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 JUNE 30, 2016

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

Commission file number: 001-35011

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.)
313 Washington Street, Suite 403, Newton, MA	02458
(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 August 5, 2016 there were 16,842,123 shares of common stock, par value $.0005 per share, outstanding.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

INDEX

	Page
PART 1.   FINANCIAL INFORMATION
Item 1.   Financial Statements
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2016 AND SEPTEMBER 30, 2015 (UNAUDITED)	3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2016 AND 2015 (UNAUDITED)	5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED JUNE 30, 2016 (UNAUDITED)	6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2016 AND 2015 (UNAUDITED)	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 4.  Controls and Procedures	28
PART II.  OTHER INFORMATION	29
Item 1A. Risk Factors
Item 6.   Exhibits	29
Signatures	30

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS 

	June 30,		September 30,
	2016		2015
Current Assets
Cash and cash equivalents	$	232,000	$	1,295,000
Accounts receivable, net of allowances of $177,000 and $168,000 at June 30, 2016 and September 30, 2015, respectively		4,928,000		3,382,000
Costs in excess of billings and unbilled receivables		1,250,000		1,518,000
Inventories, net of reserves		3,926,000		3,066,000
Prepaid expenses and other current assets		1,177,000		1,125,000
Total current assets		11,513,000		10,386,000
Property, Plant and Equipment, net		7,113,000		6,662,000
Other Assets
Intangibles, net		1,096,000		1,225,000
Goodwill		5,940,000		6,131,000
Security deposits		60,000		58,000
Total other assets		7,096,000		7,414,000
Total Assets	$	25,722,000	$	24,462,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit	$	104,000	$	1,455,000
Current portion of long-term debt		2,397,000		112,000
Capital lease obligations, current		98,000		76,000
Convertible notes and accrued interest		2,600,000		2,123,000
Accounts payable		1,710,000		1,886,000
Deferred revenue		229,000		109,000
Accrued expenses and other liabilities		2,737,000		2,650,000
Total current liabilities		9,875,000		8,411,000
Long-term Liabilities
Long-term debt, net of current portion		827,000		1,288,000
Capital lease obligations, net of current portion		161,000		43,000
Deferred tax liability, net		241,000		242,000
Other long-term liabilities		46,000		50,000
Total long-term liabilities		1,275,000		1,623,000

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

3

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)

	June 30,			September 30,
	2016			2015
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 17,634,091 and 17,368,738 shares issued, 16,823,931 and and 16,558,578 shares outstanding at June 30, 2016 and September 30, 2015, respectively.		9,000			9,000
Additional paid in capital		20,043,000			19,650,000
Accumulated other comprehensive income (loss)		(563,000	)		110,000
Accumulated deficit		(3,835,000	)		(4,167,000	)
Less 810,160 shares of treasury stock - at cost		(986,000	)		(986,000	)
Total Dynasil stockholders' equity		14,668,000			14,616,000
Noncontrolling interest		(96,000	)		(188,000	)
Total stockholders' equity		14,572,000			14,428,000
Total Liabilities and Stockholders' Equity	$	25,722,000		$	24,462,000

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

4

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net revenue	$	10,406,000		$	10,239,000		$	32,899,000		$	29,745,000
Cost of revenue		6,479,000			6,206,000			20,930,000			18,446,000
Gross profit		3,927,000			4,033,000			11,969,000			11,299,000
Operating expenses:
Sales and marketing		246,000			312,000			930,000			986,000
Research and development		544,000			356,000			1,547,000			1,145,000
General and administrative		2,811,000			2,882,000			8,966,000			9,284,000
(Gain) loss on sale of assets		-			8,000			(4,000	)		(178,000	)
Total operating expenses		3,601,000			3,558,000			11,439,000			11,237,000
Income (loss) from operations		326,000			475,000			530,000			62,000
Interest expense, net		78,000			124,000			215,000			372,000
Income (loss) before taxes		248,000			351,000			315,000			(310,000	)
Income tax (credit)		32,000			(14,000	)		101,000			7,000
Net income (loss)		216,000			365,000			214,000			(317,000	)
Less: Net loss attributable to noncontrolling interest		(42,000	)		(23,000	)		(118,000	)		(75,000	)
Net income (loss) attributable to common stockholders	$	258,000		$	388,000		$	332,000		$	(242,000	)
Net income (loss)	$	216,000		$	365,000		$	214,000		$	(317,000	)
Other comprehensive income (loss):
Increase in pension liability		-			-			-			318,000
Foreign currency translation		(417,000	)		251,000			(673,000	)		(138,000	)
Total comprehensive income (loss)	$	(201,000	)	$	616,000		$	(459,000	)	$	(137,000	)
Basic net income (loss) per common share	$	0.02		$	0.02		$	0.02		$	(0.01	)
Diluted net income (loss) per common share	$	0.02		$	0.02		$	0.02		$	(0.01	)
Weighted average shares outstanding
Basic		16,698,205			16,439,637			16,628,279			16,368,313
Diluted		16,701,737			16,447,088			16,671,016			16,368,313

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

5

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the nine months ended June 30, 2016

					Additional		Other														Total
	Common		Common		Paid-in		Comprehensive			Accumulated			Treasury Stock					Noncontrolling			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Shares		Amount			Interest			Equity
Balance, September 30, 2015		17,368,738	$	9,000	$	19,650,000	$	110,000		$	(4,167,000	)		810,160	$	(986,000	)	$	(188,000	)	$	14,428,000
Issuance of shares of common stock under employee stock purchase plan		8,741		-		11,000		-			-			-		-			-			11,000
Stock-based compensation costs		256,612		-		382,000		-			-			-		-			210,000			592,000
Foreign currency translation adjustment		-		-		-		(673,000	)		-			-		-			-			(673,000	)
Net income (loss)		-		-		-		-			332,000			-		-			(118,000	)		214,000
Balance, June 30, 2016		17,634,091	$	9,000	$	20,043,000	$	(563,000	)	$	(3,835,000	)		810,160	$	(986,000	)	$	(96,000	)	$	14,572,000

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

6

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	June 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	214,000		$	(317,000	)
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense		592,000			298,000
Foreign exchange loss (gain)		164,000			(14,000	)
Gain on sale of assets		(4,000	)		(178,000	)
Depreciation and amortization		939,000			898,000
Pension expense		-			318,000
Other		160,000			110,000
Other changes in assets and libilities:
Accounts receivable, net		(1,760,000	)		(122,000	)
Inventories		(1,090,000	)		(530,000	)
Costs in excess of billings and unbilled receivables		268,000			(36,000	)
Prepaid expenses and other assets		(92,000	)		(489,000	)
Accounts payable		(74,000	)		(116,000	)
Accrued expenses and other liabilities		157,000			14,000
Deferred revenue		119,000			27,000
Net cash from operating activities		(407,000	)		(137,000	)
Cash flows from investing activities:
Proceeds from sale of assets		4,000			244,000
Purchases of property, plant and equipment		(1,342,000	)		(747,000	)
Net cash from investing activities		(1,338,000	)		(503,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		11,000			9,000
Net proceeds from issuance of convertible notes		390,000			298,000
Principal payments on capital leases		(101,000	)		(110,000	)
Proceeds from short and long-term debt		1,203,000			300,000
Payments on long-term debt		(740,000	)		(202,000	)
Net cash from financing activities		763,000			295,000
Effect of exchange rates on cash and cash equivalents		(81,000	)		(19,000	)
Net change in cash and cash equivalents		(1,063,000	)		(364,000	)
Cash and cash equivalents, beginning	$	1,295,000		$	3,842,000
Cash and cash equivalents, ending	$	232,000		$	3,478,000
Supplemental disclosures of cash flow information:
Non cash activities:
Assets purchased under capital leases	$	240,000		$	73,000
Tax payments (refunds)	$	(64,000	)	$	(8,000	)

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

7

DYNASIL CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Basis of Presentation

The accompanying consolidated balance sheet as of June 30, 2016, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2016 and 2015, changes in stockholders’ equity for the nine months ended June 30, 2016 and cash flows for the nine months ended June 30, 2016 and 2015 of Dynasil Corporation of America and subsidiaries (the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. In the opinion of management, all adjustments (which include normal recurring and nonrecurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles for the periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

The preparation of our unaudited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2015 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications did not affect previously reported net loss or stockholders’ deficit.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2016, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.

Note 2 – Recent Accounting Pronouncements

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

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

8

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

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

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

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

Inventory (Topic 330), Simplifying the Measurement of Inventory. In July 2015, the FASB issued ASU No. 2015-11, which requires that an entity should measure inventory within the scope of this ASU at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Substantial and unusual losses that result from subsequent measurement of inventory should be disclosed in the financial statements. This new guidance is effective for the Company beginning in fiscal 2018. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

9

Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. In September 2015, the FASB issued ASU No. 2015-16, which requires that an acquirer recognize adjustment to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer needs to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present, separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This new guidance is effective for the Company beginning in fiscal 2017. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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

Note 3 – Acquisitions and Divestitures

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

Note 4 – Xcede Technologies, Inc. Joint Venture

In October, 2013, the Company formed Xcede Technologies, Inc. (“Xcede”), a joint venture with Mayo Clinic, in order to spin out and separately fund the development of its tissue sealant technology, which formerly comprised the majority of its biomedical segment. As of June 30, 2016, Xcede has raised approximately $3.0 million in the form of Convertible Notes (the “Notes”), of which $2.4 million was from external funding to outside investors and to certain officers and directors of the Company and $0.6 million was from the Company. The Notes accrue interest at 5%. The total interest accrued at June 30, 2016 was approximately $0.2 million. On July 15, 2016, Xcede amended the Note Purchase Agreement for such Notes to extend the Notes’ maturity date from June 30, 2016 to June 30, 2017 and to increase the principal amount of Notes authorized to be issued thereunder from $3.0 million to up to $5.2 million.

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

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

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

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

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

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Note 5 - Inventories

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2016		2015
Raw Materials	$	2,263,000	$	1,828,000
Work-in-Process		1,089,000		862,000
Finished Goods		574,000		376,000
	$	3,926,000	$	3,066,000

Note 6 – Intangible Assets

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

	Useful	Gross		Accumulated
June 30, 2016	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	737,000	$	468,000	$	269,000
Know How	15		512,000		273,000		239,000
Trade Names	Indefinite		280,000		-		280,000
Patents	20		298,000		5,000		293,000
Biomedical Technologies	5		260,000		245,000		15,000
		$	2,087,000	$	991,000	$	1,096,000

	Useful	Gross		Accumulated
September 30, 2015	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	824,000	$	464,000	$	360,000
Know How	15		512,000		248,000		264,000
Trade Names	Indefinite		318,000		-		318,000
Patents	20		223,000		-		223,000
Biomedical Technologies	5		260,000		200,000		60,000
		$	2,137,000	$	912,000	$	1,225,000

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

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

	2016 (3 months)		2017		2018		2019		2020		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	80,000	$	80,000	$	9,000	$	-	$	269,000
Know How		9,000		34,000		34,000		34,000		34,000		94,000		239,000
Patents		2,000		6,000		6,000		6,000		6,000		61,000		87,000
Biomedical Technologies		15,000		-		-		-		-		-		15,000
	$	46,000	$	120,000	$	120,000	$	120,000	$	49,000	$	155,000	$	610,000

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

11

Note 7 – Goodwill

Goodwill is subject to an annual impairment test. The Company considers many factors which may indicate the requirement to perform additional, interim impairment tests. These include:

· A significant adverse long term outlook for any of its 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.

There were no changes, aside from foreign exchange rate fluctuations, in the carrying value of goodwill during the three and nine months ended June 30, 2016.

Note 8 –Debt

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

Note 9 – Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing the net income or loss attributable to common shares by the weighted average number of common shares. Diluted earnings per common share adjusts basic earnings per share for the effects of common stock options, common stock warrants, convertible preferred stock and other potential dilutive common shares outstanding during the periods.

For purposes of computing diluted earnings per share for the three and nine months ended June 30, 2016 and 2015, no common stock options were included in the calculation of dilutive shares as all of the 123,147 and 58,212 common stock options outstanding, respectively, had exercise prices above the current quarterly average market price per share and their inclusion would be anti-dilutive.

For the three months ended June 30, 2016 and 2015, 3,532 and 7,451 shares of common stock related to restricted stock, respectively, were included in the denominator used to calculate diluted earnings per share. For the nine months ended June 30, 2016, 42,737 shares of common stock related to restricted stock were included in the denominator used to calculate diluted earnings per share. For the nine months ended June 30, 2015, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

12

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

	June 30, 2016		June 30, 2015
Weighted average shares outstanding
Basic		16,698,205		16,439,637
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		3,532		7,451
Dilutive Average Shares Outstanding		16,701,737		16,447,088

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

	June 30, 2016		June 30, 2015
Weighted average shares outstanding
Basic		16,628,279		16,368,313
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		42,737		-
Dilutive Average Shares Outstanding		16,671,016		16,368,313

Note 10 - Stock Based Compensation

The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model.

The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. The dividend yield is expected to be zero because historically the Company has not paid dividends on common stock.

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

13

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

	Three Months Ended		Three Months Ended
Stock Compensation Expense	June 30, 2016		June 30, 2015
Stock Grants	$	74,000	$	106,000
Restricted Stock Grants		13,000		7,000
Option Grants		12,000		6,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Stock Grants		210,000		-
Subsidiary Option Grants		19,000		21,000
Total	$	329,000	$	141,000

	Nine Months Ended		Nine Months Ended
Stock Compensation Expense	June 30, 2016		June 30, 2015
Stock Grants	$	259,000	$	243,000
Restricted Stock Grants		33,000		21,000
Option Grants		29,000		10,000
Employee Stock Purchase Plan		2,000		3,000
Subsidiary Stock Grants		210,000		-
Subsidiary Option Grants		59,000		21,000
Total	$	592,000	$	298,000

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

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

Restricted Stock Grants

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

Restricted Stock Activity for the Nine Months ended June 30, 2016	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2015		27,000		$	1.04
Granted		100,000			1.73
Vested		(27,000	)		1.04
Cancelled		-			-
Nonvested at June 30, 2016		100,000		$	1.73

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Stock Option Grants

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

	Nine Months Ended June 30, 2016
Expected term in years		3 years
Risk-free interest rate		1.05	%
Expected volatility		78.53	%
Expected dividend yield		0.00	%

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

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2015		58,212	$	2.28		1.96
Outstanding and exercisable at September 30, 2015		58,212		2.28		1.96
Granted		64,935		2.33		2.59
Exercised		-		-
Cancelled		-		-
Balance at June 30, 2016		123,147		2.30		1.94
Outstanding and exercisable at June 30, 2016		123,147	$	2.30		1.94

Subsidiary Stock Option Grants

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

Expected term in years	10 years
Risk-free interest rate	1.94	%
Expected volatility	83.06	%
Expected dividend yield	0.00	%

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

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2015		780,258		$	1.00		8.85
Outstanding and exercisable at September 30, 2015		180,293			1.00		8.50
Granted		136,961			1.00
Exercised		-			-
Cancelled		(315,024	)		1.00
Balance at June 30, 2016		602,195			1.00		8.57
Outstanding and exercisable at June 30, 2016		268,450		$	1.00		8.09

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

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Note 11 – Segment, Customer and Geographical Reporting

Segment Financial Information

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

Within these segments, there is a segregation of reportable units based upon the organizational structure used to evaluate performance and make decisions on resource allocation, as well as availability and materiality of separate financial results consistent with that structure. The Optics segment manufactures optical materials, components and coatings. The Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment, through Xcede Technologies, Inc., a majority-owned joint venture, is focused on developing a tissue sealant technology though no assurance can be given that this technology will become successfully commercialized.

16

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

Results of Operations for the Three Months Ended June 30, 2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,780,000		$	4,626,000		$	-		$	10,406,000
Gross Profit		2,012,000			1,915,000			-			3,927,000
GM %		35	%		41	%		-			38	%
SG&A		1,604,000			1,601,000			396,000			3,601,000
(Gain) loss on sale of assets		-			-			-			-
Operating Income (Loss)		408,000			314,000			(396,000	)		326,000
Depreciation and Amortization		247,000			24,000			17,000			288,000
Capital expenditures		330,000			-			6,000			336,000
Intangibles, Net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Results of Operations for the Three Months Ended June 30, 2015
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,613,000		$	4,626,000		$	-		$	10,239,000
Gross Profit		2,006,000			2,027,000			-			4,033,000
GM %		36	%		44	%		-			39	%
SG&A		1,380,000			1,934,000			236,000			3,550,000
(Gain) loss on sale of assets		8,000			-			-			8,000
Operating Income (Loss)		618,000			93,000			(236,000	)		475,000
Depreciation and Amortization		223,000			74,000			15,000			312,000
Capital expenditures		270,000			-			21,000			291,000
Intangibles, Net		722,000			273,000			257,000			1,252,000
Goodwill		1,252,000			4,939,000			-			6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000		$	26,883,000

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

Results of Operations for the Nine Months Ended June 30, 2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	18,415,000		$	14,484,000		$	-		$	32,899,000
Gross Profit		6,330,000			5,639,000			-			11,969,000
GM %		34	%		39	%		-			36	%
SG&A		5,237,000			5,107,000			1,099,000			11,443,000
(Gain) loss on sale of assets		(4,000	)		-			-			(4,000	)
Operating Income (Loss)		1,097,000			532,000			(1,099,000	)		530,000
Depreciation and Amortization		700,000			187,000			52,000			939,000
Capital expenditures		1,224,000			37,000			81,000			1,342,000
Intangibles, Net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Results of Operations for the Nine Months Ended June 30, 2015
	Optics			Contract Research			Biomedical			Total
Revenue	$	15,781,000		$	13,964,000		$	-		$	29,745,000
Gross Profit		5,222,000			6,077,000			-			11,299,000
GM %		33	%		44	%		-			38	%
SG&A		4,964,000			5,712,000			739,000			11,415,000
(Gain) loss on sale of assets		(178,000	)		-			-			(178,000	)
Operating Income (Loss)		436,000			365,000			(739,000	)		62,000
Depreciation and Amortization		631,000			222,000			45,000			898,000
Capital expenditures		666,000			4,000			77,000			747,000
Intangibles, Net		722,000			273,000			257,000			1,252,000
Goodwill		1,252,000			4,939,000			-			6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000		$	26,883,000

Customer Financial Information

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

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

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Geographic Financial Information

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

	Three Months Ended					Three Months Ended
	June 30, 2016					June 30, 2015
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,908,000		76	%	$	8,228,000		80	%
Europe		1,868,000		18	%		1,140,000		11	%
Other		630,000		6	%		871,000		9	%
	$	10,406,000		100	%	$	10,239,000		100	%

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

	Nine Months Ended					Nine Months Ended
	June 30, 2016					June 30, 2015
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	24,363,000		74	%	$	23,892,000		80	%
Europe		6,361,000		19	%		3,147,000		11	%
Other		2,175,000		7	%		2,706,000		9	%
	$	32,899,000		100	%	$	29,745,000		100	%

Note 12 - Income Taxes

Dynasil Corporation of America and its wholly-owned U.S. subsidiaries file a consolidated federal income tax return and various state returns. The Company’s U.K. subsidiary files tax returns in the U.K.

The Company uses the asset and liability approach to account for income taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carry forwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates, and tax laws, in the respective tax jurisdiction then in effect. Due to the Company’s adoption of ASU 2015-17, the deferred taxes are all classified as long term.

In assessing the ability to realize the net deferred tax assets, management considers various factors including taxable income in carryback years, future reversals of existing taxable temporary differences, tax planning strategies and projections of future taxable income, to determine whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Based upon the Company’s recent losses and uncertainty of future profits, the Company has determined that the uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against its U.S. net deferred tax assets.

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of June 30, 2016 and September 30, 2015, the Company has no unrecorded liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of June 30, 2016 and September 30, 2015, the Company had no accrued interest or penalties related to uncertain tax positions. The Company currently has no federal or state tax examinations in progress.

The effective tax rates were 13% and 32% for the three and nine months ended June 30, 2016, respectively, and (4%) and (2%) for the three and nine months ended June 30, 2015, respectively. The rates differ from the U.S. federal statutory income tax rate of 34% primarily due to a full valuation allowance against the Company’s U.S. deferred tax asset.

19

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s tax filings for federal and state jurisdictions for the tax years beginning with 2012 are still subject to examination.

Note 13 – Settlement of Pension Liability

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

Note 14 – Subsequent Events

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

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

The following management's discussion and analysis should be read in conjunction with our financial statements and the notes thereto contained herein and in the Dynasil Corporation of America ("Dynasil", the "Company" or "we") Form 10-K for the fiscal year ended September 30, 2015.

General Business Overview

Operations

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

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

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

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

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

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

Results of Operations

Results of Operations for the Three Months Ended June 30, 2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,780,000		$	4,626,000		$	-		$	10,406,000
Gross Profit		2,012,000			1,915,000			-			3,927,000
GM %		35	%		41	%		-			38	%
SG&A		1,604,000			1,601,000			396,000			3,601,000
(Gain) loss on sale of assets		-			-			-			-
Operating Income (Loss)		408,000			314,000			(396,000	)		326,000
Depreciation and Amortization		247,000			24,000			17,000			288,000
Capital expenditures		330,000			-			6,000			336,000
Intangibles, Net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Results of Operations for the Three Months Ended June 30, 2015
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,613,000		$	4,626,000		$	-		$	10,239,000
Gross Profit		2,006,000			2,027,000			-			4,033,000
GM %		36	%		44	%		-			39	%
SG&A		1,380,000			1,934,000			236,000			3,550,000
(Gain) loss on sale of assets		8,000			-			-			8,000
Operating Income (Loss)		618,000			93,000			(236,000	)		475,000
Depreciation and Amortization		223,000			74,000			15,000			312,000
Capital expenditures		270,000			-			21,000			291,000
Intangibles, Net		722,000			273,000			257,000			1,252,000
Goodwill		1,252,000			4,939,000			-			6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000		$	26,883,000

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

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

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

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

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

Overall gross profit for the three months ended June 30, 2016 was $3.9 million, or 38% of revenue, compared to $4.0 million, or 39% of revenue, for the three months ended June 30, 2015. Gross profit for the Optics segment remained flat at $2.0 million for both the quarters ended June 30, 2016 and 2015, due to the slightly higher costs on the increased revenue related to the product mix. Gross profit decreased $0.1 million in the Contract Research segment to $1.9 million, or 41% of revenue, for the third quarter of 2016 from $2.0 million, or 44% of revenue, for the same period in 2015, due to the items mentioned above. The Biomedical segment, through Xcede, is developing a tissue sealant technology which has not been approved for commercial use and consequently has no gross profit.

Total operating expenses were $3.6 million for the three months ended June 30, 2016, essentially the same as for the three months ended June 30, 2015. Operating expenses for the Optics segment increased $0.2 million, along with the increased revenue, while expenses in the Contract Research segment decreased by $0.3 million due to controlled spending. Biomedical segment expenses increased approximately $0.2 million due to the stock compensation expense described previously to Mayo.

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

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

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

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

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Results of Operations – Year to Date

Results of Operations for the Nine Months Ended June 30, 2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	18,415,000		$	14,484,000		$	-		$	32,899,000
Gross Profit		6,330,000			5,639,000			-			11,969,000
GM %		34	%		39	%		-			36	%
SG&A		5,237,000			5,107,000			1,099,000			11,443,000
(Gain) loss on sale of assets		(4,000	)		-			-			(4,000	)
Operating Income (Loss)		1,097,000			532,000			(1,099,000	)		530,000
Depreciation and Amortization		700,000			187,000			52,000			939,000
Capital expenditures		1,224,000			37,000			81,000			1,342,000
Intangibles, Net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Results of Operations for the Nine Months Ended June 30, 2015
	Optics			Contract Research			Biomedical			Total
Revenue	$	15,781,000		$	13,964,000		$	-		$	29,745,000
Gross Profit		5,222,000			6,077,000			-			11,299,000
GM %		33	%		44	%		-			38	%
SG&A		4,964,000			5,712,000			739,000			11,415,000
(Gain) loss on sale of assets		(178,000	)		-			-			(178,000	)
Operating Income (Loss)		436,000			365,000			(739,000	)		62,000
Depreciation and Amortization		631,000			222,000			45,000			898,000
Capital expenditures		666,000			4,000			77,000			747,000
Intangibles, Net		722,000			273,000			257,000			1,252,000
Goodwill		1,252,000			4,939,000			-			6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000		$	26,883,000

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

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

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

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

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

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

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

The Biomedical segment, through Xcede, is developing a tissue sealant technology which has not been approved for commercial use and consequently has no gross profit.

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

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

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

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

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

Liquidity and Capital Resources

Liquidity Overview and Outlook

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

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

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

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

Cash From Operating Activities

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

Cash From Investing and Financing Activities

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

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

Obligations Relating to Xcede Convertible Notes

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

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

Critical Accounting Policies and Estimates

Effective October 1, 2015, the Company early adopted the guidance issued in Accounting Standards Update 2015-03, Interest – Imputation of Interest (Topic 835) and Accounting Standards Update 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, as detailed in Note 2 to the financial statements in this Form 10-Q. There have been no other material changes in our critical accounting policies or critical accounting estimates since September 30, 2015. For further discussion of our accounting policies see the “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 as well as the notes to the financial statements contained in this Form 10-Q.

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The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition

Revenue from sales of products is recognized at the time title and the risks and rewards of ownership pass. Revenue from research and development activities is derived generally from the following types of contracts: reimbursement of costs plus fees, fixed price or time and material type contracts. Revenue is recognized when the products are shipped per customers’ instructions, the contract has been executed, the contract or sales price is fixed or determinable, delivery of services or products has occurred and the Company’s ability to collect the contract price is considered reasonably assured.

Government funded services revenue from cost plus contracts are recognized as costs are incurred on the basis of direct costs plus allowable indirect costs and an allocable portion of the contracts’ fixed fees. Revenue from fixed-type contracts is recognized under the percentage of completion method with estimated costs and profits included in contract revenue as work is performed. Revenue from time and materials contracts are recognized as costs are incurred at amounts generally commensurate with billing amounts. Recognition of losses on projects is taken as soon as the loss is reasonably determinable.

The majority of the Company’s contract research revenue is derived from the United States government and government related contracts. Such contracts have certain risks which include dependence on future appropriations and administrative allotment of funds and changes in government policies. Costs incurred under United States government contracts are subject to audit. The Company believes that the results of such audits will not have a material adverse effect on its financial position or its results of operations.

Goodwill

Goodwill is subject to an annual impairment test. We consider many factors which may indicate the requirement to perform additional, interim impairment tests. These include:

· 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.

The Company generally performs its annual impairment testing of goodwill during the fourth quarter of its fiscal year, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company tests impairment at the reporting unit level using the two-step process. The Company’s primary reporting units tested for impairment are Radiation Monitoring Devices, which comprises our Contract Research segment, and Hilger Crystals, a component of our Optics segment.

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Intangible Assets

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

Impairment of Long-Lived Assets

The Company’s long-lived assets include property, plant and equipment and intangible assets subject to amortization. The Company evaluates long-lived assets for recoverability whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

Allowance for Doubtful Accounts Receivable

The Company performs ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results.

Stock-Based Compensation

The Company accounts for stock-based compensation using fair value. Compensation costs are recognized for stock-based compensation granted to employees and directors. Options and restricted stock awards are recorded as an expense over the requisite service period based on the grant date estimated fair value of the grant, which in the case of options is determined using the Black-Scholes option pricing model.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax provision (benefit) in each of the jurisdictions in which we operate. This process involves estimating our current income tax provision (benefit) together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. All deferred taxes are presented as long term. We regularly evaluate our ability to recover the reported amount of our deferred income taxes considering several factors, including our estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which temporary differences reverse.

Recent Accounting Pronouncements

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

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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 compliance with the financial covenants under our loan agreements with Middlesex Savings Bank and Massachusetts Capital Resource Company, Xcede obtaining financing from outside investors, the commercialization of our products including our dual mode detectors, our development of new technologies including at Xcede and Dynasil Biomedical, the adequacy of our current financing sources to fund our current operations, our growth initiatives, our capital expenditures and the strength of our intellectual property portfolio. These forward-looking statements may be identified by the use of words such as “plans,” “intends,” “may,” “could,” “expect,” “estimate,” “anticipate,” “continue” or similar terms, though not all forward-looking statements contain such words. The actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements due to a number of important factors. These factors that could cause actual results to differ from those anticipated or predicted include, without limitation, our ability to comply with the financial covenants under our outstanding indebtedness, our ability to develop and commercialize our products, including obtaining regulatory approvals, the size and growth of the potential markets for our products and our ability to serve those markets, the rate and degree of market acceptance of any of our products, general economic conditions, costs and availability of raw materials and management information systems, our ability to obtain and maintain intellectual property protection for our products, competition, the loss of key management and technical personnel, our ability to obtain timely payment of our invoices to governmental customers, litigation, the effect of governmental regulatory developments, the availability of financing sources, our ability to identify and execute on acquisition opportunities and integrate such acquisitions into our business, and seasonality, as well as the uncertainties set forth in the Company’s Annual Report on Form 10-K, filed on December 17, 2015, including the risk factors contained in Item 1A, and from time to time in the Company's other filings with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

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

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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

In addition to the other information set forth in this report, you should carefully consider the risk factors set forth below as well as those discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2015, any of which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Risks Related To Our Business

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

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

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

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

ITEM 6 Exhibits

31.1(a) Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1(b) Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934).

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

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

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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:	August 11, 2016
	Peter Sulick,
	Chief Executive Officer and President
	/s/ Robert J. Bowdring	DATED:	August 11, 2016
	Robert J. Bowdring,
	Chief Financial Officer

30

EX-31.1(A)

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:  August 11, 2016	/s/ Peter Sulick
	Peter Sulick
	Chief Executive Officer and President

EX-31.1(B)

EXHIBIT 31.1 (b)

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

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Robert Bowdring, 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:  August 11, 2016	/s/ Robert J. Bowdring
	Robert J. Bowdring
	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 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Peter Sulick, Chief Executive Officer and President of the Company, and Robert J. Bowdring, 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

Chief Executive Officer and President

/s/ Robert J. Bowdring

Robert J. Bowdring

Chief Financial Officer

August 11, 2016

EX-99.1

Exhibit 99.1

 

Contact:

Patty Kehe

Corporate Secretary

Dynasil Corporation of America

Phone: 617.668.6855

pkehe@dynasil.com

Dynasil Corporation of America Reports

Year to Date Revenue is up 11% Over the Same 2015 Period

Newton, MA, August 11, 2016 – Dynasil Corporation of America (NASDAQ: DYSL), a developer and manufacturer of optics and photonics products, optical detection and analysis technology and components for the homeland security, medical and industrial markets, today announced its 2016 nine month year to date revenue is $32.9 million compared to $29.8 million in the same nine month period of 2015. This $3.1 million represents an increase of 11% in 2016 primarily driven by our Optics segment businesses. A substantial increase in revenue from our U.K. subsidiary’s previously announced three-year crystal component supply agreement, as well as the expansion of a product line in our U.S. Optics operations account for the majority of this increase.

Certain key metrics by segment for the nine months ended June 30, 2016 and 2015 are presented below:

Results of Operations for the Nine Months Ended June 30, 2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	18,415,000		$	14,484,000		$	-		$	32,899,000
Gross Profit		6,330,000			5,639,000			-			11,969,000
GM %		34	%		39	%		-			36	%
Operating expenses		5,233,000			5,107,000			1,099,000			11,439,000
Net Income (loss)	$	875,000		$	526,000		$	(1,069,000	)	$	332,000

Results of Operations for the Nine Months Ended June 30, 2015
	Optics			Contract Research			Biomedical			Total
Revenue	$	15,781,000		$	13,964,000		$	-		$	29,745,000
Gross Profit		5,222,000			6,077,000			-			11,299,000
GM %		33	%		44	%		-			38	%
Operating expenses		4,786,000			5,712,000			739,000			11,237,000
Net Income (loss)	$	117,000		$	356,000		$	(715,000	)	$	(242,000	)

“The Optics segment revenue was $18.4 million during the 2016 nine month period compared to $15.8 in the same period in 2015, a 17% improvement year over year. Contract Research revenue has grown 4% to $14.5 million, a substantial achievement given the delayed funding of awards from the government agencies to which we provide R&D services,” commented Peter Sulick, Dynasil’s CEO.

“For the 2016 year to date, the net income attributed to our Optics and Contract Research segments has increased to $1,401,000 from $473,000 in 2015,” continued Sulick. “Optics alone has increased to $875,000 from $117,000.  This is a substantial improvement over prior years.  Exclusive of the Xcede consolidated loss, Dynasil’s core operating units have improved net income performance by approximately 300% year to date.”

Revenue for the third quarter ended June 30, 2016 was $10.4 million compared to $10.2 million in the third quarter of 2015. “Our revenue growth continues in the Optics segment year over year driven predominantly by the new product offering that has been ramping up over the last 9 months in the U.K. The Optics companies reported revenues of $5.8 million in the quarter ended June 30, 2016, compared to $5.6 million of revenues in the same period of 2015,” stated CEO Sulick.

“Additionally, our Contract Research segment revenue for the third quarter of 2016 remained even with the same period in 2015. Our backlog in this segment has remained steady at $31.0 million compared with the quarter ended March 31, 2016. This has been a difficult year for contract R&D organizations in general, but indications are the government climate for R&D funding is improving. We are anticipating a much improved fourth quarter and 2017.”

Dynasil’s net income for the third quarter of fiscal 2016 was $0.3 million, down slightly from last year’s net income of $0.4 million for the third quarter of fiscal 2015. The net income also included expenses of approximately $0.4 million and $0.2 million in the three months ended June 30, 2016 and 2015, respectively, associated with research and start-up costs of Xcede Technologies, our majority-owned joint venture with Mayo Clinic. Xcede incurred a stock expense charge during the quarter as the final anti-dilution adjustment in satisfaction of the anti-dilution clause in the existing licensing agreement between Xcede and Mayo. Dynasil has voting control of Xcede via its common stock ownership, thus Dynasil is required to include Xcede in the company’s consolidated financial statements even though Dynasil is no longer funding Xcede.

Conference Call Information

Dynasil will host a conference call for investors and analysts at 5:00 p.m. on August 11, 2016. The call will be hosted by Chairman, CEO and President Peter Sulick and Chief Financial Officer Robert Bowdring. Those who wish to listen to the conference call can go to the event page at or visit the Investor Information section of the Company’s website at www.dynasil.com. The call also may be accessed by dialing (888) 346-2613 or (412) 902-4252. For interested individuals unable to join the live conference call, a webcast replay will be available on the Company’s website for one year.

About Dynasil

Dynasil Corporation of America (NASDAQ: DYSL) develops and manufactures optics and photonics products, optical detection and analysis technology and components for the homeland security, medical and industrial markets. Combining world-class expertise in research and materials science with extensive experience in manufacturing and product development, Dynasil is commercializing products including dual-mode radiation detection solutions for Homeland Security and commercial applications and sensors for non-destructive testing. Dynasil has an impressive and growing portfolio of issued and pending U.S. patents. The Company is based in Newton, MA, with additional operations in MA, MN, NY, NJ and the United Kingdom. More information about the Company is available at www.dynasil.com.

Forward-Looking Statements

This press 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 Xcede’s ability to obtain financing from outside investors. 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, including the availability of financing sources, as well as the uncertainties set forth in the Company's Annual Report on Form 10-K 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.

Dynasil Corporation of America and Subsidiaries

Consolidated Balance Sheets (Unaudited)

	June 30, 2016			September 30, 2015
ASSETS
Current Assets
Cash and cash equivalents	$	232,000		$	1,295,000
Accounts receivable, net		4,928,000			3,382,000
Costs in excess of billings and unbilled receivables		1,250,000			1,518,000
Inventories, net of reserves		3,926,000			3,066,000
Prepaid expenses and other current assets		1,177,000			1,125,000
Total current assets		11,513,000			10,386,000
Property, Plant and Equipment, net		7,113,000			6,662,000
Other Assets
Intangibles, net		1,096,000			1,225,000
Goodwill		5,940,000			6,131,000
Security deposits		60,000			58,000
Total other assets		7,096,000			7,414,000
Total Assets	$	25,722,000		$	24,462,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit	$	104,000		$	1,455,000
Current portion of long-term debt		2,397,000			112,000
Capital lease obligations, current		98,000			76,000
Convertible notes and accrued interest		2,600,000			2,123,000
Accounts payable		1,710,000			1,886,000
Deferred revenue		229,000			109,000
Accrued expenses and other liabilities		2,737,000			2,650,000
Total current liabilities		9,875,000			8,411,000
Long-term Liabilities
Long-term debt, net of current portion		827,000			1,288,000
Capital lease obligations, net of current portion		161,000			43,000
Deferred tax liability		241,000			242,000
Other long-term liabilities		46,000			50,000
Total long-term liabilities		1,275,000			1,623,000
Stockholders' Equity
Dynasil stockholders' equity		14,668,000			14,616,000
Noncontrolling interest		(96,000	)		(188,000	)
Total stockholders' equity		14,572,000			14,428,000
Total Liabilities and Stockholders' Equity	$	25,722,000		$	24,462,000

Dynasil Corporation of America and Subsidiaries

Consolidated Statement of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net revenue	$	10,406,000		$	10,239,000		$	32,899,000		$	29,745,000
Cost of revenue		6,479,000			6,206,000			20,930,000			18,446,000
Gross profit		3,927,000			4,033,000			11,969,000			11,299,000
Operating expenses:
Sales and marketing		246,000			312,000			930,000			986,000
Research and development		544,000			356,000			1,547,000			1,145,000
General and administrative		2,811,000			2,882,000			8,966,000			9,284,000
(Gain) loss on sale of assets		-			8,000			(4,000	)		(178,000	)
Total operating expenses		3,601,000			3,558,000			11,439,000			11,237,000
Income (loss) from operations		326,000			475,000			530,000			62,000
Interest expense, net		78,000			124,000			215,000			372,000
Income (loss) before taxes		248,000			351,000			315,000			(310,000	)
Income tax (credit)		32,000			(14,000	)		101,000			7,000
Net income (loss)		216,000			365,000			214,000			(317,000	)
Less: Net loss attributable to noncontrolling interest		(42,000	)		(23,000	)		(118,000	)		(75,000	)
Net income (loss) attributable to common stockholders	$	258,000		$	388,000		$	332,000		$	(242,000	)
Net income (loss)	$	216,000		$	365,000		$	214,000		$	(317,000	)
Other comprehensive income (loss):
Increase in pension liability		-			-			-			318,000
Foreign currency translation		(417,000	)		251,000			(673,000	)		(138,000	)
Total comprehensive income (loss)	$	(201,000	)	$	616,000		$	(459,000	)	$	(137,000	)
Basic net income (loss) per common share	$	0.02		$	0.02		$	0.02		$	(0.01	)
Diluted net income (loss) per common share	$	0.02		$	0.02		$	0.02		$	(0.01	)
Weighted average shares outstanding
Basic		16,698,205			16,439,637			16,628,279			16,368,313
Diluted		16,701,737			16,447,088			16,671,016			16,368,313

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Document And Entity Information - shares	9 Months Ended
	Jun. 30, 2016	Aug. 05, 2016
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
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		16,842,123

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2016	Sep. 30, 2015
Current Assets
Cash and cash equivalents	$ 232,000	$ 1,295,000
Accounts receivable, net of allowances of $177,000 and $168,000 at June 30, 2016 and September 30, 2015, respectively	4,928,000	3,382,000
Costs in excess of billings and unbilled receivables	1,250,000	1,518,000
Inventories, net of reserves	3,926,000	3,066,000
Prepaid expenses and other current assets	1,177,000	1,125,000
Total current assets	11,513,000	10,386,000
Property, Plant and Equipment, net	7,113,000	6,662,000
Other Assets
Intangibles, net	1,096,000	1,225,000
Goodwill	5,940,000	6,131,000
Security deposits	60,000	58,000
Total other assets	7,096,000	7,414,000
Total Assets	25,722,000	24,462,000
Current Liabilities
Line of credit	104,000	1,455,000
Current portion of long-term debt	2,397,000	112,000
Capital lease obligations, current	98,000	76,000
Convertible notes and accrued interest	2,600,000	2,123,000
Accounts payable	1,710,000	1,886,000
Deferred revenue	229,000	109,000
Accrued expenses and other liabilities	2,737,000	2,650,000
Total current liabilities	9,875,000	8,411,000
Long-term Liabilities
Long-term debt, net of current portion	827,000	1,288,000
Capital lease obligations, net of current portion	161,000	43,000
Deferred tax liability, net	241,000	242,000
Other long-term liabilities	46,000	50,000
Total long-term liabilities	1,275,000	1,623,000
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 17,634,091 and 17,368,738 shares issued, 16,823,931 and and 16,558,578 shares outstanding at June 30, 2016 and September 30, 2015, respectively.	9,000	9,000
Additional paid in capital	20,043,000	19,650,000
Accumulated other comprehensive income (loss)	(563,000)	110,000
Accumulated deficit	(3,835,000)	(4,167,000)
Less 810,160 shares of treasury stock - at cost	(986,000)	(986,000)
Total Dynasil stockholders' equity	14,668,000	14,616,000
Noncontrolling interest	(96,000)	(188,000)
Total stockholders' equity	14,572,000	14,428,000
Total Liabilities and Stockholders' Equity	$ 25,722,000	$ 24,462,000

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CONSOLIDATED BALANCE SHEETS [Parenthetical] - USD ($)	Jun. 30, 2016	Sep. 30, 2015
Allowance for doubtful accounts (in dollars)	$ 177,000	$ 168,000
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	17,634,091	17,368,738
Common stock, shares outstanding	16,823,931	16,558,578
Treasury stock, shares	810,160	810,160

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Net revenue	$ 10,406,000	$ 10,239,000	$ 32,899,000	$ 29,745,000
Cost of revenue	6,479,000	6,206,000	20,930,000	18,446,000
Gross profit	3,927,000	4,033,000	11,969,000	11,299,000
Operating expenses:
Sales and marketing	246,000	312,000	930,000	986,000
Research and development	544,000	356,000	1,547,000	1,145,000
General and administrative	2,811,000	2,882,000	8,966,000	9,284,000
(Gain) loss on sale of assets	0	8,000	(4,000)	(178,000)
Total operating expenses	3,601,000	3,558,000	11,439,000	11,237,000
Income (loss) from operations	326,000	475,000	530,000	62,000
Interest expense, net	78,000	124,000	215,000	372,000
Income (loss) before taxes	248,000	351,000	315,000	(310,000)
Income tax (credit)	32,000	(14,000)	101,000	7,000
Net income (loss)	216,000	365,000	214,000	(317,000)
Less: Net loss attributable to noncontrolling interest	(42,000)	(23,000)	(118,000)	(75,000)
Net income (loss) attributable to common stockholders	258,000	388,000	332,000	(242,000)
Net income (loss)	216,000	365,000	214,000	(317,000)
Other comprehensive income (loss):
Increase in pension liability	0	0	0	318,000
Foreign currency translation	(417,000)	251,000	(673,000)	(138,000)
Total comprehensive income (loss)	$ (201,000)	$ 616,000	$ (459,000)	$ (137,000)
Basic net income (loss) per common share (in dollars per share)	$ 0.02	$ 0.02	$ 0.02	$ (0.01)
Diluted net income (loss) per common share (in dollars per share)	$ 0.02	$ 0.02	$ 0.02	$ (0.01)
Weighted average shares outstanding
Basic (in shares)	16,698,205	16,439,637	16,628,279	16,368,313
Diluted (in shares)	16,701,737	16,447,088	16,671,016	16,368,313

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Jun. 30, 2016 - USD ($)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Other Comprehensive Income (Loss) [Member]	Accumulated Deficit [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]
Balance at Sep. 30, 2015	$ 14,428,000	$ 9,000	$ 19,650,000	$ 110,000	$ (4,167,000)	$ (986,000)	$ (188,000)
Balance (in shares) at Sep. 30, 2015		17,368,738				810,160
Issuance of shares of common stock under employee stock purchase plan	11,000	$ 0	11,000	0	0	$ 0	0
Issuance of shares of common stock under employee stock purchase plan (in shares)		8,741				0
Stock-based compensation costs	592,000	$ 0	382,000	0	0	$ 0	210,000
Stock-based compensation costs (in shares)		256,612				0
Foreign currency translation adjustment	(673,000)	$ 0	0	(673,000)	0	$ 0	0
Net income (loss)	214,000	0	0	0	332,000	0	(118,000)
Balance at Jun. 30, 2016	$ 14,572,000	$ 9,000	$ 20,043,000	$ (563,000)	$ (3,835,000)	$ (986,000)	$ (96,000)
Balance (in shares) at Jun. 30, 2016		17,634,091				810,160

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities:
Net income (loss)	$ 214,000	$ (317,000)
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense	592,000	298,000
Foreign exchange loss (gain)	164,000	(14,000)
Gain on sale of assets	(4,000)	(178,000)
Depreciation and amortization	939,000	898,000
Pension expense	0	318,000
Other	160,000	110,000
Other changes in assets and libilities:
Accounts receivable, net	(1,760,000)	(122,000)
Inventories	(1,090,000)	(530,000)
Costs in excess of billings and unbilled receivables	268,000	(36,000)
Prepaid expenses and other assets	(92,000)	(489,000)
Accounts payable	(74,000)	(116,000)
Accrued expenses and other liabilities	157,000	14,000
Deferred revenue	119,000	27,000
Net cash from operating activities	(407,000)	(137,000)
Cash flows from investing activities:
Proceeds from sale of assets	4,000	244,000
Purchases of property, plant and equipment	(1,342,000)	(747,000)
Net cash from investing activities	(1,338,000)	(503,000)
Cash flows from financing activities:
Proceeds from issuance of common stock	11,000	9,000
Net proceeds from issuance of convertible notes	390,000	298,000
Principal payments on capital leases	(101,000)	(110,000)
Proceeds from short and long-term debt	1,203,000	300,000
Payments on long-term debt	(740,000)	(202,000)
Net cash from financing activities	763,000	295,000
Effect of exchange rates on cash and cash equivalents	(81,000)	(19,000)
Net change in cash and cash equivalents	(1,063,000)	(364,000)
Cash and cash equivalents, beginning	1,295,000	3,842,000
Cash and cash equivalents, ending	232,000	3,478,000
Non cash activities:
Assets purchased under capital leases	240,000	73,000
Tax payments (refunds)	$ (64,000)	$ (8,000)

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Basis of Presentation

9 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Note 1 - Basis of Presentation

The accompanying consolidated balance sheet as of June 30, 2016, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2016 and 2015, changes in stockholders’ equity for the nine months ended June 30, 2016 and cash flows for the nine months ended June 30, 2016 and 2015 of Dynasil Corporation of America and subsidiaries (the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. In the opinion of management, all adjustments (which include normal recurring and nonrecurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles for the periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

The preparation of our unaudited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2015 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications did not affect previously reported net loss or stockholders’ deficit.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2016, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.

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Recent Accounting Pronouncements

9 Months Ended

Jun. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note 2 – Recent Accounting Pronouncements

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

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

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

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

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

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

Inventory (Topic 330), Simplifying the Measurement of Inventory. In July 2015, the FASB issued ASU No. 2015-11, which requires that an entity should measure inventory within the scope of this ASU at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Substantial and unusual losses that result from subsequent measurement of inventory should be disclosed in the financial statements. This new guidance is effective for the Company beginning in fiscal 2018. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments. In September 2015, the FASB issued ASU No. 2015-16, which requires that an acquirer recognize adjustment to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer needs to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present, separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This new guidance is effective for the Company beginning in fiscal 2017. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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

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Acquisitions and Divestitures

9 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note 3 – Acquisitions and Divestitures

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

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Xcede Technologies, Inc. Joint Venture

9 Months Ended

Jun. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

Note 4 – Xcede Technologies, Inc. Joint Venture

In October, 2013, the Company formed Xcede Technologies, Inc. (“Xcede”), a joint venture with Mayo Clinic, in order to spin out and separately fund the development of its tissue sealant technology, which formerly comprised the majority of its biomedical segment. As of June 30, 2016, Xcede has raised approximately $3.0 million in the form of Convertible Notes (the “Notes”), of which $2.4 million was from external funding to outside investors and to certain officers and directors of the Company and $0.6 million was from the Company. The Notes accrue interest at 5%. The total interest accrued at June 30, 2016 was approximately $0.2 million. On July 15, 2016, Xcede amended the Note Purchase Agreement for such Notes to extend the Notes’ maturity date from June 30, 2016 to June 30, 2017 and to increase the principal amount of Notes authorized to be issued thereunder from $3.0 million to up to $5.2 million.

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

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

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

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

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

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Inventories

9 Months Ended

Jun. 30, 2016

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 5 - Inventories

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2016		2015
Raw Materials	$	2,263,000	$	1,828,000
Work-in-Process		1,089,000		862,000
Finished Goods		574,000		376,000
	$	3,926,000	$	3,066,000

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Intangible Assets

9 Months Ended

Jun. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 6 – Intangible Assets

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

	Useful	Gross		Accumulated
June 30, 2016	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	737,000	$	468,000	$	269,000
Know How	15		512,000		273,000		239,000
Trade Names	Indefinite		280,000		-		280,000
Patents	20		298,000		5,000		293,000
Biomedical Technologies	5		260,000		245,000		15,000
		$	2,087,000	$	991,000	$	1,096,000

	Useful	Gross		Accumulated
September 30, 2015	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	824,000	$	464,000	$	360,000
Know How	15		512,000		248,000		264,000
Trade Names	Indefinite		318,000		-		318,000
Patents	20		223,000		-		223,000
Biomedical Technologies	5		260,000		200,000		60,000
		$	2,137,000	$	912,000	$	1,225,000

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

 

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

	2016 (3 months)		2017		2018		2019		2020		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	80,000	$	80,000	$	9,000	$	-	$	269,000
Know How		9,000		34,000		34,000		34,000		34,000		94,000		239,000
Patents		2,000		6,000		6,000		6,000		6,000		61,000		87,000
Biomedical Technologies		15,000		-		-		-		-		-		15,000
	$	46,000	$	120,000	$	120,000	$	120,000	$	49,000	$	155,000	$	610,000

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

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Goodwill

9 Months Ended

Jun. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill Disclosure [Text Block]

Note 7 – Goodwill

Goodwill is subject to an annual impairment test. The Company considers many factors which may indicate the requirement to perform additional, interim impairment tests. These include:

⋅ A significant adverse long term outlook for any of its 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.

There were no changes, aside from foreign exchange rate fluctuations, in the carrying value of goodwill during the three and nine months ended June 30, 2016.

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Debt

9 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 8 –Debt

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

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Earnings (Loss) Per Common Share

9 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 9 – Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing the net income or loss attributable to common shares by the weighted average number of common shares. Diluted earnings per common share adjusts basic earnings per share for the effects of common stock options, common stock warrants, convertible preferred stock and other potential dilutive common shares outstanding during the periods.

For purposes of computing diluted earnings per share for the three and nine months ended June 30, 2016 and 2015, no common stock options were included in the calculation of dilutive shares as all of the 123,147 and 58,212 common stock options outstanding, respectively, had exercise prices above the current quarterly average market price per share and their inclusion would be anti-dilutive.

For the three months ended June 30, 2016 and 2015, 3,532 and 7,451 shares of common stock related to restricted stock, respectively, were included in the denominator used to calculate diluted earnings per share. For the nine months ended June 30, 2016, 42,737 shares of common stock related to restricted stock were included in the denominator used to calculate diluted earnings per share. For the nine months ended June 30, 2015, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

 

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

	June 30, 2016		June 30, 2015
Weighted average shares outstanding
Basic		16,698,205		16,439,637
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		3,532		7,451
Dilutive Average Shares Outstanding		16,701,737		16,447,088

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

	June 30, 2016		June 30, 2015
Weighted average shares outstanding
Basic		16,628,279		16,368,313
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		42,737		-
Dilutive Average Shares Outstanding		16,671,016		16,368,313

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Stock Based Compensation

9 Months Ended

Jun. 30, 2016

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

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

Note 10 - Stock Based Compensation

The fair value of the stock options granted is estimated at the date of grant using the Black-Scholes option pricing model.

The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. The dividend yield is expected to be zero because historically the Company has not paid dividends on common stock.

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

 

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

	Three Months Ended		Three Months Ended
Stock Compensation Expense	June 30, 2016		June 30, 2015
Stock Grants	$	74,000	$	106,000
Restricted Stock Grants		13,000		7,000
Option Grants		12,000		6,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Stock Grants		210,000		-
Subsidiary Option Grants		19,000		21,000
Total	$	329,000	$	141,000

	Nine Months Ended		Nine Months Ended
Stock Compensation Expense	June 30, 2016		June 30, 2015
Stock Grants	$	259,000	$	243,000
Restricted Stock Grants		33,000		21,000
Option Grants		29,000		10,000
Employee Stock Purchase Plan		2,000		3,000
Subsidiary Stock Grants		210,000		-
Subsidiary Option Grants		59,000		21,000
Total	$	592,000	$	298,000

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

 

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

Restricted Stock Grants

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

Restricted Stock Activity for the Nine Months ended June 30, 2016	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2015		27,000	$	1.04
Granted		100,000		1.73
Vested		(27,000)		1.04
Cancelled		-		-
Nonvested at June 30, 2016		100,000	$	1.73

Stock Option Grants

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

	Nine Months Ended June 30, 2016
Expected term in years		3 years
Risk-free interest rate		1.05	%
Expected volatility		78.53	%
Expected dividend yield		0.00	%

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

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2015		58,212	$	2.28		1.96
Outstanding and exercisable at September 30, 2015		58,212		2.28		1.96
Granted		64,935		2.33		2.59
Exercised		-		-
Cancelled		-		-
Balance at June 30, 2016		123,147		2.30		1.94
Outstanding and exercisable at June 30, 2016		123,147	$	2.30		1.94

Subsidiary Stock Option Grants

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

 

Expected term in years	10 years
Risk-free interest rate	1.94	%
Expected volatility	83.06	%
Expected dividend yield	0.00	%

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

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2015		780,258	$	1.00		8.85
Outstanding and exercisable at September 30, 2015		180,293		1.00		8.50
Granted		136,961		1.00
Exercised		-		-
Cancelled		(315,024)		1.00
Balance at June 30, 2016		602,195		1.00		8.57
Outstanding and exercisable at June 30, 2016		268,450	$	1.00		8.09

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

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Segment, Customer and Geographical Reporting

9 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 11 – Segment, Customer and Geographical Reporting

Segment Financial Information

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

Within these segments, there is a segregation of reportable units based upon the organizational structure used to evaluate performance and make decisions on resource allocation, as well as availability and materiality of separate financial results consistent with that structure. The Optics segment manufactures optical materials, components and coatings. The Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment, through Xcede Technologies, Inc., a majority-owned joint venture, is focused on developing a tissue sealant technology though no assurance can be given that this technology will become successfully commercialized.

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

Results of Operations for the Three Months Ended June 30, 2016
	Optics			Contract Research			Biomedical		Total
Revenue	$	5,780,000		$	4,626,000		$	-	$	10,406,000
Gross Profit		2,012,000			1,915,000			-		3,927,000
GM %		35	%		41	%		-		38	%
SG&A		1,604,000			1,601,000			396,000		3,601,000
(Gain) loss on sale of assets		-			-			-		-
Operating Income (Loss)		408,000			314,000			(396,000)		326,000
Depreciation and Amortization		247,000			24,000			17,000		288,000
Capital expenditures		330,000			-			6,000		336,000
Intangibles, Net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Results of Operations for the Three Months Ended June 30, 2015
	Optics			Contract Research			Biomedical		Total
Revenue	$	5,613,000		$	4,626,000		$	-	$	10,239,000
Gross Profit		2,006,000			2,027,000			-		4,033,000
GM %		36	%		44	%		-		39	%
SG&A		1,380,000			1,934,000			236,000		3,550,000
(Gain) loss on sale of assets		8,000			-			-		8,000
Operating Income (Loss)		618,000			93,000			(236,000)		475,000
Depreciation and Amortization		223,000			74,000			15,000		312,000
Capital expenditures		270,000			-			21,000		291,000
Intangibles, Net		722,000			273,000			257,000		1,252,000
Goodwill		1,252,000			4,939,000			-		6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000	$	26,883,000

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

Results of Operations for the Nine Months Ended June 30, 2016
	Optics			Contract Research			Biomedical		Total
Revenue	$	18,415,000		$	14,484,000		$	-	$	32,899,000
Gross Profit		6,330,000			5,639,000			-		11,969,000
GM %		34	%		39	%		-		36	%
SG&A		5,237,000			5,107,000			1,099,000		11,443,000
(Gain) loss on sale of assets		(4,000)			-			-		(4,000)
Operating Income (Loss)		1,097,000			532,000			(1,099,000)		530,000
Depreciation and Amortization		700,000			187,000			52,000		939,000
Capital expenditures		1,224,000			37,000			81,000		1,342,000
Intangibles, Net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Results of Operations for the Nine Months Ended June 30, 2015
	Optics			Contract Research			Biomedical		Total
Revenue	$	15,781,000		$	13,964,000		$	-	$	29,745,000
Gross Profit		5,222,000			6,077,000			-		11,299,000
GM %		33	%		44	%		-		38	%
SG&A		4,964,000			5,712,000			739,000		11,415,000
(Gain) loss on sale of assets		(178,000)			-			-		(178,000)
Operating Income (Loss)		436,000			365,000			(739,000)		62,000
Depreciation and Amortization		631,000			222,000			45,000		898,000
Capital expenditures		666,000			4,000			77,000		747,000
Intangibles, Net		722,000			273,000			257,000		1,252,000
Goodwill		1,252,000			4,939,000			-		6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000	$	26,883,000

Customer Financial Information

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

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

Geographic Financial Information

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

	Three Months Ended					Three Months Ended
	June 30, 2016					June 30, 2015
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,908,000		76	%	$	8,228,000		80	%
Europe		1,868,000		18	%		1,140,000		11	%
Other		630,000		6	%		871,000		9	%
	$	10,406,000		100	%	$	10,239,000		100	%

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

	Nine Months Ended					Nine Months Ended
	June 30, 2016					June 30, 2015
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	24,363,000		74	%	$	23,892,000		80	%
Europe		6,361,000		19	%		3,147,000		11	%
Other		2,175,000		7	%		2,706,000		9	%
	$	32,899,000		100	%	$	29,745,000		100	%

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Income Taxes

9 Months Ended

Jun. 30, 2016

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 12 - Income Taxes

Dynasil Corporation of America and its wholly-owned U.S. subsidiaries file a consolidated federal income tax return and various state returns. The Company’s U.K. subsidiary files tax returns in the U.K.

The Company uses the asset and liability approach to account for income taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carry forwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates, and tax laws, in the respective tax jurisdiction then in effect. Due to the Company’s adoption of ASU 2015-17, the deferred taxes are all classified as long term.

In assessing the ability to realize the net deferred tax assets, management considers various factors including taxable income in carryback years, future reversals of existing taxable temporary differences, tax planning strategies and projections of future taxable income, to determine whether it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Based upon the Company’s recent losses and uncertainty of future profits, the Company has determined that the uncertainty regarding the realization of these assets is sufficient to warrant the need for a full valuation allowance against its U.S. net deferred tax assets.

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of June 30, 2016 and September 30, 2015, the Company has no unrecorded liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of June 30, 2016 and September 30, 2015, the Company had no accrued interest or penalties related to uncertain tax positions. The Company currently has no federal or state tax examinations in progress.

The effective tax rates were 13% and 32% for the three and nine months ended June 30, 2016, respectively, and (4%) and (2%) for the three and nine months ended June 30, 2015, respectively. The rates differ from the U.S. federal statutory income tax rate of 34% primarily due to a full valuation allowance against the Company’s U.S. deferred tax asset.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s tax filings for federal and state jurisdictions for the tax years beginning with 2012 are still subject to examination.

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Settlement of Pension Liability

9 Months Ended

Jun. 30, 2016

Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]

Schedule Of Defined Benefit Plans Disclosure [Text Block]

Note 13 – Settlement of Pension Liability

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

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Subsequent Events

9 Months Ended

Jun. 30, 2016

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 14 – Subsequent Events

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

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Inventories (Tables)

9 Months Ended

Jun. 30, 2016

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2016		2015
Raw Materials	$	2,263,000	$	1,828,000
Work-in-Process		1,089,000		862,000
Finished Goods		574,000		376,000
	$	3,926,000	$	3,066,000

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Intangible Assets (Tables)

9 Months Ended

Jun. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

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

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

	Useful	Gross		Accumulated
June 30, 2016	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	737,000	$	468,000	$	269,000
Know How	15		512,000		273,000		239,000
Trade Names	Indefinite		280,000		-		280,000
Patents	20		298,000		5,000		293,000
Biomedical Technologies	5		260,000		245,000		15,000
		$	2,087,000	$	991,000	$	1,096,000

	Useful	Gross		Accumulated
September 30, 2015	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	824,000	$	464,000	$	360,000
Know How	15		512,000		248,000		264,000
Trade Names	Indefinite		318,000		-		318,000
Patents	20		223,000		-		223,000
Biomedical Technologies	5		260,000		200,000		60,000
		$	2,137,000	$	912,000	$	1,225,000

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

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

	2016 (3 months)		2017		2018		2019		2020		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	80,000	$	80,000	$	9,000	$	-	$	269,000
Know How		9,000		34,000		34,000		34,000		34,000		94,000		239,000
Patents		2,000		6,000		6,000		6,000		6,000		61,000		87,000
Biomedical Technologies		15,000		-		-		-		-		-		15,000
	$	46,000	$	120,000	$	120,000	$	120,000	$	49,000	$	155,000	$	610,000

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Earnings (Loss) Per Common Share (Tables)

9 Months Ended

Jun. 30, 2016

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 June 30, 2016 and 2015 is as follows:

	June 30, 2016		June 30, 2015
Weighted average shares outstanding
Basic		16,698,205		16,439,637
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		3,532		7,451
Dilutive Average Shares Outstanding		16,701,737		16,447,088

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

	June 30, 2016		June 30, 2015
Weighted average shares outstanding
Basic		16,628,279		16,368,313
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		42,737		-
Dilutive Average Shares Outstanding		16,671,016		16,368,313

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Stock Based Compensation (Tables)

9 Months Ended

Jun. 30, 2016

Schedule Of Stock Compensation Expense [Table Text Block]

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

	Three Months Ended		Three Months Ended
Stock Compensation Expense	June 30, 2016		June 30, 2015
Stock Grants	$	74,000	$	106,000
Restricted Stock Grants		13,000		7,000
Option Grants		12,000		6,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Stock Grants		210,000		-
Subsidiary Option Grants		19,000		21,000
Total	$	329,000	$	141,000

	Nine Months Ended		Nine Months Ended
Stock Compensation Expense	June 30, 2016		June 30, 2015
Stock Grants	$	259,000	$	243,000
Restricted Stock Grants		33,000		21,000
Option Grants		29,000		10,000
Employee Stock Purchase Plan		2,000		3,000
Subsidiary Stock Grants		210,000		-
Subsidiary Option Grants		59,000		21,000
Total	$	592,000	$	298,000

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

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

Restricted Stock Activity for the Nine Months ended June 30, 2016	Shares		Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2015		27,000	$	1.04
Granted		100,000		1.73
Vested		(27,000)		1.04
Cancelled		-		-
Nonvested at June 30, 2016		100,000	$	1.73

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

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

	Nine Months Ended June 30, 2016
Expected term in years		3 years
Risk-free interest rate		1.05	%
Expected volatility		78.53	%
Expected dividend yield		0.00	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

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

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2015		58,212	$	2.28		1.96
Outstanding and exercisable at September 30, 2015		58,212		2.28		1.96
Granted		64,935		2.33		2.59
Exercised		-		-
Cancelled		-		-
Balance at June 30, 2016		123,147		2.30		1.94
Outstanding and exercisable at June 30, 2016		123,147	$	2.30		1.94

Subsidiary Option Grants [Member]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

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

 

Expected term in years	10 years
Risk-free interest rate	1.94	%
Expected volatility	83.06	%
Expected dividend yield	0.00	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

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

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2015		780,258	$	1.00		8.85
Outstanding and exercisable at September 30, 2015		180,293		1.00		8.50
Granted		136,961		1.00
Exercised		-		-
Cancelled		(315,024)		1.00
Balance at June 30, 2016		602,195		1.00		8.57
Outstanding and exercisable at June 30, 2016		268,450	$	1.00		8.09

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Segment, Customer and Geographical Reporting (Tables)

9 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

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

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

Results of Operations for the Three Months Ended June 30, 2016
	Optics			Contract Research			Biomedical		Total
Revenue	$	5,780,000		$	4,626,000		$	-	$	10,406,000
Gross Profit		2,012,000			1,915,000			-		3,927,000
GM %		35	%		41	%		-		38	%
SG&A		1,604,000			1,601,000			396,000		3,601,000
(Gain) loss on sale of assets		-			-			-		-
Operating Income (Loss)		408,000			314,000			(396,000)		326,000
Depreciation and Amortization		247,000			24,000			17,000		288,000
Capital expenditures		330,000			-			6,000		336,000
Intangibles, Net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Results of Operations for the Three Months Ended June 30, 2015
	Optics			Contract Research			Biomedical		Total
Revenue	$	5,613,000		$	4,626,000		$	-	$	10,239,000
Gross Profit		2,006,000			2,027,000			-		4,033,000
GM %		36	%		44	%		-		39	%
SG&A		1,380,000			1,934,000			236,000		3,550,000
(Gain) loss on sale of assets		8,000			-			-		8,000
Operating Income (Loss)		618,000			93,000			(236,000)		475,000
Depreciation and Amortization		223,000			74,000			15,000		312,000
Capital expenditures		270,000			-			21,000		291,000
Intangibles, Net		722,000			273,000			257,000		1,252,000
Goodwill		1,252,000			4,939,000			-		6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000	$	26,883,000

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

Results of Operations for the Nine Months Ended June 30, 2016
	Optics			Contract Research			Biomedical		Total
Revenue	$	18,415,000		$	14,484,000		$	-	$	32,899,000
Gross Profit		6,330,000			5,639,000			-		11,969,000
GM %		34	%		39	%		-		36	%
SG&A		5,237,000			5,107,000			1,099,000		11,443,000
(Gain) loss on sale of assets		(4,000)			-			-		(4,000)
Operating Income (Loss)		1,097,000			532,000			(1,099,000)		530,000
Depreciation and Amortization		700,000			187,000			52,000		939,000
Capital expenditures		1,224,000			37,000			81,000		1,342,000
Intangibles, Net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total Assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Results of Operations for the Nine Months Ended June 30, 2015
	Optics			Contract Research			Biomedical		Total
Revenue	$	15,781,000		$	13,964,000		$	-	$	29,745,000
Gross Profit		5,222,000			6,077,000			-		11,299,000
GM %		33	%		44	%		-		38	%
SG&A		4,964,000			5,712,000			739,000		11,415,000
(Gain) loss on sale of assets		(178,000)			-			-		(178,000)
Operating Income (Loss)		436,000			365,000			(739,000)		62,000
Depreciation and Amortization		631,000			222,000			45,000		898,000
Capital expenditures		666,000			4,000			77,000		747,000
Intangibles, Net		722,000			273,000			257,000		1,252,000
Goodwill		1,252,000			4,939,000			-		6,191,000
Total Assets	$	16,665,000		$	9,462,000		$	756,000	$	26,883,000

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 June 30, 2016 and 2015 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2016					June 30, 2015
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,908,000		76	%	$	8,228,000		80	%
Europe		1,868,000		18	%		1,140,000		11	%
Other		630,000		6	%		871,000		9	%
	$	10,406,000		100	%	$	10,239,000		100	%

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

	Nine Months Ended					Nine Months Ended
	June 30, 2016					June 30, 2015
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	24,363,000		74	%	$	23,892,000		80	%
Europe		6,361,000		19	%		3,147,000		11	%
Other		2,175,000		7	%		2,706,000		9	%
	$	32,899,000		100	%	$	29,745,000		100	%

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Recent Accounting Pronouncements (Details Textual)	12 Months Ended
	Sep. 30, 2015 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Debt Related Commitment Fees and Debt Issuance Costs	$ 12,000

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Acquisitions and Divestitures (Details Textual) $ in Millions	9 Months Ended
	Jun. 30, 2015 USD ($)
Business Acquisition [Line Items]
Gain (Loss) on Disposition of Business	$ 0.2

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Xcede Technologies, Inc. Joint Venture (Details Textual) - USD ($)		1 Months Ended		3 Months Ended	9 Months Ended
	Jun. 02, 2016	Jul. 19, 2016	Jul. 15, 2016	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
Schedule of Equity Method Investments [Line Items]
Proceeds from Convertible Debt					$ 3.0
Debt Instrument, Interest Rate, Stated Percentage				5.00%	5.00%
Capital Stock Financing Discount Percentage				20.00%	20.00%
Common Stock Valuation				$ 5,000,000	$ 5,000,000
Share-based Compensation, Total					592,000	$ 298,000
Convertible Debt [Member]
Schedule of Equity Method Investments [Line Items]
Proceeds from Convertible Debt					3,000,000
Interest Payable				200,000	200,000
Convertible Debt [Member] | External Funding [Member]
Schedule of Equity Method Investments [Line Items]
Proceeds from Convertible Debt					2,400,000
Xcede [Member]
Schedule of Equity Method Investments [Line Items]
Share-based Compensation, Total				$ 200,000
Sale of Stock, Number of Shares Issued in Transaction	239,000
Parent Company [Member] | Convertible Debt [Member]
Schedule of Equity Method Investments [Line Items]
Proceeds from Convertible Debt					$ 600,000
Subsequent Event [Member] | Convertible Debt [Member]
Schedule of Equity Method Investments [Line Items]
Debt Instrument, Maturity Date			Jun. 30, 2017
Subsequent Event [Member] | Xcede [Member]
Schedule of Equity Method Investments [Line Items]
Proceeds from Issuance of Debt		$ 500,000
Maximum [Member] | Subsequent Event [Member] | Convertible Debt [Member]
Schedule of Equity Method Investments [Line Items]
Debt Instrument, Face Amount			$ 5,200,000
Minimum [Member] | Subsequent Event [Member] | Convertible Debt [Member]
Schedule of Equity Method Investments [Line Items]
Debt Instrument, Face Amount			$ 3,000,000

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Inventories (Details) - USD ($)	Jun. 30, 2016	Sep. 30, 2015
Inventory Current [Line Items]
Raw Materials	$ 2,263,000	$ 1,828,000
Work-in-Process	1,089,000	862,000
Finished Goods	574,000	376,000
Inventory, Net, Total	$ 3,926,000	$ 3,066,000

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Intangible Assets (Details) - USD ($)	9 Months Ended	12 Months Ended
	Jun. 30, 2016	Sep. 30, 2015	Jun. 30, 2015
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 2,087,000	$ 2,137,000
Accumulated Amortization	991,000	912,000
Net	1,096,000	1,225,000	$ 1,252,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	737,000	824,000
Accumulated Amortization	468,000	464,000
Net	$ 269,000	$ 360,000
Acquired Customer Base [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	5 years	5 years
Acquired Customer Base [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	15 years	15 years
Know How [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	15 years	15 years
Gross Amount	$ 512,000	$ 512,000
Accumulated Amortization	273,000	248,000
Net	239,000	264,000
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	280,000	318,000
Accumulated Amortization	0	0
Net	$ 280,000	$ 318,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	20 years	20 years
Gross Amount	$ 298,000	$ 223,000
Accumulated Amortization	5,000	0
Net	$ 293,000	$ 223,000
Biomedical Technologies [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	5 years	5 years
Gross Amount	$ 260,000	$ 260,000
Accumulated Amortization	245,000	200,000
Net	$ 15,000	$ 60,000

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Intangible Assets (Details 1)	Jun. 30, 2016 USD ($)
Finite-Lived Intangible Assets [Line Items]
2016 (3 months)	$ 46,000
2017	120,000
2018	120,000
2019	120,000
2020	49,000
Thereafter	155,000
Total	610,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
2016 (3 months)	20,000
2017	80,000
2018	80,000
2019	80,000
2020	9,000
Thereafter	0
Total	269,000
Know How [Member]
Finite-Lived Intangible Assets [Line Items]
2016 (3 months)	9,000
2017	34,000
2018	34,000
2019	34,000
2020	34,000
Thereafter	94,000
Total	239,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2016 (3 months)	2,000
2017	6,000
2018	6,000
2019	6,000
2020	6,000
Thereafter	61,000
Total	87,000
Biomedical Technologies [Member]
Finite-Lived Intangible Assets [Line Items]
2016 (3 months)	15,000
2017	0
2018	0
2019	0
2020	0
Thereafter	0
Total	$ 15,000

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Sep. 30, 2015
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 43,000	$ 43,000	$ 129,000	$ 128,000
Finite-Lived Intangible Assets, Gross	2,087,000		2,087,000		$ 2,137,000
Parent [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	$ 206,000		$ 206,000

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Debt (Details Textual) - USD ($)	Feb. 01, 2016	Jun. 30, 2016	Sep. 30, 2015
Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		5.00%
Long-term Line of Credit		$ 104,000	$ 1,455,000
Middlesex Savings Bank [Member]
Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	4.50%
Long-term Line of Credit		3,896,000
Line of Credit Facility, Expiration Period	5 years
Short-term Debt, Total	$ 2,000,000
Debt Conversion, Converted Instrument, Amount	2,000,000
Line of Credit Facility, Remaining Borrowing Capacity		$ 1,880,000
Middlesex Savings Bank [Member] | Minimum [Member]
Debt [Line Items]
Long-term Line of Credit	2,000,000
Middlesex Savings Bank [Member] | Maximum [Member]
Debt [Line Items]
Long-term Line of Credit	$ 3,819,000

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Earnings (Loss) Per Common Share (Details) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Weighted average shares outstanding
Basic	16,698,205	16,439,637	16,628,279	16,368,313
Effect of dilutive securities
Dilutive Average Shares Outstanding	16,701,737	16,447,088	16,671,016	16,368,313
Employee Stock Option [Member]
Effect of dilutive securities
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	0	0	0	0
Restricted Stock [Member]
Effect of dilutive securities
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	3,532	7,451	42,737	0

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Earnings (Loss) Per Common Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	123,147	58,212	123,147	58,212
Restricted Stock [Member]
Earnings Loss Per Common Share [Line Items]
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	3,532	7,451	42,737	0

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Stock Based Compensation (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 329,000	$ 141,000	$ 592,000	$ 298,000
Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	74,000	106,000	259,000	243,000
Restricted Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	13,000	7,000	33,000	21,000
Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	12,000	6,000	29,000	10,000
Employee Stock Purchase Plan [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	1,000	1,000	2,000	3,000
Subsidiary Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	19,000	21,000	59,000	21,000
Subsidiary Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 210,000	$ 0	$ 210,000	$ 0

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Stock Based Compensation (Details 1) - Restricted Stock [Member]	9 Months Ended
	Jun. 30, 2016 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Nonvested Beginning Balance | shares	27,000
Shares, Granted | shares	100,000
Shares, Vested | shares	(27,000)
Shares, Cancelled | shares	0
Shares, Nonvested Ending Balance | shares	100,000
Weighted-Average Grant-Date Fair Value, Nonvested, Beginning Balance | $ / shares	$ 1.04
Weighted-Average Grant-Date Fair Value, Granted | $ / shares	1.73
Weighted-Average Grant-Date Fair Value, Vested | $ / shares	1.04
Weighted-Average Grant-Date Fair Value, Cancelled | $ / shares	0
Weighted-Average Grant-Date Fair Value, Nonvested, Ending Balance | $ / shares	$ 1.73

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Stock Based Compensation (Details 2)	9 Months Ended
	Jun. 30, 2016
Subsidiary Option Grants [Member]
Class of Stock [Line Items]
Expected term in years	10 years
Risk-free interest rate	1.94%
Expected volatility	83.06%
Expected dividend yield	0.00%
Stock Option Grants [Member]
Class of Stock [Line Items]
Expected term in years	3 years
Risk-free interest rate	1.05%
Expected volatility	78.53%
Expected dividend yield	0.00%

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Stock Based Compensation (Details 3) - $ / shares	9 Months Ended	12 Months Ended
	Jun. 30, 2016	Sep. 30, 2015
Stock Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance,Options Outstanding	58,212
Outstanding and exercisable,Options Outstanding	123,147	58,212
Granted,Options Outstanding	64,935
Exercised,Options Outstanding	0
Cancelled, Options Outstanding	0
Balance,Options Outstanding	123,147	58,212
Balance,Weighted Average Exercise Price per Share	$ 2.28
Outstanding and exercisable,Weighted Average Exercise Price per Share	2.3	$ 2.28
Granted,Weighted Average Exercise Price per Share	2.33
Exercised,Weighted Average Exercise Price per Share	0
Cancelled,Weighted Average Exercise Price per Share	$ 0
Granted, Weighted Average Remain Contractual Term (in Years)	2 years 7 months 2 days
Balance,Weighted Average Exercise Price per Share	$ 2.3	$ 2.28
Balance,Weighted Average Remain Contractual Term (in Years)	1 year 11 months 8 days	1 year 11 months 16 days
Outstanding and exercisable,Weighted Average Remain Contractual Term (in Years)	1 year 11 months 8 days	1 year 11 months 16 days
Subsidiary Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance,Options Outstanding	780,258
Outstanding and exercisable,Options Outstanding	268,450	180,293
Granted,Options Outstanding	136,961
Exercised,Options Outstanding	0
Cancelled, Options Outstanding	(315,024)
Balance,Options Outstanding	602,195	780,258
Balance,Weighted Average Exercise Price per Share	$ 1
Outstanding and exercisable,Weighted Average Exercise Price per Share	1	$ 1
Granted,Weighted Average Exercise Price per Share	1
Exercised,Weighted Average Exercise Price per Share	0
Cancelled,Weighted Average Exercise Price per Share	1
Balance,Weighted Average Exercise Price per Share	$ 1	$ 1
Balance,Weighted Average Remain Contractual Term (in Years)	8 years 6 months 25 days	8 years 10 months 6 days
Outstanding and exercisable,Weighted Average Remain Contractual Term (in Years)	8 years 1 month 2 days	8 years 6 months

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Stock Based Compensation (Details Textual) - USD ($)		1 Months Ended	3 Months Ended	9 Months Ended
	Jun. 02, 2016	Sep. 30, 2016	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
Class of Stock [Line Items]
Share-based Compensation, Total				$ 592,000	$ 298,000
Xcede [Member]
Class of Stock [Line Items]
Share-based Compensation, Total		$ 200,000
Sale of Stock, Number of Shares Issued in Transaction	239,000
Sale of Stock, Consideration Received on Transaction	$ 3,000,000
Subsidiary Option Grants [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				136,961
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				3 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term				10 years
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 1
Subsidiary Option Grants [Member] | Xcede joint venture [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options			$ 160,000	$ 160,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total			13,500	$ 13,500
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term				18 months
Employee Stock Plan [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options			$ 200,000	$ 200,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			15 months

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Segment, Customer and Geographical Reporting (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Sep. 30, 2015
Segment Reporting Information [Line Items]
Revenue	$ 10,406,000	$ 10,239,000	$ 32,899,000	$ 29,745,000
Gross Profit	$ 3,927,000	$ 4,033,000	$ 11,969,000	$ 11,299,000
GM %	38.00%	39.00%	36.00%	38.00%
SG&A	$ 3,601,000	$ 3,550,000	$ 11,443,000	$ 11,415,000
(Gain) loss on sale of assets	0	8,000	(4,000)	(178,000)
Operating Income (Loss)	326,000	475,000	530,000	62,000
Depreciation and Amortization	288,000	312,000	939,000	898,000
Capital expenditures	336,000	291,000	1,342,000	747,000
Intangibles, Net	1,096,000	1,252,000	1,096,000	1,252,000	$ 1,225,000
Goodwill	5,940,000	6,191,000	5,940,000	6,191,000	6,131,000
Total Assets	25,722,000	26,883,000	25,722,000	26,883,000	$ 24,462,000
Optics [Member]
Segment Reporting Information [Line Items]
Revenue	5,780,000	5,613,000	18,415,000	15,781,000
Gross Profit	$ 2,012,000	$ 2,006,000	$ 6,330,000	$ 5,222,000
GM %	35.00%	36.00%	34.00%	33.00%
SG&A	$ 1,604,000	$ 1,380,000	$ 5,237,000	$ 4,964,000
(Gain) loss on sale of assets	0	8,000	(4,000)	(178,000)
Operating Income (Loss)	408,000	618,000	1,097,000	436,000
Depreciation and Amortization	247,000	223,000	700,000	631,000
Capital expenditures	330,000	270,000	1,224,000	666,000
Intangibles, Net	549,000	722,000	549,000	722,000
Goodwill	1,001,000	1,252,000	1,001,000	1,252,000
Total Assets	16,752,000	16,665,000	16,752,000	16,665,000
Contract Research [Member]
Segment Reporting Information [Line Items]
Revenue	4,626,000	4,626,000	14,484,000	13,964,000
Gross Profit	$ 1,915,000	$ 2,027,000	$ 5,639,000	$ 6,077,000
GM %	41.00%	44.00%	39.00%	44.00%
SG&A	$ 1,601,000	$ 1,934,000	$ 5,107,000	$ 5,712,000
(Gain) loss on sale of assets	0	0	0	0
Operating Income (Loss)	314,000	93,000	532,000	365,000
Depreciation and Amortization	24,000	74,000	187,000	222,000
Capital expenditures	0	0	37,000	4,000
Intangibles, Net	239,000	273,000	239,000	273,000
Goodwill	4,939,000	4,939,000	4,939,000	4,939,000
Total Assets	8,546,000	9,462,000	8,546,000	9,462,000
Biomedical [Member]
Segment Reporting Information [Line Items]
Revenue	0	0	0	0
Gross Profit	$ 0	$ 0	$ 0	$ 0
GM %	0.00%	0.00%	0.00%	0.00%
SG&A	$ 396,000	$ 236,000	$ 1,099,000	$ 739,000
(Gain) loss on sale of assets	0	0	0	0
Operating Income (Loss)	(396,000)	(236,000)	(1,099,000)	(739,000)
Depreciation and Amortization	17,000	15,000	52,000	45,000
Capital expenditures	6,000	21,000	81,000	77,000
Intangibles, Net	308,000	257,000	308,000	257,000
Goodwill	0	0	0	0
Total Assets	$ 424,000	$ 756,000	$ 424,000	$ 756,000

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Segment, Customer and Geographical Reporting (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 10,406,000	$ 10,239,000	$ 32,899,000	$ 29,745,000
% of Total	100.00%	100.00%	100.00%	100.00%
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 7,908,000	$ 8,228,000	$ 24,363,000	$ 23,892,000
% of Total	76.00%	80.00%	74.00%	80.00%
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 1,868,000	$ 1,140,000	$ 6,361,000	$ 3,147,000
% of Total	18.00%	11.00%	19.00%	11.00%
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 630,000	$ 871,000	$ 2,175,000	$ 2,706,000
% of Total	6.00%	9.00%	7.00%	9.00%

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Segment, Customer and Geographical Reporting (Details Textual) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
United States [Member]
Segment Reporting Information Net Assets		$ 0.2		$ 0.2
Sales Revenue, Segment [Member]
United States [Member]
Concentration Risk, Percentage	72.00%	64.00%	77.00%	68.00%
Customer Four [Member] | Sales Revenue, Segment [Member] | Us Government [Member]
United States [Member]
Concentration Risk, Percentage		10.00%		10.00%
Customer Four and Five [Member] | Sales Revenue, Segment [Member]
United States [Member]
Concentration Risk, Percentage			10.00%
Customer Four and Five [Member] | Sales Revenue, Segment [Member] | Us Government [Member]
United States [Member]
Concentration Risk, Percentage	10.00%
Optics [Member] | Sales Revenue, Segment [Member]
United States [Member]
Concentration Risk, Percentage				10.00%
Optics [Member] | Customer One [Member]
United States [Member]
Concentration Risk, Percentage	10.00%		10.00%
Optics [Member] | Customer Two [Member]
United States [Member]
Concentration Risk, Percentage		10.00%

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Income Taxes (Details Textual)	3 Months Ended		9 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Percent, Total	13.00%	4.00%	32.00%	2.00%
Federal [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			34.00%

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Settlement of Pension Liability (Details Textual)	1 Months Ended
	Dec. 31, 2014 USD ($)
Defined Benefit Plan Disclosure [Line Items]
Defined Benefit Plan, Benefits Paid	$ 675,000
Defined Benefit Plan, Settlements, Benefit Obligation	320,000
Defined Benefit Plan, Funded Status of Plan, Total	$ 355,000

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Subsequent Events (Details Textual) - Subsequent Event [Member] - USD ($) $ in Millions	1 Months Ended
	Jul. 19, 2016	Jul. 15, 2016
Convertible Debt [Member]
Subsequent Event [Line Items]
Debt Instrument, Maturity Date		Jun. 30, 2017
Convertible Debt [Member] | Minimum [Member]
Subsequent Event [Line Items]
Debt Instrument, Face Amount		$ 3.0
Convertible Debt [Member] | Maximum [Member]
Subsequent Event [Line Items]
Debt Instrument, Face Amount		$ 5.2
Xcede [Member]
Subsequent Event [Line Items]
Proceeds from Issuance of Debt	$ 0.5