10-Q

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.

Commission file number: 000-27503

DYNASIL CORPORATION OF AMERICA

(Exact name of registrant as specified in its charter)

Delaware	22-1734088
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

44 Hunt Street, Watertown, MA	02472
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 668-6855

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days Yes x No¨

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.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

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 May 7, 2013 there were 15,034,535 shares of common stock, par value $.0005 per share, outstanding.

2

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

INDEX

		Page
PART 1.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
	CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2013 AND SEPTEMBER 30, 2012	3
	CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE  INCOME (LOSS) FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2013 AND 2012	6
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 2013	7
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX  MONTHS ENDED MARCH 31, 2013 AND 2012	8
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	9
Item 1A.	Risk Factors	19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION	30
Item 6.	Exhibits	32
Signatures		33

3

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31,		September 30,
	2013		2012
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	2,132,901	$	3,414,880
Accounts receivable, net of allowances of $186,110 and $198,070 for March 31, 2013 and September 30, 2012, respectively		4,389,394		5,475,142
Costs in excess of billings and unbilled receivables		1,755,185		1,735,798
Inventories, net of reserves		3,658,215		3,271,700
Deferred tax asset		126,187		126,187
Prepaid expenses and other current assets		1,426,916		1,334,649
Total current assets		13,488,798		15,358,356
Property, Plant and Equipment, net		4,738,147		4,984,150
Other Assets
Intangibles, net		3,776,038		6,703,305
Goodwill		6,135,642		10,254,160
Deferred financing costs, net		139,843		165,457
Total other assets		10,051,523		17,122,922
Total Assets	$	28,278,468	$	37,465,428
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	11,047,619	$	11,984,492
Capital lease obligations, current		113,243		-0-
Accounts payable		2,536,408		2,416,397
Deferred revenue		741,427		694,672
Accrued expenses and other liabilities		1,849,936		2,809,580
Total current liabilities		16,288,633		17,905,141
Long-term Liabilities
Capital lease obligations, net of current portion		252,381		-0-
Pension liability		342,848		345,443
Deferred tax liability		195,895		371,256
Total long-term liabilities		791,124		716,699

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

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DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) (Continued)

	March 31,			September 30,
	2013			2012
	(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 15,779,791 and 15,610,517 shares issued, 14,969,631 and and 14,800,357  shares outstanding at March 31, 2013 and September 30, 2012, respectively.		7,890			7,805
Additional paid in capital		17,259,349			17,037,618
Accumulated other comprehensive income (loss)		(183,715	)		61,906
Retained earnings (Accumulated deficit)		(4,898,471	)		2,722,601
		12,185,053			19,829,930
Less 810,160 shares of treasury stock - at cost		(986,342	)		(986,342	)
Total stockholders' equity		11,198,711			18,843,588
Total Liabilities and Stockholders' Equity	$	28,278,468		$	37,465,428

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

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DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Net revenue	$	10,484,530		$	12,299,010		$	21,037,805		$	24,431,305
Cost of revenue		5,692,958			7,214,667			11,619,367			14,220,014
Gross profit		4,791,572			5,084,343			9,418,438			10,211,291
Operating expenses:
Sales and marketing expenses:		486,544			451,961			966,422			844,762
Research and development expenses		573,229			1,102,445			1,210,358			1,621,840
General and administrative expenses		4,216,741			4,129,653			7,917,887			8,158,077
Impairment of goodwill and long-lived assets		6,763,072			-0-			6,763,072			-0-
Total operating expenses		12,039,586			5,684,059			16,857,739			10,624,679
Loss from operations		(7,248,014	)		(599,716	)		(7,439,301	)		(413,388	)
Interest expense, net		177,159			122,474			363,916			246,631
Loss before income tax benefit		(7,425,173	)		(722,190	)		(7,803,217	)		(660,019	)
Income tax benefit		(183,443	)		(137,180	)		(182,145	)		(445,347	)
Net loss	$	(7,241,730	)	$	(585,010	)	$	(7,621,072	)	$	(214,672	)
Net loss	$	(7,241,730	)	$	(585,010	)	$	(7,621,072	)	$	(214,672	)
Other comprehensive income (loss):
Foreign currency translation		(275,360	)		138,552			(245,621	)		78,192
Total comprehensive loss	$	(7,517,090	)	$	(446,458	)	$	(7,866,693	)	$	(136,480	)
Basic net loss per common share	$	(0.49	)	$	(0.04	)	$	(0.52	)	$	(0.01	)
Diluted net loss per common share	$	(0.49	)	$	(0.04	)	$	(0.52	)	$	(0.01	)
Weighted average shares outstanding
Basic		14,770,943			15,002,818			14,721,733			15,091,356
Diluted		14,770,943			15,002,818			14,721,733			15,091,356

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

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DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the six months ended March 31, 2013					Additional		Other											Total
	Common		Common		Paid-in		Comprehensive			Retained Earnings			Treasury Stock					Stockholders'
	Shares		Amount		Capital		Income (Loss)			(Accumulated Deficit)			Shares		Amount			Equity
Balance, September 30, 2012		15,610,517	$	7,805	$	17,037,618	$	61,906		$	2,722,601			810,160	($	986,342	)	$	18,843,588
Issuance of shares of common stock under employee stock purchase plan		15,228		8		11,680		-0-			-0-			-0-		-0-			11,688
Stock-based compensation costs		154,046		77		210,051		-0-			-0-			-0-		-0-			210,128
Foreign currency translation adjustment		-0-		-0-		-0-		(245,621	)		-0-			-0-		-0-			(245,621	)
Net loss		-0-		-0-		-0-		-0-			(7,621,072	)		-0-		-0-			(7,621,072	)
Balance, March 31, 2013		15,779,791	$	7,890	$	17,259,349	($	183,715	)	($	4,898,471	)		810,160	($	986,342	)	$	11,198,711

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

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DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	March 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(7,621,072	)	$	(214,672	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation expense		210,128			436,360
Foreign exchange loss		(31,275	)		(42,667	)
Contingent consideration adjustment		-0-			(17,755	)
Gain on sale of property, plant and equipment		(87,803	)		-0-
Depreciation and amortization		870,175			743,193
Noncash interest expense		25,614			29,934
Provision for doubtful accounts and sales returns		-0-			5,118
Inventory reserves		9,241			-0-
Deferred income taxes		(183,810	)		(237,968	)
Impairment of goodwill and long-lived assets		6,763,072			-0-
Other changes in assets and libilities:
Accounts receivable, net		1,102,777			(2,455,415	)
Inventories		(359,106	)		159,199
Costs in excess of billings / unbilled receivables		(19,387	)		547,709
Prepaid expenses and other assets		(84,600	)		(281,444	)
Accounts payable		112,126			(27,081	)
Accrued expenses and other liabilities		(963,447	)		(15,092	)
Deferred revenue		38,178			262,942
Net cash used in operating activities		(219,189	)		(1,107,639	)
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment		80,252			-0-
Purchases of property, plant and equipment		(215,679	)		(687,328	)
Net cash used in investing activities		(135,427	)		(687,328	)
Cash flows from financing activities
Proceeds from issuance of common stock		11,688			31,701
Principal payments on capital leases		(21,056	)		-0-
Payments on long-term debt		(936,873	)		(949,002	)
Net cash used in financing activities		(946,241	)		(917,301	)
Effect of exchange rates on cash and cash equivalents		18,878			102,164
Net decrease in cash and cash equivalents		(1,281,979	)		(2,610,104	)
Cash and cash equivalents, beginning		3,414,880			4,479,840
Cash and cash equivalents, ending	$	2,132,901		$	1,869,736
Supplemental disclosures of cash flow information:
Non cash activities:
Assets purchased under capital leases	$	386,680			-0-

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

8

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 March 31, 2013, the consolidated statements of operations and comprehensive loss for the three and six months ended March 31, 2013 and 2012, changes in stockholders’ equity for the six months ended March 31, 2013 and cash flows for the six months ended March 31, 2013 and 2012 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, 2012 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission, as amended on February 14, 2013.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has failed to comply with the financial covenants set forth in the terms of its outstanding loan agreements and sustained a substantial loss from operations for the year ended September 30, 2012. The Company has continued to sustain losses from operations for the six months ended March 31, 2013. These factors raise substantial doubt over the Company’s ability to continue as a going concern.

The Company continues to be in default of the financial covenants set forth in the terms of its loan agreements for its fiscal second quarter ended March 31, 2013. These covenants require the Company to maintain specified ratios of earnings before interest, taxes, depreciation and amortization (EBITDA) to fixed charges and to total/senior debt. A default gives the lenders the right to accelerate the maturity of the outstanding indebtedness. Furthermore, Sovereign Bank, N.A, the Company’s senior lender, may, at its option, impose a default interest rate with respect to the senior debt outstanding, which is 5% higher than the rate otherwise in effect. To date, the lenders have not taken any such actions. However, the Company cannot predict when or whether a resolution of this situation will be achieved.

The Company has accrued but not remitted interest payments for February and March 2013 to its subordinated lender. The Company is current with all principal and interest payments due to its senior lender through May 15, 2013, the date of this filing. Management has provided a revised forecast to its lenders and is engaged in discussions with its senior lender to address the financial covenant situation. Because of the uncertainty of any resolution of the covenant violations and possibility of an acceleration of the indebtedness by the lenders, the Company reclassified all of its outstanding indebtedness as a current liability in the accompanying consolidated balance sheets.

The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and positive cash flows and/or to obtain the necessary financing from shareholders or other sources to meet its outstanding obligations and repay its liabilities arising from normal business operations when they become due.

In view of the matters described in the preceding paragraphs, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon the continued operations of the Company. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

9

The Company has taken and will continue to take actions to improve its liquidity, including the implementation of a number of initiatives designed to conserve cash, optimize profitability and right-size the cost structure of its various businesses. The Company has retained Argus Management Corporation and Mirus Capital as financial advisors to assist it in evaluating strategic and restructuring alternatives, including the potential sale of product lines and/or a Company division. While the Company is actively considering such strategic alternatives, there can be no assurances that any such transaction will occur, or, if a transaction is completed, it will be on terms favorable to the Company. The Company does not currently have cash available to satisfy its obligations under its indebtedness if it were to be accelerated or payment demanded. If the Company is not able to resolve its current defaults under its outstanding indebtedness and improve its liquidity through the actions described above, it may not have sufficient liquidity to meet its anticipated cash needs for the next twelve months.

We consider events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2013, 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 –Debt Classification

The Company was in default of certain financial covenants set forth in the terms of its outstanding indebtedness as of March 31, 2013, December 31, 2012 and September 30, 2012 and has not paid its monthly interest payments to its subordinated lender since February 2013. Based on the covenant violations and the resulting possibility of an acceleration of the indebtedness by the lenders, all of the outstanding indebtedness of the Company has been classified as current liabilities in the accompanying balance sheets.

Note 3 - Inventories

Inventories are stated at the lower of average cost or market. Cost is determined using the first-in, first-out (FIFO) method. Inventories consist of raw materials, work-in-process and finished goods. The Company evaluates inventory levels and expected usage on a periodic basis and records, as a charge to cost of revenue, any amounts required to reduce the carrying value to net realizable value.

Inventories, net of reserves, consist of the following:

	March 31,		September 30,
	2013		2012
Raw Materials	$	2,183,899	$	2,096,681
Work-in-Process		965,439		885,328
Finished Goods		508,877		289,691
	$	3,658,215	$	3,271,700

Note 4 – Costs in Excess of Billings and Unbilled Receivables

Costs in excess of billings and unbilled receivables relate to research and development contracts and consist of actual revenues earned under the contracts which have not yet been billed to customers.

Note 5 – Impairment of Goodwill and Long-Lived Assets

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:

· A significant adverse long term outlook for any of our industries;

· An adverse finding or rejection from a regulatory body involved in new product regulatory approvals;

· Failure of an anticipated commercialization of a product or product line;

· Unanticipated competition or the introduction of a disruptive technology;

· The testing for recoverability under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 of a significant asset group within a reporting unit;

10

· A loss of key personnel; and

· An expectation that a reporting unit carrying goodwill, or a significant portion of a reporting unit, will be sold or otherwise disposed of.

The Company’s Dynasil Products subsidiary (“Products”) has continued to experience delays in obtaining regulatory approval of its next generation lead paint analyzer product. Due to the uncertainties regarding whether approval of the product could be obtained in a reasonable timeframe, Products further reduced its operating expense platform in the second quarter and has limited its activities to the sale and service its current lead paint analyzer. The Company is currently evaluating various strategic alternatives associated with the lead paint analyzer product.

Products has continued to experience delays in obtaining regulatory approvals of its updated medical probe for cancer surgery. Approval is expected in the third quarter of 2013.

As a result of the downsizing of expenditures associated with both product lines and the process of evaluating strategic alternatives associated with the lead paint analyzer product, the Company determined that an interim impairment test of long lived assets and goodwill associated with this business unit was required. As required, the Company first tested long lived assets for impairment before performing the goodwill impairment test. For purposes of testing the impairment of long lived assets, management determined that Products represented an asset group as defined in ASC 360. In step one of this analysis which compares the carrying value of the Products asset group to its undiscounted expected future cash flows, the undiscounted cash flows of Products was less than its carrying value. As a result, the Company proceeded to a step two analysis, which requires valuing the asset group, determining the potential impairment and allocating that impairment to the long lived assets without writing those assets down below their respective fair values.

The fair value of the asset group was determined based on discounted cash flows. The Company’s long-lived assets (other than goodwill) consist primarily of the Acquired Customer Base intangible asset. Fair value of that asset was determined using an income approach using the multi-period excess earnings method which estimates the fair value of the asset by discounting the future projected excess earnings associated with the asset to present value as of the valuation date. Based on its analyses, 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 non-cash, pre-tax impairment charge of approximately $2,748,000 during the quarter ended March 31, 2013.

The Company then performed a goodwill impairment test as prescribed in ASC 350. The Products reporting unit fair value was determined using a discounted cash flow analysis. This amount was lower than the carrying value which had been previously adjusted as described above. Step 2 of ASC 350 was then preformed with a “memo allocation” of the Product business unit assets. The result of this assessment indicated that the implied fair value of the goodwill was zero. As a result, the Company recognized a non-cash, pre-tax charge of approximately $4,015,000 during the quarter ended March 31, 2013.

The valuation methods utilized to value the long lived assets and the goodwill discussed above are based on the amount and timing of expected future cash flows and growth rates and include a determination of an appropriate discount rate. The cash flows utilized in the discounted cash flow analyses were based on financial forecasts developed internally by management. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized. The discount rate used also requires significant judgment and is intended to reflect the risks involved in the business.

Note 6 – Intangible Assets

Intangible assets at March 31, 2013 and September 30, 2012 consist of the following:

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	Useful	Gross		Accumulated
March 31, 2013	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5-15	$	5,275,668	$	2,516,280	$	2,759,388
Know How	15		512,000		162,214	$	349,786
Trade Names	15 - Indefinite		527,389		70,522	$	456,867
Biomedical Technologies	5		300,000		90,003	$	209,997
		$	6,615,057	$	2,839,019	$	3,776,038

	Useful	Gross		Accumulated
September 30, 2012	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5-15	$	7,858,775	$	2,257,533	$	5,601,242
Know How	15		512,000		145,147		366,853
Trade Names	15 - Indefinite		558,435		63,222		495,213
Biomedical Technologies	5		300,000		60,003		239,997
		$	9,229,210	$	2,525,905	$	6,703,305

Amortization expense for the three months ended March 31, 2013 and 2012 was $143,506 and $162,802respectively. Amortization expense for the six months ended March 31, 2013 and 2012 was $324,774 and $325,605, respectively. Estimated amortization expense for each of the next five fiscal years is as follows:

	2013 (6 Months)		2014		2015		2016		2017		Thereafter		Total
Acquired Customer Base	$	271,543	$	543,085	$	543,085	$	543,085	$	543,085	$	315,504	$	2,759,387
Know How		17,067		34,133		34,133		34,133		34,133		196,187		349,786
Trade Names		7,300		14,600		14,600		14,600		14,600		72,995		138,695
Biomedical Technologies		30,000		60,000		60,000		59,997		-0-		-0-		209,997
	$	325,910	$	651,818	$	651,818	$	651,815	$	591,818	$	584,686	$	3,457,865

Note 7 – Capital Leases

The Company has entered into long-term capital lease agreements for certain equipment purchases. The remaining principal payments due under all capital leases total $365,264 for the three and six month periods ended March 31, 2013 and $0 for the three and six month periods ended March 31, 2012. Aggregate minimum annual principal obligations at March 31, 2013, under non-cancelable leases are as follows:

	2013 (6 Months)		2014		2015		2016		2017		Thereafter		Total
Capital Lease Obligations	$	55,691	$	117,032	$	125,031	$	50,133	$	13,118	$	4,619	$	365,624

Note 8 – 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, no common share equivalents related to stock options were assumed to be outstanding for the three and six months ended March 31, 2013 and 2012. For the three and six months ended March 31, 2013 and 2012, no common share equivalents related to stock options were included in the calculation of dilutive shares since there was a loss from continuing operations and the inclusion of common share equivalents would be anti-dilutive. Also, if the Company had not been in a loss position as of March 31, 2013, 158,834 shares of restricted stock would have been considered in the denominator used to calculate diluted earnings per common share. In addition, as of March 31, 2013 and 2012, common stock options for 710,532 and 1,059,583 shares, respectively, with exercise prices above current quarterly average market price per share have been excluded from the calculation of dilutive earnings per share since their effect is also anti-dilutive.

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The computation of the weighted shares outstanding for the three months ended March 31 is as follows:

	March 31, 2013		March 31, 2012
Weighted average shares outstanding
Basic		14,770,943		15,002,818
Effect of dilutive securities
Stock Options		-0-		-0-
Dilutive Average Shares Outstanding		14,770,943		15,002,818

The computation of the weighted shares outstanding for the six months ended March 31 is as follows:

	March 31, 2013		March 31, 2012
Weighted average shares outstanding
Basic		14,721,733		15,091,356
Effect of dilutive securities
Stock Options		-0-		-0-
Dilutive Average Shares Outstanding		14,721,733		15,091,356

Note 9 - 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 as of March 31, 2013 and changes during the six months ended March 31, 2013 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share ($)		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2012		794,483			3.34		1.75
Outstanding and exercisable at September 30, 2012		794,483			3.34		1.75
Granted		0			0
Exercised		0			0
Cancelled		(83,951	)		3.69
Balance at March 31, 2013		710,532			3.30		1.41
Outstanding and exercisable at March 31, 2013		710,532			3.30		1.41

A summary of restricted stock activity for the six months ended March 31, 2013 and 2012 is presented below:

13

Restricted Stock Activity for the Six Months ended March 31, 2013	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2012		127,834		$	1.92
Granted		104,000		$	1.03
Vested		(53,000	)	$	1.21
Cancelled		(20,000	)	$	4.02
Nonvested at March 31, 2013		158,834		$	1.31

Restricted Stock Activity for the Six Months ended March 31, 2012	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2011		403,000		$	4.02
Granted		-0-			-0-
Vested		(38,000	)	$	4.01
Cancelled		-0-			-0-
Nonvested at March 31, 2012		365,000		$	4.02

Stock Compensation Expense for the three and six months ended March 31, 2013 and 2012 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	March 31, 2013		March 31, 2012
Stock Grants	$	80,091	$	111,233
Restricted Stock Grants		53,076		104,420
Option Grants		2,454		18,061
Employee Stock Purchase Plan		991		3,434
Total	$	136,612	$	237,148

	Six Months Ended		Six Months Ended
Stock Compensation Expense	March 31, 2013		March 31, 2012
Stock Grants	$	132,552	$	171,514
Restricted Stock Grants		65,694		218,604
Option Grants		9,813		40,116
Employee Stock Purchase Plan		2,069		6,126
Total	$	210,128	$	436,360

At March 31, 2013 there was approximately $186,000 in unrecognized stock compensation cost, which is expected to be recognized over a weighted average period of ten months.

Note 10 – 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 is developing technologies for a wide spectrum of applications, including hematology, hypothermic core cooling and tissue sealants and will primarily pursue product commercialization of technologies and technology licensing opportunities though no assurance can be given that any of these technologies will become successfully commercialized.

14

The Company’s segment information for the three months ended March 31, 2013 and 2012 is summarized below:

Results of Operations for the Three Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	5,487,850		$	3,931,766	$	1,014,320		$	50,594		$	10,484,530
Gross Profit		2,647,870			1,632,007		461,101			50,594			4,791,572
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,072			-0-			6,763,072
Operating Income (Loss)		232,015			2,336		(7,270,801	)		(211,564	)		(7,248,014	)
Depreciation and Amortization		79,637			184,696		164,384			15,000			443,717
Capital expenditures		(187,425	)		87,536		-0-			-0-			(99,889	)
Intangibles, Net		349,786			866,488		2,349,767			209,997			3,776,038
Goodwill		4,938,625			1,197,017		-0-			-0-			6,135,642
Total Assets		13,332,151			9,748,703		4,862,956			334,658			28,278,468

Results of Operations for the Three Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	6,978,973	$	3,684,213	$	1,629,248		$	6,576		$	12,299,010
Gross Profit		2,771,643		1,471,367		837,368			3,965			5,084,343
Operating Income (Loss)		158,278		30,970		(538,996	)		(249,968	)		(599,716	)
Depreciation and Amortization		57,777		155,597		134,699			15,000			363,073
Capital expenditures		85,199		183,965		12,823			-0-			281,987
Intangibles, Net		402,434		1,790		5,374,500			270,000			6,048,724
Goodwill		4,938,625		2,115,376		6,299,571			-0-			13,353,572
Total Assets		12,797,372		11,385,312		15,276,724			249,537			39,708,945

15

The Company’s segment information for the six months ended March 31, 2013 and 2012 is summarized below:

Results of Operations for the Six Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	10,398,690		$	8,183,706	$	2,298,358		$	157,051		$	21,037,805
Gross Profit		4,861,923			3,332,562		1,066,902			157,051			9,418,438
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,072			-0-			6,763,072
Operating Income (Loss)		231,409			388,012		(7,726,495	)		(332,227	)		(7,439,301	)
Depreciation and Amortization		142,419			370,324		327,432			30,000			870,175
Capital expenditures		(1,095	)		209,682		7,092			-0-			215,679
Intangibles, Net		349,786			866,488		2,349,767			209,997			3,776,038
Goodwill		4,938,625			1,197,017		-0-			-0-			6,135,642
Total Assets		13,332,151			9,748,703		4,862,956			334,658			28,278,468

Results of Operations for the Six Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	13,204,256	$	7,596,764	$	3,612,784		$	17,501		$	24,431,305
Gross Profit		5,211,931		2,933,785		2,088,791			(23,216	)		10,211,291
Operating Income (Loss)		303,495		195,093		(459,452	)		(452,524	)		(413,388	)
Depreciation and Amortization		94,937		349,100		269,156			30,000			743,193
Capital expenditures		347,219		324,841		15,268			-0-			687,328
Intangibles, Net		402,434		1,790		5,374,500			270,000			6,048,724
Goodwill		4,938,625		2,115,376		6,299,571			-0-			13,353,572
Total Assets		12,797,372		11,385,312		15,276,724			249,537			39,708,945

Customer Financial Information

For the three and six months ended March 31, 2013 and 2012, the top three customers for the Contract Research segment were various agencies of the U.S. Government. For the three months ended March 31, 2013 and 2012, these customers made up 61% and 72%, respectively, of Contract Research revenue. For the six months ended March 31, 2013 and 2012, these customers made up 63% and 76%, respectively, of Contract Research revenue.

For the three and six months ended March 31, 2013 and 2012, there was no customer in the Optics segment whose revenue represented more than 10% of the total segment revenue for the three or the six months ended March 31, 2013 and 2012.

For the three months ended March 31, 2013 and 2012, the top three customers for the Instruments segment made up 30% and 32%, respectively, of Instruments revenue. For the six months ended March 31, 2013 and 2012, the top three customers for the Instruments segment made up 32% and 29%, respectively, of Instruments revenue.

For the three and six months ended March 31, 2013, the Biomedical segment had one customer whose revenue represented 100% of the total segment revenue. For the three and six months ended March 31, 2012, 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 March 31, 2013 and 2012 are as follows:

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	Three Months Ended					Three Months Ended
	March 31, 2013					March 31, 2012
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,572,033		82	%	$	10,287,397		84	%
Europe		847,662		8	%		1,103,021		9	%
Other		1,064,836		10	%		908,592		7	%
	$	10,484,530		100	%	$	12,299,010		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2013 and 2012 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2013					March 31, 2012
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	17,066,521		82	%	$	20,315,876		83	%
Europe		1,736,003		8	%		2,229,373		9	%
Other		2,235,282		10	%		1,886,056		8	%
	$	21,037,805		100	%	$	24,431,305		100	%

Note 11 - 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 carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates, and tax laws, in the respective tax jurisdiction then in effect.

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.

As a result, the Company has recorded a valuation allowance of approximately $1.7 million as of September 30, 2012 and an additional valuation of approximately $2.5 million based upon year to date activity for a total valuation allowance of approximately $4.2 million as of March 31, 2013.

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 March 31, 2013 and September 30, 2012, 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 March 31, 2013 and September 30, 2012, 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 rate of (2.48%) and (2.34%) for the three and six months ended March 31, 2013 differs 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 effective rate of (27.31%) and (72.64%) for the three and six months ended March 31, 2012 is primarily due to the recognition of research credits.

17

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 2009 are still subject to examination.

Note 12 – Fair Value Measurements

The Company uses a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. Assets and liabilities measured at fair value are to be categorized into one of the three hierarchy levels based on the inputs used in the valuation. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows:

• Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2: Observable inputs based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.

• Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for fixed rate long-term debt and variable rate long term debt approximate fair value because the underlying instruments are primarily at current market rates available to the Company for similar borrowings.

Fair value of assets measured on a nonrecurring basis at March 31, 2013 included the following:

Products Business Unit	Fair Value at March 31,2013		Level 1		Level 2		Level 3
Goodwill	$	-0-	$	-0-	$	-0-	$	-0-
Acquired Customer Base		2,211,000						2,211,000
Trade Name		139,000						139,000
Fixed Assets		163,000						163,000

Goodwill for the Products business unit was deemed to be impaired and written down to its fair value of $-0- at March 31, 2013. Acquired Customer Base, Trade Name and Fixed Assets were also deemed to be impaired and written down to their fair values of $2,211,000, $139,000 and $163,000, respectively. The fair value measurements were calculated using a discounted cash flow approach, which includes unobservable inputs classified as Level 3 within the fair value hierarchy.  The amount and timing of future cash flows was based on the Company’s most recent operational forecasts.  The Company uses the assistance of an independent consulting firm to develop valuation assumptions. See Note 5 for additional discussion regarding the impairment of goodwill and other long lived assets.

Note 13 – Subsequent Events

The Company has evaluated subsequent events through the date that the financial statements were released.

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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, 2012, 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

We are not in compliance with our financial covenants under our loan agreements with our lenders and we are in payment default with our subordinated lender. Our lenders may exercise one or more of their available remedies, including the right to require the immediate repayment of all outstanding indebtedness.

As of March 31, 2013, we had approximately $8.0 million of indebtedness with Sovereign Bank, N.A. and $3.0 million of indebtedness with Massachusetts Capital Resource Company, which is subordinated to the Sovereign Bank loan. This indebtedness is secured by substantially all of our accounts and assets and is guaranteed by our subsidiaries. Our loan agreements include financial covenants which require us to maintain compliance with certain financial ratios during the term of the agreements. Failure to comply with the financial covenants is an event of default under the loan agreements. In an event of default, each of the lenders has the right to accelerate repayment of all outstanding indebtedness, impose a higher default interest rate (in the case of Sovereign Bank) and take any and all action, at its sole option, to collect monies owed to it, including to enforce and foreclose on its security interest on all of our assets. As of March 31, 2013, December 31, 2012 and September 30, 2012, we are in violation of certain financial covenants contained in each of the loan agreements that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total/senior debt. Additionally, although we continue to be current with all principal and interest payments with Sovereign Bank, as of March 31, 2013, we are currently delinquent on two months of interest payments on our $3.0 million note from Massachusetts Capital Resource Company.

As of March 31, 2013, neither of our lenders has accelerated our payment obligations or taken any of the actions described above. We are in discussions with our senior lender regarding our current non-compliance under the loan agreement. However, we cannot provide any assurance that these negotiations will be successful. If we are not successful in negotiating a waiver or forbearance agreement or other relief under our loan agreements, our obligations under those agreements may be accelerated in the future and our lenders may exercise other remedies for default. Even if we successfully obtain forbearance from our lenders for our current covenant non-compliance, we can provide no assurance that we will not violate our covenants in the future.

If our lenders were to accelerate our debt payments, our assets may not be sufficient to fully repay the debt and we may not be able to obtain capital from other sources at favorable terms or at all. If additional funding is required, this funding may not be available on favorable terms, if at all, or without potentially very substantial dilution to our stockholders. If we do not raise the necessary funds, we may need to curtail or cease our operations, sell certain assets and/or file for bankruptcy, which would have a material adverse effect on our financial condition and results of operations.

We have recently recorded substantial impairment charges in our Products business unit. Any future impairments of the assets in our Products or other businesses could negatively impact our results of operations.

Non-amortizing intangible assets, including goodwill, are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of events or changes in circumstances indicating that the carrying value of such intangible assets may not be recoverable could include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of. At September 30, 2012, the Company recorded an impairment of goodwill in the amount of $2,284,499 associated with the Dynasil Products (“Products”) business unit, which is experiencing delays with regulatory approvals (FDA and HUD) to be able to sell new products. At March 31, 2013, the Company determined an additional impairment in goodwill and other intangible assets in the amount of $6,763,000 was required. As a result, the remaining goodwill associated with the Products business unit was written off in the second quarter of 2013 and the Company recorded an impairment of approximately $2,748,000 related to the Products long-lived asset group. Any future impairment of goodwill or other intangible assets would have a negative impact on our profitability and financial results.

19

We face potential de-listing from the Nasdaq Stock Market that could impair the liquidity of our stock and our availability to access the capital markets.

The NASDAQ Stock Market (“Nasdaq”) requires that companies remain in compliance with the Global Market Continued Listing Requirements for its common stock as set forth in Marketplace Rule 5450(a) and at least one of the Standards in Rule 5450(b). On March 26, 2013, the Company received notice from Nasdaq that, because the closing bid price for the Company's common stock has fallen below $1.00 per share for 30 consecutive business days, the Company no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Global Select Market, set forth in Nasdaq Marketplace Rule 5450(a)(1). The Company has been provided an initial compliance period of 180 calendar days, or until September 23, 2013, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company's common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive business days prior to September 23, 2013. We can make no assurance that we will be able to remain listed on the NASDAQ Stock Market. If we are de-listed by Nasdaq the liquidity of our common stock could be impaired and we could have more difficulty raising capital, which could have an adverse effect on our results of operations and financial condition.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in the Dynasil Corporation of America ("Dynasil", the "Company" or "we") Annual Report on Form 10-K for the year ended September 30, 2012, as filed with the Securities and Exchange Commission, as amended on February 14, 2013. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A. "Risk Factors".

General Business Overview

On December 31, 2012, the Company announced it is in default of certain financial covenants set forth in the terms of its outstanding indebtedness with respect to its fiscal year ended September 30, 2012. Under the default condition, our lenders have the ability to require immediate payment of all indebtedness under our loan agreements. While the lenders have not exercised this right, their ability to require immediate payment has caused all of our outstanding indebtedness to be accelerated to current classification on our consolidated financial statements.

The Company has accrued but not remitted interest payments for February and March 2013 to its subordinated lender. The Company has made all principal and interest payments due to its senior lender through May 13, 2013, the date of this filing. Management has provided a revised forecast to its lenders and is engaged in discussions with its senior lender to address the financial covenant situation. However, the Company cannot predict when or whether a resolution of this situation will be achieved. Because of the uncertainty of any resolution of the covenant violations and the possibility of an acceleration of the indebtedness by the lenders, the Company reclassified all of its outstanding indebtedness as a current liability in the accompanying consolidated balance sheets.

Given the uncertainty created by the defaults under the Company’s outstanding indebtedness, the Company's independent registered public accounting firm has included a “going concern” qualification in its audit opinion for the year ended September 30, 2012.

20

Revenue for the second quarter of fiscal year 2013, which ended March 31, 2013, was $10.5 million, a decrease of 15% compared with revenue of $12.3 million for the quarter ended March 31, 2012. The decrease in revenue was primarily in the Contract Research and Instruments segments. Contract Research revenues declined $1.5 million primarily as a result of lower billable material and subcontractor costs. Contract revenue backlog continues to be strong at approximately $33 million, however, due to the U.S. federal budget uncertainties and the sequester, we remain cautious. The Instruments segment revenues declined $615,000 primarily due to delays by customers of purchases of the existing products in anticipation of the availability of newly refreshed products which were not yet approved by the necessary regulatory agencies as of the end of the second quarter.

Cost of revenue for the second quarter of 2013 was $5.7 million, a decrease of 21% compared with $7.2 million for the quarter ended March 31, 2012. The Company recorded a $6.8 million impairment charge in the second quarter ended March 31, 2013 to write-down the goodwill and long-lived assets of the Company’s Products asset group. Excluding the $6.8 million impairment charge, total operating expenses decreased $407,000 or 7% to $5.3 million compared to the three month period ended March 31, 2012.

Loss from operations for the quarter ended March 31, 2013 was ($7.3 million) which includes a $6.8 million non-cash impairment write-down of goodwill and other long lived assets (primarily acquired customer base). Excluding the impairment write-down the loss from operations for the quarter ended March 31, 2013 was ($485,000) compared with loss from operations of ($600,000) for the quarter ended March 31, 2012.   Net loss was ($7.2 million) or ($0.49) per share for the quarter ended March 31, 2013, compared with net loss of ($585,000), or ($0.04) per share, for the quarter ended March 31, 2012. The net loss for the quarter ended March 31, 2013 excluding the impairment charge was ($479,000) or ($0.03) per share.

We continue to invest in efforts to support growth initiatives for our dual mode detector commercialization effort within Contract Research and development of certain Biomedical technologies. These investments include technology development activities, capital equipment depreciation, development of intellectual property and staff.

The dual mode detector technology is beginning to produce revenue. We are currently delivering limited quantities of commercial grade crystals and are working to further improve the size and quality of this product. Also, at the current time, the Company is actively exploring commercialization opportunities in thin film digital x-rays, sensors for nondestructive testing and radiation dosimeters based on technologies developed in the Contracts Research segment, however there can be no assurances that we will be successful in these commercialization efforts.

Additionally, the Company has prepared a separate business and financing plan for one of the biomedical technologies. Our intention was to spin out the tissue sealant technology into an independent entity in which the Company would retain a substantial interest. This would accomplish both the elimination of some of the general and administrative expenses (“G&A”) support for these technologies as well as enable us to recruit additional expertise to help us advance the technology. During the second quarter, our senior lender refused to release the intellectual property and related collateral in connection with the spin-out. As a result, we continued to fund this research through the second quarter; however, there can be no assurance that we will continue to fund this research or consummate this transaction at any future time.

21

Results of Operations

Results of Operations for the Three Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	5,488,000		$	3,932,000	$	1,014,000		$	51,000		$	10,485,000
Gross Profit		2,648,000			1,632,000		461,000			51,000			4,792,000
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,000			-0-			6,763,000
Operating Income (Loss)		233,000			2,000		(7,271,000	)		(212,000	)		(7,248,000	)
Depreciation and Amortization		80,000			185,000		164,000			15,000			444,000
Capital expenditures		(187,000	)		88,000		-0-			-0-			(99,000	)
Intangibles, Net		350,000			866,000		2,350,000			210,000			3,776,000
Goodwill		4,939,000			1,197,000		-0-			-0-			6,136,000
Total Assets		13,332,000			9,748,000		4,863,000			335,000			28,278,000

Results of Operations for the Three Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	6,979,000	$	3,684,000	$	1,629,000		$	7,000		$	12,299,000
Gross Profit		2,772,000		1,471,000		837,000			4,000			5,084,000
Operating Income (Loss)		158,000		31,000		(539,000	)		(250,000	)		(600,000	)
Depreciation and Amortization		58,000		155,000		135,000			15,000			363,000
Capital expenditures		85,000		184,000		13,000			-0-			282,000
Intangibles, Net		402,000		2,000		5,375,000			270,000			6,049,000
Goodwill		4,939,000		2,115,000		6,300,000			-0-			13,354,000
Total Assets		12,797,000		11,385,000		15,277,000			250,000			39,709,000

Revenue for the three months ended March 31, 2013 was $10,485,000, a 15% decrease from $12,299,000 for the three months ended March 31, 2012.

Revenue from our Contract Research segment decreased $1,491,000 or 21% for the three months ended March 31, 2013. The Contract Research segment revenue decline primarily reflects lower billable material and subcontractor costs partially offset by higher billable direct labor hours during the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The research backlog for the Contracts Research segment has remained consistent at nearly 18 months or approximately $33 million. The Company expects the Contract Research revenue for the three and nine months ending June 30, 2013 to continue to be lower than revenue for the corresponding prior year periods.

Revenue from our Instruments segment decreased $615,000 or 38% for the three months ended March 31, 2013 compared to the same period in 2012. We believe the Instruments segment revenue decline is primarily a result of customers delaying purchases of our existing products or purchasing competitor products due to the lack of availability of our updated lead paint analyzer and medical probe products which had not yet been approved by the necessary regulatory agencies as of the March 31, 2013. The Company expects to receive regulatory approval for the sale of the medical probe in the third quarter of 2013. The Company is currently evaluating preliminary testing results received on its updated lead paint analyzer product while also evaluating strategic alternatives associated with the product. There can be no assurance when or if these regulatory approvals will be obtained. We believe that without and until we obtain all necessary regulatory approvals associated with the medical probe and the lead paint analyzer products, revenues in the Instruments segment will continue at current levels.

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The Optics segment revenue increased $248,000 or 7% for the three months ended March 31, 2013 compared to the same period in 2012, primarily as a result of the timing and mix of product sales.

The Biomedical segment revenues primarily relate to a technology development contract with the Mayo Clinic.

Gross profit for the three months ended March 31, 2013 was $4,792,000, or 46% of sales, compared to $5,084,000 or 41% of sales for the three months ended March 31, 2012. Gross profit as a percent of sales increased for the Contract Research segment to 48% at March 31, 2013 from 39% at March 31, 2012 primarily as a result of a change in the mix of costs from material and subcontractor to direct labor which results in an increase in gross profit margin (although the total contract profitability is unchanged) as well as the timing of certain non-billable costs and the level of profitability of the contracts in process during the respective periods.

Gross profit for the Instruments segment decreased to 45% of sales at March 31, 2013 from 51% of sales for the quarter ended March 31, 2012 as a result of lower product volumes and unfavorable manufacturing efficiencies.

Gross profit for the Optics segment increased to 41% of sales at March 31, 2013 from 40% of sales for the quarter ended March 31, 2012 primarily as a result of better margins on the mix of products sold.

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

Operating expenses for the current quarter include an impairment charge of $6,763,000 associated with an interim impairment evaluation performed on the Company’s Products business unit in the Instruments segment. As a result, total operating expenses for the three months ended March 31, 2013 were $12,040,000. Total operating expenses excluding the impairment charge decreased slightly to $5,277,000 compared to $5,684,000 for the three months ended March 31, 2012. The decrease (excluding the impairment charge) in operating expenses primarily reflects the decrease in research and development expenses associated with the product refreshes within the Instruments segment.

Loss from operations for the three months ended March 31, 2013 was ($7,248,000) compared to loss from operations of ($600,000) for the three months ended March 31, 2012. Excluding the goodwill and long-lived asset impairment charge, the loss from operations for the three months ended March 31, 2013 would have been ($485,000).

Net interest expense for the three months ended March 31, 2013 was $177,000, compared with $122,000 for the three months ended March 31, 2012. The increase in interest expense was primarily associated with the issuance of a $3 million subordinated note payable in July, 2012 at an interest rate of 10%. Interest-bearing debt outstanding at March 31, 2013 was $11,413,000, compared to $11,984,000 at September 30, 2012.

Income tax expense for the three months ended March 31, 2013 consisted primarily of state tax expense offset by the estimated net operating loss (“NOL”) carryback to 2011 and certain U.K. tax research credits.

Net loss for the three months ended March 31, 2013 was ($7,242,000) or ($0.49) per share, compared with net loss of ($585,000), or ($0.04) per share, for the quarter ended March 31, 2012. Excluding the impairment loss of $6,763,000, the net loss for the quarter would have been ($479,000) or ($0.03) per share.

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Results of Operations – Year to Date

Results of Operations for the Six Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	10,399,000		$	8,184,000	$	2,298,000		$	157,000		$	21,038,000
Gross Profit		4,861,000			3,333,000		1,067,000			157,000			9,418,000
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,000			-0-			6,763,000
Operating Income (Loss)		231,000			388,000		(7,726,000	)		(332,000	)		(7,439,000	)
Depreciation and Amortization		142,000			370,000		328,000			30,000			870,000
Capital expenditures		(1,000	)		210,000		7,000			-0-			216,000
Intangibles, Net		350,000			866,000		2,350,000			210,000			3,776,000
Goodwill		4,939,000			1,197,000		-0-			-0-			6,136,000
Total Assets		13,332,000			9,748,000		4,863,000			335,000			28,278,000

Results of Operations for the Six Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	13,204,000	$	7,596,000	$	3,613,000		$	18,000		$	24,431,000
Gross Profit		5,211,000		2,934,000		2,089,000			(23,000	)		10,211,000
Operating Income (Loss)		304,000		195,000		(459,000	)		(453,000	)		(413,000	)
Depreciation and Amortization		94,000		349,000		270,000			30,000			743,000
Capital expenditures		347,000		325,000		15,000			-0-			687,000
Intangibles, Net		402,000		2,000		5,375,000			270,000			6,049,000
Goodwill		4,939,000		2,115,000		6,300,000			-0-			13,354,000
Total Assets		12,797,000		11,385,000		15,277,000			250,000			39,709,000

Revenue for the six months ended March 31, 2013 was $21,038,000, a 16.0% decrease from $24,431,000 for the six months ended March 31, 2012.

Revenue from our Contract Research segment decreased $2,805,000 or 21% for the six months ended March 31, 2013 compared to the same period in 2012. The Contract Research segment revenue decline primarily reflects lower billable material and subcontractor costs partially offset by higher billable direct labor hours during the six months ended March 31, 2013 compared to the six months ended March 31, 2012. The research backlog for the Contracts Research segment has remained consistent at nearly 18 months or approximately $33 million.

Revenue from our Instruments segment decreased $1,315,000 or 36% for the six months ended March 31, 2013 compared to the same period in 2012. We believe the Instruments segment revenue decline is primarily a result of customers delaying purchases of our existing products or purchasing competitor products due to the lack of availability of our updated lead paint analyzer and medical probe products which had not yet been approved by the necessary regulatory agencies as of the March 31, 2013. The Company expects to receive regulatory approval for the sale of the medical probe in the third quarter of 2013. The Company is currently evaluating preliminary testing results received on its updated lead paint analyzer product while also evaluating strategic alternatives associated with the product. There can be no assurance when or if these regulatory approvals will be obtained. We believe that without and until we obtain all necessary regulatory approvals associated with the medical probe and the lead paint analyzer products, revenues in the Instruments segment will continue at the current reduced levels.

The Optics segment revenue increased $587,000 or 8% for the six months ended March 31, 2013, primarily as a result of the timing and mix of product sales.

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The Biomedical segment revenues primarily relate to a technology development contract with the Mayo Clinic.

Gross profit for the six months ended March 31, 2013 was $9,418,000, or 45% of sales, compared to $10,211,000 or 42% of sales for the six months ended March 31, 2012. Gross profit as a percent of sales increased for the Contract Research segment to 47% at March 31, 2013 from 39% at March 31, 2012 primarily as a result of a change in the mix of costs from material and subcontractor to direct labor which results in an increase in gross profit margin (although the total contract profitability is unchanged) as well as the timing of certain non-billable costs and the level of profitability of the contracts in process during the respective periods.

Gross profit for the Instruments segment decreased to 46% of sales at March 31, 2013 from 58% of sales for the six months ended March 31, 2012 as a result of lower product volumes and unfavorable manufacturing efficiencies.

Gross profit for the Optics segment increased to 41% of sales at March 31, 2013 from 39% of sales for the six months ended March 31, 2012 primarily as a result of better margins on the mix of products sold.

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 six months ended March 31, 2013 included a non-cash impairment charge of $6,763,000. Excluding that charge, operating expenses decreased slightly to $10,095,000, or 48% of sales compared to $10,625,000 or 43% of sales for the six months ended March 31, 2012. The decrease (excluding the impairment charge) in total operating expenses primarily relates to a decrease in research and development expenses associated with the product refreshes within the Instruments segment.

Loss from operations for the six months ended March 31, 2013 was ($7,439,000) compared to Loss from Operations of ($413,000) for the prior year comparable period. Excluding the impact of the impairment charge, the loss from operations would have been ($676,000). The decrease was primarily associated with the lower gross profit in the Instruments segment discussed above partially offset by lower operating expenses in the Instruments segment. The increase in operating income in the Optics and Biomedical segments primarily reflect the increase in revenue and improved gross profit discussed above.

Net interest expense for the six months ended March 31, 2013 was $364,000, compared with $247,000 for the six months ended March 31, 2012. The increase in interest expense was primarily associated with the issuance of a $3 million subordinated note payable in July, 2012 at an interest rate of 10%. Interest-bearing debt outstanding at March 31, 2013 was $11,413,000, compared to $11,984,000 at September 30, 2012.

Income tax expense for the six months ended March 31, 2013 consisted primarily of estimated NOL carryback to 2011 and certain U.K. tax research credits partially offset by state tax expense. The Company recorded a tax benefit of $445,000 for the six months ended March 31, 2012 primarily from the recognition of Research and Experimentation credits and certain state tax losses.

Net loss for the six months ended March 31, 2013 was ($7,621,000), or ($0.52) per share, compared with Net loss of ($215,000), or ($0.01) per share, for the six months ended March 31, 2012. Excluding the impact of the impairment charge, the loss from operations would have been ($858,000) or ($0.06) per share.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this MD&A also contains non-GAAP financial measures. Specifically, Dynasil has presented Operating Expenses and Loss from Operations, in each case excluding the effect of the $6.8 million impairment charge recorded in the second quarter of 2013 to write down the goodwill and long-lived intangible assets of the Company’s Instruments segment. The Company believes that the inclusion of these non-GAAP financial measures helps investors to gain a meaningful understanding of the Company’s core operating results and enhance comparing such performance with prior periods. The non-GAAP financial measures included in this MD&A are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP.

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Liquidity and Capital Resources

Liquidity Overview

On December 31, 2012, the Company announced it is in default of the financial covenants set forth in the terms of its outstanding indebtedness at September 30, 2012. These covenants require the Company to maintain specified ratios of earnings before interest, taxes, depreciation and amortization (EBITDA) to fixed charges and to total/senior debt. The Company continues to be current with all principal and interest payments due on its senior outstanding indebtedness and management expects to continue discussions with its senior lender to address the financial covenant situation. The Company has accrued but not remitted interest payments for February or March 2013 to its subordinated lender.

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

As of March 31, 2013, the Company had total indebtedness outstanding of approximately $11.4 million, consisting of approximately $8.0 million of senior debt owed to Sovereign Bank and approximately $3.0 million of subordinated debt owed to Massachusetts Capital Resources Company and approximately $365,000 in new equipment leases. The Company's indebtedness is secured by substantially all the accounts and assets of the Company and is guaranteed by its subsidiaries.

The causes for the covenant violations are lower revenue and higher than expected expenses in the Company's Instruments and Contract Research segments during the fiscal quarter ended September 30, 2012 and continuing into the first and second quarter of fiscal 2013, combined with the continued investment in its Biomedical technologies and its Dual Mode nuclear detection initiative.

Management expects to continue discussions with its lenders to address the financial covenant defaults as of September 30, 2012 as described above. These financial covenant defaults continued through the second quarter of fiscal 2013. The Company cannot predict when or whether a resolution of this situation will be achieved.

The Company has recently taken and will continue to take actions to improve its liquidity, including the implementation of a number of initiatives designed to conserve cash, optimize profitability and right-size the cost structure of its various businesses. The Company has retained Argus Management Corporation and Mirus Capital as financial advisors to assist it in evaluating strategic and restructuring alternatives, including the potential sale of product lines and/or a Company division. While the Company is actively considering such strategic alternatives, there can be no assurances that any such transaction will occur, or, if a transaction is completed, it will be on terms favorable to the Company.

Liquidity Outlook

Net cash as of March 31, 2013 was $2,132,900 or approximately $1,282,000 less than the net cash of $3,414,900 at September 30, 2012. The Company does not currently have cash available to satisfy its obligations under its indebtedness if it were to be accelerated or payment demanded. If the Company is not able to resolve its current defaults under its outstanding indebtedness and improve its liquidity through the actions described above, it may not have sufficient liquidity to meet its anticipated cash needs for the next twelve months.

Cash Provided by (Used in) Operating Activities

In total, including the changes in accounts receivable and accounts payable and accrued expenses, operating activities used cash of $219,000 for the six months ended March 31, 2013.

Cash Used in Investing and Financing Activities

Cash used for the purchase of property, plant and equipment for the six months ended March 31, 2013 was approximately $216,000. Payments of long term debt for the six months ended March 31, 2013 were $904,000 primarily as part of regularly scheduled payments to Sovereign Bank, N.A., the Company’s senior lender, under the five year Term Debt and Acquisition Line of Credit. Net cash used in financing activities was approximately $557,000 for the six months ended March 31, 2013.

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Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2012. We have not adopted any accounting policies since September 30, 2012 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, 2012 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:

· A significant adverse long term outlook for any of our industries;

· An adverse finding or rejection from a regulatory body involved in new product regulatory approvals;

· Failure of an anticipated commercialization product line;

· Unanticipated competition or a disruptive technology introduction;

· The testing for recoverability under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 of a significant asset group within a reporting unit;

· A loss of key personnel; and

· An expectation that a reporting unit carrying goodwill, or a significant portion of a reporting unit, will be sold or otherwise disposed of.

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.

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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 asset group level using the two-step process. The Company’s primary asset groups tested for impairment are Radiation Monitoring Devices, which comprises our Contract Research segment, Dynasil Products (previously known as RMD Instruments), which comprises our Instruments segment, and Hilger Crystals, a component of our Optics segment.

The Company performed an interim impairment test in the second quarter of 2013 for our Products business unit and determined that the approximate $4,015,000 carrying value of goodwill should be written off. The Company also determined that the carrying value of its long-lived asset group exceeded the fair value by approximately $2,750,000.

The carrying value of goodwill in our Products business unit exceeded the new residual fair value of goodwill in the fourth quarter of 2012, and, as a result, the Company recorded a pre-tax impairment loss of $2,284,500 in the quarter ended September 30, 2012.

Intangible Assets

The Company’s intangible assets consist of an acquired customer base of Optometrics, LLC, acquired customer bases and trade names of RMD Instruments, LLC, acquired backlog and 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 4 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. 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.

As a result of the downsizing of expenditures associated with both businesses and the process of evaluating strategic alternatives associated with the lead paint analyzer product, the Company determined that an interim impairment test of goodwill associated with this business was required. The interim fair value test of goodwill performed in the second quarter identified, in the step one analysis, that the fair value of Products was less than its carrying value. The Company proceeded to a step two analysis, which included valuing the tangible and intangible assets and liabilities of the Products business to determine the implied fair value of goodwill. The result of this assessment indicated that the implied fair value of the goodwill was zero. As a result, the Company recognized a non-cash, pre-tax charge of $4,015,000 during the quarter ended March 31, 2013.

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.

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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.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2011, the FASB issued Accounting Standards Update 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. ASU 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholder’s equity. In addition, the new guidance requires consecutive presentation of the statement of net income and other comprehensive income with the presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. In December 2011, the FASB issued Accounting Standards Update 2011-12 (“ASU 2011-12”), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which is an update to ASU 2011-05. This amendment indefinitely defers the guidance relating to the presentation of reclassification adjustments. ASUs 2011-05 and 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company adopted ASU 2011-05 and ASU 2011-12 effective December 31, 2012 with the effect being a change in financial statement presentation.

In September 2011, the FASB issued Accounting Standards Update 2011-08 (“ASU 211-08”), Intangibles—Goodwill and Other (Topic 350), Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a greater than 50 percent likelihood exists that the fair value is less than the carrying amount, then a two-step goodwill impairment test as described in Topic 350 must be performed. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. This new standard is effective for the Company beginning in fiscal 2013.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments result in a consistent definition of fair value and common requirements for measurement of and disclosure regarding fair value between U.S. GAAP and International Financial Reporting Standards. Specifically, the amendments clarify the application of existing fair value measurement and disclosure requirements, including: a) application of the highest and best use and valuation premise concepts, b) measurement of the fair value of an instrument classified in a reporting entity's shareholders equity, and c) quantitative disclosure about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The amendments also change a particular principle or requirement for fair value measurement and disclosure, including: a) measurement of the fair value of financial instruments that are managed within a portfolio, b) application of premiums and discounts in a fair value measurement, and c) additional disclosure about fair value measurements. This new standard has been adopted as of October 1, 2012 and did not have a material impact on its consolidated financial statements.

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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 default under the financial covenants under our loan agreements with Sovereign Bank and Massachusetts Capital Resource Company, the commercialization of our products including our dual mode detectors, our development and funding of new technologies including at Dynasil Biomedical, obtaining certain regulatory approvals, 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 “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 resolve our current default 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, 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 March 31, 2013. 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 March 31, 2013, 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, 2012, which was filed with the SEC on January 15, 2013, as amended on February 12, 2013 (the “Form 10-K”), 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 the 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 to address the material weaknesses are discussed in detail in our Form 10-K. We expect to continue to develop our remediation plans and implement additional measures to make necessary improvements to our internal control over financial reporting. We expect that our remediation efforts, including design, implementation and testing will continue throughout fiscal year 2013, although the material weakness will not be considered remediated until our controls are operational for a period of time, tested, and management concludes that these controls are operating effectively.

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Changes in Internal Control Over Financial Reporting

There have been changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our last fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to implement measures to address the material weaknesses identified in our annual report on internal control over financial reporting. During the second fiscal quarter, within our RMD division, we completed the implementation of new timekeeping practices and procedures that are more automated, including an electronic time-keeping system integrated with our payroll and human resource systems. Further, we have continued to communicate and reinforce certain control procedures. We are also evaluating changes to improve our purchase order and receiving system to record vendor purchase orders to provide visibility into receipts in order to properly accrue for goods received. In addition, in March 2013, we hired a new Corporate Controller.

PART II – OTHER INFORMATION

ITEM 6 Exhibits

(a) Exhibits and index of Exhibits

10.01 Employment Letter of Thomas C. Leonard, dated January 4, 2013, filed as Exhibit 10.1 to Form 8-K filed on January 10, 2013, 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 May 15, 2013 issued by Dynasil Corporation of America announcing its financial results for the quarter ended March 31, 2013.

101** The following materials from Dynasil Corporation of America’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of March 31, 2013 and September 30, 2012, (ii) Consolidated Statements of Operations for the three and six months ended March 31, 2013 and 2012, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2013; (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 2013 and 2012, and (v) Notes to Consolidated Financial Statements.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DYNASIL CORPORATION OF AMERICA

BY:	/s/ Peter Sulick	DATED: May 15, 2013
	Peter Sulick,
	Interim Chief Executive Officer and Interim President
	/s/ Thomas C. Leonard	DATED: May 15, 2013
	Thomas C. Leonard,
	Chief Financial Officer

32

EX-31.1A

EXHIBIT 31.1 (a)

CERTIFICATION PURSUANT TO RULE 13a–14(a)/15d-14(a) and

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Peter Sulick, certify that:

1. I have reviewed this Form 10-Q of Dynasil Corporation of America;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f))for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 15, 2013	/s/ Peter Sulick
	Peter Sulick
	Interim Chief Executive Officer and Interim President

EX-31.1

EXHIBIT 31.1 (b)

CERTIFICATION PURSUANT TO RULE 13a–14(a)/15d-14(a) and

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Thomas Leonard, certify that:

1. I have reviewed this Form 10-Q of Dynasil Corporation of America;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f))for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 15, 2013	/s/ Thomas C. Leonard
	Thomas C. Leonard
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DYNASIL CORPORATION OF AMERICA (the "Company") on Form 10Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Peter Sulick, Interim Chief Executive Officer and Interim President of the Company and Thomas C. Leonard, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Peter Sulick
	Peter Sulick
	Interim Chief Executive Officer and Interim President
	/s/ Thomas C. Leonard
	Thomas C. Leonard
	Chief Financial Officer
May 15, 2013

EX-99.1

 

Contact:
Patty Kehe
Corporate Secretary
Dynasil Corporation of America
Phone: (617) 668-6855
pkehe@dynasil.com

Dynasil Corporation of America Reports

Second Quarter Fiscal 2013 Financial Results

Watertown, MA, May 15, 2013 – Dynasil Corporation of America (NASDAQ: DYSL), a leading developer of sensing, detection and analysis technology for homeland security, medical and industrial applications, today announced financial results for the fiscal 2013 second quarter ended March 31, 2013.

Net revenue for the second quarter of fiscal 2013 declined $1.8 million to $10.5 million, compared with $12.3 million for the second quarter of fiscal 2012. Revenue declines in the Contract Research and Instruments segments in the quarter were partially offset by an increase in the Optics segment revenues. Gross profit for the second quarter of 2013 declined $300,000 to $4.8 million from $5.1 million for the same period in 2012 as gross margins increased to 46% in the quarter compared to 41% for the second quarter of fiscal 2012.

“The improvement in our gross margin is a result of our focus on right-sizing the cost structure of our various businesses while we continue to conserve cash, work through our debt issues and strive to achieve profitability,” said Dynasil Chairman and Interim CEO Peter Sulick. “In addition, I am happy to report that exciting growth initiatives are underway, particularly in the Contract Research and Optics segments of the Company. We are all working hard to reduce our overhead expenses, improve our EBITDA performance and strengthen our technology portfolio.”

Operating expenses for the current quarter include a non-cash impairment charge of $6,763,000 to write-down goodwill and other intangible assets associated with the Company’s Products business. As a result, total operating expenses for the three months ended March 31, 2013 were $12.0 million. Total operating expenses for the three months ended March 31, 2013 increased $6.3 million compared to the same period in 2012. The increase was a result of the $6.8 million impairment charge offset by reduced expenditures associated with the product refresh within the Instruments segment in 2012.

Dynasil reported a net loss for the quarter of ($7.2 million) or ($0.49) per share, compared with net loss of ($585,000), or ($0.04) per share, for the quarter ended March 31, 2012. The impairment loss was $6.8 million of the total loss of $7.2 million.

The Company was in default of certain financial covenants set forth in the terms of its outstanding indebtedness as of March 31, 2013, December 31, 2012 and September 30, 2012. The Company has accrued but not remitted interest payments for February and March 2013 to its subordinated lender. The Company has made all principal and interest payments due to its senior lender through May 15, 2013, the date of this filing. Management has provided a revised forecast to its lenders and is engaged in discussions with its senior lender to address the financial covenant situation. However, the Company cannot predict when or whether a resolution of this situation will be achieved.

Business Outlook

The Company has continued to seek regulatory approvals of its updated medical probe for cancer surgery product and approval is expected in the third quarter. The Company is currently evaluating preliminary test results received on its updated lead paint analyzer product while also evaluating strategic alternatives associated with the product.

The Company continues to invest in efforts to support growth initiatives for its dual mode detector commercialization effort within Contract Research and development of certain biomedical technologies. These investments include technology development activities, capital equipment depreciation, development of intellectual property, and staff.

The dual mode detector technology is beginning to produce revenue. The Company is currently delivering limited quantities of commercial grade crystals and packaged detectors, and is working to further improve the size and quality of this product. Also, at the current time, the Company is actively exploring commercialization opportunities in gamma cameras, sensors for nondestructive testing and radiation dosimeters based on technologies developed in the Contracts Research segment. However, there can be no assurance that these efforts will be successful. 

2

Additionally, the Company has prepared a separate business and financing plan for one of the biomedical technologies. The intention was to spin out the tissue sealant technology into an independent entity in which the Company would retain a substantial interest. This would accomplish both the elimination of some of the G&A support for these technologies as well as enable the Company to recruit additional expertise to help advance the technology. During the second quarter, the Company’s senior lender refused to release the intellectual property and related collateral in connection with the spin-out. As a result, the Company continued to fund this research through the second quarter; however, there can be no assurance that we will continue to fund this research or consummate this transaction at any future time.

The Company has no conference calls scheduled at this time.

About Dynasil

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

3

Forward-looking Statements

This news release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management, including, without limitation, our expectations regarding results of operations, the commercialization of our products including our dual mode detectors, the adequacy of our current financing sources to fund our current operations, our growth initiatives, our capital expenditures, regulatory approvals and the strength of our intellectual property portfolio. These forward-looking statements may be identified by the use of words such as “may,” “could,” “expect,” “estimate,” “anticipate,” “continue” or similar terms, though not all forward-looking statements contain such words. The actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements due to a number of important factors. These factors that could cause actual results to differ from those anticipated or predicted include, without limitation, our ability to resolve our current default 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 2012 Annual Report on Form 10-K, as amended on February 14, 2013, including the risk factors contained in Item 1a, the Company’s Quarterly Report on Form 10-Q filed on February 13, 2013 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.

4

Dynasil Corporation of America and Subsidiaries

Consolidated Balance Sheets

	31-Mar		30-Sep
	2013		2012
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	2,132,901	$	3,414,880
Accounts receivable, net		4,389,394		5,475,142
Costs in excess of billings and unbilled receivables		1,755,185		1,735,798
Inventories, net of reserves		3,658,215		3,271,700
Deferred tax asset		126,187		126,187
Prepaid expenses and other current assets		1,426,916		1,334,649
Total current assets		13,488,798		15,358,356
Property, Plant and Equipment, net		4,738,147		4,984,150
Other Assets
Intangibles, net		3,776,038		6,703,305
Goodwill		6,135,642		10,254,160
Deferred financing costs, net		139,843		165,457
Total other assets		10,051,523		17,122,922
Total Assets	$	28,278,468	$	37,465,428
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	11,047,619	$	11,984,492
Capital lease obligations, current		113,243		-0-
Accounts payable		2,536,408		2,416,397
Deferred revenue		741,427		694,672
Accrued expenses and other liabilities		1,849,936		2,809,580
Total current liabilities		16,288,633		17,905,141
Long-term Liabilities
Capital lease obligations, net of current portion		252,381		-0-
Pension liability		342,848		345,443
Deferred tax liability		195,895		371,256
Total long-term liabilities		791,124		716,699
Stockholders' Equity		11,198,711		18,843,588
Total Liabilities and Stockholders' Equity	$	28,278,468	$	37,465,428

5

Dynasil Corporation of America and Subsidiaries

Consolidated Statement of Operations

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2013			2012			2013			2012
Net revenue	$	10,484,530		$	12,299,010		$	21,037,805		$	24,431,305
Cost of revenue		5,692,958			7,214,667			11,619,367			14,220,014
Gross profit		4,791,572			5,084,343			9,418,438			10,211,291
Operating expenses:
Sales and marketing expenses:		486,544			451,961			966,422			844,762
Research and development expenses		573,229			1,102,445			1,210,358			1,621,840
General and administrative expenses		4,216,741			4,129,653			7,917,887			8,158,077
Impairment of goodwill and long-lived assets		6,763,072			-0-			6,763,072			-0-
Total operating expenses		12,039,586			5,684,059			16,857,739			10,624,679
Loss from operations		(7,248,014	)		(599,716	)		(7,439,301	)		(413,388	)
Interest expense, net		177,159			122,474			363,916			246,631
Loss before income tax benefit		(7,425,173	)		(722,190	)		(7,803,217	)		(660,019	)
Income tax benefit		(183,443	)		(137,180	)		(182,145	)		(445,347	)
Net loss	$	(7,241,730	)	$	(585,010	)	$	(7,621,072	)	$	(214,672	)
Net loss	$	(7,241,730	)	$	(585,010	)	$	(7,621,072	)	$	(214,672	)
Other comprehensive income (loss):
Foreign currency translation		(275,360	)		138,552			(245,621	)		78,192
Total comprehensive loss	$	(7,517,090	)	$	(446,458	)	$	(7,866,693	)	$	(136,480	)
Basic net loss per common share	$	(0.49	)	$	(0.04	)	$	(0.52	)	$	(0.01	)
Diluted net loss per common share	$	(0.49	)	$	(0.04	)	$	(0.52	)	$	(0.01	)
Weighted average shares outstanding
Basic		14,770,943			15,002,818			14,721,733			15,091,356
Diluted		14,770,943			15,002,818			14,721,733			15,091,356

6

XML

Stock Based Compensation (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Total	$ 136,612	$ 237,148	$ 210,128	$ 436,360
Stock Grants [Member]
Total	80,091	111,233	132,552	171,514
Restricted Stock [Member]
Total	53,076	104,420	65,694	218,604
Stock Option [Member]
Total	2,454	18,061	9,813	40,116
Employee Stock Option [Member]
Total	$ 991	$ 3,434	$ 2,069	$ 6,126

XML

Capital Leases (Details) (USD $)	Mar. 31, 2013
Capital Leases Future Minimum Payments Due In Six Months	$ 55,691
Capital Leases, Future Minimum Payments Due, Next Twelve Months	117,032
Capital Leases, Future Minimum Payments Due in Two Years	125,031
Capital Leases, Future Minimum Payments Due in Three Years	50,133
Capital Leases, Future Minimum Payments Due in Four Years	13,118
Capital Leases, Future Minimum Payments Due Thereafter	4,619
Capital Leases, Future Minimum Payments Due	$ 365,624

XML

Segment, Customer and Geographical Reporting (Tables)

6 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

The Company’s segment information for the three months ended March 31, 2013 and 2012 is summarized below:

Results of Operations for the Three Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	5,487,850		$	3,931,766	$	1,014,320		$	50,594		$	10,484,530
Gross Profit		2,647,870			1,632,007		461,101			50,594			4,791,572
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,072			-0-			6,763,072
Operating Income (Loss)		232,015			2,336		(7,270,801	)		(211,564	)		(7,248,014	)
Depreciation and Amortization		79,637			184,696		164,384			15,000			443,717
Capital expenditures		(187,425	)		87,536		-0-			-0-			(99,889	)
Intangibles, Net		349,786			866,488		2,349,767			209,997			3,776,038
Goodwill		4,938,625			1,197,017		-0-			-0-			6,135,642
Total Assets		13,332,151			9,748,703		4,862,956			334,658			28,278,468

Results of Operations for the Three Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	6,978,973	$	3,684,213	$	1,629,248		$	6,576		$	12,299,010
Gross Profit		2,771,643		1,471,367		837,368			3,965			5,084,343
Operating Income (Loss)		158,278		30,970		(538,996	)		(249,968	)		(599,716	)
Depreciation and Amortization		57,777		155,597		134,699			15,000			363,073
Capital expenditures		85,199		183,965		12,823			-0-			281,987
Intangibles, Net		402,434		1,790		5,374,500			270,000			6,048,724
Goodwill		4,938,625		2,115,376		6,299,571			-0-			13,353,572
Total Assets		12,797,372		11,385,312		15,276,724			249,537			39,708,945

The Company’s segment information for the six months ended March 31, 2013 and 2012 is summarized below:

Results of Operations for the Six Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	10,398,690		$	8,183,706	$	2,298,358		$	157,051		$	21,037,805
Gross Profit		4,861,923			3,332,562		1,066,902			157,051			9,418,438
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,072			-0-			6,763,072
Operating Income (Loss)		231,409			388,012		(7,726,495	)		(332,227	)		(7,439,301	)
Depreciation and Amortization		142,419			370,324		327,432			30,000			870,175
Capital expenditures		(1,095	)		209,682		7,092			-0-			215,679
Intangibles, Net		349,786			866,488		2,349,767			209,997			3,776,038
Goodwill		4,938,625			1,197,017		-0-			-0-			6,135,642
Total Assets		13,332,151			9,748,703		4,862,956			334,658			28,278,468

Results of Operations for the Six Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	13,204,256	$	7,596,764	$	3,612,784		$	17,501		$	24,431,305
Gross Profit		5,211,931		2,933,785		2,088,791			(23,216	)		10,211,291
Operating Income (Loss)		303,495		195,093		(459,452	)		(452,524	)		(413,388	)
Depreciation and Amortization		94,937		349,100		269,156			30,000			743,193
Capital expenditures		347,219		324,841		15,268			-0-			687,328
Intangibles, Net		402,434		1,790		5,374,500			270,000			6,048,724
Goodwill		4,938,625		2,115,376		6,299,571			-0-			13,353,572
Total Assets		12,797,372		11,385,312		15,276,724			249,537			39,708,945

Schedule Of Segment Revenue By Geographical Location [Table Text Block]

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended March 31, 2013 and 2012 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2013					March 31, 2012
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,572,033		82	%	$	10,287,397		84	%
Europe		847,662		8	%		1,103,021		9	%
Other		1,064,836		10	%		908,592		7	%
	$	10,484,530		100	%	$	12,299,010		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2013 and 2012 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2013					March 31, 2012
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	17,066,521		82	%	$	20,315,876		83	%
Europe		1,736,003		8	%		2,229,373		9	%
Other		2,235,282		10	%		1,886,056		8	%
	$	21,037,805		100	%	$	24,431,305		100	%

XML

Segment, Customer and Geographical Reporting (Details 1) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Revenue	$ 10,484,530	$ 12,299,010	$ 21,037,805	$ 24,431,305
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Customer Concentration Risk [Member]
Concentration Risk, Percentage	30.00%	32.00%	32.00%	29.00%
Sales Revenue, Segment [Member]
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
United State [Member] | Sales Revenue, Segment [Member]
Revenue	8,572,033	10,287,397	17,066,521	20,315,876
Concentration Risk, Percentage	82.00%	84.00%	82.00%	83.00%
Europe [Member] | Sales Revenue, Segment [Member]
Revenue	847,662	1,103,021	1,736,003	2,229,373
Concentration Risk, Percentage	8.00%	9.00%	8.00%	9.00%
Other Credit Derivatives [Member] | Sales Revenue, Segment [Member]
Revenue	$ 1,064,836	$ 908,592	$ 2,235,282	$ 1,886,056
Concentration Risk, Percentage	10.00%	7.00%	10.00%	8.00%

XML

Stock Based Compensation (Details) (USD $)	6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Balance at September 30, 2012	794,483
Outstanding and exercisable, Options at September 30, 2012	794,483
Granted, Options Outstanding	0
Exercised, Options Outstanding	0
Cancelled, Options Outstanding	(83,951)
Balance at March 31, 2013	710,532
Outstanding and exercisable, Options at March 31, 2013	710,532
Balance, Weighted Average Exercise Price per Share at September 30 2012	$ 3.34
Outstanding and exercisable, Weighted Average Exercise Price per Share at September 30 2012	$ 3.34
Granted, Weighted Average Exercise Price per Share	$ 0
Exercised, Weighted Average Exercise Price per Share	$ 0
Cancelled, Weighted Average Exercise Price per Share	$ 3.69
Balance, Weighted Average Exercise Price per Share at March 31, 2013	$ 3.3
Outstanding and exercisable, Weighted Average Exercise Price per Share at March 31, 2013	$ 3.3
Balance, Weighted Average Remain Contractual Term (In Years)	1 year 4 months 28 days	1 year 9 months
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	1 year 4 months 28 days	1 year 9 months

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Inventories

6 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 3 - Inventories

Inventories are stated at the lower of average cost or market. Cost is determined using the first-in, first-out (FIFO) method. Inventories consist of raw materials, work-in-process and finished goods. The Company evaluates inventory levels and expected usage on a periodic basis and records, as a charge to cost of revenue, any amounts required to reduce the carrying value to net realizable value.

Inventories, net of reserves, consist of the following:

	March 31,		September 30,
	2013		2012
Raw Materials	$	2,183,899	$	2,096,681
Work-in-Process		965,439		885,328
Finished Goods		508,877		289,691
	$	3,658,215	$	3,271,700

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Segment, Customer and Geographical Reporting (Details Textual)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Entity-Wide Revenue, Major Customer, Percentage	61.00%	72.00%	63.00%	76.00%
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
Optics [Member] | Maximum [Member]
Entity-Wide Revenue, Major Customer, Percentage	10.00%	10.00%	10.00%	10.00%
Customer Concentration Risk [Member]
Concentration Risk, Percentage	30.00%	32.00%	32.00%	29.00%
Sales Revenue, Segment [Member]
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%

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Impairment of Goodwill and Long-Lived Assets (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2013
Impairment Of Intangible Assets (Excluding Goodwill), Recorded	$ 2,748,000
Impairment of Intangible Assets (Excluding Goodwill), Recognized	$ 4,015,000

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Inventories (Details) (USD $)	Mar. 31, 2013	Sep. 30, 2012
Raw Materials	$ 2,183,899	$ 2,096,681
Work-in-Process	965,439	885,328
Finished Goods	508,877	289,691
Inventory, Net, Total	$ 3,658,215	$ 3,271,700

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Income Taxes (Details Textual) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012	Sep. 30, 2012
Valuation Allowance, Amount	$ 4.2		$ 4.2		$ 1.7
Additional Valuation Allowance Amount					$ 2.5
Effective Income Tax Rate, Continuing Operations	(2.48%)		(2.34%)
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate			34.00%
Effective Income Tax Rate Reconciliation, Tax Credits, Research		(27.31%)		(72.64%)

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Intangible Assets (Details) (USD $)						6 Months Ended								6 Months Ended
	Mar. 31, 2013	Sep. 30, 2012	Mar. 31, 2012	Mar. 31, 2013 Acquired Customer Base [Member]	Sep. 30, 2012 Acquired Customer Base [Member]	Mar. 31, 2013 Acquired Customer Base [Member] Minimum [Member]	Sep. 30, 2012 Acquired Customer Base [Member] Minimum [Member]	Mar. 31, 2013 Acquired Customer Base [Member] Maximum [Member]	Sep. 30, 2012 Acquired Customer Base [Member] Maximum [Member]	Mar. 31, 2013 Know How [Member]	Sep. 30, 2012 Know How [Member]	Mar. 31, 2013 Trade Names [Member]	Sep. 30, 2012 Trade Names [Member]	Mar. 31, 2013 Trade Names [Member] Minimum [Member]	Sep. 30, 2012 Trade Names [Member] Minimum [Member]	Mar. 31, 2013 Biomedical Technologies [Member]	Sep. 30, 2012 Biomedical Technologies [Member]
Useful Life (years)						5 years	5 years	15 years	15 years	15 years	15 years			15 years	15 years	5 years	5 years
Gross amount	$ 6,615,057	$ 9,229,210		$ 5,275,668	$ 7,858,775					$ 512,000	$ 512,000	$ 527,389	$ 558,435			$ 300,000	$ 300,000
Accumulated Amortization	2,839,019	2,525,905		2,516,280	2,257,533					162,214	145,147	70,522	63,222			90,003	60,003
Net	$ 3,776,038	$ 6,703,305	$ 6,048,724	$ 2,759,388	$ 5,601,242					$ 349,786	$ 366,853	$ 456,867	$ 495,213			$ 209,997	$ 239,997

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Intangible Assets (Details 1) (USD $)	Mar. 31, 2013
2013 (6 Months)	$ 325,910
2014	651,818
2015	651,818
2016	651,815
2017	591,818
Thereafter	584,686
Total	3,457,865
Acquired Customer Base [Member]
2013 (6 Months)	271,543
2014	543,085
2015	543,085
2016	543,085
2017	543,085
Thereafter	315,504
Total	2,759,387
Know How [Member]
2013 (6 Months)	17,067
2014	34,133
2015	34,133
2016	34,133
2017	34,133
Thereafter	196,187
Total	349,786
Trade Names [Member]
2013 (6 Months)	7,300
2014	14,600
2015	14,600
2016	14,600
2017	14,600
Thereafter	72,995
Total	138,695
Biomedical Technologies [Member]
2013 (6 Months)	30,000
2014	60,000
2015	60,000
2016	59,997
2017	0
Thereafter	0
Total	$ 209,997

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Debt Classification

6 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 2 –Debt Classification

The Company was in default of certain financial covenants set forth in the terms of its outstanding indebtedness as of March 31, 2013, December 31, 2012 and September 30, 2012 and has not paid its monthly interest payments to its subordinated lender since February 2013. Based on the covenant violations and the resulting possibility of an acceleration of the indebtedness by the lenders, all of the outstanding indebtedness of the Company has been classified as current liabilities in the accompanying balance sheets.

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Intangible Assets (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Amortization of Intangible Assets	$ 143,506	$ 162,802	$ 324,774	$ 325,605

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Stock Based Compensation (Details Textual) (USD $)	Mar. 31, 2013
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 186,000

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CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2013	Sep. 30, 2012
ASSETS
Cash and cash equivalents	$ 2,132,901	$ 3,414,880
Accounts receivable, net of allowances of $186,110 and $198,070 for March 31, 2013 and September 30, 2012, respectively	4,389,394	5,475,142
Costs in excess of billings and unbilled receivables	1,755,185	1,735,798
Inventories, net of reserves	3,658,215	3,271,700
Deferred tax asset	126,187	126,187
Prepaid expenses and other current assets	1,426,916	1,334,649
Total current assets	13,488,798	15,358,356
Property, Plant and Equipment, net	4,738,147	4,984,150
Other Assets
Intangibles, Net	3,776,038	6,703,305
Goodwill	6,135,642	10,254,160
Deferred financing costs, net	139,843	165,457
Total other assets	10,051,523	17,122,922
Total Assets	28,278,468	37,465,428
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt	11,047,619	11,984,492
Capital lease obligations, current	113,243	0
Accounts payable	2,536,408	2,416,397
Deferred revenue	741,427	694,672
Accrued expenses and other liabilities	1,849,936	2,809,580
Total current liabilities	16,288,633	17,905,141
Long-term Liabilities
Capital lease obligations, net of current portion	252,381	0
Pension liability	342,848	345,443
Deferred tax liability	195,895	371,256
Total long-term liabilities	791,124	716,699
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 15,779,791 and 15,610,517 shares issued, 14,969,631 and and 14,800,357 shares outstanding at March 31, 2013 and September 30, 2012, respectively.	7,890	7,805
Additional paid in capital	17,259,349	17,037,618
Accumulated other comprehensive income (loss)	(183,715)	61,906
Retained earnings (Accumulated deficit)	(4,898,471)	2,722,601
Stockholders' Equity Before Treasury Stock	12,185,053	19,829,930
Less 810,160 shares of treasury stock - at cost	(986,342)	(986,342)
Total stockholders' equity	11,198,711	18,843,588
Total Liabilities and Stockholders' Equity	$ 28,278,468	$ 37,465,428

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Fair Value Measurements (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $)	Mar. 31, 2013
Goodwill	$ 0
Acquired Customer Base	2,211,000
Trade Name	139,000
Fixed Assets	163,000
Fair Value, Inputs, Level 1 [Member]
Goodwill	0
Acquired Customer Base	0
Trade Name	0
Fixed Assets	0
Fair Value, Inputs, Level 2 [Member]
Goodwill	0
Acquired Customer Base	0
Trade Name	0
Fixed Assets	0
Fair Value, Inputs, Level 3 [Member]
Goodwill	0
Acquired Customer Base	2,211,000
Trade Name	139,000
Fixed Assets	$ 163,000

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net loss	$ (7,621,072)	$ (214,672)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock compensation expense	210,128	436,360
Foreign exchange loss	(31,275)	(42,667)
Contingent consideration adjustment	0	(17,755)
Gain on sale of property, plant and equipment	(87,803)	0
Depreciation and Amortization	870,175	743,193
Noncash interest expense	25,614	29,934
Provision for doubtful accounts and sales returns	0	5,118
Inventory reserves	9,241	0
Deferred income taxes	(183,810)	(237,968)
Impairment of goodwill & long-lived assets	6,763,072	0
Other changes in assets and libilities:
Accounts receivable, net	1,102,777	(2,455,415)
Inventories	(359,106)	159,199
Costs in excess of billings / unbilled receivables	(19,387)	547,709
Prepaid expenses and other assets	(84,600)	(281,444)
Accounts payable	112,126	(27,081)
Accrued expenses and other liabilities	(963,447)	(15,092)
Deferred Revenue	38,178	262,942
Net cash used in operating activities	(219,189)	(1,107,639)
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment	80,252	0
Purchases of property, plant and equipment	(215,679)	(687,328)
Net cash used in investing activities	(135,427)	(687,328)
Cash flows from financing activities
Proceeds from issuance of common stock	11,688	31,701
Principal payments on capital leases	(21,056)	0
Payments on long-term debt	(936,873)	(949,002)
Net cash used in financing activities	(946,241)	(917,301)
Effect of exchange rates on cash and cash equivalents	18,878	102,164
Net decrease in cash and cash equivalents	(1,281,979)	(2,610,104)
Cash and cash equivalents, beginning	3,414,880	4,479,840
Cash and cash equivalents, ending	2,132,901	1,869,736
Supplemental disclosures of cash flow information:
Assets purchased under capital leases	$ 386,680	$ 0

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Earnings (Loss) Per Common Share (Details)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Weighted average shares outstanding
Basic	14,770,943	15,002,818	14,721,733	15,091,356
Effect of dilutive securities
Stock Options	0	0	0	0
Dilutive Average Shares Outstanding	14,770,943	15,002,818	14,721,733	15,091,356

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Capital Leases (Tables)

6 Months Ended

Mar. 31, 2012

Leases, Capital [Abstract]

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

Aggregate minimum annual principal obligations at March 31, 2013, under non-cancelable leases are as follows:

	2013 (6 Months)		2014		2015		2016		2017		Thereafter		Total
Capital Lease Obligations	$	55,691	$	117,032	$	125,031	$	50,133	$	13,118	$	4,619	$	365,624

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Earnings (Loss) Per Common Share (Details Textual)	6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	710,532	1,059,583
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	158,834

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Stock Based Compensation (Tables)

6 Months Ended

Mar. 31, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

A summary of stock option activity as of March 31, 2013 and changes during the six months ended March 31, 2013 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share ($)		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2012		794,483			3.34		1.75
Outstanding and exercisable at September 30, 2012		794,483			3.34		1.75
Granted		0			0
Exercised		0			0
Cancelled		(83,951	)		3.69
Balance at March 31, 2013		710,532			3.30		1.41
Outstanding and exercisable at March 31, 2013		710,532			3.30		1.41

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

A summary of restricted stock activity for the six months ended March 31, 2013 and 2012 is presented below:

Restricted Stock Activity for the Six Months ended March 31, 2013	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2012		127,834		$	1.92
Granted		104,000		$	1.03
Vested		(53,000	)	$	1.21
Cancelled		(20,000	)	$	4.02
Nonvested at March 31, 2013		158,834		$	1.31

Restricted Stock Activity for the Six Months ended March 31, 2012	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2011		403,000		$	4.02
Granted		-0-			-0-
Vested		(38,000	)	$	4.01
Cancelled		-0-			-0-
Nonvested at March 31, 2012		365,000		$	4.02

Schedule Of Stock Compensation Expense [Table Text Block]

Stock Compensation Expense for the three and six months ended March 31, 2013 and 2012 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	March 31, 2013		March 31, 2012
Stock Grants	$	80,091	$	111,233
Restricted Stock Grants		53,076		104,420
Option Grants		2,454		18,061
Employee Stock Purchase Plan		991		3,434
Total	$	136,612	$	237,148

	Six Months Ended		Six Months Ended
Stock Compensation Expense	March 31, 2013		March 31, 2012
Stock Grants	$	132,552	$	171,514
Restricted Stock Grants		65,694		218,604
Option Grants		9,813		40,116
Employee Stock Purchase Plan		2,069		6,126
Total	$	210,128	$	436,360

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Basis of Presentation and Ability to Continue as a Going Concern

6 Months Ended

Mar. 31, 2013

Disclosure Text Block [Abstract]

Nature of Operations [Text Block]

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

The accompanying consolidated balance sheet as of March 31, 2013, the consolidated statements of operations and comprehensive loss for the three and six months ended March 31, 2013 and 2012, changes in stockholders’ equity for the six months ended March 31, 2013 and cash flows for the six months ended March 31, 2013 and 2012 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, 2012 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission, as amended on February 14, 2013.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has failed to comply with the financial covenants set forth in the terms of its outstanding loan agreements and sustained a substantial loss from operations for the year ended September 30, 2012. The Company has continued to sustain losses from operations for the six months ended March 31, 2013. These factors raise substantial doubt over the Company’s ability to continue as a going concern.

The Company continues to be in default of the financial covenants set forth in the terms of its loan agreements for its fiscal second quarter ended March 31, 2013. These covenants require the Company to maintain specified ratios of earnings before interest, taxes, depreciation and amortization (EBITDA) to fixed charges and to total/senior debt. A default gives the lenders the right to accelerate the maturity of the outstanding indebtedness. Furthermore, Sovereign Bank, N.A, the Company’s senior lender, may, at its option, impose a default interest rate with respect to the senior debt outstanding, which is 5% higher than the rate otherwise in effect. To date, the lenders have not taken any such actions. However, the Company cannot predict when or whether a resolution of this situation will be achieved.

The Company has accrued but not remitted interest payments for February and March 2013 to its subordinated lender. The Company is current with all principal and interest payments due to its senior lender through May 15, 2013, the date of this filing. Management has provided a revised forecast to its lenders and is engaged in discussions with its senior lender to address the financial covenant situation. Because of the uncertainty of any resolution of the covenant violations and possibility of an acceleration of the indebtedness by the lenders, the Company reclassified all of its outstanding indebtedness as a current liability in the accompanying consolidated balance sheets.

The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and positive cash flows and/or to obtain the necessary financing from shareholders or other sources to meet its outstanding obligations and repay its liabilities arising from normal business operations when they become due.

In view of the matters described in the preceding paragraphs, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon the continued operations of the Company. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The Company has taken and will continue to take actions to improve its liquidity, including the implementation of a number of initiatives designed to conserve cash, optimize profitability and right-size the cost structure of its various businesses. The Company has retained Argus Management Corporation and Mirus Capital as financial advisors to assist it in evaluating strategic and restructuring alternatives, including the potential sale of product lines and/or a Company division. While the Company is actively considering such strategic alternatives, there can be no assurances that any such transaction will occur, or, if a transaction is completed, it will be on terms favorable to the Company. The Company does not currently have cash available to satisfy its obligations under its indebtedness if it were to be accelerated or payment demanded. If the Company is not able to resolve its current defaults under its outstanding indebtedness and improve its liquidity through the actions described above, it may not have sufficient liquidity to meet its anticipated cash needs for the next twelve months.

We consider events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2013, 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.

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CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)	Mar. 31, 2013	Sep. 30, 2012
Allowance for doubtful accounts (in dollars)	$ 186,110	$ 198,070
Common stock, par value (in dollars per share)	$ 0.0005	$ 0.0005
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	15,779,791	15,610,517
Common stock, shares outstanding	14,969,631	14,800,357
Treasury stock, shares (in shares)	810,160	810,160

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Income Taxes

6 Months Ended

Mar. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 11 - 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 carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates, and tax laws, in the respective tax jurisdiction then in effect.

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.

As a result, the Company has recorded a valuation allowance of approximately $1.7 million as of September 30, 2012 and an additional valuation of approximately $2.5 million based upon year to date activity for a total valuation allowance of approximately 4.2 million as of March 31, 2013.

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 March 31, 2013 and September 30, 2012, 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 March 31, 2013 and September 30, 2012, 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 rate of (2.48%) and (2.34%) for the three and six months ended March 31, 2013 differs 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 effective rate of (27.31%) and (72.64%) for the three and six months ended March 31, 2012 is primarily due to the recognition of research 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 2009 are still subject to examination.

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DOCUMENT AND ENTITY INFORMATION	6 Months Ended
	Mar. 31, 2013	May 07, 2013
Entity Registrant Name	DYNASIL CORP OF AMERICA
Entity Central Index Key	0000030831
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Trading Symbol	dysl
Entity Common Stock, Shares Outstanding		15,034,535
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2013

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Fair Value Measurements

6 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 12 – Fair Value Measurements

The Company uses a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. Assets and liabilities measured at fair value are to be categorized into one of the three hierarchy levels based on the inputs used in the valuation. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows:

• Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2: Observable inputs based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.

• Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts for fixed rate long-term debt and variable rate long term debt approximate fair value because the underlying instruments are primarily at current market rates available to the Company for similar borrowings.

Fair value of assets measured on a nonrecurring basis at March 31, 2013 included the following:

Products Business Unit	Fair Value at March 31,2013		Level 1		Level 2		Level 3
Goodwill	$	-0-	$	-0-	$	-0-	$	-0-
Acquired Customer Base		2,211,000						2,211,000
Trade Name		139,000						139,000
Fixed Assets		163,000						163,000

Goodwill for the Products business unit was deemed to be impaired and written down to its fair value of $-0- at March 31, 2013. Acquired Customer Base, Trade Name and Fixed Assets were also deemed to be impaired and written down to their fair values of $2,211,000, $139,000 and $163,000, respectively. The fair value measurements were calculated using a discounted cash flow approach, which includes unobservable inputs classified as Level 3 within the fair value hierarchy.  The amount and timing of future cash flows was based on the Company’s most recent operational forecasts.  The Company uses the assistance of an independent consulting firm to develop valuation assumptions. See Note 5 for additional discussion regarding the impairment of goodwill and other long lived assets.

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012
Net revenue	$ 10,484,530	$ 12,299,010	$ 21,037,805	$ 24,431,305
Cost of revenue	5,692,958	7,214,667	11,619,367	14,220,014
Gross profit	4,791,572	5,084,343	9,418,438	10,211,291
Operating expenses:
Sales and marketing expenses:	486,544	451,961	966,422	844,762
Research and development expenses	573,229	1,102,445	1,210,358	1,621,840
General and administrative expenses	4,216,741	4,129,653	7,917,887	8,158,077
Impairment of goodwill and long-lived assets	6,763,072	0	6,763,072	0
Total operating expenses	12,039,586	5,684,059	16,857,739	10,624,679
Loss from operations	(7,248,014)	(599,716)	(7,439,301)	(413,388)
Interest expense, net	177,159	122,474	363,916	246,631
Loss before income tax benefit	(7,425,173)	(722,190)	(7,803,217)	(660,019)
Income tax benefit	(183,443)	(137,180)	(182,145)	(445,347)
Net loss	(7,241,730)	(585,010)	(7,621,072)	(214,672)
Net loss	(7,241,730)	(585,010)	(7,621,072)	(214,672)
Other comprehensive income (loss):
Foreign currency translation	(275,360)	138,552	(245,621)	78,192
Total comprehensive loss	$ (7,517,090)	$ (446,458)	$ (7,866,693)	$ (136,480)
Basic net loss per common share (in dollars per share)	$ (0.49)	$ (0.04)	$ (0.52)	$ (0.01)
Diluted net loss per common share (in dollars per share)	$ (0.49)	$ (0.04)	$ (0.52)	$ (0.01)
Weighted average shares outstanding
Basic (in shares)	14,770,943	15,002,818	14,721,733	15,091,356
Diluted (in shares)	14,770,943	15,002,818	14,721,733	15,091,356

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Intangible Assets

6 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Note 6 – Intangible Assets

Intangible assets at March 31, 2013 and September 30, 2012 consist of the following:

	Useful	Gross		Accumulated
March 31, 2013	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5-15	$	5,275,668	$	2,516,280	$	2,759,388
Know How	15		512,000		162,214	$	349,786
Trade Names	15 - Indefinite		527,389		70,522	$	456,867
Biomedical Technologies	5		300,000		90,003	$	209,997
		$	6,615,057	$	2,839,019	$	3,776,038

	Useful	Gross		Accumulated
September 30, 2012	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5-15	$	7,858,775	$	2,257,533	$	5,601,242
Know How	15		512,000		145,147		366,853
Trade Names	15 - Indefinite		558,435		63,222		495,213
Biomedical Technologies	5		300,000		60,003		239,997
		$	9,229,210	$	2,525,905	$	6,703,305

Amortization expense for the three months ended March 31, 2013 and 2012 was $143,506 and $162,802respectively. Amortization expense for the six months ended March 31, 2013 and 2012 was $324,774 and $325,605, respectively. Estimated amortization expense for each of the next five fiscal years is as follows:

	2013 (6 Months)		2014		2015		2016		2017		Thereafter		Total
Acquired Customer Base	$	271,543	$	543,085	$	543,085	$	543,085	$	543,085	$	315,504	$	2,759,387
Know How		17,067		34,133		34,133		34,133		34,133		196,187		349,786
Trade Names		7,300		14,600		14,600		14,600		14,600		72,995		138,695
Biomedical Technologies		30,000		60,000		60,000		59,997		-0-		-0-		209,997
	$	325,910	$	651,818	$	651,818	$	651,815	$	591,818	$	584,686	$	3,457,865

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Impairment of Goodwill and Long-Lived Assets

6 Months Ended

Mar. 31, 2013

Asset Impairment Charges [Abstract]

Asset Impairment Charges [Text Block]

Note 5 – Impairment of Goodwill and Long-Lived Assets

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:

· A significant adverse long term outlook for any of our industries;

· An adverse finding or rejection from a regulatory body involved in new product regulatory approvals;

· Failure of an anticipated commercialization of a product or product line;

· Unanticipated competition or the introduction of a disruptive technology;

· The testing for recoverability under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 of a significant asset group within a reporting unit;

· A loss of key personnel; and

· An expectation that a reporting unit carrying goodwill, or a significant portion of a reporting unit, will be sold or otherwise disposed of.

The Company’s Dynasil Products subsidiary (“Products”) has continued to experience delays in obtaining regulatory approval of its next generation lead paint analyzer product. Due to the uncertainties regarding whether approval of the product could be obtained in a reasonable timeframe, Products further reduced its operating expense platform in the second quarter and has limited its activities to the sale and service its current lead paint analyzer. The Company is currently evaluating various strategic alternatives associated with the lead paint analyzer product.

Products has continued to experience delays in obtaining regulatory approvals of its updated medical probe for cancer surgery. Approval is expected in the third quarter of 2013.

As a result of the downsizing of expenditures associated with both product lines and the process of evaluating strategic alternatives associated with the lead paint analyzer product, the Company determined that an interim impairment test of long lived assets and goodwill associated with this business unit was required. As required, the Company first tested long lived assets for impairment before performing the goodwill impairment test. For purposes of testing the impairment of long lived assets, management determined that Products represented an asset group as defined in ASC 360. In step one of this analysis which compares the carrying value of the Products asset group to its undiscounted expected future cash flows, the undiscounted cash flows of Products was less than its carrying value. As a result, the Company proceeded to a step two analysis, which requires valuing the asset group, determining the potential impairment and allocating that impairment to the long lived assets without writing those assets down below their respective fair values.

The fair value of the asset group was determined based on discounted cash flows. The Company’s long-lived assets (other than goodwill) consist primarily of the Acquired Customer Base intangible asset. Fair value of that asset was determined using an income approach using the multi-period excess earnings method which estimates the fair value of the asset by discounting the future projected excess earnings associated with the asset to present value as of the valuation date. Based on its analyses, 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 non-cash, pre-tax impairment charge of approximately $2,748,000 during the quarter ended March 31, 2013.

The Company then performed a goodwill impairment test as prescribed in ASC 350. The Products reporting unit fair value was determined using a discounted cash flow analysis. This amount was lower than the carrying value which had been previously adjusted as described above. Step 2 of ASC 350 was then preformed with a “memo allocation” of the Product business unit assets. The result of this assessment indicated that the implied fair value of the goodwill was zero. As a result, the Company recognized a non-cash, pre-tax charge of approximately $4,015,000 during the quarter ended March 31, 2013.

The valuation methods utilized to value the long lived assets and the goodwill discussed above are based on the amount and timing of expected future cash flows and growth rates and include a determination of an appropriate discount rate. The cash flows utilized in the discounted cash flow analyses were based on financial forecasts developed internally by management. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized. The discount rate used also requires significant judgment and is intended to reflect the risks involved in the business.

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Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The computation of the weighted shares outstanding for the three months ended March 31 is as follows:

	March 31, 2013		March 31, 2012
Weighted average shares outstanding
Basic		14,770,943		15,002,818
Effect of dilutive securities
Stock Options		-0-		-0-
Dilutive Average Shares Outstanding		14,770,943		15,002,818

The computation of the weighted shares outstanding for the six months ended March 31 is as follows:

	March 31, 2013		March 31, 2012
Weighted average shares outstanding
Basic		14,721,733		15,091,356
Effect of dilutive securities
Stock Options		-0-		-0-
Dilutive Average Shares Outstanding		14,721,733		15,091,356

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Subsequent Events

6 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 13 – Subsequent Events

The Company has evaluated subsequent events through the date that the financial statements were released.

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Stock Based Compensation

6 Months Ended

Mar. 31, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 9 - 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 as of March 31, 2013 and changes during the six months ended March 31, 2013 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share ($)		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2012		794,483			3.34		1.75
Outstanding and exercisable at September 30, 2012		794,483			3.34		1.75
Granted		0			0
Exercised		0			0
Cancelled		(83,951	)		3.69
Balance at March 31, 2013		710,532			3.30		1.41
Outstanding and exercisable at March 31, 2013		710,532			3.30		1.41

A summary of restricted stock activity for the six months ended March 31, 2013 and 2012 is presented below:

Restricted Stock Activity for the Six Months ended March 31, 2013	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2012		127,834		$	1.92
Granted		104,000		$	1.03
Vested		(53,000	)	$	1.21
Cancelled		(20,000	)	$	4.02
Nonvested at March 31, 2013		158,834		$	1.31

Restricted Stock Activity for the Six Months ended March 31, 2012	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2011		403,000		$	4.02
Granted		-0-			-0-
Vested		(38,000	)	$	4.01
Cancelled		-0-			-0-
Nonvested at March 31, 2012		365,000		$	4.02

Stock Compensation Expense for the three and six months ended March 31, 2013 and 2012 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	March 31, 2013		March 31, 2012
Stock Grants	$	80,091	$	111,233
Restricted Stock Grants		53,076		104,420
Option Grants		2,454		18,061
Employee Stock Purchase Plan		991		3,434
Total	$	136,612	$	237,148

	Six Months Ended		Six Months Ended
Stock Compensation Expense	March 31, 2013		March 31, 2012
Stock Grants	$	132,552	$	171,514
Restricted Stock Grants		65,694		218,604
Option Grants		9,813		40,116
Employee Stock Purchase Plan		2,069		6,126
Total	$	210,128	$	436,360

At March 31, 2013 there was approximately $186,000 in unrecognized stock compensation cost, which is expected to be recognized over a weighted average period of ten months.

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Capital Leases

6 Months Ended

Mar. 31, 2013

Leases, Capital [Abstract]

Capital Leases in Financial Statements of Lessee Disclosure [Text Block]

Note 7 – Capital Leases

The Company has entered into long-term capital lease agreements for certain equipment purchases. The remaining principal payments due under all capital leases total $365,264 for the three and six month periods ended March 31, 2013 and $0 for the three and six month periods ended March 31, 2012. Aggregate minimum annual principal obligations at March 31, 2013, under non-cancelable leases are as follows:

	2013 (6 Months)		2014		2015		2016		2017		Thereafter		Total
Capital Lease Obligations	$	55,691	$	117,032	$	125,031	$	50,133	$	13,118	$	4,619	$	365,624

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Earnings (Loss) Per Common Share

6 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 8 – 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, no common share equivalents related to stock options were assumed to be outstanding for the three and six months ended March 31, 2013 and 2012. For the three and six months ended March 31, 2013 and 2012, no common share equivalents related to stock options were included in the calculation of dilutive shares since there was a loss from continuing operations and the inclusion of common share equivalents would be anti-dilutive. Also, if the Company had not been in a loss position as of March 31, 2013, 158,834 shares of restricted stock would have been considered in the denominator used to calculate diluted earnings per common share. In addition, as of March 31, 2013 and 2012, common stock options for 710,532 and 1,059,583 shares, respectively, with exercise prices above current quarterly average market price per share have been excluded from the calculation of dilutive earnings per share since their effect is also anti-dilutive.

 The computation of the weighted shares outstanding for the three months ended March 31 is as follows:

	March 31, 2013		March 31, 2012
Weighted average shares outstanding
Basic		14,770,943		15,002,818
Effect of dilutive securities
Stock Options		-0-		-0-
Dilutive Average Shares Outstanding		14,770,943		15,002,818

The computation of the weighted shares outstanding for the six months ended March 31 is as follows:

	March 31, 2013		March 31, 2012
Weighted average shares outstanding
Basic		14,721,733		15,091,356
Effect of dilutive securities
Stock Options		-0-		-0-
Dilutive Average Shares Outstanding		14,721,733		15,091,356

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Segment, Customer and Geographical Reporting

6 Months Ended

Mar. 31, 2013

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 10 – 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 is developing technologies for a wide spectrum of applications, including hematology, hypothermic core cooling and tissue sealants and will primarily pursue product commercialization of technologies and technology licensing opportunities though no assurance can be given that any of these technologies will become successfully commercialized.

The Company’s segment information for the three months ended March 31, 2013 and 2012 is summarized below:

Results of Operations for the Three Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	5,487,850		$	3,931,766	$	1,014,320		$	50,594		$	10,484,530
Gross Profit		2,647,870			1,632,007		461,101			50,594			4,791,572
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,072			-0-			6,763,072
Operating Income (Loss)		232,015			2,336		(7,270,801	)		(211,564	)		(7,248,014	)
Depreciation and Amortization		79,637			184,696		164,384			15,000			443,717
Capital expenditures		(187,425	)		87,536		-0-			-0-			(99,889	)
Intangibles, Net		349,786			866,488		2,349,767			209,997			3,776,038
Goodwill		4,938,625			1,197,017		-0-			-0-			6,135,642
Total Assets		13,332,151			9,748,703		4,862,956			334,658			28,278,468

Results of Operations for the Three Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	6,978,973	$	3,684,213	$	1,629,248		$	6,576		$	12,299,010
Gross Profit		2,771,643		1,471,367		837,368			3,965			5,084,343
Operating Income (Loss)		158,278		30,970		(538,996	)		(249,968	)		(599,716	)
Depreciation and Amortization		57,777		155,597		134,699			15,000			363,073
Capital expenditures		85,199		183,965		12,823			-0-			281,987
Intangibles, Net		402,434		1,790		5,374,500			270,000			6,048,724
Goodwill		4,938,625		2,115,376		6,299,571			-0-			13,353,572
Total Assets		12,797,372		11,385,312		15,276,724			249,537			39,708,945

The Company’s segment information for the six months ended March 31, 2013 and 2012 is summarized below:

Results of Operations for the Six Months Ended March 31,
2013
	Contract Research			Optics		Instruments			Biomedical			Total
Revenue	$	10,398,690		$	8,183,706	$	2,298,358		$	157,051		$	21,037,805
Gross Profit		4,861,923			3,332,562		1,066,902			157,051			9,418,438
Impairment of goodwill & long-lived assets		-0-			-0-		6,763,072			-0-			6,763,072
Operating Income (Loss)		231,409			388,012		(7,726,495	)		(332,227	)		(7,439,301	)
Depreciation and Amortization		142,419			370,324		327,432			30,000			870,175
Capital expenditures		(1,095	)		209,682		7,092			-0-			215,679
Intangibles, Net		349,786			866,488		2,349,767			209,997			3,776,038
Goodwill		4,938,625			1,197,017		-0-			-0-			6,135,642
Total Assets		13,332,151			9,748,703		4,862,956			334,658			28,278,468

Results of Operations for the Six Months Ended March 31,
2012
	Contract Research		Optics		Instruments			Biomedical			Total
Revenue	$	13,204,256	$	7,596,764	$	3,612,784		$	17,501		$	24,431,305
Gross Profit		5,211,931		2,933,785		2,088,791			(23,216	)		10,211,291
Operating Income (Loss)		303,495		195,093		(459,452	)		(452,524	)		(413,388	)
Depreciation and Amortization		94,937		349,100		269,156			30,000			743,193
Capital expenditures		347,219		324,841		15,268			-0-			687,328
Intangibles, Net		402,434		1,790		5,374,500			270,000			6,048,724
Goodwill		4,938,625		2,115,376		6,299,571			-0-			13,353,572
Total Assets		12,797,372		11,385,312		15,276,724			249,537			39,708,945

Customer Financial Information

For the three and six months ended March 31, 2013 and 2012, the top three customers for the Contract Research segment were various agencies of the U.S. Government. For the three months ended March 31, 2013 and 2012, these customers made up 61% and 72%, respectively, of Contract Research revenue. For the six months ended March 31, 2013 and 2012, these customers made up 63% and 76%, respectively, of Contract Research revenue.

For the three and six months ended March 31, 2013 and 2012, there was no customer in the Optics segment whose revenue represented more than 10% of the total segment revenue for the three or the six months ended March 31, 2013 and 2012.

For the three months ended March 31, 2013 and 2012, the top three customers for the Instruments segment made up 30% and 32%, respectively, of Instruments revenue. For the six months ended March 31, 2013 and 2012, the top three customers for the Instruments segment made up 32% and 29%, respectively, of Instruments revenue.

For the three and six months ended March 31, 2013, the Biomedical segment had one customer whose revenue represented 100% of the total segment revenue. For the three and six months ended March 31, 2012, 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 March 31, 2013 and 2012 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2013					March 31, 2012
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,572,033		82	%	$	10,287,397		84	%
Europe		847,662		8	%		1,103,021		9	%
Other		1,064,836		10	%		908,592		7	%
	$	10,484,530		100	%	$	12,299,010		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2013 and 2012 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2013					March 31, 2012
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	17,066,521		82	%	$	20,315,876		83	%
Europe		1,736,003		8	%		2,229,373		9	%
Other		2,235,282		10	%		1,886,056		8	%
	$	21,037,805		100	%	$	24,431,305		100	%

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Capital Leases (Details Textual) (USD $)	Mar. 31, 2013	Mar. 31, 2012
Capital Lease Obligations	$ 365,264	$ 0

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Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets [Table Text Block]

Intangible assets at March 31, 2013 and September 30, 2012 consist of the following:

	Useful	Gross		Accumulated
March 31, 2013	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5-15	$	5,275,668	$	2,516,280	$	2,759,388
Know How	15		512,000		162,214	$	349,786
Trade Names	15 - Indefinite		527,389		70,522	$	456,867
Biomedical Technologies	5		300,000		90,003	$	209,997
		$	6,615,057	$	2,839,019	$	3,776,038

	Useful	Gross		Accumulated
September 30, 2012	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5-15	$	7,858,775	$	2,257,533	$	5,601,242
Know How	15		512,000		145,147		366,853
Trade Names	15 - Indefinite		558,435		63,222		495,213
Biomedical Technologies	5		300,000		60,003		239,997
		$	9,229,210	$	2,525,905	$	6,703,305

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Amortization expense for the three months ended March 31, 2013 and 2012 was $143,506 and $162,802respectively. Amortization expense for the six months ended March 31, 2013 and 2012 was $324,774 and $325,605, respectively. Estimated amortization expense for each of the next five fiscal years is as follows:

	2013 (6 Months)		2014		2015		2016		2017		Thereafter		Total
Acquired Customer Base	$	271,543	$	543,085	$	543,085	$	543,085	$	543,085	$	315,504	$	2,759,387
Know How		17,067		34,133		34,133		34,133		34,133		196,187		349,786
Trade Names		7,300		14,600		14,600		14,600		14,600		72,995		138,695
Biomedical Technologies		30,000		60,000		60,000		59,997		-0-		-0-		209,997
	$	325,910	$	651,818	$	651,818	$	651,815	$	591,818	$	584,686	$	3,457,865

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Fair Value Measurements (Tables)

6 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements, Nonrecurring [Table Text Block]

Fair value of assets measured on a nonrecurring basis at March 31, 2013 included the following:

Products Business Unit	Fair Value at March 31,2013		Level 1		Level 2		Level 3
Goodwill	$	-0-	$	-0-	$	-0-	$	-0-
Acquired Customer Base		2,211,000						2,211,000
Trade Name		139,000						139,000
Fixed Assets		163,000						163,000

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Segment, Customer and Geographical Reporting (Details) (USD $)	3 Months Ended		6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013	Mar. 31, 2012	Sep. 30, 2012
Revenue	$ 10,484,530	$ 12,299,010	$ 21,037,805	$ 24,431,305
Gross profit	4,791,572	5,084,343	9,418,438	10,211,291
Impairment of goodwill and long-lived assets	6,763,072	0	6,763,072	0
Operating Income (Loss)	(7,248,014)	(599,716)	(7,439,301)	(413,388)
Depreciation and Amortization	443,717	363,073	870,175	743,193
Capital expenditures	(99,889)	281,987	215,679	687,328
Intangibles, Net	3,776,038	6,048,724	3,776,038	6,048,724	6,703,305
Goodwill	6,135,642	13,353,572	6,135,642	13,353,572	10,254,160
Total Assets	28,278,468	39,708,945	28,278,468	39,708,945	37,465,428
Contract Research [Member]
Revenue	5,487,850	6,978,973	10,398,690	13,204,256
Gross profit	2,647,870	2,771,643	4,861,923	5,211,931
Impairment of goodwill and long-lived assets	0		0
Operating Income (Loss)	232,015	158,278	231,409	303,495
Depreciation and Amortization	79,637	57,777	142,419	94,937
Capital expenditures	(187,425)	85,199	(1,095)	347,219
Intangibles, Net	349,786	402,434	349,786	402,434
Goodwill	4,938,625	4,938,625	4,938,625	4,938,625
Total Assets	13,332,151	12,797,372	13,332,151	12,797,372
Optics [Member]
Revenue	3,931,766	3,684,213	8,183,706	7,596,764
Gross profit	1,632,007	1,471,367	3,332,562	2,933,785
Impairment of goodwill and long-lived assets	0		0
Operating Income (Loss)	2,336	30,970	388,012	195,093
Depreciation and Amortization	184,696	155,597	370,324	349,100
Capital expenditures	87,536	183,965	209,682	324,841
Intangibles, Net	866,488	1,790	866,488	1,790
Goodwill	1,197,017	2,115,376	1,197,017	2,115,376
Total Assets	9,748,703	11,385,312	9,748,703	11,385,312
Instruments [Member]
Revenue	1,014,320	1,629,248	2,298,358	3,612,784
Gross profit	461,101	837,368	1,066,902	2,088,791
Impairment of goodwill and long-lived assets	6,763,072		6,763,072
Operating Income (Loss)	(7,270,801)	(538,996)	(7,726,495)	(459,452)
Depreciation and Amortization	164,384	134,699	327,432	269,156
Capital expenditures	0	12,823	7,092	15,268
Intangibles, Net	2,349,767	5,374,500	2,349,767	5,374,500
Goodwill	0	6,299,571	0	6,299,571
Total Assets	4,862,956	15,276,724	4,862,956	15,276,724
Biomedical [Member]
Revenue	50,594	6,576	157,051	17,501
Gross profit	50,594	3,965	157,051	(23,216)
Impairment of goodwill and long-lived assets	0		0
Operating Income (Loss)	(211,564)	(249,968)	(332,227)	(452,524)
Depreciation and Amortization	15,000	15,000	30,000	30,000
Capital expenditures	0	0	0	0
Intangibles, Net	209,997	270,000	209,997	270,000
Goodwill	0	0	0	0
Total Assets	$ 334,658	$ 249,537	$ 334,658	$ 249,537

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $)	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive Income [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance at Sep. 30, 2012	$ 7,805	$ 17,037,618	$ 61,906	$ 2,722,601	$ (986,342)	$ 18,843,588
Balance (in shares) at Sep. 30, 2012	15,610,517				810,160
Issuance of shares of common stock under employee stock purchase plan	8	11,680	0	0	0	11,688
Issuance of shares of common stock under employee stock purchase plan (in shares)	15,228				0
Stock-based compensation costs	77	210,051	0	0	0	210,128
Stock-based compensation costs (in shares)	154,046				0
Foreign currency translation adjustment	0	0	(245,621)	0	0	(245,621)
Net loss	0	0	0	(7,621,072)	0	(7,621,072)
Balance at Mar. 31, 2013	$ 7,890	$ 17,259,349	$ (183,715)	$ (4,898,471)	$ (986,342)	$ 11,198,711
Balance (in shares) at Mar. 31, 2013	15,779,791				810,160

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Costs in Excess of Billings and Unbilled Receivables

6 Months Ended

Mar. 31, 2013

Cost In Excess Of Billings [Abstract]

Dividend Add Back Due To Preferred Stock Conversion [Text Block]

Note 4 – Costs in Excess of Billings and Unbilled Receivables

Costs in excess of billings and unbilled receivables relate to research and development contracts and consist of actual revenues earned under the contracts which have not yet been billed to customers.

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Basis of Presentation and Ability to Continue as a Going Concern (Details Textual)	6 Months Ended
	Mar. 31, 2013
Debt Instrument, Interest Rate Increase	0.05

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Stock Based Compensation (Details 1) (USD $)	6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Shares Nonvested, Beginning Balance	127,834	403,000
Shares, Granted	104,000	0
Shares, Vested	(53,000)	(38,000)
Shares, Cancelled	(20,000)	0
Shares, Nonvested, Ending Balance	158,834	365,000
Weighted-Average Grant-Date Fair Value, Nonvested, Beginning Balance	$ 1.92	$ 4.02
Weighted-Average Grant-Date Fair Value, Granted	$ 1.03	$ 0
Weighted-Average Grant-Date Fair Value, Vested	$ 1.21	$ 4.01
Weighted-Average Grant-Date Fair Value, Cancelled	$ 4.02	$ 0
Weighted-Average Grant-Date Fair Value, Nonvested, Ending Balance	$ 1.31	$ 4.02

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Inventories (Tables)

6 Months Ended

Mar. 31, 2013

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories, net of reserves, consist of the following:

	March 31,		September 30,
	2013		2012
Raw Materials	$	2,183,899	$	2,096,681
Work-in-Process		965,439		885,328
Finished Goods		508,877		289,691
	$	3,658,215	$	3,271,700