DYSL Dynasil Corp of America (CE)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)

XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

--- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.

 Delaware 22-1734088
 -------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
 of incorporation)

Large accelerated filer Accelerated filer
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Non-accelerated filer Smaller reporting company XX
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The Company had 11,371,933 shares of common stock, par value $.0005 per
share, outstanding as of May 8, 2009.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX

PAGE

PART 1. FINANCIAL INFORMATION 3

Item 1. Financial Statements

 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
 -----------------------------------------------

 CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2009
 AND SEPTEMBER 30, 2008 3

 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
 AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008 5

 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
 MONTHS ENDED MARCH 31, 2009 AND 2008 6

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7


 Item 2. Management's Discussion and Analysis of Financial 10
 Condition and Results of Operations.

 Item 3. Quantitative and Qualitative Disclosures About 14
 Market Risk

 Item 4T. Controls and Procedures 14

PART II. OTHER INFORMATION 14

Item 1. Legal Proceedings 14

Item 2. Unregistered Sales of Equity Securities and Use 14
of Proceeds

Item 3. Defaults Upon Senior Securities 14

Item 4. Submission of Matters to a Vote of Security Holders 14

Item 5. Other Information 15

Item 6. Exhibits 15

Signatures 16

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

 March 31 September 30
 2009 2008
 (Unaudited)
 ---------- ----------
Current assets
 Cash and cash equivalents $ 1,439,157 $ 3,882,955
 Accounts receivable, net of allowance for doubtful
 accounts of $66,733 and $70,165 and sales
 returns of $21,758 and $8,200 for
 March 31, 2009 and
 September 30, 2008, respectively 5,266,640 3,390,703
 Inventories 2,472,545 2,909,730
 Deferred tax asset 233,500 233,500
 Prepaid expenses and other current assets 378,775 259,896
 ---------- ----------
 Total current assets 9,790,617 10,676,784

Property, Plant and Equipment, net 2,701,044 2,694,290
Other Assets
 Intangibles, net 7,499,645 7,767,258
 Goodwill 11,054,396 11,054,396
 Deferred financing costs, net 69,752 81,136
 Other assets 3,091 8,360
 ---------- ----------
 Total other assets 21,327,928 18,911,150
 ---------- ----------
 Total Assets $31,118,545 $32,282,224
 ========== ==========
 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
 Short Term Note Payable $ 32,451 $ 490,117
 Current portion of long term debt 1,695,296 1,649,101
 Accounts payable 539,561 1,026,675
 Billings in excess of cost 396,957 216,946
 Accrued expenses and other current liabilities 1,299,563 1,440,222
 ---------- ----------
 Total current liabilities 3,963,828 4,823,061

Long-term Liabilities
 Long-term debt, net 7,264,698 8,178,420
 Note payable to related party 2,000,000 2,000,000
 ---------- ----------
 Total long-term liabilities 9,264,698 10,178,420

Stockholders' Equity
 Common Stock, $.0005 par value, 40,000,000 shares
 authorized, 12,177,655 and 12,142,849 shares issued,
 11,367,495 and 11,332,689 shares outstanding 6,089 6,072

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (Continued)

Preferred Stock, $.001 par value, 15,000,000
 Shares authorized, 5,966,000 shares 5,966 5,966
 issued and outstanding for March 31, 2009 and
 September 30, 2008, 10% cumulative,
 convertible

 Additional paid in capital 16,263,106 16,122,185
 Retained earnings 2,601,200 2,132,862
 ---------- ----------
 18,876,361 18,267,085
 Less 810,160 shares in treasury - at cost (986,342) (986,342)
 ---------- ----------
 Total stockholders' equity 17,890,019 17,280,743
 ---------- ----------
 Total Liabilities and Stockholders' Equity $31,118,545 $32,282,224
 ========== ==========

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

 Three Months Ended Six Months Ended
 March 31 March 31
 2009 2008 2009 2008
 ---------- -------- ---------- ---------
Net sales $8,602,885 $3,045,974 $17,370,161 $5,860,880
Cost of sales 4,901,999 2,070,418 10,579,537 3,971,438
 ---------- --------- ---------- ----------
Gross profit 3,700,886 975,556 6,790,624 1,889,442
Selling, general and administrative
 expenses 2,945,625 777,348 5,377,993 1,456,756
 ---------- --------- ---------- ----------
Income from operations 755,261 198,208 1,412,631 432,686
Interest expense, net 219,861 42,062 406,658 75,584
 ---------- --------- ---------- ---------
Income before income taxes 535,400 156,146 1,005,973 357,102
Income taxes 131,266 10,170 246,198 20,840
 ---------- --------- ---------- ---------
Net income $404,134 $145,976 759,775 $336,262
 ========== ========= ========== ==========


Basic net income per common share $0.02 $0.02 $0.04 $0.05
Diluted net income per common share $0.02 $0.02 $0.04 $0.04


Weighted average shares outstanding
 Basic 11,367,008 6,736,852 11,358,143 6,467,518
 Diluted 12,345,107 7,789,233 12,336,162 7,519,899

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 Six Months Ended
 March 31
 2009 2008
 ---------- -----------
Cash flows from operating activities:
Net income $ 759,775 $ 336,262
Adjustments to reconcile net income to net cash used
 in operating activities:
 Provision for doubtful accounts and sales returns (11,632) (12,300)
 Depreciation and amortization 489,443 189,195
 Stock Based Compensation 53,875 9,620
 (Increase) decrease in:
 Accounts receivable (1,864,300) (178,770)
 Inventories 437,185 42,153
 Prepaid expenses and other current assets (113,610) (93,638)
 (Decrease) increase in:
 Accounts payable and accrued expenses (445,475) (318,543)
 ----------- ----------
Net cash used in operating activities (694,739) (26,021)
 ----------- ----------
Cash flows from investing activities:
 Purchases of property, plant and equipment (218,678) (101,354)
 Cash paid for acquisition of POC -0- (250,000)
 Acquisition costs -0- (92,851)
 ----------- ----------
 Net cash used in investing activities (218,678) (444,205)
 ----------- ----------
Cash flows from financing activities
 Issuance of common stock 86,792 152,036
 Proceeds (payments) short-term debt (431,044) 448,902
 Payments on long-term debt (894,148) (73,195)
 Deferred financing costs 6,139 -0-
 Preferred stock dividends paid (298,300) (35,500)
 ----------- ----------
Net cash provided by (used in) financing activities (1,530,381) 492,243
 ----------- ----------
Net decrease in cash and cash equivalents (2,443,798) 22,017
Cash and cash equivalents, beginning 3,882,955 496,948
 ----------- ----------
Cash and cash equivalents, ending $1,439,157 $ 518,965
 =========== ==========

DYNASIL CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Basis of Presentation

The consolidated balance sheet as of September 30, 2008 was audited and appears in the form 10 KSB previously filed by the company. The consolidated balance sheet as of March 31, 2009 and the consolidated statements of operations for the three and six months ended March 31, 2009 and 2008 and cash flows for the six months ended March 31, 2009 and 2008, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of March 31, 2009 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

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. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2008 Annual Report on Form 10-KSB previously filed by the Company with the Securities and Exchange Commission.

Certain items between goodwill and intangibles in the 2008 balance sheet have been reclassified to conform to 2009 financial statement presentation.

Note 2 Business Acquisition

On July 1, 2008, the Company completed its acquisition of all the outstanding capital stock of RMD Research and the specific assets and liabilities of RMD Instruments in transactions that were accounted for as a purchase. The following is the proforma statement of operations for the 6 months ended March 31, 2008, assuming the transaction had been consummated at the beginning of the year ended September 30, 2007.

Dynasil Corporation of America and Subsidiaries
Pro Forma Statement of Operations
6 months Ended March 31, 2008

 Net Sales $17,042,777
 Cost of Sales 9,550,834
 ----------
 Gross Profit 7,491,943
 Selling, general and administrative expenses 6,174,719
 ----------
 Income from operations 1,317,224
 Interest (expense), income net (392,877)
 ----------
 Income before income taxes 924,347
 Income tax (expense) (214,538)
 ----------
 Net income 709,809
 =========
 Basic net income per common share 0.04
 Diluted net income per common share 0.04

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 adjustments for impairments as required.

Inventories consisted of the following:

 March 31, 2008 September 30, 2008
 ----------------- ------------------
Raw Materials $1,717,240 $2,110,138
Work-in-Process 428,201 467,590
Finished Goods 327,104 332,002
 ----------------- ------------------
 $2,472,545 $2,909,730
 ================= ==================

Note 4 Billings in Excess of Costs

Billings in Excess of Costs relates to research and development contracts and consists of billings at provisional contract rates less actual costs plus fees.

Note 5 - Net Income Per Share

Basic net income per common share is computed by dividing the net income applicable to common shares after preferred dividend requirements, if applicable, by the weighted average number of common shares outstanding during each period. Diluted net income 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, 978,019 and 1,052,381 common share equivalents were assumed to be outstanding for the periods ended March 31, 2009 and 2008 respectively. The effect of assumed conversion of the Series C Preferred Stock into 2,102,400 common shares, as well as certain stock options, was antidilutive and therefore excluded from the computations. The computation of basic and diluted net income per common share is as follows:

Calculation of Net Income for Basic Earnings per Share

 Mar 31, 2009 Mar 31, 2008
 ------------ ------------
Net income $ 759,775 $ 336,261

Less: Preferred stock dividends $(298,300) ( 35,500)
 --------- -----------
Net Income allocable to common shareholders $ 461,475 $ 300,762

Calculation of Net Income for Diluted Earnings per Share

 Mar 31, 2009 Mar 31, 2008
 ------------ ------------
 Net income $ 759,775 $ 336,261

 Less: Preferred stock dividends $(262,800) -0-
 --------- -----------
 Net Income for Dilutive Earnings per Share $ 496,975 $ 336,261

 8

 Mar 31, 2009 Mar 31, 2008
 ------------ ------------
Weighted average shares outstanding
 Basic 11,358,143 6,467,518
 Effect of dilutive securities
 Stock Options 33,719 108,081
 Stock Warrants -0- -0-
 Convertible Preferred Stock 944,300 944,300
 ---------- ---------

 Diluted average shares outstanding 12,336,162 7,519,899

Note 6 - Stock Based Compensation

The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The list of assumptions used for the Black-Scholes option pricing model is presented below with numbers shown for the most recent grant:

 March 31, 2009
Expected term in years 3 years
Risk-free interest rate 3.93%
Expected volatility 45.21%
Expected dividend yield 0.00%

The expected volatility was determined with reference to the historical volatility of the Company's stock. The expected term of options granted represents the period of time for which the options have been granted. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.

During the three months ended March 31, 2009, 290,246 stock options were granted at $1.58 per share and no stock options were exercised. For three months ended March 31, 2009, total stock-based compensation charged to operations amounted to $25,625. At March 31, 2009, there was approximately $30,125 of total unrecognized compensation expense related to non-exercisable option-based compensation arrangements under the Plan. During the six months ended March 31, 2009, 345,246 stock options were granted at prices ranging from $1.54 to $1.73 per share and 13,000 stock options were exercised. Of the granted stock options, 55,000 cannot be exercised until 2010, therefore the stock-based compensation expense totaling $12,082 will be recognized at that time if they become exercisable. The 13,000 options exercised had an exercise price of $0.85 per share with $11,050 paid in cash. For six months ended March 31, 2009, total stock-based compensation charged to operations for option-based arrangements amounted to $53,875. The Company cancelled 147,000 options during the six months ended March 31, 2009.

Note 7 Material Subsequent Events

On September 30, 2008, Dynasil entered into a note payable to RMD Instruments, LLC in which the former owners of RMD and current officers of RMD have a financial interest. The loan is in the amount of $2,000,000 and carried interest at the rate of 8.0% per annum. The loan is for working capital. The loan has a balloon payment of all principal which was originally scheduled for March 31, 2009 and on December 19, 2008 the maturity date was extended to October 1, 2009. On May 11, 2009, the maturity date was further extended to October 1, 2010, and the interest rate was increased to 9% per annum, effective October 1, 2009.

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

The following management's discussion and analysis should be read in conjunction with our financial statements and the notes thereto in the Company's Form 10-KSB for the fiscal year ending September 30, 2008.

General Business Overview

This is the third quarter of results after Dynasil Corporation of America ("Dynasil", the "Company" or "we"), acquired the stock of Radiation Monitoring Devices, Inc. ("RMD Research") and specific assets of RMD Instruments, LLC ("RMD Instruments") on July 1, 2008, which are advanced instruments and research companies located in Watertown, MA. RMD Instruments and RMD Research are referred to, together, in this Report as "RMD". Revenues for the second quarter of fiscal year 2009 which ended March 31, 2009 were $8,602,885, an increase of 182% over revenues of $3,045,974 for the quarter ended March 31, 2008. Income from Operations for the quarter was $755,261, an increase of 281% over Income from Operations of $198,208 for the quarter ended March 31, 2008. Net income for the quarter was $404,134 or $0.02 per share, compared with a net income of $145,976, or $0.02 per share, for the quarter ended March 31, 2008. Net Operating Loss carry forwards for federal taxes were exhausted during fiscal year 2008 so second quarter net income was impacted by increased federal taxation as well as higher interest costs which are primarily related to the RMD acquisition. Year to date revenues of $17.4 million are up 196% versus last year, year to date income from operations of $1.4 million is 229% above last year's $432,685 and year to date net profit of $759,775 is up 126% versus the six months ended March 31, 2008.

Results of Operations

Revenues for the three months ended March 31, 2009 were $8,602,885, an increase of 182%, over revenues of $3,045,974 for the quarter ended March 31, 2008. Revenues for the six months ended March 31, 2009 were $17,370,161, an increase of 196% over revenues of $5,860,880 for the six months ended March 31, 2008. The revenue increase came largely from the acquisition of RMD. RMD Research's revenues were strong for the quarter while commercial revenues at all locations were down from the prior year comparable quarter. Dynasil management believes that the revenue reductions were primarily due to the worldwide economic slowdown. Dynasil management expects that the third quarter will continue the second quarter pattern of reduced commercial revenues and strong contract research revenues. Management has increased new product and new customer sales efforts with a view to offsetting the anticipated reduced level of product shipments to existing customers.

Cost of sales for the three months ended March 31, 2009 was $4,901,999 or 57.0% of sales, an improvement of 11 percentage points from the three months ended March 31, 2008 of $2,070,418, or 68% of sales. Cost of sales for the six months ended March 31, 2009 was $10,579,537 or 60.9% of sales, an improvement of 6.9 percentage points from the six months ended March 31, 2008 of $3,971,438 or 67.8% of sales. The largest driver of the cost of sales increase was the addition of RMD.

Gross profit for the three months ended March 31, 2009, was $3,700,886, or 43.0% of sales, a 279% increase from $975,556 or 32% of sales for the three months ended March 31, 2008. Gross profit for the six months ended March 31, 2009 was $6,790,624, or 39.1% of sales, an increase of 260% over the six months ended March 31, 2008 of $1,889,442 or 32.2% of sales. The improved margins were due primarily to the RMD acquisition and also steps taken to reduce material costs and improve productivity.

Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2009, were $2,945,625 or 34.2% of sales, an increase of 8.7 percentage points from the three months ended March 31, 2008 of $777,348 or 25.5% of sales. SG&A expenses for the six months ended March 31, 2009 were $5,377,993 or 31.0% of sales, an increase of 6.1 percentage points from the six months ended March 31, 2008 of $1,456,756 or 24.9% of sales. The changes in SG&A expenses and percentages resulted primarily from the addition of RMD. Personnel reductions were completed at several locations to reduce administrative costs while maintaining or increasing selling activities.

Income from Operations for the three months ended March 31, 2009 was $755,261, an increase of 281% over Income from Operations of $198,208 for the quarter ended March 31, 2008. Income from Operations for the six months ended March 31, 2009 was $1,412,631, an increase of 226% over Income from Operations for the six months ended March 31, 2008 of $432,686. Income from Operations increased at a lower rate than revenues since the profitability of contract research is lower than our normal commercial profitability.

Net interest expense for the three months ended March 31, 2009 was $219,861, compared to $42,062 for the three months ended March 31, 2008. Net interest expense for the six months ended March 31, 2009 was $406,658, compared to $75,584 for the six months ended March 31, 2008. The increase in combined interest expense is primarily related to the additional interest payments resulting from the indebtedness incurred in connection with the RMD acquisition.

Net income for the three months ended March 31, 2009, was $404,134 or $0.02 in basic earnings per share, which is up $258,158 from net income for the three months ended March 31, 2008, of $145,976, or $.02 in basic earnings per share. Net income for the six months ended March 31, 2009 was $759,775, or $.04 in basic earnings per share, which is up 126% from net income for the six months ended March 31, 2008, of $336,262 or $.05 in basic earnings per share. When compared to the quarter ended March 31, 2008, net income was impacted primarily by increased revenue from the RMD acquisition partly offset by increased federal taxation, and higher interest costs related to the RMD acquisition.

The Company had a $131,266 provision for income taxes for the quarter ended March 31, 2009 and a $10,170 provision for the quarter ended March 31, 2008. The Company had a $246,198 provision for income taxes for the six months ended March 31, 2009, and a $20,840 provision for the six months ended March 31, 2008. Most federal and New Jersey state taxes for the quarter and six months ending March 31, 2008 were offset by utilization of net operating loss carry-forwards. As of September 30, 2008, Dynasil had no further net operating loss carry- forwards to offset future taxable income for federal tax purposes. The Company had approximately $816,720 of net operating loss carry-forwards as of September 30, 2008 available to offset certain future New Jersey and New York state taxable income that expire in various years through 2013.

Liquidity and Capital Resources

Cash decreased by $2,443,798 for the six months ended March 31, 2009. The primary sources of cash were net income of $759,775, depreciation and amortization expenses that aggregated $489,443, and reduced inventories of $437,185. The primary uses of cash were increased accounts receivables of $1,864,300, payments on long term debt of $894,148, payments aggregating $400,366 to pay down all lines of credit down to a zero balance, and purchases of machinery and equipment of $218,682. The accounts receivable increase came primarily from RMD where additional resources are being deployed to quickly improve that process.

Management believes that its current cash and cash equivalent balances, along with the net cash generated by operations and credit facilities, are sufficient to meet its anticipated cash needs for working capital for at least the next 12 months. As of March 31, 2009, the Company had cash of $1,439,157 and available bank line of credit borrowings of $1,215,000. Improvements to the accounts receivable processes for RMD are expected to recoup a portion of the cash used for working capital during the first 2 quarters of fiscal year 2009 and management has increased its focus on overall working capital. There are currently no plans for any major capital expenditures in the next six to nine months, except for a $75,000 investment to complete upgrades to manufacturing capabilities at Optometrics. Any major business expansions or acquisitions likely will require the Company to seek additional debt and/or equity financing.

Acquisitions

We continue to execute our strategy of significant growth through acquisitions as well as organic growth and effective execution in our businesses. The acquisition of RMD on July 1, 2008 had a transformational impact on Dynasil with a tripling of revenues as well as significantly increasing our technical capabilities and intellectual property. In the short term, management's primary focus is to maximize value from RMD including identifying RMD technology which can drive Dynasil's growth.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2008. We have not adopted any accounting policies since September 30, 2008 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-KSB for the fiscal year ended September 30, 2008 as well as the Notes to Consolidated Financial Statements 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. This is when the products are shipped per customers' instructions, the sales price is fixed and determinable, and collections are reasonably assured. Revenues from research and development activities consist of up-front fees, research and development funding and milestone payments. Periodic payments for research and development activities and government grants are recognized over the period that the Company performs the related activities under the terms of the agreements. Billings in Excess of Costs relates to research and development contracts and consists of billings at provisional contract rates less actual costs plus fees.

Research and Development Costs

Research and development ("R&D") costs are expensed as incurred. Equipment purchased with alternative future benefit in R&D activities is capitalized and resulting depreciation is recorded as R&D expense. Additionally, R&D costs include employee salaries directly related to R&D efforts and all other costs directly allocable to R&D efforts, including equipment for which there is no alternative use.

Valuation of Long-Lived Assets

We assess the recoverability of long-lived assets whenever we determine that events or changes in circumstances indicate that their carrying amount may not be recoverable. Our assessment is primarily based upon our estimate of future cash flows associated with these assets. Valuations contain certain assumptions concerning estimated future revenues and future expenses. We have determined there is no indication of impairment of any of our assets. However, should our operating results deteriorate, we may determine that a portion of the value of our long-lived assets is impaired. Such a determination could result in non-cash charges to income that could materially and adversely affect the Company's financial position or results of operations for the applicable financial reporting period.

Estimating Allowances for Doubtful Accounts Receivable

We perform 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.

Valuation of Deferred Tax Assets

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. The Company believes that its remaining carry forwards will be realized.

Valuation of Intangible Assets

The SFAS 142 accounting standard requires the valuation of intangible assets after an acquisition for financial statement purposes. Arriving at these valuations can be a complicated and uncertain process which requires significant judgments to be made. The Company now has significant goodwill and other intangible assets from the RMD acquisition that have had a material impact on our financial statements. These intangible assets will require annual testing for impairment which will involve significant management estimates. Due to recent economic conditions, management will test for goodwill impairment during Quarter 3, but no impairment is anticipated.

Stock-Based Compensation

Effective October 1, 2006, we adopted SFAS 123(R), "Accounting for Stock Based Compensation." As a result, compensation costs are now recognized for stock options granted to employees and directors. Options and warrants granted to employees and non-employees are recorded as an expense when vested based on the estimated fair value, at grant date, determined using the Black-Scholes option pricing model.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 141 (revised) ("SFAS 141(R)"), "Business Combinations." The standard changes the accounting for business combinations, including the

measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs, and the recognition of changes in the acquirer's income tax valuation allowance. SFAS 141(R) is effective for the first annual reporting period beginning on or after December 15, 2008. Thus, SFAS 141(R) will be effective for the Company on October 1, 2009, with early adoption prohibited. The Company is evaluating the potential impact of the implementation of Statement 141(R) on its financial position and results of operations.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSB FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other generally accepted accounting principles. FSP FAS 142-3 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2008. The Company does not expect the adoption of FSP FAS 142-3 to have a material impact on our consolidated financial statements.

Forward-Looking Statements

The statements contained in this Quarterly Report on Form 10-Q which are not historical facts, including, but not limited to, certain statements found under the captions "General Business Overview," "Results of Operations," "Acquisitions," and "Liquidity and Capital Resources" above, are forward-looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in the Annual Report on Form 10-KSB and this 10-Q report, including, without limitation, the portions of such reports under the captions referenced above, and the uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, and other public statements. Such risks and uncertainties include, without limitation, seasonality, interest in the Company's products, consumer acceptance of new products, general economic conditions, consumer trends, costs and availability of raw materials and management information systems, competition, litigation and the effect of governmental regulation. 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 4T Controls and Procedures

As required by Rule 13a-15(e) under the Exchange Act, our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of the end of the period covered by the report and have determined that such disclosure controls and procedures are effective.

There has been no change in our internal control over financial reporting in connection with this evaluation that occurred during our last fiscal quarter that materially affected, or

it is reasonably likely to materially affect, our internal control over financial reporting. Because RMD Research and RMD Instruments were acquired by the company on July 1, 2008, they were not required to be included in management's assessment of internal control over financial reporting for the quarter ending 03-31-09 and therefore, management excluded them from its assessment.

PART II

ITEM 1 Legal Proceedings

NONE

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

NONE

ITEM 3 Defaults Upon Senior Securities

NONE

ITEM 4 Submission of Matters to a Vote of Security Holders

NONE

ITEM 5 Other Information

NONE

ITEM 6 Exhibits

(a) Exhibits and index of Exhibits

3.1 Amendment to the Certificate of Incorporation filed on March 3, 2009

10.1 Amendment to RMD Instruments' Note.

31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications 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 14, 2009 issued by Dynasil Corporation of America announcing its financial results for the second quarter ending March 31, 2009.

(b) Reports on Form 8-K

None

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DYNASIL CORPORATION OF AMERICA

BY: /s/ Craig T. Dunham DATED: May 14, 2009
 --------------------------------- --------------------
 Craig T. Dunham,
 President and CEO


 /s/ Paul J. Weaver DATED: May 14, 2009
 --------------------------------- --------------------
 Paul J. Weaver,
 Chief Financial Officer

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