10-Q

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

¨ 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

As of May 7, 2017 there were 17,011,352 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 MARCH 31, 2017 AND SEPTEMBER 30, 2016	3
	CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2017 AND 2016	5
	CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 2017	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2017 AND 2016	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	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	28
Item 1A.	Risk Factors	28
Item 6.	Exhibits	29
Signatures		29

2 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31,		September 30,
	2017		2016
ASSETS
Current Assets
Cash and cash equivalents	$	2,299,000	$	2,607,000
Accounts receivable, net of allowances of $166,000 and $171,000 at March 31, 2017 and September 30, 2016, respectively		3,325,000		3,502,000
Costs in excess of billings and unbilled receivables		880,000		1,208,000
Inventories, net of reserves		3,965,000		3,726,000
Prepaid expenses and other current assets		1,148,000		1,078,000
Total current assets		11,617,000		12,121,000
Property, Plant and Equipment, net		6,802,000		7,223,000
Other Assets
Intangibles, net		1,057,000		1,067,000
Deferred tax asset		2,649,000		-
Goodwill		5,838,000		5,898,000
Security deposits		13,000		60,000
Total other assets		9,557,000		7,025,000
Total Assets	$	27,976,000	$	26,369,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	1,979,000	$	2,477,000
Capital lease obligations, current		100,000		105,000
Convertible notes		-		3,085,000
Accounts payable		1,205,000		1,627,000
Deferred revenue		99,000		238,000
Accrued expenses and other liabilities		2,335,000		2,955,000
Total current liabilities		5,718,000		10,487,000
Long-term Liabilities
Long-term debt, net of current portion and deferred financing costs		1,384,000		736,000
Capital lease obligations, net of current portion		123,000		173,000
Deferred tax liability		246,000		263,000
Other long-term liabilities		35,000		43,000
Total long-term liabilities		1,788,000		1,215,000

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)

	March 31,			September 30,
	2017			2016
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 17,790,759 and 17,677,284 shares issued, 16,980,599 and and 16,867,124 shares outstanding at March 31, 2017 and September 30, 2016, respectively.		9,000			9,000
Additional paid in capital		21,178,000			20,128,000
Accumulated other comprehensive income (loss)		(929,000	)		(699,000	)
Accumulated deficit		(359,000	)		(3,479,000	)
Less 810,160 shares of treasury stock - at cost		(986,000	)		(986,000	)
Total Dynasil stockholders' equity		18,913,000			14,973,000
Noncontrolling interest		1,557,000			(306,000	)
Total stockholders' equity		20,470,000			14,667,000
Total Liabilities and Stockholders' Equity	$	27,976,000		$	26,369,000

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						Six Months Ended
	March 31,						March 31,
	2017			2016			2017			2016
Net revenue	$	10,085,000		$	11,296,000		$	19,228,000		$	22,493,000
Cost of revenue		6,297,000			7,218,000			11,915,000			14,451,000
Gross profit		3,788,000			4,078,000			7,313,000			8,042,000
Operating expenses:
Sales and marketing		328,000			343,000			593,000			678,000
Research and development		335,000			277,000			531,000			565,000
General and administrative		3,128,000			3,417,000			6,115,000			6,600,000
Gain on sale of assets		-			-			-			(4,000	)
Total operating expenses		3,791,000			4,037,000			7,239,000			7,839,000
Income (loss) from operations		(3,000	)		41,000			74,000			203,000
Interest expense, net		45,000			77,000			112,000			136,000
Income (loss) before taxes		(48,000	)		(36,000	)		(38,000	)		67,000
Income tax (credit)		71,000			33,000			(2,658,000	)		68,000
Net income (loss)		(119,000	)		(69,000	)		2,620,000			(1,000	)
Less: Net loss attributable to noncontrolling interest		(64,000	)		(38,000	)		(133,000	)		(76,000	)
Net income (loss) attributable to common stockholders	$	(55,000	)	$	(31,000	)	$	2,753,000		$	75,000
Net income (loss)	$	(119,000	)	$	(69,000	)	$	2,620,000		$	(1,000	)
Other comprehensive income (loss):
Foreign currency translation		65,000			(142,000	)		(230,000	)		(256,000	)
Total comprehensive income (loss)		(54,000	)		(211,000	)		2,390,000			(257,000	)
Less: comprehensive income (loss) attributable to noncontrolling interest		(64,000	)		(38,000	)		(133,000	)		(76,000	)
Total comprehensive income (loss) attributable to common stockholders	$	10,000		$	(173,000	)	$	2,523,000		$	(181,000	)
Basic net income (loss) per common share	$	(0.00	)	$	(0.00	)	$	0.16		$	0.00
Diluted net income (loss) per common share	$	(0.00	)	$	(0.00	)	$	0.16		$	0.00
Weighted average shares outstanding
Basic		16,886,628			16,636,950			16,847,679			16,594,074
Diluted		16,886,628			16,636,950			16,847,679			16,650,606

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

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DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the six months ended March 31, 2017					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, 2016		17,677,284	$	9,000	$	20,128,000	$	(699,000	)	$	(3,479,000	)		810,160	$	(986,000	)	$	(306,000	)	$	14,667,000
Issuance of shares of common stock under employee stock purchase plan		7,810		-		8,000		-			-			-		-			-			8,000
Stock-based compensation costs		105,665		-		205,000		-			-			-		-			22,000			227,000
Stock options issued to settle liabilities		-		-		75,000		-			-			-		-			-			75,000
Recapitalization of Xcede		-		-		762,000		-			367,000			-		-			1,974,000			3,103,000
Foreign currency translation adjustment		-		-		-		(230,000	)		-			-		-			-			(230,000	)
Net income (loss)		-		-		-		-			2,753,000			-		-			(133,000	)		2,620,000
Balance, March 31, 2017		17,790,759	$	9,000	$	21,178,000	$	(929,000	)	$	(359,000	)		810,160	$	(986,000	)	$	1,557,000		$	20,470,000

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)

	Six Months Ended
	March 31,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	2,620,000		$	(1,000	)
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense		227,000			262,000
Foreign exchange loss (gain)		47,000			61,000
Depreciation and amortization		624,000			652,000
Deferred income taxes		(2,655,000	)		19,000
Provision for inventory reserves		23,000			12,000
Other		231,000			84,000
Other changes in assets and liabilities:
Accounts receivable, net		152,000			(1,551,000	)
Inventories		(332,000	)		(1,063,000	)
Costs in excess of billings and unbilled receivables		328,000			81,000
Prepaid expenses and other assets		263,000			(150,000	)
Accounts payable		(410,000	)		796,000
Accrued expenses and other liabilities		(542,000	)		204,000
Deferred revenue		(140,000	)		127,000
Net cash from operating activities		436,000			(467,000	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(228,000	)		(931,000	)
Purchase of intangibles		(64,000	)		(51,000	)
Net cash from investing activities		(292,000	)		(982,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		8,000			7,000
Net proceeds from issuance of convertible notes		-			390,000
Principal payments on capital leases		(55,000	)		(69,000	)
Proceeds from (payments of) line of credit, net		-			735,000
Proceeds from (payments of) bank and subordinated debt, net		(354,000	)		(76,000	)
Net cash from financing activities		(401,000	)		987,000
Effect of exchange rates on cash and cash equivalents		(51,000	)		(19,000	)
Net change in cash and cash equivalents		(308,000	)		(481,000	)
Cash and cash equivalents, beginning	$	2,607,000		$	1,295,000
Cash and cash equivalents, ending	$	2,299,000		$	814,000
Supplemental disclosures of cash flow information:
Non cash activities:
Assets purchased under capital leases	$	-		$	134,000
Recapitalization of Xcede - conversion of non controlling notes payable to preferred stock		(3,103,000	)		-
Subsidiary stock options issued to settle liabilities		75,000			-
Subsidiary debt issued to fund research activities		500,000			-

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 March 31, 2017, the consolidated statements of operations and comprehensive income (loss) for the three and six months ended March 31, 2017 and 2016, changes in stockholders’ equity for the six months ended March 31, 2017 and cash flows for the six months ended March 31, 2017 and 2016 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. Xcede Technologies, Inc. (“Xcede”) is a joint venture between Dynasil Biomedical and Mayo Clinic to spin out and separately fund the development of a tissue sealant technology. As of March 31, 2017, Dynasil Biomedical owned 60% of Xcede’s stock and, as a result, Xcede is included in the Company’s consolidated balance sheets, results of operations and cash flows. The 60% ownership includes preferred stock with a liquidation preference, and as a result, for reporting purposes only, common stock ownership is used in the allocation of noncontrolling interest. Dynasil’s common stock ownership is 83% and the remaining 17% of Xcede’s common stock is owned by others and accounted for under the rules applicable to non-controlling interest. Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications did not affect previously reported net income or stockholders’ equity. In the opinion of management, all adjustments (which include normal recurring and nonrecurring items) necessary to present fairly the Company’s 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, 2016 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2017, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Quarterly Report on 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

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” (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is based on the principle that an entity should recognize revenue to depict the transfer of 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. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The ASU becomes effective for the Company at the beginning of its 2019 fiscal year. In 2016 and 2017, the FASB issued several ASU’s related to ASU 2014-09, which simplify and provide additional guidance to companies for implementation of the standard. The Company is evaluating the recently issued guidance on practical expedients in order to select a transition method. The Company is also assessing the impact that ASU 2014-09 will have on its consolidated financial statements and disclosures. This evaluation includes completing an inventory of revenue streams by like contracts to allow for ease of implementation, monitoring developments for the manufacturing industry, and evaluating potential changes to our business processes, systems, and controls to support the recognition and disclosure under the new standard.

8 

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’s annual reporting for fiscal 2017, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company is assessing the impact of this ASU on its consolidated financial statements and plans to adopt it in the fourth quarter of fiscal year 2017.

Business Combinations (Topic 805): Clarifying the Definition of a Business: In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for the Company beginning October 1, 2018. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment: In January 2017, the FASB issued ASU 2017-04, which simplifies the test for goodwill impairment. This new guidance is effective for the Company beginning in fiscal year 2021. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Note 3 – Xcede Technologies, Inc. Joint Venture

In October 2013, the Company, through its subsidiary Dynasil Biomedical (“DBM”), formed Xcede, a joint venture with Mayo Clinic, in order to spin out and separately fund the development of its hemostatic tissue sealant technology, which formerly comprised the majority of its expense within the biomedical segment.

Beginning at its inception and through November 2016, Xcede funded its pre-clinical research activities through the issuance of convertible notes bearing interest at 5% (“the Notes”) pursuant to a note purchase agreement dated October 2013 and most recently amended in November 2016 that provided for the issuance of up to $5.2 million in the aggregate principal amount of the Notes from external investors and certain directors and officers of the Company. The Notes were convertible into equity of Xcede.

In November 2016, Dynasil committed to invest $1.2 million of cash into Xcede over the following 18 months in exchange for Series B convertible preferred stock of Xcede (“Series B Preferred”). The value of the Series B Preferred, as it is wholly owned by DBM, was eliminated in consolidation. In conjunction with Dynasil’s committed investment, all $5.5 million in existing Notes and accrued interest were converted into 5,394,120 shares of Series A convertible preferred stock of Xcede (“Series A Preferred”) at a 20% discount to the price per share of the Series B Preferred, in accordance with the amended provisions of the Notes. The original conversion terms of the Notes were amended to require conversion into Series A Preferred rather than the class of stock issued in conjunction with the financing (Series B Preferred). Because the original conversion terms of the Notes were amended and as a result of assessing the impact of the rights and features of the Note amendment and their effect on the value to the issuer and holders, the transaction is recorded at fair value with a resulting gain on extinguishment of debt. Fair value was determined by management based on an independent valuation using a market and income approach and an option pricing model to allocate value to the respective shares. The fair value of the Series A Preferred was approximately $3.6 million on the date of issuance, as compared to the carrying value of the convertible principal and accrued interest of $5.5 million, resulting in a gain of approximately $1.9 million. Due to the related party nature of the transaction, this gain was recorded within the equity of Xcede. Of that $1.9 million, approximately $1.6 million was attributed to DBM and eliminated in consolidation, and approximately $0.3 million was attributed to noncontrolling interest.

9 

Series A Preferred participants include both outside investors (accounted for as noncontrolling interest) and DBM. The outside investors converted $3.1 million of Notes and accrued interest into 3,055,551 shares of Series A Preferred. DBM converted the remaining $2.4 million of Notes and accrued interest into 2,338,569 shares of Series A Preferred, the value of which is eliminated in consolidation.

Each share of Series A Preferred and Series B Preferred (together “the Preferred Stock”) shall be convertible, at the option of the holder, into such number of fully paid and non-assessable shares of Xcede common stock (“Common Stock”) as determined by dividing the original issue price, as defined, by the conversion price in effect on the date of conversion, which is 1:1. Each holder of the Preferred Stock shall have one vote for each share of Common Stock that the holder of the Preferred Stock would be entitled to receive upon the conversion of the holder’s Preferred Stock into Common Stock. Upon any liquidation event, which includes certain change of control events, following payment of pre-equity distributions, the remaining proceeds or net assets of Xcede shall be paid and distributed in the following amounts and order of priority: (1) to satisfy the liquidation preference payment due to each holder of Series B Preferred, (2) to satisfy the liquidation preference payment due to each holder of Series A Preferred, (3) payment in full of any acquisition transaction payment, and (4) the remaining assets available to be distributed ratably among the holders of the Common Stock. If a liquidation event were to occur, the Series A Preferred’s liquidation value would be $1.016 per share and Series B Preferred’s liquidation value would be $1.27 per share. As of March 31, 2017, the liquidation value of the Series B Preferred would be approximately $0.5 million and the Series A Preferred would be approximately $5.5 million, of which $2.4 million is DBM’s portion and $3.1 million would be attributed to noncontrolling shareholders.

As of March 31, 2017, DBM owned approximately 60% of Xcede’s outstanding Common Stock and Preferred Stock and, as a result, Xcede is included in the Company’s consolidated balance sheets, results of operations and cash flows. Due to the Series A Preferred having a liquidation preference and therefore not representing a residual interest, cumulative net losses of Xcede are attributed only to common stockholders in accordance with common stock ownership. Noncontrolling interest represents the value of the Series A Preferred and common stock not owned by DBM plus 17% of cumulative losses of Xcede based on the 17% common stock ownership held by noncontrolling interests.

Due to the issuance of Preferred Stock, DBM’s ownership percentage in Xcede decreased to less than 80%. Based on this ownership percentage, beginning in fiscal year 2017, Xcede will no longer be included in the Dynasil consolidated federal tax return and the Company will no longer be able to offset taxable income or benefit from net operating losses and other tax attributes related to Xcede. (See Note 11 – Income Taxes.)

As previously disclosed, in January 2016, Xcede announced that it had signed three agreements with Cook Biotech Inc. of West Lafayette, Indiana (“Cook”), 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 (“Xcede’s Patch”). In November 2016, Xcede entered into another Services Agreement, a Secured Promissory Note, a Loan Agreement, a Security Agreement and an Intellectual Property Security Agreement (collectively the “Note Agreement”) with Cook, in which Cook committed to fund the pre-clinical testing of, and subject to the receipt of applicable regulatory approvals to initiate first in human clinical trials for, the Xcede Patch. Under the terms of the Note Agreement, in exchange for the services performed by Cook, Xcede has committed to a multiple draw credit facility in the aggregate amount not to exceed $1.5 million. Three draws of principal will be available, each in the amount of $500,000, upon satisfaction of conditions identified in the Note Agreement. The principal amounts outstanding bear interest at a fixed rate of 2% and are secured by all the rights of Xcede under the Development Agreement, Supply Agreement, and License Agreement, all the rights to the data and work product arising from the clinical trial being performed under the Services Agreement, all regulatory approvals for the Xcede Patch, all patent and patent applications owned or controlled by Xcede, and all trademark and service mark registrations and applications. The outstanding principal and unpaid interest are due and payable in full at the earlier of closing of an acquisition transaction or December 31, 2025. Xcede will recognize research and development expense as the related services are performed by Cook. There was approximately $167,000 of research and development expense recognized during the three months ended March 31, 2017 and approximately $205,000 recognized during the six months ended March 31, 2017.

10 

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	March 31,		September 30,
	2017		2016
Raw Materials	$	2,129,000	$	1,938,000
Work-in-Process		665,000		834,000
Finished Goods		1,171,000		954,000
	$	3,965,000	$	3,726,000

Note 5 – Intangible Assets

Intangible assets at March 31, 2017 and September 30, 2016 consist of the following:

	Useful	Gross		Accumulated
March 31, 2017	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	691,000	$	487,000	$	204,000
Know How	15		512,000		299,000		213,000
Trade Names	Indefinite		261,000		-		261,000
Patents	20		389,000		10,000		379,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,113,000	$	1,056,000	$	1,057,000

	Useful	Gross		Accumulated
September 30, 2016	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	718,000	$	473,000	$	245,000
Know How	15		512,000		282,000		230,000
Trade Names	Indefinite		272,000		-		272,000
Patents	20		326,000		6,000		320,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,088,000	$	1,021,000	$	1,067,000

Amortization expense for the three months ended March 31, 2017 and 2016 was $26,000 and $43,000, respectively. Amortization expense for the six months ended March 31, 2017 and 2016 was $52,000 and $86,000, respectively.

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

	2017 (6 months)		2018		2019		2020		2021		Thereafter		Total
Acquired Customer Base	$	40,000	$	80,000	$	84,000	$	-	$	-	$	-	$	204,000
Know How		17,000		34,000		34,000		34,000		34,000		60,000		213,000
Patents		4,000		9,000		9,000		9,000		9,000		80,000		120,000
	$	61,000	$	123,000	$	127,000	$	43,000	$	43,000	$	140,000	$	537,000

As of March 31, 2017, Xcede had $259,000 in patents that have not been granted, therefore, the amortization related to these patents is not included in the five-year amortization table above.

The Company continually assesses whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of its long-lived assets or whether the remaining balances of those assets should be evaluated for possible impairment. There were no changes in the carrying value of the long-lived assets, aside from current additions and foreign exchange rate fluctuations, during the six months ended March 31, 2017.

11 

Note 6 – 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 holding goodwill;

· 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 six months ended March 31, 2017.

Note 7 – Debt

Senior Debt

On May 1, 2017, the Company received a commitment letter from Middlesex Savings Bank to extend the existing Bank Loan Agreement between the Company and Middlesex Savings Bank through May 2020. This agreement is expected to be finalized in May 2017. Additionally, the new agreement between the two organizations will include an annual $1.0 million equipment line of credit in which the outstanding balance will be converted into a five year term note on the one year anniversary. The existing loan agreement was also amended on December 2, 2016 to permit the Company to invest up to $1.2 million in its Xcede Technologies subsidiary during the period from the quarter ended December 31, 2016 through the quarter ending September 30, 2018.

Subordinated Debt

On December 15, 2016, the Company amended the Note Purchase Agreement with Massachusetts Capital Resource Company to reinstate the interest only payment requirements of the loan and defer principal repayment requirements to November 30, 2017. Such amendment also extended the maturity date from July 31, 2018 to July 31, 2019.

Subsidiary Debt

In November 2016, the Xcede convertible notes along with related accrued interest were converted into 5,394,120 shares of Xcede’s Series A preferred stock. See Note 3 – Xcede Technologies, Inc. Joint Venture.

Note 8 – 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 outstanding. 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.

12 

For purposes of computing diluted earnings per share for the six months ended March 31, 2017 and 2016, no common stock options were included in the calculation of dilutive shares as all of the 196,769 and 123,147 common stock options outstanding, respectively, had exercise prices above the applicable quarterly average market price per share and their inclusion would be anti-dilutive. For the six months ended March 31, 2017, 70,000 shares of restricted common stock were excluded from the calculation of dilutive shares, as the effect of their inclusion would be anti-dilutive. For the six months ended March 31, 2016, 56,532 shares of common stock related to restricted stock were included in the denominator used to calculate diluted earnings per share. Additionally, for the three months ended March 31, 2017 and 2016, 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 March 31, 2017 and 2016 is as follows:

	March 31, 2017		March 31, 2016
Weighted average shares outstanding
Basic		16,886,628		16,636,950
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		16,886,628		16,636,950

The computation of the weighted shares outstanding for the six months ended March 31, 2017 and 2016 is as follows:

	March 31, 2017		March 31, 2016
Weighted average shares outstanding
Basic		16,847,679		16,594,074
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		56,532
Dilutive Average Shares Outstanding		16,847,679		16,650,606

Note 9 - Stock Based Compensation

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

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 of options to purchase shares in Xcede’s common stock to officers, directors, employees and consultants. The options granted generally vest over a three year period. 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 Company 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 six months ended March 31, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	March 31, 2017		March 31, 2016
Stock Grants	$	84,000	$	102,000
Restricted Stock Grants		13,000		11,000
Option Grants		13,000		10,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		28,000		19,000
Total	$	139,000	$	143,000

	Six Months Ended		Six Months Ended
Stock Compensation Expense	March 31, 2017		March 31, 2016
Stock Grants	$	123,000	$	185,000
Restricted Stock Grants		26,000		19,000
Option Grants		25,000		17,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		52,000		40,000
Total	$	227,000	$	262,000

At March 31, 2017, there was approximately $160,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of fourteen months.

Restricted Stock Grants

A summary of restricted stock activity for the six months ended March 31, 2017 is presented below:

Restricted Stock Activity for the Six Months ended March 31, 2017	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2016		100,000		$	1.73
Granted		-			-
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at March 31, 2017		70,000		$	1.73

Stock Option Grants

The weighted average assumptions used in the Black-Scholes option pricing model for the stock option grant during the six months ended March 31, 2017 were as follows:

	Six Months Ended March 31, 2017
Expected term in years		3 years
Risk-free interest rate		1.48	%
Expected volatility		69.57	%
Expected dividend yield		0.00	%

14 

A summary of stock option activity for the six months ended March 31, 2017 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2016		123,147		$	2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147		$	2.30		1.69
Granted		95,602			1.80		2.84
Exercised		-			-
Cancelled		(21,980	)		3.03
Balance at March 31, 2017		196,769		$	1.98		2.14
Outstanding and exercisable at March 31, 2017		196,769		$	1.98		2.14

Subsidiary Stock Option Grants

During the six months ended March 31, 2017, 810,500 Xcede stock options were granted at an exercise price of $1.00 per share. Of the stock options granted, 228,000 options were given to satisfy deferred compensation in the amount of $75,000 and vested immediately. The remaining 582,500 stock options granted during the six months ended March 31, 2017 vest over the next three years and expire ten years from the grant date. These options were valued using the Black-Scholes option pricing model and the assumptions for that were as follows:

Expected term in years	10 years
Risk-free interest rate	2.42	%
Expected volatility	83.11	%
Expected dividend yield	0.00	%

A summary of Xcede stock option activity for the six months ended March 31, 2017 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2016		613,653		$	1.00		8.35
Outstanding and exercisable at September 30, 2016		320,586			1.00		8.01
Granted		810,500			1.00
Exercised		-			-
Cancelled		(48,197	)		1.00
Balance at March 31, 2017		1,375,956			1.00		9.22
Outstanding and exercisable at March 31, 2017		730,694		$	1.00		8.62

At March 31, 2017, the Company’s Xcede joint venture had $202,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of twelve months.

15 

Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil reports three reportable segments: contract research (“Contract Research”), optics (“Optics”) and biomedical (“Biomedical”). Within these segments, there is a segregation of operating segments 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 aggregates four operating segments – Dynasil Fused Silica, Optometrics, Hilger Crystals, and Evaporated Metal Films – that manufacture commercial products, including optical crystals for sensing in the security and medical imaging markets, as well as optical components, optical coatings and optical materials for scientific instrumentation and other applications. The Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment consists of a single operating segment, Dynasil Biomedical Corporation (“Dynasil Biomedical”), a medical technology incubator which owns rights to certain early stage medical technologies. Dynasil Biomedical holds common and preferred stock in the Xcede joint venture which is developing a tissue sealant technology and currently has no other operations.

The Company’s segment information for the three months ended March 31, 2017 and 2016 is summarized below:

Results of Operations for the Three Months Ended March 31,
2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,281,000		$	4,804,000		$	-		$	10,085,000
Gross profit		1,913,000			1,875,000			-			3,788,000
GM %		36	%		39	%		-			38	%
SG&A		1,597,000			1,802,000			392,000			3,791,000
Operating income (loss)		316,000			73,000			(392,000	)		(3,000	)
Depreciation and amortization		237,000			73,000			3,000			313,000
Capital expenditures		103,000			34,000			44,000			181,000
Intangibles, net		465,000			213,000			379,000			1,057,000
Goodwill		899,000			4,939,000			-			5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000		$	27,976,000

Results of Operations for the Three Months Ended March 31,
2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	6,428,000		$	4,868,000		$	-		$	11,296,000
Gross profit		2,208,000			1,870,000			-			4,078,000
GM %		34	%		38	%		-			36	%
SG&A		1,882,000			1,800,000			355,000			4,037,000
Operating income (loss)		326,000			70,000			(355,000	)		41,000
Depreciation and amortization		225,000			85,000			17,000			327,000
Capital expenditures		329,000			30,000			20,000			379,000
Intangibles, net		608,000			247,000			301,000			1,156,000
Goodwill		1,109,000			4,939,000			-			6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000		$	26,726,000

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The Company’s segment information for the six months ended March 31, 2017 and 2016 is summarized below:

Results of Operations for the Six Months Ended March 31,
2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	9,686,000		$	9,542,000		$	-		$	19,228,000
Gross profit		3,487,000			3,826,000			-			7,313,000
GM %		36	%		40	%		-			38	%
SG&A		2,924,000			3,542,000			773,000			7,239,000
Gain on sale of assets		-			-			-			-
Operating income (loss)		563,000			284,000			(773,000	)		74,000
Depreciation and amortization		471,000			147,000			6,000			624,000
Capital expenditures		194,000			34,000			64,000			292,000
Intangibles, net		465,000			213,000			379,000			1,057,000
Goodwill		899,000			4,939,000			-			5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000		$	27,976,000

Results of Operations for the Six Months Ended March 31,
2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	12,635,000		$	9,858,000		$	-		$	22,493,000
Gross profit		4,318,000			3,724,000			-			8,042,000
GM %		34	%		38	%		-			36	%
SG&A		3,634,000			3,506,000			703,000			7,843,000
Gain on sale of assets		4,000			-			-			4,000
Operating income (loss)		688,000			218,000			(703,000	)		203,000
Depreciation and amortization		454,000			164,000			34,000			652,000
Capital expenditures		894,000			37,000			51,000			982,000
Intangibles, net		608,000			247,000			301,000			1,156,000
Goodwill		1,109,000			4,939,000			-			6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000		$	26,726,000

Customer Financial Information

For the three and six months ended March 31, 2017, no customer in the Optics segment represented more than 10% of the total segment revenue. For the three and six months ended March 31, 2016, one customer in the Optics segment represented more than 10% of the total segment revenue.

For the three and six months ended March 31, 2017, three 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 and six months ended March 31, 2016, three 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 months ended March 31, 2017 and 2016, these customers made up 59% and 57%, respectively, of Contract Research revenue. For the six months ended March 31, 2017 and 2016, these customers made up 60% and 77%, respectively, of Contract Research revenue.

17 

Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended March 31, 2017 and 2016 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2017					March 31, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,931,000		79	%	$	8,226,000		73	%
Europe		1,212,000		12	%		2,452,000		22	%
Other		942,000		9	%		618,000		5	%
	$	10,085,000		100	%	$	11,296,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2016 and 2015 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2017					March 31, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	15,120,000		79	%	$	16,455,000		73	%
Europe		2,299,000		12	%		4,493,000		20	%
Other		1,809,000		9	%		1,545,000		7	%
	$	19,228,000		100	%	$	22,493,000		100	%

Note 11 - Income Taxes

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. 

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. Prior to November 18, 2016, the Company’s subsidiary, Xcede was included in the federal and state tax returns filed by Dynasil. As of November 18, 2016, Dynasil’s ownership in Xcede was reduced to approximately 59%. As a result, Xcede will no longer be included in Dynasil’s federal consolidated tax return and will file a separate federal return. Xcede will continue to be included in the Dynasil consolidated state tax filings pursuant to the respective state tax requirements.

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.

As a result of Xcede’s de-consolidation from the Company’s federal tax returns, the Company will no longer be able to offset taxable income with Xcede’s current or cumulative net operating losses. Upon review of relevant criteria for the new Dynasil federal consolidated group, it was determined that it is more likely than not that the federal, deferred tax assets of the new Dynasil federal consolidated group will be realized based upon positive earnings history and expected future profits of the group. As a result, the federal deferred tax asset valuation allowance associated with the Dynasil federal consolidated group has been reversed resulting in an income tax benefit in the amount of $2.7 million during the six months ended March 31, 2017. Going forward, as the Company records income, it will be able to utilize the NOLs (net operating losses) within its deferred tax assets. Based upon the Company’s recent losses and uncertainty of future profits, the Company has determined that the uncertainty regarding the realization of the Company’s state and separate Xcede deferred tax assets is sufficient to warrant the continued need for a valuation allowance against these deferred tax assets.

18 

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of March 31, 2017 and September 30, 2016, the Company has no liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of March 31, 2017 and September 30, 2016, 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 (148%) and (92%) for the three months ended March 31, 2017 and 2016, respectively.  The results for the six months ended March 31, 2017 resulted in an overall effective rate of 6,995% mainly driven by the tax benefit of $2.7 million recorded for the release of the valuation allowance. The effective tax rates excluding the impact of the valuation allowance were (437%) and 101% for the six months ended March 31, 2017 and 2016, respectively. The rates differ from the U.S. federal statutory income tax rate of 34% primarily due to a full valuation allowance against certain U.S. deferred tax assets of the Company.

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 2013 are still subject to examination.

Note 12 – Subsequent Events

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

19 

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, 2016.

General Business Overview

Operations

Consolidated revenue for the quarter ended March 31, 2017 was $10.1 million, compared to revenue of $11.3 million for the second quarter of fiscal year 2016. This 11% decrease in revenue was largely attributable to a $1.1 million decrease in the Optics segment, which was primarily the result of initial system orders and a safety stock order to a large U.K. customer shipped in both the first and second quarters of fiscal year 2016. The second quarter of fiscal year 2017 represents a more normalized shipping schedule for the U.K. customer.

Cost of revenue for the second quarter of 2017 was $6.3 million or 62% of revenue, a decrease of 13% compared to $7.2 million or 64% of revenue for the quarter ended March 31, 2016. The $0.9 million decrease was primarily the result of the lower revenue within the current quarter ended March 31, 2017. Cost as a percent of revenue improved by 2% as the Company continues to improve the components of its revenue and cost structures.

Total operating expenses were $3.8 million for the three month period ended March 31, 2017 as compared to $4.0 million for the same period in fiscal year 2016. Expenses within the second quarter of 2017 were curtailed to be more in line with the reduced revenue in fiscal year 2017.

Our Biomedical segment primarily consists of the results of our majority owned joint venture, Xcede Technologies, Inc. (“Xcede”). Xcede incurred $0.4 million in research expenses in each of the second quarters of fiscal years 2017 and 2016 as Xcede continues to develop its hemostatic tissue sealant technology. We expect Xcede will incur similar or increasing amounts of expenses in each quarter in fiscal year 2017 as it continues its development activities. In November 2016, the Company entered into an agreement with Xcede pursuant to which the Company agreed to invest up to $1.2 million of cash into Xcede over the following 18 months in exchange for shares of Series B convertible preferred stock of Xcede, As of March 31, 2017, the Company had invested $300,000 of such amount in Xcede. See Note 3, "Xcede Technologies, Inc. Joint Venture" in the Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a full description of the Company’s equity holdings in Xcede. We expect Xcede will continue to need additional external investor funding in order to pursue clinical trials and regulatory approvals of its tissue sealant technology.

Income (loss) from operations for both the quarters ended March 31, 2017 and 2016 was approximately breakeven.

Net income (loss) attributable to common stockholders was approximately ($0.1) million or ($0.00) per share for the quarter ended March 31, 2017 and approximately breakeven or ($0.00) per share for the quarter ended March 31, 2016.

20 

Results of Operations

Results of Operations for the Three Months Ended March 31,
2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,281,000		$	4,804,000		$	-		$	10,085,000
Gross profit		1,913,000			1,875,000			-			3,788,000
GM %		36	%		39	%		-			38	%
SG&A		1,597,000			1,802,000			392,000			3,791,000
Operating income (loss)		316,000			73,000			(392,000	)		(3,000	)
Depreciation and amortization		237,000			73,000			3,000			313,000
Capital expenditures		103,000			34,000			44,000			181,000
Intangibles, net		465,000			213,000			379,000			1,057,000
Goodwill		899,000			4,939,000			-			5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000		$	27,976,000

Results of Operations for the Three Months Ended March 31,
2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	6,428,000		$	4,868,000		$	-		$	11,296,000
Gross profit		2,208,000			1,870,000			-			4,078,000
GM %		34	%		38	%		-			36	%
SG&A		1,882,000			1,800,000			355,000			4,037,000
Operating income (loss)		326,000			70,000			(355,000	)		41,000
Depreciation and amortization		225,000			85,000			17,000			327,000
Capital expenditures		329,000			30,000			20,000			379,000
Intangibles, net		608,000			247,000			301,000			1,156,000
Goodwill		1,109,000			4,939,000			-			6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000		$	26,726,000

Consolidated revenue for the quarter ended March 31, 2017 was $10.1 million, compared to revenue of $11.3 million for the second quarter of fiscal year 2016.

The Optics segment revenue decreased $1.1 million, or 18%, for the three months ended March 31, 2017 compared with the same period in the prior year, primarily as a result of initial system orders and a safety stock sale to a large U.K. customer in the first and second quarters of fiscal year 2016. The second quarter of fiscal year 2017 represented a more normalized shipping schedule for this customer. The devaluation in British currency following the June 2016 Brexit vote also had a negative impact on revenue year over year.

Contract Research segment revenue in the quarter ended March 31, 2017 was essentially equal to that of the same three month period in 2016. In the current quarter, the lower research revenue was somewhat offset by increased commercial product revenue for items originally developed by the research teams. In the current quarter, our commercial revenue included shipments of our CLYC scintillation crystals to Thermo Fisher Scientific for use in their RadEye SPRD-GN spectroscopic personal radiation detectors. We are continuing to see funding delays for awarded projects, partially as the result of the federal government’s transition to a new presidential administration, as well as government budget pressures on spending. The research backlog for the Contracts Research segment remains strong at approximately $31.0 million at March 31, 2017, as compared to $30.0 million at September 30, 2016.

The Biomedical segment has no revenues as it is currently developing a hemostatic and sealant product to control bleeding in surgical applications based on Xcede’s innovative adhesive technology.

21 

Gross profit for the three months ended March 31, 2017 was $3.8 million, or 38% of revenues, compared to $4.1 million, or 36% of revenues, for the three months ended March 31, 2016. Gross profit for the Optics segment decreased to $1.9 million at March 31, 2017, compared to $2.2 million for the quarter ended March 31, 2016, as a result of the decrease in revenue. Gross profit as a percent of sales in the Optics segment, however, increased to 36%, as compared to 34% in the same quarter in fiscal year 2016, as a result of a focus within the segment to improve yields and pricing on certain products. Gross profit increased to 39% in the Contract Research segment compared to 38% in the second quarter of 2016, as a result of the mix in business with an increase in the commercial product revenue portion of the contract research business.

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

Total operating expenses decreased to $3.8 million for the three months ended March 31, 2017 from $4.0 million for the same quarter in fiscal year 2016. Operating expenses for the Optics segment decreased $0.3 million due to the controlled spending within the quarter. Contract Research segment expenses remained at the same $1.8 million level of spending in the second quarter of fiscal year 2017, as compared to the same period last year. Biomedical segment expenses were essentially the same in the three months ended March 31, 2017 and 2016.

As a result of the factors discussed above, income (loss) from operations was essentially breakeven in both the quarters ended March 31, 2017 and 2016.

Net interest expense was reduced to less than $0.1 million for the three months ended March 31, 2017 from the $0.1 million incurred in the same period in 2016.

Net income (loss) attributable to common stockholders was approximately ($0.1) million or ($0.00) per share for the quarter ended March 31, 2017 and approximately breakeven or ($0.00) per share for the quarter ended March 31, 2016.

22 

Results of Operations – Year to Date

Results of Operations for the Six Months Ended March 31,
2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	9,686,000		$	9,542,000		$	-		$	19,228,000
Gross profit		3,487,000			3,826,000			-			7,313,000
GM %		36	%		40	%		-			38	%
SG&A		2,924,000			3,542,000			773,000			7,239,000
Gain on sale of assets		-			-			-			-
Operating income (loss)		563,000			284,000			(773,000	)		74,000
Depreciation and amortization		471,000			147,000			6,000			624,000
Capital expenditures		194,000			34,000			64,000			292,000
Intangibles, net		465,000			213,000			379,000			1,057,000
Goodwill		899,000			4,939,000			-			5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000		$	27,976,000

Results of Operations for the Six Months Ended March 31,
2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	12,635,000		$	9,858,000		$	-		$	22,493,000
Gross profit		4,318,000			3,724,000			-			8,042,000
GM %		34	%		38	%		-			36	%
SG&A		3,634,000			3,506,000			703,000			7,843,000
Gain on sale of assets		4,000			-			-			4,000
Operating income (loss)		688,000			218,000			(703,000	)		203,000
Depreciation and amortization		454,000			164,000			34,000			652,000
Capital expenditures		894,000			37,000			51,000			982,000
Intangibles, net		608,000			247,000			301,000			1,156,000
Goodwill		1,109,000			4,939,000			-			6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000		$	26,726,000

Revenue for the six months ended March 31, 2017 decreased $3.3 million, or 15%, to $19.2 million, as compared to $22.5 million for the six months ended March 31, 2016.

Optics segment revenue decreased $2.9 million, or 23%, for the six months ended March 31, 2017, compared with the same period in the prior year. The majority of this decrease was the result of initial system orders and a safety stock order to a large U.K. customer shipped in both the first and second quarters of fiscal year 2016. Year to date fiscal year 2017 represents a more normalized shipping schedule for this customer.

Revenue from our Contract Research segment decreased $0.3 million, or 3%, for the six months ended March 31, 2017 as compared to the same period in 2016, primarily due to one contract for the delivery of high speed cameras that occurred in the prior year. Contract revenue is down quarter over quarter but most of the decrease has been offset by increased product shipments of our CLYC crystal. 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 revenues.

The Biomedical segment had no revenue in either the six months ended March 31, 2017 or 2016.

Gross profit for the six months ended March 31, 2017 was $7.3 million, or 38% of sales, compared to $8.0 million, or 36% of sales for the six months ended March 31, 2016.

23 

Gross profit for the Optics segment decreased approximately $0.8 million to $3.5 million for the six months ended March 31, 2017, compared to the gross profit for the same period in fiscal year 2016, primarily as a result of the decrease in revenues in the first six months of fiscal 2017 versus the same period in 2016. The Optic's segment’s gross margin as a percent of revenue increased to 36% from 34% year over year due to continued cost and sales price improvements and product mix.

Gross profit for the Contract Research segment increased $0.1 million to $3.8 million for the six months ended March 31, 2017, compared to the six months ended March 31, 2016, primarily as a result of the higher product sales in 2017 compared to 2016. The Contract Research segment gross profit as a percent of revenue was 40% for the six months ended March 31, 2017 as compared to 38% for the same period in the prior year, again, due to the increased product sales.

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 decreased $0.6 million to $7.2 million for the six months ended March 31, 2017, as compared to the total operating expenses of $7.8 million in the six months ended March 31, 2016. This decrease was largely due to the efforts of the Company’s business unit managers to keep spending down in light of the lower revenues in 2017 compared to 2016.

Income (loss) from operations for the six months ended March 31, 2017 was $0.1 million compared to income from operations of $0.2 million for the prior year comparable period. The decrease in income of $0.1 million is primarily a result of the lower revenues year over year. The Contract Research segment had a slight increase in income from operations for the six months ended March 31, 2017, compared to the same period in the prior year.

Net interest expense for both the six month periods ended March 31, 2017 and 2016 was $0.1 million.

The provision for income taxes for the first quarter of 2017 was a benefit of $2.7 million. As a result of Xcede’s de-consolidation for Federal income tax reporting purposes, the Company will no longer be able to offset taxable income with Xcede’s net operating loss results or carryforwards. Upon review of relevant criteria for the new Dynasil federal consolidated group, it was determined that it is more likely than not that the federal, deferred tax assets (NOLs), such as net operating losses, of the new Dynasil federal consolidated group will be realized based upon positive earnings history and expected future profits of the group. As a result, the valuation allowance associated with the Dynasil federal consolidated group has been reversed resulting in an income tax benefit in the amount of $2.7 million during the six months ended March 31, 2017. Based upon the Company’s recent losses and uncertainty of future profits, the Company has determined that the uncertainty regarding the realization of the Company’s state and separate Xcede deferred tax assets is sufficient to warrant the continued need for a full valuation allowance against these deferred tax assets.

Net income attributable to common stockholders for the six months ended March 31, 2017 was $2.8 million or $0.16 basic earnings per share, compared to net income of $0.1 million or $0.00 per share for the six months ended March 31, 2016.

Liquidity and Capital Resources

Liquidity Overview and Outlook

Net cash as of March 31, 2017 was $2.3 million, or approximately $0.3 million less than the net cash of $2.6 million at September 30, 2016.

As of March 31, 2017, the Company was in compliance with the terms of all its outstanding indebtedness which consisted of $1.6 million of senior debt borrowed under the $2.0 million fixed rate, five-year term note that was established in February 2016 with Middlesex Savings Bank and $0.8 million of subordinated debt owed to the Massachusetts Capital Resources Company. The Company had $4.0 million of additional availability under its Middlesex Savings Bank line of credit based on its collateral calculations as of March 31, 2017. On May 1, 2017, the Company received a commitment letter from Middlesex Savings Bank to extend the existing Bank Loan Agreement between the Company and Middlesex Savings Bank through May 2020. This agreement is expected to be finalized in May 2017. Additionally, the new agreement between the two organizations will include a $1.0 million equipment line of credit in which the outstanding balance will be converted into a five year term note on the one year anniversary. Management believes that the cash and availability under the line of credit discussed above are adequate to meet the Company’s current liquidity requirements for the next twelve months.

24 

On December 15, 2016, the Company amended the Note Purchase Agreement with Massachusetts Capital Resource Company to reinstate the interest only payment requirements of the loan and defer principal repayment requirements to November 30, 2017. Such amendment also extended the maturity date from July 31, 2018 to July 31, 2019.

During the quarter ended December 31, 2016, the Company’s Xcede subsidiary converted all of its approximately $5.5 million of convertible notes and accrued interest into 5,394,120 shares of Xcede Series A preferred stock (as more fully described in Note 3, “Xcede Technologies, Inc. Joint Venture”).

As of March 31, 2017, Xcede had $0.5 million of outstanding indebtedness, which consisted of a promissory note issued to Cook Biotech Inc. (“Cook”) in November 2016 and due on December 31, 2025. Xcede has agreed to use the proceeds from the note to fund its planned first in human trial for its hemostatic tissue sealant product. Also in November 2016, Dynasil agreed to invest $1.2 million in Xcede over the next two fiscal years to fund Xcede’s non-clinical operations, of which $300,000 has been paid as of March 31, 2017. With the committed resources from the Company and Cook, Xcede’s management believes it has sufficient funding to complete its planned first in human trial, but it is continuing to seek various financing alternatives to fund further development activities and its pursuit of regulatory approval.

Cash From Operating Activities

In total, including the changes in inventories, accounts payable and accrued expenses, operating activities used cash of $0.3 million for the six months ended March 31, 2017. This amount was offset by decreases in accounts receivable and prepaid items resulting in $0.4 million of cash being generated during the first six months of 2017.

Cash From Investing and Financing Activities

The Company used cash of approximately $0.3 million for the purchase of property, plant, equipment and patents for the six months ended March 31, 2017.

Total outstanding bank debt as of March 31, 2017 decreased approximately $0.3 million to $2.6 million from $2.9 million at September 30, 2016. Net cash used in financing activities was approximately $0.4 million for the six months ended March 31, 2017 as a result of principal payments to both Middlesex Savings Bank and the Massachusetts Capital Resources Corporation.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2016. 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, 2016 as well as the notes to the financial statements contained in this Quarterly Report on Form 10-Q.

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

Revenue Recognition

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

25 

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

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

Goodwill

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

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

· 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.

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 March 31, 2017 or 2016.

The Company continually assesses whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of its intangible and indefinite-lived assets or whether the remaining balances of those assets should be evaluated for possible impairment. There were no changes in the carrying value of intangible and indefinite-lived assets, aside from foreign exchange rate fluctuations and current additions, during the six months ended March 31, 2017.

26 

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.

The Company continually assesses whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of its long-lived assets or whether the remaining balances of those assets should be evaluated for possible impairment. There were no changes in the carrying value of long-lived assets, aside from foreign exchange rate fluctuations and current additions, during the six months ended March 31, 2017.

Allowance for Doubtful Accounts Receivable

The Company performs ongoing credit evaluations of our customers and adjusts 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. 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.

27 

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, our expectations regarding results of operations, the commercialization of our technology, the success of efforts to fund Xcede, results of our pre-clinical and planned clinical trials, regulatory approvals, our development of new technologies including at Dynasil Biomedical, the adequacy of our current financing sources to fund our current operations, our growth initiatives, governmental budgetary and funding matters and 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 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, Xcede’s ability to produce preclinical data sufficient to enable it to initiate clinical studies of its resorbable hemostatic patch, clinical results of Xcede’s programs which may not support further development, competition, the loss of key management and technical personnel, our ability to obtain timely payment of our invoices from governmental customers, changing priorities or reductions in governmental spending, litigation, the effect of governmental regulatory developments, the availability of financing sources, our ability to comply with our debt obligations, our ability to deleverage our balance sheet, 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 21, 2016, 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 March 31, 2017. Based on this evaluation, our management concluded that as of March 31, 2017, 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.

PART II – OTHER INFORMATION

ITEM 1A.  RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2016, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q 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.

28 

ITEM 6 Exhibits

10.01 Second Amendment to Loan and Security Agreement between the Company and Middlesex Savings Bank, dated December 2, 2016, filed as Exhibit 10.1 to Form 10-Q filed on February 13, 2017 and incorporated herein by reference.

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

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

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

99.1* Press release, dated May 15, 2017 issued by the Company announcing its financial results for the quarter ended March 31, 2017.

101* The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2017 and September 30, 2016, (ii) Consolidated Statements of Operations for the three and six months ended March 31, 2017 and 2016, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended March 31, 2017; (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 2017 and 2016, and (v) Notes to Consolidated Financial Statements.

* Filed herewith

SIGNATURES

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

DYNASIL CORPORATION OF AMERICA

BY:	/s/ Peter Sulick	DATED:	May 15, 2017
	Peter Sulick,
	Chief Executive Officer and President
	/s/ Robert J. Bowdring	DATED:	May 15, 2017
	Robert J. Bowdring,
	Chief Financial Officer

29 

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: May 15, 2017	/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: May 15, 2017	/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 March 31, 2017 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

May 15, 2017

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
Second Quarter Fiscal 2017 Gross Margin Improves 2%,

Up to 38% from 36% in 2016

Newton, MA, May 15, 2017 – 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 continued success in its efforts to improve gross profit margin in the Company’s operating segments.

“I am happy to report that both of our operating segments continued to be profitable both for the quarter and six months ended March 31, 2017, showing continued improvements in gross profit margin,” said CEO Peter Sulick. “Our operating businesses are continuing to make strides in improving yields and productivity. For both the quarter and the six months, the Company realized a 2% overall improvement in margin despite an overall reduction in revenue from the prior year. The revenue reduction in these periods is the result of certain one-time revenue opportunities the Company was able to take advantage of in the first half of 2016, the effect of the devaluation in the British currency and a softening of revenue in project revenue at RMD. Despite this, the Company’s profitability was roughly equivalent to the prior year before the reversal of the deferred tax valuation.”

Certain key metrics by segment for the current quarter and the same period last year are presented below:

Results of Operations for the Three Months Ended March 31, 2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	5,281,000		$	4,804,000		$	-		$	10,085,000
Gross profit		1,913,000			1,875,000			-			3,788,000
GM %		36	%		39	%		-			38	%
Operating expenses		1,597,000			1,802,000			392,000			3,791,000
Operating income (loss)	$	316,000		$	73,000		$	(392,000	)	$	(3,000	)

Results of Operations for the Three Months Ended March 31, 2016
	Optics			Contract Research			Biomedical			Total
Revenue	$	6,428,000		$	4,868,000		$	-		$	11,296,000
Gross profit		2,208,000			1,870,000			-			4,078,000
GM %		34	%		38	%		-			36	%
Operating expenses		1,882,000			1,800,000			355,000			4,037,000
Operating income (loss)	$	326,000		$	70,000		$	(355,000	)	$	41,000

“Our Optics segment revenue decreased $1.1 million in the second quarter of 2017 as compared to the same period last year. This decrease primarily resulted from initial system orders and a safety stock sale to a large U.K. customer in the second quarter of fiscal year 2016. The second quarter of fiscal year 2017 represented a more normalized shipping schedule for this customer,” continued Mr. Sulick. “Our Contract Research segment revenue was essentially equal to that of the same three month period in 2016. The research revenue was somewhat lower, but offset in part by increased commercial product revenue for items originally developed by the research teams, including shipments of our CLYC scintillation crystals to Thermo Fisher Scientific for use in their RadEye SPRD-GN spectroscopic personal radiation detectors.”

Dynasil’s net income (loss) attributable to common stockholders was approximately ($0.1) million or ($0.00) per share for the quarter ended March 31, 2017 and approximately breakeven of ($0.00) per share for the quarter ended March 31, 2016.

Earnings attributable to common stockholders for the six months ended March 31, 2017 were $2.8 million or $0.16 per common share, largely as the result of a U.S. income tax benefit resulting from the deconsolidation for tax purposes of Xcede Technologies, Inc., the Company’s tissue sealant technology development joint venture. Because of the previously discussed Xcede Technologies’ transactions in November 2016, Dynasil’s ownership percentage in Xcede decreased to less than 80% and Dynasil will no longer include Xcede in its consolidated federal tax return, which resulted in an income tax benefit in the amount of $2.7 million for the six months ended March 31, 2017.

Conference Call Information

Dynasil will host a conference call for investors and analysts at 5:00 p.m. ET today, Monday, May 15, 2017. 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 results of operations 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. 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 without limitation, 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, Xcede’s ability to produce preclinical data sufficient to enable it to initiate clinical studies of its resorbable hemostatic patch, clinical results of Xcede’s programs which may not support further development, 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 deleverage our balance sheet, 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 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)

	March 31, 2017		September 30, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	2,299,000	$	2,607,000
Accounts receivable, net		3,325,000		3,502,000
Costs in excess of billings and unbilled receivables		880,000		1,208,000
Inventories, net of reserves		3,965,000		3,726,000
Prepaid expenses and other current assets		1,148,000		1,078,000
Total current assets		11,617,000		12,121,000
Property, Plant and Equipment, net		6,802,000		7,223,000
Other Assets
Intangibles, net		1,057,000		1,067,000
Deferred tax asset		2,649,000		-
Goodwill		5,838,000		5,898,000
Security deposits		13,000		60,000
Total other assets		9,557,000		7,025,000
Total Assets	$	27,976,000	$	26,369,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	1,979,000	$	2,477,000
Capital lease obligations, current		100,000		105,000
Convertible notes		-		3,085,000
Accounts payable		1,205,000		1,627,000
Deferred revenue		99,000		238,000
Accrued expenses and other liabilities		2,335,000		2,955,000
Total current liabilities		5,718,000		10,487,000
Long-term Liabilities
Long-term debt, net of current portion		1,384,000		736,000
Capital lease obligations, net of current portion		123,000		173,000
Deferred tax liability		246,000		263,000
Other long-term liabilities		35,000		43,000
Total long-term liabilities		1,788,000		1,215,000
Stockholders' Equity
Dynasil stockholders' equity		18,913,000		14,973,000
Noncontrolling interest		1,557,000		(306,000	)
Total stockholders' equity		20,470,000		14,667,000
Total Liabilities and Stockholders' Equity	$	27,976,000	$	26,369,000

Dynasil Corporation of America

Consolidated Statement of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2017			2016			2017			2016
Net revenue	$	10,085,000		$	11,296,000		$	19,228,000		$	22,493,000
Cost of revenue		6,297,000			7,218,000			11,915,000			14,451,000
Gross profit		3,788,000			4,078,000			7,313,000			8,042,000
Operating expenses:
Sales and marketing		328,000			343,000			593,000			678,000
Research and development		335,000			277,000			531,000			565,000
General and administrative		3,128,000			3,417,000			6,115,000			6,600,000
Gain on sale of assets		-			-			-			(4,000	)
Total operating expenses		3,791,000			4,037,000			7,239,000			7,839,000
Income (loss) from operations		(3,000	)		41,000			74,000			203,000
Interest expense, net		45,000			77,000			112,000			136,000
Income (loss) before taxes		(48,000	)		(36,000	)		(38,000	)		67,000
Income tax (credit)		71,000			33,000			(2,658,000	)		68,000
Net income (loss)		(119,000	)		(69,000	)		2,620,000			(1,000	)
Less: Net loss attributable to noncontrolling interest		(64,000	)		(38,000	)		(133,000	)		(76,000	)
Net income (loss) attributable to common stockholders	$	(55,000	)	$	(31,000	)	$	2,753,000		$	75,000
Net income (loss)	$	(119,000	)	$	(69,000	)	$	2,620,000		$	(1,000	)
Other comprehensive income (loss):
Foreign currency translation		65,000			(142,000	)		(230,000	)		(256,000	)
Total comprehensive income (loss)		(54,000	)		(211,000	)		2,390,000			(257,000	)
Less: comprehensive income (loss) attributable to noncontrolling interest		(64,000	)		(38,000	)		(133,000	)		(76,000	)
Total comprehensive income (loss) attributable to common stockholders	$	10,000		$	(173,000	)	$	2,523,000		$	(181,000	)
Basic net income (loss) per common share	$	(0.00	)	$	(0.00	)	$	0.16		$	0.00
Diluted net income (loss) per common share	$	(0.00	)	$	(0.00	)	$	0.16		$	0.00
Weighted average shares outstanding
Basic		16,886,628			16,636,950			16,847,679			16,594,074
Diluted		16,886,628			16,636,950			16,847,679			16,650,606

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Document And Entity Information - shares	6 Months Ended
	Mar. 31, 2017	May 07, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
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		17,011,352

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CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Current Assets
Cash and cash equivalents	$ 2,299,000	$ 2,607,000
Accounts receivable, net of allowances of $166,000 and $171,000 at March 31, 2017 and September 30, 2016, respectively	3,325,000	3,502,000
Costs in excess of billings and unbilled receivables	880,000	1,208,000
Inventories, net of reserves	3,965,000	3,726,000
Prepaid expenses and other current assets	1,148,000	1,078,000
Total current assets	11,617,000	12,121,000
Property, Plant and Equipment, net	6,802,000	7,223,000
Other Assets
Intangibles, net	1,057,000	1,067,000
Deferred tax asset	2,649,000	0
Goodwill	5,838,000	5,898,000
Security deposits	13,000	60,000
Total other assets	9,557,000	7,025,000
Total Assets	27,976,000	26,369,000
Current Liabilities
Current portion of long-term debt	1,979,000	2,477,000
Capital lease obligations, current	100,000	105,000
Convertible notes	0	3,085,000
Accounts payable	1,205,000	1,627,000
Deferred revenue	99,000	238,000
Accrued expenses and other liabilities	2,335,000	2,955,000
Total current liabilities	5,718,000	10,487,000
Long-term Liabilities
Long-term debt, net of current portion and deferred financing costs	1,384,000	736,000
Capital lease obligations, net of current portion	123,000	173,000
Deferred tax liability	246,000	263,000
Other long-term liabilities	35,000	43,000
Total long-term liabilities	1,788,000	1,215,000
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 17,790,759 and 17,677,284 shares issued, 16,980,599 and and 16,867,124 shares outstanding at March 31, 2017 and September 30, 2016, respectively.	9,000	9,000
Additional paid in capital	21,178,000	20,128,000
Accumulated other comprehensive income (loss)	(929,000)	(699,000)
Accumulated deficit	(359,000)	(3,479,000)
Less 810,160 shares of treasury stock - at cost	(986,000)	(986,000)
Total Dynasil stockholders' equity	18,913,000	14,973,000
Noncontrolling interest	1,557,000	(306,000)
Total stockholders' equity	20,470,000	14,667,000
Total Liabilities and Stockholders' Equity	$ 27,976,000	$ 26,369,000

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CONSOLIDATED BALANCE SHEETS [Parenthetical] - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Allowance for doubtful accounts (in dollars)	$ 166,000	$ 171,000
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	17,790,759	17,677,284
Common stock, shares outstanding	16,980,599	16,867,124
Treasury stock, shares	810,160	810,160

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Net revenue	$ 10,085,000	$ 11,296,000	$ 19,228,000	$ 22,493,000
Cost of revenue	6,297,000	7,218,000	11,915,000	14,451,000
Gross profit	3,788,000	4,078,000	7,313,000	8,042,000
Operating expenses:
Sales and marketing	328,000	343,000	593,000	678,000
Research and development	335,000	277,000	531,000	565,000
General and administrative	3,128,000	3,417,000	6,115,000	6,600,000
Gain on sale of assets	0	0	0	(4,000)
Total operating expenses	3,791,000	4,037,000	7,239,000	7,839,000
Income (loss) from operations	(3,000)	41,000	74,000	203,000
Interest expense, net	45,000	77,000	112,000	136,000
Income (loss) before taxes	(48,000)	(36,000)	(38,000)	67,000
Income tax (credit)	71,000	33,000	(2,658,000)	68,000
Net income (loss)	(119,000)	(69,000)	2,620,000	(1,000)
Less: Net loss attributable to noncontrolling interest	(64,000)	(38,000)	(133,000)	(76,000)
Net income (loss) attributable to common stockholders	(55,000)	(31,000)	2,753,000	75,000
Net income (loss)	(119,000)	(69,000)	2,620,000	(1,000)
Other comprehensive income (loss):
Foreign currency translation	65,000	(142,000)	(230,000)	(256,000)
Total comprehensive income (loss)	(54,000)	(211,000)	2,390,000	(257,000)
Less: comprehensive income (loss) attributable to noncontrolling interest	(64,000)	(38,000)	(133,000)	(76,000)
Total comprehensive income (loss) attributable to common stockholders	$ 10,000	$ (173,000)	$ 2,523,000	$ (181,000)
Basic net income (loss) per common share	$ (0.00)	$ (0.00)	$ 0.16	$ 0
Diluted net income (loss) per common share	$ (0.00)	$ (0.00)	$ 0.16	$ 0
Weighted average shares outstanding
Basic	16,886,628	16,636,950	16,847,679	16,594,074
Diluted	16,886,628	16,636,950	16,847,679	16,650,606

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - 6 months ended Mar. 31, 2017 - 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, 2016	$ 14,667,000	$ 9,000	$ 20,128,000	$ (699,000)	$ (3,479,000)	$ (986,000)	$ (306,000)
Balance (in shares) at Sep. 30, 2016		17,677,284				810,160
Issuance of shares of common stock under employee stock purchase plan	8,000	$ 0	8,000	0	0	$ 0	0
Issuance of shares of common stock under employee stock purchase plan (in shares)		7,810				0
Stock-based compensation costs	227,000	$ 0	205,000	0	0	$ 0	22,000
Stock-based compensation costs (in shares)		105,665				0
Stock options issued to settle liabilities	75,000	$ 0	75,000	0	0	$ 0	0
Recapitalization of Xcede	3,103,000	0	762,000	0	367,000	0	1,974,000
Foreign currency translation adjustment	(230,000)	0	0	(230,000)	0	0	0
Net income (loss)	2,620,000	0	0	0	2,753,000	0	(133,000)
Balance at Mar. 31, 2017	$ 20,470,000	$ 9,000	$ 21,178,000	$ (929,000)	$ (359,000)	$ (986,000)	$ 1,557,000
Balance (in shares) at Mar. 31, 2017		17,790,759				810,160

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net income (loss)	$ 2,620,000	$ (1,000)
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense	227,000	262,000
Foreign exchange loss (gain)	47,000	61,000
Depreciation and amortization	624,000	652,000
Deferred income taxes	(2,655,000)	19,000
Provision for inventory reserves	23,000	12,000
Other	231,000	84,000
Other changes in assets and liabilities:
Accounts receivable, net	152,000	(1,551,000)
Inventories	(332,000)	(1,063,000)
Costs in excess of billings and unbilled receivables	328,000	81,000
Prepaid expenses and other assets	263,000	(150,000)
Accounts payable	(410,000)	796,000
Accrued expenses and other liabilities	(542,000)	204,000
Deferred revenue	(140,000)	127,000
Net cash from operating activities	436,000	(467,000)
Cash flows from investing activities:
Purchases of property, plant and equipment	(228,000)	(931,000)
Purchase of intangibles	(64,000)	(51,000)
Net cash from investing activities	(292,000)	(982,000)
Cash flows from financing activities:
Proceeds from issuance of common stock	8,000	7,000
Net proceeds from issuance of convertible notes	0	390,000
Principal payments on capital leases	(55,000)	(69,000)
Proceeds from (payments of) line of credit, net	0	735,000
Proceeds from (payments of) bank and subordinated debt, net	(354,000)	(76,000)
Net cash from financing activities	(401,000)	987,000
Effect of exchange rates on cash and cash equivalents	(51,000)	(19,000)
Net change in cash and cash equivalents	(308,000)	(481,000)
Cash and cash equivalents, beginning	2,607,000	1,295,000
Cash and cash equivalents, ending	2,299,000	814,000
Non cash activities:
Assets purchased under capital leases	0	134,000
Recapitalization of Xcede - conversion of non controlling notes payable to preferred stock	(3,103,000)	0
Subsidiary stock options issued to settle liabilities	75,000	0
Subsidiary debt issued to fund research activities	$ 500,000	$ 0

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Basis of Presentation

6 Months Ended

Mar. 31, 2017

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 March 31, 2017, the consolidated statements of operations and comprehensive income (loss) for the three and six months ended March 31, 2017 and 2016, changes in stockholders’ equity for the six months ended March 31, 2017 and cash flows for the six months ended March 31, 2017 and 2016 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. Xcede Technologies, Inc. (“Xcede”) is a joint venture between Dynasil Biomedical and Mayo Clinic to spin out and separately fund the development of a tissue sealant technology. As of March 31, 2017, Dynasil Biomedical owned 60% of Xcede’s stock and, as a result, Xcede is included in the Company’s consolidated balance sheets, results of operations and cash flows. The 60% ownership includes preferred stock with a liquidation preference, and as a result, for reporting purposes only, common stock ownership is used in the allocation of noncontrolling interest. Dynasil’s common stock ownership is 83% and the remaining 17% of Xcede’s common stock is owned by others and accounted for under the rules applicable to non-controlling interest. Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications did not affect previously reported net income or stockholders’ equity. In the opinion of management, all adjustments (which include normal recurring and nonrecurring items) necessary to present fairly the Company’s 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, 2016 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2017, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Quarterly Report on 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

6 Months Ended

Mar. 31, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

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

Note 2 – Recent Accounting Pronouncements

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” (“ASU 2014-09”). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is based on the principle that an entity should recognize revenue to depict the transfer of 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. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The ASU becomes effective for the Company at the beginning of its 2019 fiscal year. In 2016 and 2017, the FASB issued several ASU’s related to ASU 2014-09, which simplify and provide additional guidance to companies for implementation of the standard. The Company is evaluating the recently issued guidance on practical expedients in order to select a transition method. The Company is also assessing the impact that ASU 2014-09 will have on its consolidated financial statements and disclosures. This evaluation includes completing an inventory of revenue streams by like contracts to allow for ease of implementation, monitoring developments for the manufacturing industry, and evaluating potential changes to our business processes, systems, and controls to support the recognition and disclosure under the new standard.

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’s annual reporting for fiscal 2017, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company is assessing the impact of this ASU on its consolidated financial statements and plans to adopt it in the fourth quarter of fiscal year 2017.

Business Combinations (Topic 805): Clarifying the Definition of a Business: In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for the Company beginning October 1, 2018. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment: In January 2017, the FASB issued ASU 2017-04, which simplifies the test for goodwill impairment. This new guidance is effective for the Company beginning in fiscal year 2021. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

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Xcede Technologies, Inc. Joint Venture

6 Months Ended

Mar. 31, 2017

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

Note 3 – Xcede Technologies, Inc. Joint Venture

In October 2013, the Company, through its subsidiary Dynasil Biomedical (“DBM”), formed Xcede, a joint venture with Mayo Clinic, in order to spin out and separately fund the development of its hemostatic tissue sealant technology, which formerly comprised the majority of its expense within the biomedical segment.

Beginning at its inception and through November 2016, Xcede funded its pre-clinical research activities through the issuance of convertible notes bearing interest at 5% (“the Notes”) pursuant to a note purchase agreement dated October 2013 and most recently amended in November 2016 that provided for the issuance of up to $5.2 million in the aggregate principal amount of the Notes from external investors and certain directors and officers of the Company. The Notes were convertible into equity of Xcede.

In November 2016, Dynasil committed to invest $1.2 million of cash into Xcede over the following 18 months in exchange for Series B convertible preferred stock of Xcede (“Series B Preferred”). The value of the Series B Preferred, as it is wholly owned by DBM, was eliminated in consolidation. In conjunction with Dynasil’s committed investment, all $5.5 million in existing Notes and accrued interest were converted into 5,394,120 shares of Series A convertible preferred stock of Xcede (“Series A Preferred”) at a 20% discount to the price per share of the Series B Preferred, in accordance with the amended provisions of the Notes. The original conversion terms of the Notes were amended to require conversion into Series A Preferred rather than the class of stock issued in conjunction with the financing (Series B Preferred). Because the original conversion terms of the Notes were amended and as a result of assessing the impact of the rights and features of the Note amendment and their effect on the value to the issuer and holders, the transaction is recorded at fair value with a resulting gain on extinguishment of debt. Fair value was determined by management based on an independent valuation using a market and income approach and an option pricing model to allocate value to the respective shares. The fair value of the Series A Preferred was approximately $3.6 million on the date of issuance, as compared to the carrying value of the convertible principal and accrued interest of $5.5 million, resulting in a gain of approximately $1.9 million. Due to the related party nature of the transaction, this gain was recorded within the equity of Xcede. Of that $1.9 million, approximately $1.6 million was attributed to DBM and eliminated in consolidation, and approximately $0.3 million was attributed to noncontrolling interest.

Series A Preferred participants include both outside investors (accounted for as noncontrolling interest) and DBM. The outside investors converted $3.1 million of Notes and accrued interest into 3,055,551 shares of Series A Preferred. DBM converted the remaining $2.4 million of Notes and accrued interest into 2,338,569 shares of Series A Preferred, the value of which is eliminated in consolidation.

Each share of Series A Preferred and Series B Preferred (together “the Preferred Stock”) shall be convertible, at the option of the holder, into such number of fully paid and non-assessable shares of Xcede common stock (“Common Stock”) as determined by dividing the original issue price, as defined, by the conversion price in effect on the date of conversion, which is 1:1. Each holder of the Preferred Stock shall have one vote for each share of Common Stock that the holder of the Preferred Stock would be entitled to receive upon the conversion of the holder’s Preferred Stock into Common Stock. Upon any liquidation event, which includes certain change of control events, following payment of pre-equity distributions, the remaining proceeds or net assets of Xcede shall be paid and distributed in the following amounts and order of priority: (1) to satisfy the liquidation preference payment due to each holder of Series B Preferred, (2) to satisfy the liquidation preference payment due to each holder of Series A Preferred, (3) payment in full of any acquisition transaction payment, and (4) the remaining assets available to be distributed ratably among the holders of the Common Stock. If a liquidation event were to occur, the Series A Preferred’s liquidation value would be $1.016 per share and Series B Preferred’s liquidation value would be $1.27 per share. As of March 31, 2017, the liquidation value of the Series B Preferred would be approximately $0.5 million and the Series A Preferred would be approximately $5.5 million, of which $2.4 million is DBM’s portion and $3.1 million would be attributed to noncontrolling shareholders.

As of March 31, 2017, DBM owned approximately 60% of Xcede’s outstanding Common Stock and Preferred Stock and, as a result, Xcede is included in the Company’s consolidated balance sheets, results of operations and cash flows. Due to the Series A Preferred having a liquidation preference and therefore not representing a residual interest, cumulative net losses of Xcede are attributed only to common stockholders in accordance with common stock ownership. Noncontrolling interest represents the value of the Series A Preferred and common stock not owned by DBM plus 17% of cumulative losses of Xcede based on the 17% common stock ownership held by noncontrolling interests.

Due to the issuance of Preferred Stock, DBM’s ownership percentage in Xcede decreased to less than 80%. Based on this ownership percentage, beginning in fiscal year 2017, Xcede will no longer be included in the Dynasil consolidated federal tax return and the Company will no longer be able to offset taxable income or benefit from net operating losses and other tax attributes related to Xcede. (See Note 11 – Income Taxes.)

As previously disclosed, in January 2016, Xcede announced that it had signed three agreements with Cook Biotech Inc. of West Lafayette, Indiana (“Cook”), 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 (“Xcede’s Patch”). In November 2016, Xcede entered into another Services Agreement, a Secured Promissory Note, a Loan Agreement, a Security Agreement and an Intellectual Property Security Agreement (collectively the “Note Agreement”) with Cook, in which Cook committed to fund the pre-clinical testing of, and subject to the receipt of applicable regulatory approvals to initiate first in human clinical trials for, the Xcede Patch. Under the terms of the Note Agreement, in exchange for the services performed by Cook, Xcede has committed to a multiple draw credit facility in the aggregate amount not to exceed $1.5 million. Three draws of principal will be available, each in the amount of $500,000, upon satisfaction of conditions identified in the Note Agreement. The principal amounts outstanding bear interest at a fixed rate of 2% and are secured by all the rights of Xcede under the Development Agreement, Supply Agreement, and License Agreement, all the rights to the data and work product arising from the clinical trial being performed under the Services Agreement, all regulatory approvals for the Xcede Patch, all patent and patent applications owned or controlled by Xcede, and all trademark and service mark registrations and applications. The outstanding principal and unpaid interest are due and payable in full at the earlier of closing of an acquisition transaction or December 31, 2025. Xcede will recognize research and development expense as the related services are performed by Cook. There was approximately $167,000 of research and development expense recognized during the three months ended March 31, 2017 and approximately $205,000 recognized during the six months ended March 31, 2017.

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Inventories

6 Months Ended

Mar. 31, 2017

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	March 31,		September 30,
	2017		2016
Raw Materials	$	2,129,000	$	1,938,000
Work-in-Process		665,000		834,000
Finished Goods		1,171,000		954,000
	$	3,965,000	$	3,726,000

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Intangible Assets

6 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 5 – Intangible Assets

Intangible assets at March 31, 2017 and September 30, 2016 consist of the following:

	Useful	Gross		Accumulated
March 31, 2017	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	691,000	$	487,000	$	204,000
Know How	15		512,000		299,000		213,000
Trade Names	Indefinite		261,000		-		261,000
Patents	20		389,000		10,000		379,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,113,000	$	1,056,000	$	1,057,000

	Useful	Gross		Accumulated
September 30, 2016	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	718,000	$	473,000	$	245,000
Know How	15		512,000		282,000		230,000
Trade Names	Indefinite		272,000		-		272,000
Patents	20		326,000		6,000		320,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,088,000	$	1,021,000	$	1,067,000

Amortization expense for the three months ended March 31, 2017 and 2016 was $26,000 and $43,000, respectively. Amortization expense for the six months ended March 31, 2017 and 2016 was $52,000 and $86,000, respectively.

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

	2017 (6 months)		2018		2019		2020		2021		Thereafter		Total
Acquired Customer Base	$	40,000	$	80,000	$	84,000	$	-	$	-	$	-	$	204,000
Know How		17,000		34,000		34,000		34,000		34,000		60,000		213,000
Patents		4,000		9,000		9,000		9,000		9,000		80,000		120,000
	$	61,000	$	123,000	$	127,000	$	43,000	$	43,000	$	140,000	$	537,000

As of March 31, 2017, Xcede had $259,000 in patents that have not been granted, therefore, the amortization related to these patents is not included in the five-year amortization table above.

The Company continually assesses whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of its long-lived assets or whether the remaining balances of those assets should be evaluated for possible impairment. There were no changes in the carrying value of the long-lived assets, aside from current additions and foreign exchange rate fluctuations, during the six months ended March 31, 2017.

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Goodwill

6 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill Disclosure [Text Block]

Note 6 – 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 holding goodwill;

· 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 six months ended March 31, 2017.

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Debt

6 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 7 – Debt

Senior Debt

On May 1, 2017, the Company received a commitment letter from Middlesex Savings Bank to extend the existing Bank Loan Agreement between the Company and Middlesex Savings Bank through May 2020. This agreement is expected to be finalized in May 2017. Additionally, the new agreement between the two organizations will include an annual $1.0 million equipment line of credit in which the outstanding balance will be converted into a five year term note on the one year anniversary. The existing loan agreement was also amended on December 2, 2016 to permit the Company to invest up to $1.2 million in its Xcede Technologies subsidiary during the period from the quarter ended December 31, 2016 through the quarter ending September 30, 2018.

Subordinated Debt

On December 15, 2016, the Company amended the Note Purchase Agreement with Massachusetts Capital Resource Company to reinstate the interest only payment requirements of the loan and defer principal repayment requirements to November 30, 2017. Such amendment also extended the maturity date from July 31, 2018 to July 31, 2019.

Subsidiary Debt

In November 2016, the Xcede convertible notes along with related accrued interest were converted into 5,394,120 shares of Xcede’s Series A preferred stock. See Note 3 – Xcede Technologies, Inc. Joint Venture.

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Earnings (Loss) Per Common Share

6 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 8 – Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing the net income or loss attributable to common shares by the weighted average number of common shares outstanding. 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 six months ended March 31, 2017 and 2016, no common stock options were included in the calculation of dilutive shares as all of the 196,769 and 123,147 common stock options outstanding, respectively, had exercise prices above the applicable quarterly average market price per share and their inclusion would be anti-dilutive. For the six months ended March 31, 2017, 70,000 shares of restricted common stock were excluded from the calculation of dilutive shares, as the effect of their inclusion would be anti-dilutive. For the six months ended March 31, 2016, 56,532 shares of common stock related to restricted stock were included in the denominator used to calculate diluted earnings per share. Additionally, for the three months ended March 31, 2017 and 2016, 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 March 31, 2017 and 2016 is as follows:

	March 31, 2017		March 31, 2016
Weighted average shares outstanding
Basic		16,886,628		16,636,950
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		16,886,628		16,636,950

The computation of the weighted shares outstanding for the six months ended March 31, 2017 and 2016 is as follows:

	March 31, 2017		March 31, 2016
Weighted average shares outstanding
Basic		16,847,679		16,594,074
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		56,532
Dilutive Average Shares Outstanding		16,847,679		16,650,606

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Stock Based Compensation

6 Months Ended

Mar. 31, 2017

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

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

Note 9 - Stock Based Compensation

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

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 of options to purchase shares in Xcede’s common stock to officers, directors, employees and consultants. The options granted generally vest over a three year period. 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 Company 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 six months ended March 31, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	March 31, 2017		March 31, 2016
Stock Grants	$	84,000	$	102,000
Restricted Stock Grants		13,000		11,000
Option Grants		13,000		10,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		28,000		19,000
Total	$	139,000	$	143,000

	Six Months Ended		Six Months Ended
Stock Compensation Expense	March 31, 2017		March 31, 2016
Stock Grants	$	123,000	$	185,000
Restricted Stock Grants		26,000		19,000
Option Grants		25,000		17,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		52,000		40,000
Total	$	227,000	$	262,000

At March 31, 2017, there was approximately $160,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of fourteen months.

Restricted Stock Grants

A summary of restricted stock activity for the six months ended March 31, 2017 is presented below:

Restricted Stock Activity for the Six Months ended			Weighted-Average
March 31, 2017	Shares		Grant-Date Fair Value
Nonvested at September 30, 2016		100,000	$	1.73
Granted		-		-
Vested		(30,000)		1.73
Cancelled		-		-
Nonvested and expected to vest at March 31, 2017		70,000	$	1.73

Stock Option Grants

The weighted average assumptions used in the Black-Scholes option pricing model for the stock option grant during the six months ended March 31, 2017 were as follows:

	Six Months
	Ended March 31,
	2017
Expected term in years		3 years
Risk-free interest rate		1.48	%
Expected volatility		69.57	%
Expected dividend yield		0.00	%

A summary of stock option activity for the six months ended March 31, 2017 is presented below:

			Weighted Average		Weighted Average
	Options		Exercise Price per		Remain Contractual
	Outstanding		Share		Term (in Years)
Balance at September 30, 2016		123,147	$	2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147	$	2.30		1.69
Granted		95,602		1.80		2.84
Exercised		-		-
Cancelled		(21,980)		3.03
Balance at March 31, 2017		196,769	$	1.98		2.14
Outstanding and exercisable at March 31, 2017		196,769	$	1.98		2.14

Subsidiary Stock Option Grants

During the six months ended March 31, 2017, 810,500 Xcede stock options were granted at an exercise price of $1.00 per share. Of the stock options granted, 228,000 options were given to satisfy deferred compensation in the amount of $75,000 and vested immediately. The remaining 582,500 stock options granted during the six months ended March 31, 2017 vest over the next three years and expire ten years from the grant date. These options were valued using the Black-Scholes option pricing model and the assumptions for that were as follows:

Expected term in years	10 years
Risk-free interest rate	2.42	%
Expected volatility	83.11	%
Expected dividend yield	0.00	%

A summary of Xcede stock option activity for the six months ended March 31, 2017 is presented below:

			Weighted Average		Weighted Average
	Options		Exercise Price per		Remain Contractual
	Outstanding		Share		Term (in Years)
Balance at September 30, 2016		613,653	$	1.00		8.35
Outstanding and exercisable at September 30, 2016		320,586		1.00		8.01
Granted		810,500		1.00
Exercised		-		-
Cancelled		(48,197)		1.00
Balance at March 31, 2017		1,375,956		1.00		9.22
Outstanding and exercisable at March 31, 2017		730,694	$	1.00		8.62

At March 31, 2017, the Company’s Xcede joint venture had $202,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of twelve months.

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Segment, Customer and Geographical Reporting

6 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil reports three reportable segments: contract research (“Contract Research”), optics (“Optics”) and biomedical (“Biomedical”). Within these segments, there is a segregation of operating segments 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 aggregates four operating segments – Dynasil Fused Silica, Optometrics, Hilger Crystals, and Evaporated Metal Films – that manufacture commercial products, including optical crystals for sensing in the security and medical imaging markets, as well as optical components, optical coatings and optical materials for scientific instrumentation and other applications. The Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment consists of a single operating segment, Dynasil Biomedical Corporation (“Dynasil Biomedical”), a medical technology incubator which owns rights to certain early stage medical technologies. Dynasil Biomedical holds common and preferred stock in the Xcede joint venture which is developing a tissue sealant technology and currently has no other operations.

The Company’s segment information for the three months ended March 31, 2017 and 2016 is summarized below:

Results of Operations for the Three Months Ended March 31,
2017
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	5,281,000		$	4,804,000		$	-	$	10,085,000
Gross profit		1,913,000			1,875,000			-		3,788,000
GM %		36	%		39	%		-		38	%
SG&A		1,597,000			1,802,000			392,000		3,791,000
Operating income (loss)		316,000			73,000			(392,000)		(3,000)
Depreciation and amortization		237,000			73,000			3,000		313,000
Capital expenditures		103,000			34,000			44,000		181,000
Intangibles, net		465,000			213,000			379,000		1,057,000
Goodwill		899,000			4,939,000			-		5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000	$	27,976,000

Results of Operations for the Three Months Ended March 31,
2016
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	6,428,000		$	4,868,000		$	-	$	11,296,000
Gross profit		2,208,000			1,870,000			-		4,078,000
GM %		34	%		38	%		-		36	%
SG&A		1,882,000			1,800,000			355,000		4,037,000
Operating income (loss)		326,000			70,000			(355,000)		41,000
Depreciation and amortization		225,000			85,000			17,000		327,000
Capital expenditures		329,000			30,000			20,000		379,000
Intangibles, net		608,000			247,000			301,000		1,156,000
Goodwill		1,109,000			4,939,000			-		6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000	$	26,726,000

The Company’s segment information for the six months ended March 31, 2017 and 2016 is summarized below:

Results of Operations for the Six Months Ended March 31,
2017
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	9,686,000		$	9,542,000		$	-	$	19,228,000
Gross profit		3,487,000			3,826,000			-		7,313,000
GM %		36	%		40	%		-		38	%
SG&A		2,924,000			3,542,000			773,000		7,239,000
Gain on sale of assets		-			-			-		-
Operating income (loss)		563,000			284,000			(773,000)		74,000
Depreciation and amortization		471,000			147,000			6,000		624,000
Capital expenditures		194,000			34,000			64,000		292,000
Intangibles, net		465,000			213,000			379,000		1,057,000
Goodwill		899,000			4,939,000			-		5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000	$	27,976,000

Results of Operations for the Six Months Ended March 31,
2016
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	12,635,000		$	9,858,000		$	-	$	22,493,000
Gross profit		4,318,000			3,724,000			-		8,042,000
GM %		34	%		38	%		-		36	%
SG&A		3,634,000			3,506,000			703,000		7,843,000
Gain on sale of assets		4,000			-			-		4,000
Operating income (loss)		688,000			218,000			(703,000)		203,000
Depreciation and amortization		454,000			164,000			34,000		652,000
Capital expenditures		894,000			37,000			51,000		982,000
Intangibles, net		608,000			247,000			301,000		1,156,000
Goodwill		1,109,000			4,939,000			-		6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000	$	26,726,000

Customer Financial Information

For the three and six months ended March 31, 2017, no customer in the Optics segment represented more than 10% of the total segment revenue. For the three and six months ended March 31, 2016, one customer in the Optics segment represented more than 10% of the total segment revenue.

For the three and six months ended March 31, 2017, three 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 and six months ended March 31, 2016, three 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 months ended March 31, 2017 and 2016, these customers made up 59% and 57%, respectively, of Contract Research revenue. For the six months ended March 31, 2017 and 2016, these customers made up 60% and 77%, 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 March 31, 2017 and 2016 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2017					March 31, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,931,000		79	%	$	8,226,000		73	%
Europe		1,212,000		12	%		2,452,000		22	%
Other		942,000		9	%		618,000		5	%
	$	10,085,000		100	%	$	11,296,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2016 and 2015 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2017					March 31, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	15,120,000		79	%	$	16,455,000		73	%
Europe		2,299,000		12	%		4,493,000		20	%
Other		1,809,000		9	%		1,545,000		7	%
	$	19,228,000		100	%	$	22,493,000		100	%

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Income Taxes

6 Months Ended

Mar. 31, 2017

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 11 - Income Taxes

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. 

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. Prior to November 18, 2016, the Company’s subsidiary, Xcede was included in the federal and state tax returns filed by Dynasil. As of November 18, 2016, Dynasil’s ownership in Xcede was reduced to approximately 59%. As a result, Xcede will no longer be included in Dynasil’s federal consolidated tax return and will file a separate federal return. Xcede will continue to be included in the Dynasil consolidated state tax filings pursuant to the respective state tax requirements.

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.

As a result of Xcede’s de-consolidation from the Company’s federal tax returns, the Company will no longer be able to offset taxable income with Xcede’s current or cumulative net operating losses. Upon review of relevant criteria for the new Dynasil federal consolidated group, it was determined that it is more likely than not that the federal, deferred tax assets of the new Dynasil federal consolidated group will be realized based upon positive earnings history and expected future profits of the group. As a result, the federal deferred tax asset valuation allowance associated with the Dynasil federal consolidated group has been reversed resulting in an income tax benefit in the amount of $2.7 million during the six months ended March 31, 2017. Going forward, as the Company records income, it will be able to utilize the NOLs (net operating losses) within its deferred tax assets. Based upon the Company’s recent losses and uncertainty of future profits, the Company has determined that the uncertainty regarding the realization of the Company’s state and separate Xcede deferred tax assets is sufficient to warrant the continued need for a valuation allowance against these 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 March 31, 2017 and September 30, 2016, the Company has no liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of March 31, 2017 and September 30, 2016, 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 (148%) and (92%) for the three months ended March 31, 2017 and 2016, respectively.  The results for the six months ended March 31, 2017 resulted in an overall effective rate of 6,995% mainly driven by the tax benefit of $2.7 million recorded for the release of the valuation allowance. The effective tax rates excluding the impact of the valuation allowance were (437%) and 101% for the six months ended March 31, 2017 and 2016, respectively. The rates differ from the U.S. federal statutory income tax rate of 34% primarily due to a full valuation allowance against certain U.S. deferred tax assets of the Company.

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 2013 are still subject to examination.

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Subsequent Events

6 Months Ended

Mar. 31, 2017

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 12 – Subsequent Events

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

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Inventories (Tables)

6 Months Ended

Mar. 31, 2017

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories, net of reserves, consists of the following:

	March 31,		September 30,
	2017		2016
Raw Materials	$	2,129,000	$	1,938,000
Work-in-Process		665,000		834,000
Finished Goods		1,171,000		954,000
	$	3,965,000	$	3,726,000

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Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

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

Intangible assets at March 31, 2017 and September 30, 2016 consist of the following:

	Useful	Gross		Accumulated
March 31, 2017	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	691,000	$	487,000	$	204,000
Know How	15		512,000		299,000		213,000
Trade Names	Indefinite		261,000		-		261,000
Patents	20		389,000		10,000		379,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,113,000	$	1,056,000	$	1,057,000

	Useful	Gross		Accumulated
September 30, 2016	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	718,000	$	473,000	$	245,000
Know How	15		512,000		282,000		230,000
Trade Names	Indefinite		272,000		-		272,000
Patents	20		326,000		6,000		320,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,088,000	$	1,021,000	$	1,067,000

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:

	2017 (6 months)		2018		2019		2020		2021		Thereafter		Total
Acquired Customer Base	$	40,000	$	80,000	$	84,000	$	-	$	-	$	-	$	204,000
Know How		17,000		34,000		34,000		34,000		34,000		60,000		213,000
Patents		4,000		9,000		9,000		9,000		9,000		80,000		120,000
	$	61,000	$	123,000	$	127,000	$	43,000	$	43,000	$	140,000	$	537,000

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Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

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

The computation of the weighted shares outstanding for the three months ended March 31, 2017 and 2016 is as follows:

	March 31, 2017		March 31, 2016
Weighted average shares outstanding
Basic		16,886,628		16,636,950
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		16,886,628		16,636,950

The computation of the weighted shares outstanding for the six months ended March 31, 2017 and 2016 is as follows:

	March 31, 2017		March 31, 2016
Weighted average shares outstanding
Basic		16,847,679		16,594,074
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		56,532
Dilutive Average Shares Outstanding		16,847,679		16,650,606

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Stock Based Compensation (Tables)

6 Months Ended

Mar. 31, 2017

Schedule Of Stock Compensation Expense [Table Text Block]

Stock compensation expense for the three and six months ended March 31, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	March 31, 2017		March 31, 2016
Stock Grants	$	84,000	$	102,000
Restricted Stock Grants		13,000		11,000
Option Grants		13,000		10,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		28,000		19,000
Total	$	139,000	$	143,000

	Six Months Ended		Six Months Ended
Stock Compensation Expense	March 31, 2017		March 31, 2016
Stock Grants	$	123,000	$	185,000
Restricted Stock Grants		26,000		19,000
Option Grants		25,000		17,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		52,000		40,000
Total	$	227,000	$	262,000

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

A summary of restricted stock activity for the six months ended March 31, 2017 is presented below:

Restricted Stock Activity for the Six Months ended			Weighted-Average
March 31, 2017	Shares		Grant-Date Fair Value
Nonvested at September 30, 2016		100,000	$	1.73
Granted		-		-
Vested		(30,000)		1.73
Cancelled		-		-
Nonvested and expected to vest at March 31, 2017		70,000	$	1.73

Stock Option Grants [Member]

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

The weighted average assumptions used in the Black-Scholes option pricing model for the stock option grant during the six months ended March 31, 2017 were as follows:

	Six Months
	Ended March 31,
	2017
Expected term in years		3 years
Risk-free interest rate		1.48	%
Expected volatility		69.57	%
Expected dividend yield		0.00	%

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

A summary of stock option activity for the six months ended March 31, 2017 is presented below:

			Weighted Average		Weighted Average
	Options		Exercise Price per		Remain Contractual
	Outstanding		Share		Term (in Years)
Balance at September 30, 2016		123,147	$	2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147	$	2.30		1.69
Granted		95,602		1.80		2.84
Exercised		-		-
Cancelled		(21,980)		3.03
Balance at March 31, 2017		196,769	$	1.98		2.14
Outstanding and exercisable at March 31, 2017		196,769	$	1.98		2.14

Subsidiary Option Grants [Member]

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

These options were valued using the Black-Scholes option pricing model and the assumptions for that were as follows:

Expected term in years	10 years
Risk-free interest rate	2.42	%
Expected volatility	83.11	%
Expected dividend yield	0.00	%

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

A summary of Xcede stock option activity for the six months ended March 31, 2017 is presented below:

			Weighted Average		Weighted Average
	Options		Exercise Price per		Remain Contractual
	Outstanding		Share		Term (in Years)
Balance at September 30, 2016		613,653	$	1.00		8.35
Outstanding and exercisable at September 30, 2016		320,586		1.00		8.01
Granted		810,500		1.00
Exercised		-		-
Cancelled		(48,197)		1.00
Balance at March 31, 2017		1,375,956		1.00		9.22
Outstanding and exercisable at March 31, 2017		730,694	$	1.00		8.62

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Segment, Customer and Geographical Reporting (Tables)

6 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

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

The Company’s segment information for the three months ended March 31, 2017 and 2016 is summarized below:

Results of Operations for the Three Months Ended March 31,
2017
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	5,281,000		$	4,804,000		$	-	$	10,085,000
Gross profit		1,913,000			1,875,000			-		3,788,000
GM %		36	%		39	%		-		38	%
SG&A		1,597,000			1,802,000			392,000		3,791,000
Operating income (loss)		316,000			73,000			(392,000)		(3,000)
Depreciation and amortization		237,000			73,000			3,000		313,000
Capital expenditures		103,000			34,000			44,000		181,000
Intangibles, net		465,000			213,000			379,000		1,057,000
Goodwill		899,000			4,939,000			-		5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000	$	27,976,000

Results of Operations for the Three Months Ended March 31,
2016
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	6,428,000		$	4,868,000		$	-	$	11,296,000
Gross profit		2,208,000			1,870,000			-		4,078,000
GM %		34	%		38	%		-		36	%
SG&A		1,882,000			1,800,000			355,000		4,037,000
Operating income (loss)		326,000			70,000			(355,000)		41,000
Depreciation and amortization		225,000			85,000			17,000		327,000
Capital expenditures		329,000			30,000			20,000		379,000
Intangibles, net		608,000			247,000			301,000		1,156,000
Goodwill		1,109,000			4,939,000			-		6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000	$	26,726,000

The Company’s segment information for the six months ended March 31, 2017 and 2016 is summarized below:

Results of Operations for the Six Months Ended March 31,
2017
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	9,686,000		$	9,542,000		$	-	$	19,228,000
Gross profit		3,487,000			3,826,000			-		7,313,000
GM %		36	%		40	%		-		38	%
SG&A		2,924,000			3,542,000			773,000		7,239,000
Gain on sale of assets		-			-			-		-
Operating income (loss)		563,000			284,000			(773,000)		74,000
Depreciation and amortization		471,000			147,000			6,000		624,000
Capital expenditures		194,000			34,000			64,000		292,000
Intangibles, net		465,000			213,000			379,000		1,057,000
Goodwill		899,000			4,939,000			-		5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000	$	27,976,000

Results of Operations for the Six Months Ended March 31,
2016
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	12,635,000		$	9,858,000		$	-	$	22,493,000
Gross profit		4,318,000			3,724,000			-		8,042,000
GM %		34	%		38	%		-		36	%
SG&A		3,634,000			3,506,000			703,000		7,843,000
Gain on sale of assets		4,000			-			-		4,000
Operating income (loss)		688,000			218,000			(703,000)		203,000
Depreciation and amortization		454,000			164,000			34,000		652,000
Capital expenditures		894,000			37,000			51,000		982,000
Intangibles, net		608,000			247,000			301,000		1,156,000
Goodwill		1,109,000			4,939,000			-		6,048,000
Total assets	$	17,653,000		$	8,502,000		$	571,000	$	26,726,000

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 March 31, 2017 and 2016 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2017					March 31, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,931,000		79	%	$	8,226,000		73	%
Europe		1,212,000		12	%		2,452,000		22	%
Other		942,000		9	%		618,000		5	%
	$	10,085,000		100	%	$	11,296,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2016 and 2015 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2017					March 31, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	15,120,000		79	%	$	16,455,000		73	%
Europe		2,299,000		12	%		4,493,000		20	%
Other		1,809,000		9	%		1,545,000		7	%
	$	19,228,000		100	%	$	22,493,000		100	%

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Basis of Presentation (Details Textual)	Mar. 31, 2017	Nov. 18, 2016
Xcede Technologies inc [Member]
Noncontrolling Interest, Ownership Percentage by Parent	60.00%	59.00%
Xcede Technologies inc [Member] | Common Stock Owned By Others [Member]
Noncontrolling Interest, Ownership Percentage by Parent	17.00%
Dynasil Biomedical [Member]
Noncontrolling Interest, Ownership Percentage by Parent	83.00%

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Xcede Technologies, Inc. Joint Venture (Details Textual) - USD ($)		1 Months Ended	3 Months Ended	6 Months Ended
	Nov. 30, 2016	Nov. 30, 2016	Mar. 31, 2017	Mar. 31, 2017	Nov. 18, 2016
Debt Conversion, Original Debt, Amount				$ 5,500,000
Debt Conversion, Converted Instrument, Amount				3,600,000
Gain (Loss) on Extinguishment of Debt				1,900,000
Noncontrolling Interest [Member]
Debt Conversion, Original Debt, Amount		$ 3,100,000
Debt Conversion, Converted Instrument, Shares Issued		3,055,551
Gain (Loss) on Extinguishment of Debt				$ 300,000
Xcede Technologies inc [Member]
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%
Committed Investment In Cash	$ 1,200,000	$ 1,200,000
Debt Conversion, Converted Instrument, Shares Issued		5,394,120
Capital Stock Financing Discount Percentage	20.00%	20.00%
Noncontrolling Interest, Ownership Percentage by Parent			60.00%	60.00%	59.00%
Noncontrolling Interest, Description				Noncontrolling interest represents the value of the Series A Preferred and common stock not owned by DBM plus 17% of cumulative losses of Xcede based on the 17% common stock ownership held by noncontrolling interests.
Expense Recognized In Long Term Contract			$ 167,000	$ 205,000
Dynasil Biomedical [Member]
Debt Conversion, Original Debt, Amount		$ 2,400,000
Debt Conversion, Converted Instrument, Shares Issued		2,338,569
Noncontrolling Interest, Ownership Percentage by Parent			83.00%	83.00%
Gain (Loss) on Extinguishment of Debt				$ 1,600,000
External Funding [Member] | Convertible Debt [Member]
Debt Conversion, Original Debt, Amount		$ 5,200,000
Secured Promissory Note [Member] | Xcede Technologies inc [Member]
Debt Instrument, Interest Rate, Stated Percentage	2.00%	2.00%
Debt Instrument, Maturity Date	Dec. 31, 2025
Notes Payable	$ 1,500,000	$ 1,500,000
Proceeds from Notes Payable		$ 500,000
Series B Preferred Stock [Member]
Preferred Stock, Liquidation Preference Per Share			$ 1.27	$ 1.27
Preferred Stock, Liquidation Preference, Value			$ 500,000	$ 500,000
Series A Preferred Stock [Member]
Preferred Stock, Liquidation Preference Per Share			$ 1.016	$ 1.016
Preferred Stock, Liquidation Preference, Value			$ 5,500,000	$ 5,500,000
Series A Preferred Stock [Member] | Noncontrolling Shareholders [Member]
Preferred Stock, Liquidation Preference, Value			3,100,000	3,100,000
Series A Preferred Stock [Member] | Dynasil Biomedical [Member]
Preferred Stock, Liquidation Preference, Value			$ 2,400,000	$ 2,400,000

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Inventories (Details) - USD ($)	Mar. 31, 2017	Sep. 30, 2016
Inventory Current [Line Items]
Raw Materials	$ 2,129,000	$ 1,938,000
Work-in-Process	665,000	834,000
Finished Goods	1,171,000	954,000
Inventory, Net, Total	$ 3,965,000	$ 3,726,000

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Intangible Assets (Details) - USD ($)	6 Months Ended	12 Months Ended
	Mar. 31, 2017	Sep. 30, 2016	Mar. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 2,113,000	$ 2,088,000
Accumulated Amortization	1,056,000	1,021,000
Net	1,057,000	1,067,000	$ 1,156,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	691,000	718,000
Accumulated Amortization	487,000	473,000
Net	$ 204,000	$ 245,000
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	299,000	282,000
Net	213,000	230,000
Trade Name [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	261,000	272,000
Accumulated Amortization	0	0
Net	$ 261,000	$ 272,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	20 years	20 years
Gross Amount	$ 389,000	$ 326,000
Accumulated Amortization	10,000	6,000
Net	$ 379,000	$ 320,000
Biomedical Technologies [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	5 years	5 years
Gross Amount	$ 260,000	$ 260,000
Accumulated Amortization	260,000	260,000
Net	$ 0	$ 0

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Intangible Assets (Details 1)	Mar. 31, 2017 USD ($)
Finite-Lived Intangible Assets [Line Items]
2017 (6 months)	$ 61,000
2018	123,000
2019	127,000
2020	43,000
2021	43,000
Thereafter	140,000
Total	537,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
2017 (6 months)	40,000
2018	80,000
2019	84,000
2020	0
2021	0
Thereafter	0
Total	204,000
Know How [Member]
Finite-Lived Intangible Assets [Line Items]
2017 (6 months)	17,000
2018	34,000
2019	34,000
2020	34,000
2021	34,000
Thereafter	60,000
Total	213,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2017 (6 months)	4,000
2018	9,000
2019	9,000
2020	9,000
2021	9,000
Thereafter	80,000
Total	$ 120,000

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016	Sep. 30, 2016
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 26,000	$ 43,000	$ 52,000	$ 86,000
Finite-Lived Intangible Assets, Gross	2,113,000		2,113,000		$ 2,088,000
Parent [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	$ 259,000		$ 259,000

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Debt (Details Textual) - USD ($) $ in Millions	1 Months Ended
	Nov. 30, 2016	May 31, 2017	Dec. 02, 2016
Xcede Technologies inc [Member]
Debt [Line Items]
Debt Conversion, Converted Instrument, Shares Issued	5,394,120
Xcede Technologies inc [Member] | Senior Debt [Member]
Debt [Line Items]
Invest Amount In Exchange For Series B Preferred Stock			$ 1.2
Equipment Line of Credit [Member] | Middlesex Savings Bank [Member] | Subsequent Event [Member]
Debt [Line Items]
Debt, Current		$ 1.0

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Earnings (Loss) Per Common Share (Details) - shares	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Weighted average shares outstanding
Basic	16,886,628	16,636,950	16,847,679	16,594,074
Effect of dilutive securities
Dilutive Average Shares Outstanding	16,886,628	16,636,950	16,847,679	16,650,606
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	0	0	0	56,532

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Earnings (Loss) Per Common Share (Details Textual) - shares	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	196,769	123,147
Restricted Stock [Member]
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	70,000

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Stock Based Compensation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 139,000	$ 143,000	$ 227,000	$ 262,000
Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	84,000	102,000	123,000	185,000
Restricted Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	13,000	11,000	26,000	19,000
Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	13,000	10,000	25,000	17,000
Employee Stock Purchase Plan [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	1,000	1,000	1,000	1,000
Subsidiary Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 28,000	$ 19,000	$ 52,000	$ 40,000

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Stock Based Compensation (Details 1) - Restricted Stock [Member]	6 Months Ended
	Mar. 31, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Nonvested, Beginning Balance | shares	100,000
Shares, Granted | shares	0
Shares, Vested | shares	(30,000)
Shares, Cancelled | shares	0
Shares, Nonvested and expected to vest, Ending Balance | shares	70,000
Weighted-Average Grant-Date Fair Value, Nonvested, Beginning Balance | $ / shares	$ 1.73
Weighted-Average Grant-Date Fair Value, Granted | $ / shares	0
Weighted-Average Grant-Date Fair Value, Vested | $ / shares	1.73
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)	6 Months Ended
	Mar. 31, 2017
Subsidiary Option Grants [Member]
Expected term in years	10 years
Risk-free interest rate	2.42%
Expected volatility	83.11%
Expected dividend yield	0.00%
Stock Option Grants [Member]
Expected term in years	3 years
Risk-free interest rate	1.48%
Expected volatility	69.57%
Expected dividend yield	0.00%

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Stock Based Compensation (Details 3) - $ / shares	6 Months Ended	12 Months Ended
	Mar. 31, 2017	Sep. 30, 2016
Stock Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance, Options Outstanding	123,147
Outstanding and exercisable, Options Outstanding	196,769	123,147
Granted, Options Outstanding	95,602
Exercised, Options Outstanding	0
Cancelled, Options Outstanding	(21,980)
Balance, Options Outstanding	196,769	123,147
Beginning Balance, Weighted Average Exercise Price per Share	$ 2.3
Outstanding and exercisable, Weighted Average Exercise Price per Share	1.98	$ 2.3
Granted, Weighted Average Exercise Price per Share	1.8
Exercised, Weighted Average Exercise Price per Share	0
Cancelled, Weighted Average Exercise Price per Share	3.03
Ending Balance, Weighted Average Exercise Price per Share	$ 1.98	$ 2.3
Granted, Weighted Average Remaining Contractual Term (in Year)	2 years 10 months 2 days
Balance, Weighted Average Remain Contractual Term (in Years)	2 years 1 month 20 days	1 year 8 months 8 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	2 years 1 month 20 days	1 year 8 months 8 days
Subsidiary Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance, Options Outstanding	613,653
Outstanding and exercisable, Options Outstanding	730,694	320,586
Granted, Options Outstanding	810,500
Exercised, Options Outstanding	0
Cancelled, Options Outstanding	(48,197)
Balance, Options Outstanding	1,375,956	613,653
Beginning 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
Ending Balance, Weighted Average Exercise Price per Share	$ 1	$ 1
Balance, Weighted Average Remain Contractual Term (in Years)	9 years 2 months 19 days	8 years 4 months 6 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	8 years 7 months 13 days	8 years 4 days

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Stock Based Compensation (Details Textual)	6 Months Ended
	Mar. 31, 2017 USD ($) $ / shares shares
Employee Stock Option [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	582,500
Subsidiary Option Grants [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	810,500
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price | $ / shares	$ 1
Deferred Compensation Arrangement with Individual, Fair Value of Shares Issued | $	$ 75,000
Deferred Compensation, Share-based Payments [Member]
Class of Stock [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	228,000
Xcede joint venture [Member] | Subsidiary Option Grants [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options | $	$ 202,000
Employee Stock Plan [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options | $	$ 160,000

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Segment, Customer and Geographical Reporting (Details) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016	Sep. 30, 2016
Segment Reporting Information [Line Items]
Revenue	$ 10,085,000	$ 11,296,000	$ 19,228,000	$ 22,493,000
Gross profit	$ 3,788,000	$ 4,078,000	$ 7,313,000	$ 8,042,000
GM %	38.00%	36.00%	38.00%	36.00%
SG&A	$ 3,791,000	$ 4,037,000	$ 7,239,000	$ 7,843,000
Gain on sale of assets	0	0	0	(4,000)
Operating income (loss)	(3,000)	41,000	74,000	203,000
Depreciation and amortization	313,000	327,000	624,000	652,000
Capital expenditures	181,000	379,000	292,000	982,000
Intangibles, net	1,057,000	1,156,000	1,057,000	1,156,000	$ 1,067,000
Goodwill	5,838,000	6,048,000	5,838,000	6,048,000	5,898,000
Total assets	27,976,000	26,726,000	27,976,000	26,726,000	$ 26,369,000
Optics [Member]
Segment Reporting Information [Line Items]
Revenue	5,281,000	6,428,000	9,686,000	12,635,000
Gross profit	$ 1,913,000	$ 2,208,000	$ 3,487,000	$ 4,318,000
GM %	36.00%	34.00%	36.00%	34.00%
SG&A	$ 1,597,000	$ 1,882,000	$ 2,924,000	$ 3,634,000
Gain on sale of assets			0	4,000
Operating income (loss)	316,000	326,000	563,000	688,000
Depreciation and amortization	237,000	225,000	471,000	454,000
Capital expenditures	103,000	329,000	194,000	894,000
Intangibles, net	465,000	608,000	465,000	608,000
Goodwill	899,000	1,109,000	899,000	1,109,000
Total assets	19,705,000	17,653,000	19,705,000	17,653,000
Contract Research [Member]
Segment Reporting Information [Line Items]
Revenue	4,804,000	4,868,000	9,542,000	9,858,000
Gross profit	$ 1,875,000	$ 1,870,000	$ 3,826,000	$ 3,724,000
GM %	39.00%	38.00%	40.00%	38.00%
SG&A	$ 1,802,000	$ 1,800,000	$ 3,542,000	$ 3,506,000
Gain on sale of assets			0	0
Operating income (loss)	73,000	70,000	284,000	218,000
Depreciation and amortization	73,000	85,000	147,000	164,000
Capital expenditures	34,000	30,000	34,000	37,000
Intangibles, net	213,000	247,000	213,000	247,000
Goodwill	4,939,000	4,939,000	4,939,000	4,939,000
Total assets	7,477,000	8,502,000	7,477,000	8,502,000
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	$ 392,000	$ 355,000	$ 773,000	$ 703,000
Gain on sale of assets			0	0
Operating income (loss)	(392,000)	(355,000)	(773,000)	(703,000)
Depreciation and amortization	3,000	17,000	6,000	34,000
Capital expenditures	44,000	20,000	64,000	51,000
Intangibles, net	379,000	301,000	379,000	301,000
Goodwill	0	0	0	0
Total assets	$ 794,000	$ 571,000	$ 794,000	$ 571,000

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Segment, Customer and Geographical Reporting (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 10,085,000	$ 11,296,000	$ 19,228,000	$ 22,493,000
% of Total	100.00%	100.00%	100.00%	100.00%
United State [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 7,931,000	$ 8,226,000	$ 15,120,000	$ 16,455,000
% of Total	79.00%	73.00%	79.00%	73.00%
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 1,212,000	$ 2,452,000	$ 2,299,000	$ 4,493,000
% of Total	12.00%	22.00%	12.00%	20.00%
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 942,000	$ 618,000	$ 1,809,000	$ 1,545,000
% of Total	9.00%	5.00%	9.00%	7.00%

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Segment, Customer and Geographical Reporting (Details Textual)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Customer Five [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage				10.00%
Customer Three [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage			10.00%
Optics [Member] | Customer One [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage				10.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	59.00%	57.00%	60.00%	77.00%

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Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016	Nov. 18, 2016
Income Tax [Line Items]
Income Tax Expense (Benefit)	$ 71,000	$ 33,000	$ (2,658,000)	$ 68,000
Effective Income Tax Rate Reconciliation, Percent	148.00%	92.00%	6995.00%
Excluding The Impact Of Valuation Allowance [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Percent			437.00%	101.00%
Xcede Technologies inc [Member]
Income Tax [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	60.00%		60.00%		59.00%
Income Tax Expense (Benefit)			$ 2,700,000
Federal [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			34.00%