DYNASIL CORP OF AMERICA - Quarter Report: 2016 June (Form 10-Q)

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

Commission file number: 001-35011

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, 2016 there were 16,842,123 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)

ASSETS 

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

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY (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)

For the nine months ended June 30, 2016

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

The accompanying consolidated balance sheet as of June 30, 2016, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2016 and 2015, changes in stockholders’ equity for the nine months ended June 30, 2016 and cash flows for the nine months ended June 30, 2016 and 2015 of Dynasil Corporation of America and subsidiaries (the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. 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 our 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, 2015 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

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.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2016, 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 – Recent Accounting Pronouncements

Effective October 1, 2015, the Company early adopted the guidance issued in Accounting Standards Update 2015-03, Interest – Imputation of Interest (Topic 835) (“ASU 2015-03”) to simplify the presentation of debt issuance costs. This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this guidance on a retrospective basis, wherein the balance sheet of each individual period presented was adjusted to reflect the period-specific effects of applying the new guidance. As a result of the adoption of ASU 2015-03, $12,000 of debt issuance costs at September 30, 2015 were reclassified from deferred financing costs, net to long-term debt in the consolidated balance sheets.

Effective for the reporting period beginning October 1, 2015, the Company early adopted the guidance issued in Accounting Standards Update 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”) which simplifies the presentation of deferred income taxes. ASU 2015-17 concludes that deferred tax liabilities and assets should be classified as noncurrent in a classified statement of financial position. The Company adopted this guidance on a retrospective basis, wherein the balance sheet of each individual period presented was adjusted to reflect the period-specific effects of applying the new guidance. The adoption of this ASU did not have a material impact on the Company’s financial statements.

Revenue from Contracts with Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue to depict 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. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations (Reporting revenue gross versus net),” which clarifies gross versus net revenue reporting when another party is involved in the transaction. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which amends the revenue guidance on identifying performance obligations and accounting for licenses of intellectual property. There are two transition methods available under the new standard, either cumulative effect or retrospective. The new guidance is effective for the Company beginning in fiscal 2018. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which clarifies the revenue guidance. The Company is currently in the process of assessing the impact of these ASUs on its consolidated financial statements.

Compensation—Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. In June 2014, the FASB issued ASU No. 2014-12, which clarifies the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. Under the new guidance, a performance target that affects vesting and could be achieved after completion of the service period should be treated as a performance condition under FASB Accounting Standards Codification (ASC) 718 and, as a result, should not be included in the estimation of the grant-date fair value of the award. An entity should recognize compensation cost for the award when it becomes probable that the performance target will be achieved. In the event that an entity determines that it is probable that a performance target will be achieved before the end of the service period, the compensation cost of the award should be recognized prospectively over the remaining service period. The new guidance is effective for the Company beginning in fiscal 2017. Early adoption is permitted. The 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.

Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. In August 2014, the FASB issued ASU No. 2014-15, which states that under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting. Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this ASU should be followed to determine whether to disclose information about the relevant conditions and events. The new guidance is effective for the Company beginning in fiscal 2017, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company will evaluate the going concern considerations in this ASU; however, management does not currently believe that the Company will meet the conditions that would subject its financial statements to additional disclosure.

Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. In January 2015, the FASB issued ASU No. 2015-01, which eliminates the concept of extraordinary items in an entity’s income statement. Extraordinary classification outside of income from continuing operations was previously considered only when evidence clearly supported its classification as an extraordinary item. Extraordinary items were events and transactions that were distinguished by their unusual nature and by the infrequency of their occurrence. The ASU eliminates the need to separately classify, present and disclose extraordinary events. The disclosure of events or transactions that are unusual or infrequent in nature will be included in other guidance. This new guidance is effective for the Company beginning in fiscal 2017. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Inventory (Topic 330), Simplifying the Measurement of Inventory. In July 2015, the FASB issued ASU No. 2015-11, which requires that an entity should measure inventory within the scope of this ASU at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Substantial and unusual losses that result from subsequent measurement of inventory should be disclosed in the financial statements. This new guidance is effective for the Company beginning in fiscal 2018. The 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.

Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. In September 2015, the FASB issued ASU No. 2015-16, which requires that an acquirer recognize adjustment to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer needs to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present, separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This new guidance is effective for the Company beginning in fiscal 2017. The 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.

Leases (Topic 842). In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to put most leases on their balance sheets by recognizing a lessee’s rights and obligations, while expenses will continue to be recognized in a similar manner to today’s legacy lease accounting guidance. This ASU could also significantly affect the financial ratios used for external reporting and other purposes, such as debt covenant compliance. This new guidance is effective for the Company beginning in fiscal 2020, with early adoption permitted. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Note 3 – Acquisitions and Divestitures

In the nine months ended June 30, 2015, the Company recorded a gain of $0.2 million in connection with the sale of a product line in its Optics segment.

Note 4 – Xcede Technologies, Inc. Joint Venture

In October, 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. As of June 30, 2016, Xcede has raised approximately $3.0 million in the form of Convertible Notes (the “Notes”), of which $2.4 million was from external funding to outside investors and to certain officers and directors of the Company and $0.6 million was from the Company. The Notes accrue interest at 5%. The total interest accrued at June 30, 2016 was approximately $0.2 million. On July 15, 2016, Xcede amended the Note Purchase Agreement for such Notes to extend the Notes’ maturity date from June 30, 2016 to June 30, 2017 and to increase the principal amount of Notes authorized to be issued thereunder from $3.0 million to up to $5.2 million.

Upon the closing of a capital stock financing raising of at least $3.0 million, inclusive of the Notes and interest, the outstanding principal amount of the Notes plus all accrued interest will be converted into shares of the same capital stock sold in the financing at a 20% discount to the price per share of that capital stock. Alternatively, at any time prior to a capital stock financing the Note holders can convert, at their option, the principal amount of the Notes plus accrued interest into common stock based on a $5 million valuation.

Ninety percent of Xcede’s common stock is owned by Dynasil Biomedical and, as a result, is included in the Company’s consolidated balance sheets, results of operations and cash flows. The Company expects Xcede to require significant additional funding prior to commencing human trials.

On January 6, 2016, Xcede announced that it had signed three agreements with Cook Biotech Inc. of West Lafayette, IN including a Development Agreement, a License Agreement and a Supply Agreement in connection with the development, regulatory approval and production of Xcede’s resorbable hemostatic patch.

On June 2, 2016, Xcede issued 239,000 shares of its Common Stock to the Mayo Foundation for Medical Education and Research (“Mayo”) as the final anti-dilution adjustment in satisfaction of the anti-dilution clause in the existing licensing agreement between Xcede and Mayo. As a result, a charge of $0.2 million was recorded in stock compensation expense during the third quarter 2016.

On July 19, 2016, Xcede issued an additional $0.5 million in principal amount of Notes pursuant to the Note Purchase Agreement, allowing Xcede to continue to fund the development of its tissue sealant product.

Note 5 - Inventories

Inventories, net of reserves, consists of the following:

Note 6 – Intangible Assets

Intangible assets at June 30, 2016 and September 30, 2015 consist of the following:

Amortization expense for the three months ended June 30, 2016 and 2015 was $43,000 and $43,000, respectively. Amortization expense for the nine months ended June 30, 2016 and 2015 was $129,000 and $128,000, respectively.

Estimated amortization expense for each of the next five fiscal years and thereafter is as follows:

As of June 30, 2016, Xcede has $206,000 in patents that have not been granted, therefore, the amortization related to these patents is not included in the five-year amortization table above.

Note 7 – 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, 2016.

Note 8 –Debt

On February 1, 2016, the Company entered into a $2,000,000 Term Note with Middlesex Savings Bank, as per the terms of the Loan Document Modification Agreement, dated September 29, 2015, as detailed in the Company’s Annual Report on Form 10-K, filed on December 17, 2015. The Company converted $2,000,000 of outstanding advances under the Company’s Middlesex Bank Line of Credit Note to a new five-year term note bearing interest at the fixed annual rate of 4.5%. Immediately following this conversion, the total availability under the Company’s line of credit increased by $2,000,000 to $3,819,000. As a result of a clause in the Middlesex Term Note, all outstanding debt is classified as short-term. As of June 30, 2016, the total availability under the Company’s line of credit was $3,896,000 and the balance on the term note was $1,880,000.

Note 9 – Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing the net income 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, 2016 and 2015, no common stock options were included in the calculation of dilutive shares as all of the 123,147 and 58,212 common stock options outstanding, respectively, had exercise prices above the current quarterly average market price per share and their inclusion would be anti-dilutive.

For the three months ended June 30, 2016 and 2015, 3,532 and 7,451 shares of common stock related to restricted stock, respectively, were included in the denominator used to calculate diluted earnings per share. For the nine months ended June 30, 2016, 42,737 shares of common stock related to restricted stock were included in the denominator used to calculate diluted earnings per share. For the nine months ended June 30, 2015, 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 attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended June 30, 2016 and 2015 is as follows:

The computation of the weighted shares outstanding for the nine months ended June 30, 2016 and 2015 is as follows:

Note 10 - 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.

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. The dividend yield is expected to be zero because historically the Company has not paid dividends on common stock.

The Company’s Xcede joint venture adopted an Equity Incentive Plan in 2013 which provides for, among other incentives, the granting to officers, directors, employees and consultants options to purchase shares in Xcede’s common stock. The options granted vest over a range from immediately to a period of five years. The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model using assumptions generally consistent with those used for the Company’s stock options. Because Xcede is not publicly traded, the expected volatility is estimated with reference to the average historical volatility of a group of publicly traded companies that are believed to have similar characteristics to Xcede.

Stock compensation expense for the three and nine months ended June 30, 2016 and 2015 is as follows:

At June 30, 2016 there was approximately $200,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of fifteen months.

In June 2016, Xcede issued 239,000 shares of Xcede Common Stock to the Mayo Foundation for Medical Education and Research (“Mayo”) per the anti-dilution clause in the existing licensing agreement between Xcede and Mayo on the first $3.0 million dollars of financing raised by Xcede. In doing so, Xcede incurred a charge of $0.2 million in stock compensation expense for the third quarter 2016.

Restricted Stock Grants

A summary of restricted stock activity for the nine months ended June 30, 2016 is presented below:

Stock Option Grants

The weighted average assumptions used in the Black-Scholes option pricing model for the stock option grant during the nine months ended June 30, 2016 were as follows:

A summary of stock option activity for the nine months ended June 30, 2016 is presented below:

Subsidiary Stock Option Grants

During the nine months ended June 30, 2016, 136,961 Xcede stock options were granted at an exercise price of $1.00 per share. These options vest over the next three years and expire ten years from the grant date. The weighted average assumptions for grants during the nine months ended June 30, 2016 used in the Black-Scholes option pricing model were as follows:

A summary of Xcede stock option activity for the nine months ended June 30, 2016 is presented below:

At June 30, 2016, the Company’s Xcede joint venture had $160,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of eighteen months and $13,500 of unrecognized stock compensation expense that begin to vest upon the attainment of specific capital raising targets.

Note 11 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil’s business is comprised of three segments: optics (“Optics”), contract research (“Contract Research”) and biomedical (“Biomedical”). The Company’s Instruments segment was substantially disposed of in the first quarter of fiscal 2014, has had no subsequent operations and had no remaining assets as of June 30, 2016. Consequently, it is no longer reported as a separate segment. At June 30, 2015, the Company had approximately $0.2 million of assets related to the businesses formerly comprising the Instruments segment.

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 Optics segment manufactures optical materials, components and coatings. The Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment, through Xcede Technologies, Inc., a majority-owned joint venture, is focused on developing a tissue sealant technology though no assurance can be given that this technology will become successfully commercialized.

The Company’s segment information for the three months ended June 30, 2016 and 2015 is summarized below:

The Company’s segment information for the nine months ended June 30, 2016 and 2015 is summarized below:

Customer Financial Information

For the three and nine months ended June 30, 2016, one customer in the Optics segment represented more than 10% of the total segment revenue. For the three months ended June 30, 2015, two customers in the Optics segment each represented more than 10% of the total segment revenue. For the nine months ended June 30, 2015, no customer made up more than 10% of the segment revenue.

For the three and nine months ended June 30, 2016, four and five customers, respectively, of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three and nine months ended June 30, 2015, four customers of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three months ended June 30, 2016 and 2015, these customers made up 72% and 64%, respectively, of Contract Research revenue. For the nine months ended June 30, 2016 and 2015, these customers made up 77% and 68%, respectively, of Contract Research revenue.

Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2016 and 2015 are as follows:

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2016 and 2015 are as follows:

Note 12 - 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. Due to the Company’s adoption of ASU 2015-17, the deferred taxes are all classified as long term.

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, 2016 and September 30, 2015, 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, 2016 and September 30, 2015, 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 13% and 32% for the three and nine months ended June 30, 2016, respectively, and (4%) and (2%) for the three and nine months ended June 30, 2015, 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.

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 2012 are still subject to examination.

Note 13 – Settlement of Pension Liability

On December 1, 2014, the Company terminated and settled its pension liability with each of the remaining participants in the EMF Defined Benefit Plan (the “Plan”). The Plan had been frozen since 2006. The total benefit payments made upon termination were $675,000 and the actual plan assets at the date of termination were $320,000. The Company funded and expensed the $355,000 difference upon settlement of the Plan.

Note 14 – Subsequent Events

On July 15, 2016, Xcede amended the Note Purchase Agreement for the Xcede convertible notes to outside investors and to certain officers and directors of the Company to extend the notes’ maturity date from June 30, 2016 to June 30, 2017 and to increase the principal amount of notes authorized to be issued thereunder from $3.0 million to up to $5.2 million. On July 19, 2016, Xcede issued an additional $0.5 million in principal amount of notes pursuant to the Note Purchase Agreement, allowing Xcede to continue to fund the development of its tissue sealant product.

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 contained herein and in the Dynasil Corporation of America ("Dynasil", the "Company" or "we") Form 10-K for the fiscal year ended September 30, 2015.

General Business Overview

Operations

The consolidated revenue for the third quarter of fiscal year 2016, which ended June 30, 2016, was $10.4 million, an increase of 2%, compared with revenue of $10.2 million for the quarter ended June 30, 2015. The $0.2 million dollar increase was from revenue growth within the Optics segment.

Cost of revenue for the third quarter of 2016 was $6.5 million, an increase of 4%, compared with $6.2 million for the quarter ended June 30, 2015. This increase was the result of a $0.2 million increase in the cost of revenue associated with the Optics segment and a $0.1 million increase in the cost of revenue associated with the Contract Research segment.

Total operating expenses were $3.6 million for both the quarters ended June 30, 2016 and 2015, respectively.

Income from operations for the quarter ended June 30, 2016 was $0.3 million compared to income from operations of $0.5 million for the same period in 2015. For 2016, this is inclusive of $0.2 million in stock compensation expense for the issuance of shares to the Mayo Foundation for Medical Education and Research (“Mayo”) as the final anti-dilution adjustment pursuant to the existing licensing agreement between Mayo and Xcede.

Net income was approximately $0.3 million, or $0.02 per share, for the quarter ended June 30, 2016 and $0.4 million, or $0.02 per share, for last year’s quarter that ended on June 30, 2015.

Our Biomedical segment consists primarily of our majority-owned joint venture, Xcede Technologies. The Biomedical segment incurred approximately $0.2 million in research expenses in the quarter ended June 30, 2016 as Xcede continues to develop a tissue sealant technology. Additionally, during the quarter ended June 30, 2016, Xcede incurred the $0.2 million in stock compensation expense to Mayo discussed above. Xcede is currently funding its development expenses through cash raised from the issuance of Xcede convertible notes to outside investors and to certain officers and directors of the Company. On July 15, 2016, Xcede amended the Note Purchase Agreement for such notes to extend the notes’ maturity date from June 30, 2016 to June 30, 2017 and to increase the principal amount of notes authorized to be issued thereunder from $3.0 million to up to $5.2 million. On July 19, 2016, Xcede issued an additional $0.5 million in principal amount of notes pursuant to the Note Purchase Agreement, allowing Xcede to continue to fund the development of its tissue sealant product. We expect Xcede to incur similar or increasing amounts of expenses as it continues its development activities, and Xcede’s management is continuing to pursue various financing alternatives to fund such expenses.

Results of Operations

Revenue for the third quarter of fiscal year 2016, which ended June 30, 2016, was $10.4 million, an increase of 2% compared with revenue of $10.2 million for the quarter ended June 30, 2015.

The Optics segment revenue increased approximately $0.2 million or 3% for the three months ended June 30, 2016 compared with the same period in the prior year, resulting, in part, from our U.K. subsidiary’s previously announced three-year crystal component supply agreement, as well as the expansion of a product line in our U.S. operations. These increases were partially offset by slight downturns in other optics product lines.

Contract Research segment revenue in the third quarter equaled that of the same period in the prior year. Total backlog remained steady at $31.0 million as of June 30, 2016, of which approximately $14.0 million is currently funded and in process. Management expects continuing government budget pressures on spending and delays in funding subsequent to the granting of awards to add increased variability to the timing of revenue.

The Biomedical segment had no revenue as it is currently researching and developing a tissue sealant technology.

Cost of revenue for the third quarter of 2016 was $6.5 million, or 62%, an increase of 1% compared with $6.2 million and 61% for the quarter ended June 30, 2015. The cost of revenue for the Optics segment increased 4%, or $0.2 million in actual dollars, over the quarter ended June 30, 2015, resulting from a slight change in product mix. The Contract Research segment had a $0.1 million increase in the cost of revenue over the same period last year, which equates to a 4% increase. These increased costs were associated with delays in the release of government funding for awarded contracts which have caused the Company to work on lower margin projects than in the prior year, when a stronger mix of higher-margin contracts was available to work on. The Contract Research segment’s cost of revenue for the third quarter is a 1% improvement over the first two quarters of 2016, as the government began releasing funding for awarded contracts during the third quarter. As mentioned above, the awarded contract backlog is strong, but the delay in the release of government funds seen in the first two quarters of fiscal 2016 has caused us to reschedule the order of awarded projects.

Overall gross profit for the three months ended June 30, 2016 was $3.9 million, or 38% of revenue, compared to $4.0 million, or 39% of revenue, for the three months ended June 30, 2015. Gross profit for the Optics segment remained flat at $2.0 million for both the quarters ended June 30, 2016 and 2015, due to the slightly higher costs on the increased revenue related to the product mix. Gross profit decreased $0.1 million in the Contract Research segment to $1.9 million, or 41% of revenue, for the third quarter of 2016 from $2.0 million, or 44% of revenue, for the same period in 2015, due to the items mentioned above. 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 were $3.6 million for the three months ended June 30, 2016, essentially the same as for the three months ended June 30, 2015. Operating expenses for the Optics segment increased $0.2 million, along with the increased revenue, while expenses in the Contract Research segment decreased by $0.3 million due to controlled spending. Biomedical segment expenses increased approximately $0.2 million due to the stock compensation expense described previously to Mayo.

As a result of the items discussed above, income from operations for the three months ended June 30, 2016 was $0.3 million, less than the $0.5 million for the same period in fiscal 2015 as a result of the Xcede stock compensation expense for the final anti-dilution adjustment for Mayo per their existing licensing agreement with Xcede.

Net interest expense was approximately $0.1 million for both the three months ended June 30, 2016 and 2015.

Income tax expense for the three months ended June 30, 2016 consisted primarily of tax expense on U.K. operations.

Net income for the three months ended June 30, 2016 was $0.3 million, or $0.02 in basic earnings per share as compared to net income of $0.4 million, or $0.02 in basic earnings per share for the quarter ended June 30, 2015.

Results of Operations – Year to Date

Revenue for the nine months ended June 30, 2016 increased $3.2 million, or 11%, to $32.9 million as compared to $29.7 million for the nine months ended June 30, 2015.

Optics segment revenue increased $2.6 million, or 17%, for the nine months ended June 30, 2016 compared with the same period in the prior year. The majority of this increase was the result of sales related to the three-year crystal component supply agreement at our U.K. subsidiary. Additionally, revenue grew in certain U.S. Optics operations for the nine months ended June 30, 2016 compared with the nine months ended June 30, 2015, as the result of the expansion of a product line in one of our U.S. businesses. These increases were partially offset by slight downturns in other optics product lines.

Revenue from our Contract Research segment increased $0.5 million, or 4%, for the nine months ended June 30, 2016 compared to the same period in 2015, primarily due to one contract for the delivery of high speed cameras. Backlog decreased $2.0 million from September 30, 2015 to $31.0 million as of June 30, 2016, of which approximately $14.0 million is currently funded and in process. Management expects continuing government budget pressures on spending and delays in funding subsequent to the granting of awards to add increased variability to the timing of revenue.

The Biomedical segment had no revenue in either the nine months ended June 30, 2016 or 2015.

Gross profit for the nine months ended June 30, 2016 increased $0.7 in actual dollars to $12.0 million, or 36% of sales, compared to $11.3 million, or 38% of sales for the nine months ended June 30, 2015.

Gross profit for the Optics segment increased approximately $1.1 million to $6.3 million for the nine months ended June 30, 2016 compared to the nine months ended June 30, 2015 at $5.2 million, primarily as a result of the increase in revenue, as well as slightly improved cost efficiencies in the first nine months of fiscal 2016 versus the same period in 2015.

Gross profit for the Contract Research segment declined by $0.5 million to $5.6 million, or 39% of sales, for the nine months ended June 30, 2016 as compared to 44% for the nine months ended June 30, 2015, primarily as a result of the switch to the funded awards that contained higher material and consulting contracts that were worked throughout 2016.

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 increased $0.2 million to $11.4 million for the nine months ended June 30, 2016 compared to the nine months ended June 30, 2015. Although the Company’s operating units’ expenditures actually decreased for the nine months ended June 30, 2016 as compared to the prior year, the total operating expenses increased due to the $0.2 million in stock compensation expense for the issuance of shares to Mayo as the final anti-dilution adjustment pursuant to the existing licensing agreement between Mayo and Xcede, as well as the $0.2 million favorable gain on the 2015 sale of one of the Optics segments’ product lines during the same nine month period.

Income from operations was $0.5 million for the nine months ended June 30, 2016 compared to $0.1 million for the same period in 2015. The Optics segment had a year over year increase of $0.7 million in income from operations. This was the cumulative result of improvements in revenue and spending. The Contract Research segment had an increase of $0.1 million in income from operations for the nine months ended June 30, 2016, compared to the same period in the prior year. The Biomedical segment income from operations decreased $0.4 million for the nine months ended June 30, 2016, as compared to the same period in the prior year due to increased research expenses and the $0.2 million in stock compensation expense.

Net interest expense for the nine months ended June 30, 2016 decreased $0.2 million from the same period in 2015, as a result of the steps the Company took in reducing its debt at the end of 2015.

Income tax expense for the nine months ended June 30, 2016 increased as a result of the revenue and profit improvements in the Optics segment.

Net income for the nine months ended June 30, 2016 was $0.3 million or $0.02 basic earnings per share, compared with a loss of ($0.2) million or ($0.01) per share for the nine months ended June 30, 2015 based on the results discussed previously.

Liquidity and Capital Resources

Liquidity Overview and Outlook

Net cash as of June 30, 2016 was $0.2 million or approximately $1.1 million less than the net cash of $1.3 million at September 30, 2015 primarily as a result of the Company’s cash management program which minimizes interest expense. All readily available funds are applied to the revolving line of credit with Middlesex Saving Bank.

On February 1, 2016, the Company converted $2 million of outstanding advances under the Company’s Middlesex Bank Line of Credit Note to a fixed rate, five-year term note bearing at an annual interest rate of 4.5%.  Immediately following this conversion, the Company’s had the original full $4 million line of credit available for its use. On the day of the closing $.2 million was utilized leaving $3.8 million available for future needs.

As of June 30, 2016, the Company was in compliance with the terms of all its outstanding indebtedness, which consisted of $1.9 million of senior debt borrowed from Middlesex Savings Bank through a five-year term note, $0.1 million borrowed under the Company’s $4.0 million revolving line of credit with Middlesex Saving Bank and $1.0 million of subordinated debt owed to Massachusetts Capital Resources Company. The Company had $3.9 million of additional availability under its Middlesex Savings Bank $4.0 million line of credit based on collateral calculations as of June 30, 2016. Management believes that the cash and availability under the line of credit discussed above are adequate to meet the operating Company’s liquidity requirements for the next twelve months.

As of June 30, 2016, the Company’s Xcede subsidiary had $0.2 million of cash remaining from its convertible notes financings, which management believed would fund Xcede’s operations into July 2016. On July 19, 2016, Xcede issued an additional $0.5 million in principal amount of notes under the terms of the existing Note Purchase Agreement, as recently amended. Xcede’s management is continuing to actively pursue a number of financing arrangements to allow Xcede to continue the development of the tissue sealant patch.

Cash From Operating Activities

Net income (loss), including addbacks, generated cash of $2.0 million, and when combined with the changes in accounts receivable, prepaid expenses, accounts payable and accrued expenses, $0.4 million of cash was used for the nine months ended June 30, 2016. Approximately $1.8 million of the cash was used for accounts receivable increases, as a result of the higher level of revenues during 2016 and, in our Contract Research segment, a delay in payments from a major U.S. government customer who until July 2016 was experiencing internal systems issues. In addition, as a result of the higher revenues in 2016, the Company has increased its inventory levels by $1.0 million to meet the new demand. These increases were partially offset by management of current liabilities.

Cash From Investing and Financing Activities

The Company used cash of approximately $1.0 million for the purchase of property, plant and equipment for the nine months ended June 30, 2016.

Total outstanding bank debt as of June 30, 2016 increased approximately $0.4 million to $3.3 million from $2.9 million at September 30, 2015, and Xcede convertible notes and accrued interest increased approximately $0.5 million to $2.6 million at June 30, 2016 from $2.1 million as of September 30, 2015. Net cash generated from financing activities during the nine months ended June 30, 2016 was approximately $0.8 million, as a result of the $0.4 million of line of credit advances and the issuance of approximately $0.4 million of Xcede convertible notes in the first quarter of 2016.

Obligations Relating to Xcede Convertible Notes

As of June 30, 2016, Xcede had convertible notes outstanding in the aggregate principal amount of approximately $3.3 million, of which $2.6 million was owed to outside investors and to certain officers and directors of the Company and $0.7 million was owed to the Company. On July 15, 2016, Xcede amended the existing Note Purchase Agreement pursuant to which such notes were issued to extend the notes’ maturity date from June 30, 2016 to June 30, 2017 and to increase the principal amount of notes authorized to be issued thereunder from $3.0 million to up to $5.2 million. The notes accrue interest at 5% and are due upon the demand of the holders of a majority of the aggregate outstanding principal amount of the notes. On July 19, 2016, Xcede issued an additional $0.5 million in principal amount of notes pursuant to the Note Purchase Agreement, allowing Xcede to continue to fund the development of its tissue sealant product. Certain officers and directors of the Company hold approximately 51% of the notes, and the remaining 49% are held by outside investors. The notes are unsecured and are not guaranteed by the Company.

Upon the closing of a capital stock financing by Xcede raising at least $3.0 million, inclusive of the notes and interest, the outstanding principal amount of the notes plus all accrued interest will be converted into shares of the same capital stock sold in the financing at a 20% discount to the price per share of that capital stock. Alternatively, at any time prior to a capital stock financing the note holders can convert, at their option, the principal amount of the notes plus accrued interest into common stock based on a $5 million valuation.

Critical Accounting Policies and Estimates

Effective October 1, 2015, the Company early adopted the guidance issued in Accounting Standards Update 2015-03, Interest – Imputation of Interest (Topic 835) and Accounting Standards Update 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, as detailed in Note 2 to the financial statements in this Form 10-Q. There have been no other material changes in our critical accounting policies or critical accounting estimates since September 30, 2015. 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, 2015 as well as the notes to the financial statements contained 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 revenue 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. Revenue 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.

Intangible Assets

The Company’s intangible assets consist of acquired customer relationships and trade names of Hilger Crystals, Ltd., acquired know-how of Radiation Monitoring Devices, Inc. and purchased and patented biomedical technologies within the Biomedical segment. The Company amortizes its intangible assets with definitive lives over their useful lives, which range from 5 to 20 years, based on the time period the Company expects to receive the economic benefit from these assets. No impairment charge was recorded during the three month period ended June 30, 2016 or 2015.

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.

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-based compensation granted to employees and directors. Options and restricted stock awards are recorded as an expense over the requisite service period based on the grant date estimated fair value of the grant, which in the case of options is 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. All deferred taxes are presented as long term. 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

See Note 2, "Recent Accounting Pronouncements" in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects on our consolidated financial position, results of operations and cash flows.

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 Xcede and Dynasil Biomedical, 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, 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 17, 2015, 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 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified under the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2016. Based on this evaluation, our management concluded that as of June 30, 2016, these disclosure controls and procedures were effective at the reasonable assurance level.

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

In addition to the other information set forth in this report, you should carefully consider the risk factors set forth below as well as those discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2015, any of 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

Political and economic uncertainty arising from the outcome of the recent referendum on the membership of the United Kingdom in the European Union could adversely impact our financial results.

In June 2016, a majority of voters in the United Kingdom (U.K.) elected to withdraw from the European Union (E.U.) in a national referendum (also referred to as "Brexit"). Our Hilger Crystals Ltd. business unit is located in the U.K. The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business, including the British pound. We translate revenue denominated in foreign currency (including the British pound) into U.S. dollars for our financial statements. During periods of a strengthening dollar, our reported international revenue is reduced because foreign currencies translate into fewer U.S. dollars.

If the referendum is passed into law, negotiations would commence to determine the future terms of the U.K.’s relationship with the E.U., including the terms of trade between the U.K. and the E.U. The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets either during a transitional period or more permanently. The measures could potentially disrupt the markets we serve and may cause us to lose customers suppliers and employees. Additionally, disruptions and uncertainty caused by Brexit may cause our customers to closely monitor their costs and reduce their spending budget on our products and services. Brexit may also lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate. Any of these effects of Brexit, among others, could adversely affect our business, financial condition or future results.

Other than the changes noted above, the risk factors that were disclosed in our most recent Form 10-K have not materially changed since the date our most recent Form 10-K was filed with the SEC.

ITEM 6 Exhibits

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 11, 2016 issued by Dynasil Corporation of America announcing its financial results for the quarter ended June 30, 2016.

101 The following materials from Dynasil Corporation of America’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015, (ii) Consolidated Statements of Operations for the three and nine months ended June 30, 2016 and 2015, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended June 30, 2016; (iv) Consolidated Statements of Cash Flows for the nine months ended June 30, 2016 and 2015, 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.

DYNASIL CORPORATION OF AMERICA