowed of $2.4 million. Management believes that the cash and availability under the line of credit discussed above are adequate to meet the Company’s current liquidity requirements.

Cash From Operating Activities

In total, including the changes in accounts receivable and accounts payable and accrued expenses, operating activities generated cash of $1.1 million for the nine months ended June 30, 2014.

Cash From Investing and Financing Activities

The Company generated $4.4 million in net proceeds from the sale of its lead paint and medical products businesses. The Company used cash of $500,000 and issued 700,000 shares of common stock at a value of $1.77 per share to acquire the assets of DichroTec Thin Films LLC. The Company used cash of approximately $900,000 for the purchase of property, plant and equipment for the nine months ended June 30, 2014.

Payments of long term debt for the nine months ended June 30, 2014 were $ 6.8 million to Santander Bank, N.A., the Company’s former senior lender, consisting of $3.9 million in special payments associated with the sale of the two businesses in the Instruments segment, as discussed above, regularly scheduled principal payments and a $1.8 million pay-off amount provided from a portion of the proceeds of the Company’s new short term loan with Middlesex discussed above. The Company’s Xcede subsidiary raised $800,000 through the issuance of convertible notes through June 30, 2014. Net cash used in financing activities was approximately $3.4 million for the nine months ended June 30, 2014.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2013. We have not adopted any accounting policies since September 30, 2013 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, 2013 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.

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 generally commensurate with billing amounts. Recognition of losses on projects is taken as soon as the loss is reasonably determinable.

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.

Goodwill

Goodwill is subject to an annual impairment test. We consider many factors which may indicate the requirement to perform additional, interim impairment tests. These include:

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 Radiation Monitoring Devices, which comprises our Contract Research segment, and Hilger Crystals, a component of our Optics segment.

During the second quarter of 2013, the Company performed an interim impairment test of the long lived assets and goodwill associated with its Dynasil Products reporting unit and wrote off goodwill of $4.0 million and $2.8 million of long lived assets other than goodwill for a total write-off of $6.8 million.

Intangible Assets

The Company’s intangible assets consist of acquired customer relationships and trade names of Optometrics Corp. and Hilger Crystals, Ltd., acquired know-how of Radiation Monitoring Devices, Inc. and purchased biomedical technologies within the Biomedical Segment. The Company amortizes its intangible assets with definitive lives over their useful lives, which range from 5 to 15 years, based on the time period the Company expects to receive the economic benefit from these assets.

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.

No impairment charge was recorded during the three or nine month periods ended June 30, 2014. During the three months ended March 31, 2013, in connection with an interim impairment test of long lived assets and goodwill associated with its Dynasil Products reporting unit, the Company determined that the fair value of the long-lived assets (other than goodwill) of Products was less than the carrying amount of those assets and, as a result, recorded a pre-tax impairment charge of $2.8 million plus a $4.0 million write-off of goodwill as discussed above.

Allowance for Doubtful Accounts Receivable

The Company performs 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

The Company accounts 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 over the requisite service period based on the grant date estimated fair value of the grant, 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.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-12, “Stock Compensation – Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period.” This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. Thus, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The new guidance is effective for the Company beginning fiscal 2016. Early adoption is permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements. Adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in "Topic 605, Revenue Recognition" and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective retrospectively for annual or interim reporting periods beginning after December 15, 2016, with early application not permitted. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, "Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity." ”Topic 205” ASU 2014-08 provides a narrower definition of discontinued operations than that provided under existing U.S. GAAP. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, which disposal represents a strategic shift that has, or will have, a major effect on the reporting entity's operations and financial results, should be reported in the financial statements as a discontinued operation. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations. ASU 2014-08 is effective prospectively for disposals (or classifications as held for disposal) of components of an entity that occur in annual or interim periods beginning after December 15, 2014. The Company does not expect the adoption of ASU 2014-08 to have a material impact on its consolidated financial statements.

In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Currently, GAAP does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, although early adoption is permitted. This ASU will be applied prospectively to all unrecognized tax benefits that exist at the effective date. We have not yet adopted this ASU, and we are currently evaluating the effect it will have on our consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the U.S. government treasury obligation rate and the London Interbank Offered Rate (LIBOR). This ASU also removes the restriction on using different benchmark rates for similar hedges. This ASU is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The Company does not currently have any hedging arrangements and therefore will not be materially impacted by the new guidance.

In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to apply the guidance in subtopic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This ASU is effective prospectively for fiscal years and interim periods beginning after December 15, 2013. This ASU will be applied prospectively to derecognition events occurring after the effective date. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our 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, our compliance with the financial covenants under our loan agreements with Middlesex Savings Bank and Massachusetts Capital Resource Company, Xcede obtaining financing from outside investors, the commercialization of our products including our dual mode detectors, our development of new technologies including at Dynasil Biomedical, uncertainty of the impact of the DichroTec acquisistion, our ability to remediate the material weaknesses in our internal control over financial reporting, the adequacy of our current financing sources to fund our current operations, our growth initiatives, 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 “plans,” “intends,” “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 comply with the financial covenants under our outstanding indebtedness, our ability to develop and commercialize our products, including obtaining regulatory approvals, 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, our ability to address our material weaknesses in our internal controls, 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 the Company’s Annual Report on Form 10-K, filed on December 20, 2013, including the risk factors contained in Item 1a, 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

Evaluation of Disclosure Controls and Procedures.

Our Interim Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2014. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2014, our Interim Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective.

As disclosed in our Annual Report on Form 10-K for the year ended September 30, 2013, we identified material weaknesses in our internal control over financial reporting as of September 30, 2012. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) are an integral part of disclosure controls and procedures. These material weaknesses, which are described in detail in our 2012 and 2013 Annual Reports on Form 10-K, can be summarized as relating to: (i) inadequate and ineffective monitoring controls, (ii) inadequate and ineffective control over the periodic financial close process and (iii) inadequate and ineffective controls over cash accounts and accounts receivable function at our RMD division.

The measures that we have identified and implemented to address the material weaknesses are also discussed in detail in our 2013 Form 10-K. The Company believes that it has taken the steps to remediate the previously identified material weaknesses. However, certain controls designed and implemented during the 2013 fiscal year to address the material weaknesses in the period-end financial reporting process have not been operational for a sufficient period of time to allow management to conclude that they are operating effectively. As a result, management has determined as of June 30, 2014 that, collectively the control deficiencies that existed in the prior year still exist and aggregate to the material weaknesses described above, and, that our internal controls do not effectively mitigate the risk that a material misstatement in our financial statements could occur and not be prevented or detected. We expect the evaluation and testing of the steps previously taken to remediate the previously identified material weaknesses will continue throughout fiscal year 2014 in order to allow management sufficient basis to conclude that the controls are operating effectively.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2013, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Risks Related to our Business

Our new loan agreement imposes restrictions on our ability to take certain corporate actions and raise additional capital, imposes a financial covenant regarding debt service coverage and includes a material adverse change (“MAC”) clause.

The Bank Loan Agreement with Middlesex Savings Bank limits Dynasil’s and its subsidiaries' ability to, among other things: be a party to a merger, incur additional indebtedness, pay dividends or make other distributions, incur liens and make investments, without the prior written consent of Middlesex Savings Bank. The Bank Loan Agreement requires, at the close of each fiscal quarter, that Dynasil maintain a Debt Service Coverage ratio, as defined, of at least 1.20 to 1.00 on a trailing four quarter basis.

These restrictions could significantly hamper our ability to raise additional capital. Our ability to receive the necessary approvals is largely dependent upon our relationship with our lenders and our financial performance, and no assurances can be given that we will be able to obtain the necessary approvals in the future. Our inability to raise additional capital could lead to working capital deficits that could have a material adverse effect on our operations in future periods.

The Bank Loan Agreement also includes a MAC clause which permits Middlesex to call the loan if any event, fact, circumstance, change in, or effect on the Company could reasonably be expected to be materially adverse to the business.

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

As reported on the Company’s Form 8-K filed with the Commission on June 26, 2014, Dynasil and its wholly owned subsidiary Evaporated Metal Films Corp. (“EMF”) completed the acquisition of substantially all of the assets of DichroTec Thin Films, LLC (“DichroTec”) pursuant to the terms of an asset purchase agreement by and among Dynasil, EMF, DichroTec and Syncrolite, LLC (“Syncrolite”), DichroTec’s sole member, on June 26, 2014. In connection with the acquisition, on June 26, 2014, Dynasil issued an aggregate of 700,000 shares of its common stock to Syncrolite pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, based on the qualifications of the sole recipient of the shares.

ITEM 6 Exhibits

10.01 Asset Purchase Agreement, dated June 26, 2014, by and among Evaporated Metal Films Corporation, Dynasil Corporation of America, DichroTec Thin Films, LLC and Syncrolite, LLC.

10.02 Loan and Security Agreement, dated as of May 1, 2014, by and between Middlesex Savings Bank, as Lender, and Dynasil Corporation of America, as Borrower, filed as Exhibit 10.1 to Form 8-K filed on May 2, 2014 and incorporated herein by reference.

10.03 Revolving Line of Credit, dated as of May 1, 2014, by and between Middlesex Savings Bank, as Lender, and Dynasil Corporation of America, as Borrower, filed as Exhibit 10.2 to Form 8-K filed on May 2, 2014 and incorporated herein by reference.

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-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934).

99.1 Press release, dated August 13, 2014 issued by Dynasil Corporation of America announcing its financial results for the quarter ended June 30, 2014.

101 The following materials from Dynasil Corporation of America’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of June 30, 2014 and September 30, 2013, (ii) Consolidated Statements of Operations for the three and nine months ended June 30, 2014 and 2013, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended June 30, 2014; (iv) Consolidated Statements of Cash Flows for the nine months ended June 30, 2014 and 2013, and (v) Notes to Consolidated Financial Statements.

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.