DYSL Dynasil Corp of America (CE)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-QSB

(Mark One)

XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

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

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

DYNASIL CORPORATION OF AMERICA

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

385 Cooper Road, West Berlin, New Jersey, 08091

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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)

The Company had 11,332,689 shares of common stock, par value $.0005 per share, outstanding as of August 1, 2008.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX

PAGE
PART 1. FINANCIAL INFORMATION
----

 ITEM 1. FINANCIAL STATEMENTS

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

 CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2008
 AND SEPTEMBER 30, 2007 3

 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
 AND NINE MONTHS ENDED JUNE 30, 2008 AND 2007 4

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED JUNE 30, 2008 AND 2007 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8

ITEM 3. CONTROLS AND PROCEDURES 14

PART II. OTHER INFORMATION 14

ITEM 1. LEGAL PROCEEDINGS 14

ITEM 2. CHANGES IN SECURITIES 14

ITEM 3. DEFAULTS ON SENIOR SECURITIES 15

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15

ITEM 5. OTHER INFORMATION 15

ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 15

SIGNATURES 16

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

 June 30 September 30
 2008 2007
 (Unaudited)
 ---------- ----------
Current assets
 Cash and cash equivalents $ 371,904 $ 496,948
 Accounts receivable, net of
 allowance for doubtful
 accounts of $76,290 and
 $98,863 and sales returns of
 $27,903 and $30,790 for
 June 30, 2008 and
 September 30, 2007, respectively 1,317,830 1,284,844
 Inventories 2,036,849 1,832,720
 Deferred tax asset 216,100 216,100
 Prepaid expenses and other
 current assets 207,409 130,548
 ---------- ----------
 Total current assets 4,150,092 3,961,160

Property, Plant and Equipment, net 2,603,608 2,436,517

Other Assets 232,374 88,698
 ---------- ----------

 Total Assets $6,986,074 $6,486,375
 ========== ==========

 LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
 Note payable to bank -
 Line of credit $560,070 $311,870
 Current portion - long term debt 167,119 99,237
 Accounts payable 496,109 684,208
 Accrued expenses 571,260 587,872
 ---------- ----------
 Total current liabilities 1,794,558 1,683,187

Long-term Debt, net 1,463,362 1,626,980


Stockholders' Equity
 Common Stock, $.0005 par value,
 25,000,000 shares authorized,
 7,558,667 and 6,926,683 shares
 issued, 6,748,507 and 6,116,523
 shares outstanding 3,779 3,464
 Preferred Stock, $.001 par value,
 10,000,000 shares authorized,
 710,000 and 710,000 shares Series B
 shares issued and outstanding
 for June 30, 2008 and September 30,
 2007 respectively, 10% cumulative,
 convertible 710 710
 Additional paid in capital 3,199,682 2,983,980
 Retained earnings 1,510,325 1,174,396
 ---------- ----------
 4,714,496 4,162,550

 Less 810,160 shares in treasury -
 at cost (986,342) (986,342)
 ---------- ----------
 Total stockholders' equity 3,728,154 3,176,208
 ---------- ----------
 Total Liabilities and
 Stockholders' Equity $6,986,074 $6,486,375
 ========== ==========

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

 Three Months Ended Nine Months Ended
 June 30 June 30
 2008 2007 2008 2007
 ---------- --------- ---------- ----------
Net sales $2,676,263 $2,584,519 $8,537,144 $8,124,031
Cost of sales 1,891,753 1,776,432 5,867,317 5,785,706
 ---------- --------- ---------- ----------
Gross profit 784,510 808,087 2,669,827 2,338,325

Selling, general and administrative 678,736 660,459 2,131,366 1,960,250
 expenses
 ---------- --------- ---------- ----------
Income from operations 105,774 147,628 538,461 378,075
Interest expense - net 39,191 39,551 114,774 114,215
 ---------- --------- ---------- ----------
Income before income taxes 66,583 108,077 423,687 263,860
Income taxes 13,581 9,973 34,421 30,629
 ---------- --------- ---------- ----------
Net income $ 53,002 $ 98,104 $ 389,266 $ 233,231
 ========== ========= ========== ==========

Net income per share
 Basic $0.01 $0.02 $0.05 $0.03
 Diluted $0.00 $0.01 $0.05 $0.03

Weighted average shares outstanding 6,743,853 6,114,679 6,559,629 5,104,271

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

 Nine Months Ended
 June 30
 2008 2007
 ---------- -----------
Cash flows from operating activities:
 Net income $ 389,266 $ 233,231
 Adjustments to reconcile net income
 to net cash used in operating activities:
 Depreciation 275,814 253,656
 Amortization expense 12,222 12,222
 Allowance for doubtful accounts and sales returns (25,461) 7,463
 Stock based compensation 42,420 11,366
 (Increase) decrease in:
 Accounts receivable (2,993) 98,366
 Inventories (204,129) (386,033)
 Prepaid expenses and other
 current assets (72,342) (56,670)
 Decrease in:
 Accounts payable and accrued expenses (204,705) (159,107)
 ---------- -----------
Net cash from operating activities 210,092 14,494
 ---------- -----------
Cash flows from investing activities:
 Acquisition of property, plant and equipment (192,904) (293,773)
 Cash paid for acquisition of EMF -0- (674,890)
 Cash paid for acquisition of POC (250,000) -0-
 Acquisition costs (164,953) -0-
 ---------- -----------
Net cash used in investing activities (607,857) (968,663)
 ---------- -----------
Cash flows from financing activities:
 Issuance of common stock 173,507 170,590
 Issuance of preferred stock -0- 700,000
 Payments on long-term debt (95,736) (72,361)
 Proceeds from refinanced long term-debt -0- 174,816
 Proceeds from short-term debt 250,000 212,910
 Payments on short-term debt (1,800) (227,277)
 Preferred stock dividends paid (53,250) (66,092)
 ---------- -----------
Net cash provided by financing activities 272,721 892,586
 ---------- -----------
Net decrease in cash (125,044) (61,583)

Cash - beginning of period 496,948 352,139
 ---------- -----------
Cash - end of period $ 371,904 $ 290,556
 ========== ===========
Supplemental Disclosure of cash flow information
 Non-cash investing and financing activities:
 Preferred stock dividends declared $53,250 $83,842
 Less dividends payable at June 30 -0- (17,750)
 Net cash paid for dividends $53,250 $66,092
 ========== ===========
Acquisition of EMF Corporation
 Fair market value of current assets acquired - $468,300
 Property, plant & equipment - 1,789,621
 Fair market value of liabilities assumed - (1,063,031)
 ---------
 Total cost of acquisition - 1,194,890
 Debt incurred to pay seller - (520,000)
 ---------
 Net cash paid for EMF Corporation - $674,890
 =========

DYNASIL CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Basis of Presentation

The consolidated balance sheet as of September 30, 2007 was audited and appears in the Form 10-KSB previously filed by the Company. The consolidated balance sheet as of June 30, 2008 and the consolidated statements of operations for the three and nine months ended June 30, 2008 and 2007 and cash flows for the nine months ended June 30, 2008 and 2007, 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 June 30, 2008 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, 2007 Annual Report on Form 10-KSB previously filed by the Company with the Securities and Exchange Commission.

Certain items in the 2007 statement of operations have been restated to conform with the 2008 financial statement presentation.

Note 2 - Business Acquisition

On January 18, 2008, the company, through its wholly owned subsidiary Optometrics Corporation, entered into an Asset Purchase Agreement with Precision Optics Corporation, Inc., a Massachusetts corporation and manufacturer of optical products. Pursuant to the agreement, the Company acquired certain equipment used to create optical filters, certain inventory, intellectual property and a customer list for a cash purchase price of $250,000. The asset purchase was recorded under the purchase method of accounting which requires the total consideration be allocated to the assets acquired and liabilities assumed based on their fair values. The total purchase price of $250,000 was allocated to fair value of the equipment. In addition, for a period of three years after the closing, the Company agreed to pay Precision Optics Corporation, Inc. a royalty of 25% of revenues from products sold to those customers on the customer list to the extent such revenues exceed $300,000 during a calendar year. The financial statements in this report include the results of operations from the asset purchase from January 18, 2008 through June 30, 2008, but do not reflect the results of operations from or the other effects of the transaction reported under Note 7 - Subsequent Event below.

Note 3 - Debt

On December 13, 2007, Dynasil's available line of credit with Susquehanna Bank was increased from $200,000 to $475,000. The interest rate was reduced to Susquehanna Bank's prime rate. All other terms remained unchanged. However, this information does not reflect the transaction reported under Note 7 - Subsequent Event below.

DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 4 - 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
primarily 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:

 June 30, 2008 September 30, 2007
 ----------------- ------------------
Raw Materials $1,203,361 $1,145,249
Work-in-Process 314,087 336,203
Finished Goods 519,401 351,268
 ------- ---------
 $2,036,849 $1,832,720
 ========= =========

Note 5 - Net Income Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding. The dilutive effects of potential common shares outstanding are included in diluted net earnings per share.

Note 6 - Stock Based Compensation

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for the most recent grant for determining the fair value of options granted under the Black-Scholes option pricing model:

Expected term in years 5 years
Risk-free interest rate 4.76%
Expected volatility 29.61%
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 that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.

During the three months ended June 30, 2008, 120,000 stock options were granted at prices of $2.89 to $3.08 per share and - 0- options were exercised. For three months ended June 30, 2008, total stock-based compensation charged to operations for option- based arrangements amounted to $32,800 for options granted during the quarter which are exercisable. During the nine months ended June 30, 2008, 170,000 stock options were granted at prices of $2.00 to $3.08 per share and -0- options were exercised. For nine months ended June 30, 2008, total stock- based compensation charged to operations for option-based arrangements amounted to $42,420 for options granted during the period which are exercisable or have become exercisable during the period. 30,000 of the granted stock options in the quarter ending June 30, 2008 cannot be exercised until 2010 and therefore stock-based compensation expense totaling $9,702 will be recognized at that time if they become exercisable. At June 30, 2008, there was approximately $11,120 of total unrecognized compensation expense related to non-exercisable option-based compensation arrangements

DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

under the Plan. The Company cancelled -0- options during the nine months ended June 30, 2008. Compensation expense relating to non-employee or Director stock options granted during the nine months ended June 30, 2008 was $32,800.

Note 7 - Subsequent Event

On July 1, 2008, Dynasil acquired certain assets of RMD Instruments, LLC and the outstanding stock of Radiation Monitoring Devices, Inc. (together, "RMD"). In order to provide financing for this acquisition, Dynasil completed a $10 million bank financing with Susquehanna Bank DV, issued 4.6 million shares of common stock and sold shares of Series C 10% Cumulative Convertible Preferred Stock. In addition, Dynasil entered into former owner work continuation agreements with two former owners of the acquired businesses and entered into five year leases for the space currently occupied by the businesses being acquired. See the Management's Discussion and Analysis section and Dynasil's report on form 8-K filed on July 7, 2008 for additional details.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION

Overview

Dynasil Corporation of America ("Dynasil", the "Company" or "we") revenues for the third quarter of fiscal year 2008 which ended June 30, 2008, were $2,676,263, an increase of 3.5% over revenues for the quarter ended June 30, 2007. Net income for the quarter ended June 30, 2008 was $53,002 or $0.01 per share, a decrease of 46% over net income of $98,104 or $0.02 per share, for the quarter ended June 30, 2007. Through three quarters, year to date performance shows a 5.1% increase in revenues to approximately $8.5 million and a 67% increase in net profit to $389,266 versus the prior year. Third quarter profits were impacted by staffing costs and other expenses in support of the large RMD acquisition. The Company also experienced weaker than expected quarterly results in its optical materials business unit. Consummation of the RMD acquisition, including obtaining needed financing and recruiting additional personnel, consumed the bulk of corporate management's attention during the quarter. Improved execution and a turnaround in the Company's EMF optical coatings unit is the largest contributor for the significant year to date profitability improvement.

On July 1, 2008, Dynasil acquired the stock of Radiation Monitoring Devices, Inc. and specific assets of RMD Instruments, LLC (together, "RMD") which are advanced instruments companies located in Watertown, MA. The purchase price totaled approximately $20 million. RMD revenues for the twelve months ended June 30, 2008 were approximately $22.5 million. Preliminary, unaudited RMD profit for the twelve months ended June 30, 2008 was approximately $3 million. Management expects the addition of RMD to be a transformational event for Dynasil as we expect to more than triple our revenues and profits while our shares outstanding only approximately double, which would make the acquisition immediately accretive to earnings. With the addition of RMD, Dynasil has grown from an unprofitable $2 million of revenues for fiscal year 2004 to revenues expected to exceed $35 million for fiscal year 2009 with strong profitability. Over this period, Dynasil's stock price has moved from $0.07 per share to around $2.30 to $2.50 per share. RMD brings a track record of solid profitability and cash flow. RMD also brings some exciting products as well as extensive technological capability that are expected to drive our future growth by providing commercial products in areas like medical imaging and sensors for homeland security. We continue to execute our strategy of profitable growth through organic growth and acquisitions.

DYNASIL CORPORATION OF AMERICA

Results of Operations

Revenues for the three months ended June 30, 2008 were $2,676,263, an increase of 3.5% over revenues of $2,584,519 for the quarter ended June 30, 2007. Revenues for the nine months ended June 30, 2008 were $8,537,144, an increase of 5.1% over revenues of $8,124,031 for the nine months ended June 30, 2007. The revenue increases came from organic growth and the Precision Optics acquisition. Year to date revenues for our optical coatings business are up 11% and our optical components business is up 21%. We are managing our New Jersey optical materials business to maximize cash and revenues are down 13% year to date, with the largest impact coming from the loss of a high volume, low margin business which was expected to occur as well as a slowdown in that market.
Cost of sales for the three months ended June 30, 2008 was $1,891,753 or 70.6% of sales, an increase of 1.9 percentage points from the three months ended June 30, 2007 of $1,776,432, or 68.7% of sales. The largest driver for the cost of sales increase was the lower than expected sales volume and elevated material costs for the optical materials business where we have taken steps to reduce costs. Cost of sales for the nine months ended June 30, 2008 was $5,867,317 or 68.7% of sales, a decrease of 2.5 percentage points from the nine months ended June 30, 2007 of $5,785,706, or 71.2% of sales. The largest driver in the cost of sales improvement year to date was productivity improvements at EMF.

Gross profit for the three months ended June 30, 2008, was $784,510 or 29.4% of sales, a decrease of $23,577 over the three months ended June 30, 2007 of $808,087, or 31.3% of sales. Gross profit for the nine months ended June 30, 2008, was $2,669,827, or 31.3% of sales, an increase of $331,502 over the nine months ended June 30, 2007 of $2,338,325, or 28.8% of sales. Operational improvements at EMF were the largest driver of year to date gross margin improvement.

Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2008, were $678,736 or 25.3% of sales, a decrease of 0.2 percentage points from the three months ended June 30, 2007 of $660,459 or 25.5% of sales. SG&A expenses for the nine months ended June 30, 2008, were $2,131,366 or 24.9% of sales, an increase of 0.8 percentage points from the nine months ended June 30, 2007 of $1,960,250 or 24.1% of sales. The changes in SG&A expenses resulted primarily from the addition of staffing to prepare for the RMD acquisition and Sarbanes Oxley section 404 implementation costs. In order to prepare for the RMD acquisition, we hired Mr. Eugene Talerico during June 2008 as Corporate Controller and welcomed Mr. Peter Sulick as our fourth Director, Financial Expert, and Audit Committee Chairman which resulted in $32,800 of associated stock option expenses.

Net interest expense for the three months ended June 30, 2008, was $39,191, compared to $39,551 for the three months ended June 30 2007. Net interest expense for the nine months ended June 30, 2008, was $114,774, compared to $114,215 for the three months ended June 30 2007.

Net income for the three months ended June 30, 2008, was $53,002 or $0.01 in basic earnings per share, which is down 46% from net income for the three months ended June 30, 2007, of $98,104, or $0.02 in basic profit per share. Costs to add staffing in preparation for the RMD acquisition as well as weaker than expected results in our optical materials business were the primary profit drivers. Net income for the nine months ended June 30, 2008, was $389,266 or $0.05 in basic earnings per share, which is up 67% from net income for the nine months ended June 30, 2007, of $233,231, or $0.03 in basic profit per share. The turn-around of EMF results was the largest factor for the large net income increase.

DYNASIL CORPORATION OF AMERICA

The Company had a $13,581 provision for income taxes for the quarter ended June 30, 2008, and a $9,973 provision for the quarter ended June 30, 2007. The Company had a $34,421 provision for income taxes for the nine months ended June 30, 2008, and a $30,629 provision for the nine months ended June 30, 2007. The income taxes were primarily for Massachusetts. As of September 30, 2007, the Company had approximately $674,200 of net operating loss carry forwards to offset future income for federal tax purposes expiring in various years through 2021. In addition, the Company had approximately $585,800 of net operating loss carry forwards to offset certain future New Jersey taxable income, expiring in various years through 2013.

Liquidity and Capital Resources

Cash decreased by $125,044 for the nine months ended June 30, 2008. The primary sources of cash were net income of $389,266, depreciation and amortization expenses that aggregated $288,036, net borrowings of $152,464, and the issuance of common stock of $173,507. The primary uses of cash were acquisition of property, plant and equipment of $192,904, acquisition of Precision Optics assets of $250,000, increases in inventories of $204,129, RMD acquisition costs of $164,953 and decreases in accounts payable and accrued expenses of $204,705.

The Company is in the process of seeking to raise an additional $700,000 or more of financing from the sale of series C 10% cumulative convertible preferred stock for working capital purposes. The Company believes that its current cash and cash equivalent balances, along with the net cash generated by operations and credit lines, will be sufficient to meet its anticipated cash needs for working capital for at least the next 12 months. There are currently no plans for any major capital expenditures, greater than $100,000, in the next six to nine months. Any major business expansions or acquisitions likely will require the Company to seek additional debt and/or equity financing.

Acquisitions

The acquisition of RMD on July 1, 2008 is expected to be transformational for Dynasil. The purchase price totaled approximately $20 million, comprised of cash payments of $12.5 million and the issuance of 4.6 million shares of Dynasil common stock. In order to finance the acquisition, Dynasil completed a $9 million bank term loan at a 6% annual interest rate and issued approximately $5 million of 10% Cumulative Convertible Preferred Stock that is convertible into Dynasil common stock at a $2.50 per share price. Management has left the Preferred Stock offering open to raise additional working capital and current commitments are approximately $5.3 million versus a target of at least $6 million. Management expects that RMD will more than triple our revenues and profits while our shares outstanding only approximately double, which would make the acquisition immediately accretive to earnings. It also brings us some exciting products and extensive technological capability that we expect will drive our future growth.

RMD is comprised of two business entities, one of which performs research under government contracts such as SBIRs while the other manufactures and sells photonics related instruments and components. RMD revenues for the twelve months ended June 30, 2008 were approximately $22.5 million. Preliminary, unaudited RMD profit for the twelve months ended June 30, 2008 was approximately $3 million. RMD's commercial products, which management believes to have high growth potential, are sold into the medical imaging, environmental sensing and quality control markets. These products include hand-held x-ray fluorescence analyzers for lead paint and RoHS "green" compliance; medical probes for cancer surgery that can dramatically reduce the number of lymph nodes removed for biopsy; a camera that integrates a visual picture with radioactive material

DYNASIL CORPORATION OF AMERICA

detection for Homeland Security and nuclear waste cleanup applications; avalanche photodiodes for applications including medical imaging; and very high performance scintilator imaging screens for digital radiography. More than 30% of 2007 commercial revenues came from after-sales maintenance and support of instruments which provides an ongoing, profitable revenue stream from the installed base of RMD instruments.

RMD has a total staff of about 100 employees that includes 38 Ph.Ds as part of a significant research and development team that contracts with the National Institute of Health, the Department of Energy, the Department of Defense, NASA, NSF, the Domestic Nuclear Detection Office and the Department of Homeland Security. The current backlog for research contracts exceeds last year's revenues.

Former RMD owners, Dr. Gerald Entine and Mr. Jack Paster are now major Dynasil shareholders and plan to stay with the company for at least one and a half years. RMD is developing technology ranging from improved scintilators for nuclear detectors directed towards homeland security and medical imaging applications, high performance optical detectors for medical and space requirements, and magnetic sensor arrays for non- destructive testing. Management believes that these projects provide high upside for faster growth and profitability.

Dynasil is a technology company focused in the Photonics sector which is comprised of many rapidly growing markets such as solar energy, medical instrumentation, lasers and display technologies. RMD is expected to bring new capabilities to Dynasil to drive our growth in the photonics market by solving technical challenges such as the demands for smaller, more sensitive, more efficient and more capable devices. RMD is performing cutting edge research in the areas of sensor and detector technology, laser optics and medical imaging.

Prior to the RMD acquisition, Dynasil had grown from an unprofitable company with only $2 million of revenues in FY 2004 to a solidly profitable $11 million company in FY 2007 by executing the growth and process improvement strategy initiated by Mr. Craig T. Dunham, who joined Dynasil as President and CEO in October 2004. Dynasil acquired two other companies and a product line during the last three years and has delivered significant performance improvements at all three of its business units. Management views the addition of RMD as a major step in executing Dynasil's profitable growth strategy and we plan to apply our skills in effective execution to build on their strong cash flow and accelerate the growth of their current products as well as to commercialize new technology.

On January 18, 2008, Dynasil closed the acquisition of an optical filter product line from Precision Optics Corporation, Inc. ("POC") located in Gardner, MA. The purchase included the intellectual property, customer base and equipment to produce a variety of high performance optical filters that extend the market offerings of our optical components business at Optometrics in Ayer, MA. In addition to a $250,000 up-front cash payment, there is a royalty agreement on existing business for three years. This purchase fits our strategy of add-on acquisitions to grow our existing businesses. We are in the process of fully integrating the additional optical filter business into our Ayer, MA location and anticipate incremental revenues of at least $500,000 per year. The intellectual property and know-how adds a significant capability set to the Company.
Critical Accounting Policies and Estimates There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2007. We have not adopted any

DYNASIL CORPORATION OF AMERICA
accounting policy that has or will have a material impact on our consolidated financial statements. For further discussion of our accounting policies see Footnote 1 "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, 2007.

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.

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. These valuations contain certain assumptions concerning estimated future revenues and future expenses. We have determined that there is no indication of impairment of any of our assets. However, should our operating results deteriorate, we may determine that a portion 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 that 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 collectibility 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 some of these carry forwards will be realized, and has adjusted the valuation allowance accordingly as outlined in the Company's Annual Report on Form 10-KSB for the fiscal year ended September 30, 2007.

Stock-Based Compensation
Compensation costs are recognized for stock options granted to employees and directors. Options and warrants granted to employees and non-employees are

DYNASIL CORPORATION OF AMERICA

recorded as an expense at the date that the grant becomes exercisable based on the estimated fair value of the security in question as of the grant date, determined using the Black Scholes option pricing model.

Fair Value of Equity Instruments
The valuation of certain items, including valuation of warrants, beneficial converse on feature related to convertible debt and compensation expense related to stock options granted, involve significant estimates with underlying assumptions judgmentally determined. The valuation of warrants and stock options are based upon a Black Scholes valuation model, which involve estimates of stock volatility, expected life of the instruments and other assumptions.

Recently Issued Accounting Standards

In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 (revised 2007), Business Combinations, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning October 1, 2009 and will apply prospectively to business combinations completed on or after that date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-- An Amendment of ARB No. 51, or SFAS No. 160. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We believe that SFAS 160 should not have a material impact on our financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS No. 162"). This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. This Statement shall be effective sixty days following the SEC's approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The

DYNASIL CORPORATION OF AMERICA

Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe the adoption of SFAS No. 162 will have a material impact on its financial condition, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants ("AICPA") and the Securities and Exchange Commission ("SEC") did not have, or are not believed by management to have, a material impact on the Company's present or future financial statements.

Forward-Looking Statements

The statements contained in this Quarterly Report on Form 10-QSB which
are not historical facts, including, but not limited to, certain statements found under the captions "Overview", "Results of Operations", "Liquidity and Capital Resources" and "Acquisitions" 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 this Quarterly Report on Form 10-QSB, including, without limitation, the portions of such reports under the captions referenced above, and the uncertainties set forth from time to time described in this and the Company's other 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, customer acceptance of new products, general economic conditions, market trends, costs and availability of raw materials and management information systems, competition, litigation, need for additional financing, the effect of governmental regulation and other matters. 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 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.

PART II

ITEM 1 LEGAL PROCEEDINGS

NONE

ITEM 2 CHANGES IN SECURITIES

NONE

DYNASIL CORPORATION OF AMERICA

ITEM 3 DEFAULTS ON SENIOR SECURITIES

NONE

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5 OTHER INFORMATION

The information presented in Items 1 and 2 of Part I of this Report is incorporated herein by reference. On August 13, 2008, the Company issued a press release announcing its financial results for its third quarter ending June 30, 2008. A copy of this press release is attached as Exhibit 99 to this Report on Form 10-QSB. This information is being furnished pursuant to Item 5 of Part II of Form 10-QSB and shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits and index of Exhibits

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 August 13, 2008 issued by Dynasil Corporation of America announcing its financial results for the third quarter ending June 30, 2008.

(b) Reports on Form 8-K

On June 16, 2008, an 8-K report for Items 5.02 and 9.01 reporting that Dynasil had named Mr. Peter Sulick, of Naples, FL as a Dynasil director. The Dynasil Board of Directors passed resolutions to increase the number of Directors from three to four and voted to appoint Mr. Sulick to fill the newly created position. Mr. Sulick became Chairperson of the Audit Committee for Dynasil's Board of Directors' and its Financial Expert.

On June 26, 2008, an 8-K report for Item 5.02 reporting the addition of Eugene Talerico as Corporate Controller.

On July 7, 2008, an 8-K report for Items 1.01, 2.01, 3.01, 3.02, 3.03, 5.01, 8.01, and 9.01 reporting the acquisition of RMD and associated agreements and financing.

On July 15, 2008, an 8-K report for Item 5.02 reporting modifications in Director's compensation.

DYNASIL CORPORATION OF AMERICA

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: August 13, 2008
 --------------------------------- --------------------
 Craig T. Dunham,
 President and CEO


 /s/ Laura Lunardo DATED: August 13, 2008
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 Laura Lunardo
 Chief Financial Officer

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