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

The accompanying consolidated balance sheet as of March 31, 2014, the consolidated statements of operations and comprehensive income (loss) for the three months and six months ended March 31, 2014 and 2013, changes in stockholders’ equity for the six months ended March 31, 2014 and cash flows for the six months ended March 31, 2014 and 2013 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 unaudited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2013 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company incurred substantial losses from operations for the fiscal years ended September 30, 2013 and 2012 and failed to comply with the financial covenants set forth in the terms of its outstanding loan agreements for the fiscal year ended September 30, 2012 and each of the quarters during the fiscal year ended September 30, 2013. These covenants required the Company to maintain specified ratios of earnings before interest, taxes, depreciation and amortization (EBITDA) to fixed charges and to total/senior debt.

The Company returned to profitability for the three month period ended December 31, 2013 and regained compliance with the financial covenants described above. However Santander Bank, N.A. (“Santander”), the Company’s senior lender, continued to require that it not pay interest due monthly to our subordinated lender, Massachusetts Capital Resource Company, constituting a separate event of default. In addition, Santander advised the Company that it was unwilling to negotiate regarding waivers for our past quarterly covenant violations after we reported that it had regained compliance for the three months ended December 31, 2013.

On May 1, 2014, the Company entered into a three year revolving line of credit arrangement with a new bank for up to $4 million with the amount available for advances determined monthly based on eligible billed and unbilled accounts receivable and inventory. The line of credit is secured by substantially all the Company’s assets. Upon the closing of the loan, the Company repaid the approximately $1.8 million owed the senior lender and the $600,000 of accrued interest due the subordinated lender through April 30, 2014. The subordinated lender also issued a waiver to the Company for prior covenant violations.

As a result, the Company is no longer in default of any of its loan obligations and has reclassified the subordinated debt to a long term liability based on its terms.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2014, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.