10-Q

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 7, 2017 there were 17,063,507 shares of common stock, par value $.0005 per share, outstanding.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

INDEX

	Page
PART 1.   FINANCIAL INFORMATION
Item 1.   Financial Statements
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2017 AND SEPTEMBER 30, 2016	3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2017 AND 2016	5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED JUNE 30, 2017	6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2017 AND 2016	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 4.  Controls and Procedures	29
PART II.  OTHER INFORMATION	29
Item 1A. Risk Factors	29
Item 6.   Exhibits	30
Signatures	30

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30,		September 30,
	2017		2016
ASSETS
Current Assets
Cash and cash equivalents	$	1,790,000	$	2,607,000
Accounts receivable, net of allowances of $187,000 and $171,000 at June 30, 2017 and September 30, 2016, respectively		3,404,000		3,502,000
Costs in excess of billings and unbilled receivables		1,183,000		1,208,000
Inventories, net of reserves		4,117,000		3,726,000
Prepaid expenses and other current assets		1,133,000		1,078,000
Total current assets		11,627,000		12,121,000
Property, Plant and Equipment, net		6,815,000		7,223,000
Other Assets
Intangibles, net		1,067,000		1,067,000
Deferred tax asset		2,766,000		-
Goodwill		5,894,000		5,898,000
Security deposits		13,000		60,000
Total other assets		9,740,000		7,025,000
Total Assets	$	28,182,000	$	26,369,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	1,994,000	$	2,477,000
Capital lease obligations, current		96,000		105,000
Convertible notes		-		3,085,000
Accounts payable		1,426,000		1,627,000
Deferred revenue		109,000		238,000
Accrued expenses and other liabilities		2,392,000		2,955,000
Total current liabilities		6,017,000		10,487,000
Long-term Liabilities
Long-term debt, net of current portion		1,182,000		736,000
Capital lease obligations, net of current portion		102,000		173,000
Deferred tax liability, net		253,000		263,000
Other long-term liabilities		37,000		43,000
Total long-term liabilities		1,574,000		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)

	June 30,			September 30,
	2017			2016
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 17,842,164 and 17,677,284 shares issued, 17,032,004 and and 16,867,124 shares outstanding at June 30, 2017 and September 30, 2016, respectively.		9,000			9,000
Additional paid in capital		21,294,000			20,128,000
Accumulated other comprehensive income (loss)		(717,000	)		(699,000	)
Accumulated deficit		(507,000	)		(3,479,000	)
Less 810,160 shares of treasury stock - at cost		(986,000	)		(986,000	)
Total Dynasil stockholders' equity		19,093,000			14,973,000
Noncontrolling interest		1,498,000			(306,000	)
Total stockholders' equity		20,591,000			14,667,000
Total Liabilities and Stockholders' Equity	$	28,182,000		$	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						Nine Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Net revenue	$	8,836,000		$	10,406,000		$	28,065,000		$	32,899,000
Cost of revenue		5,472,000			6,479,000			17,386,000			20,930,000
Gross profit		3,364,000			3,927,000			10,679,000			11,969,000
Operating expenses:
Sales and marketing		255,000			246,000			848,000			923,000
Research and development		176,000			196,000			707,000			761,000
General and administrative		3,205,000			3,159,000			9,321,000			9,759,000
(Gain) loss on sale of assets		-			-			-			(4,000	)
Total operating expenses		3,636,000			3,601,000			10,876,000			11,439,000
Income (loss) from operations		(272,000	)		326,000			(197,000	)		530,000
Interest expense, net		53,000			78,000			164,000			215,000
Income (loss) before taxes		(325,000	)		248,000			(361,000	)		315,000
Income tax (credit)		(111,000	)		32,000			(2,769,000	)		101,000
Net income (loss)		(214,000	)		216,000			2,408,000			214,000
Less: Net loss attributable to noncontrolling interest		(64,000	)		(42,000	)		(197,000	)		(118,000	)
Net income (loss) attributable to common stockholders	$	(150,000	)	$	258,000		$	2,605,000		$	332,000
Net income (loss)	$	(214,000	)	$	216,000		$	2,408,000		$	214,000
Other comprehensive income (loss):
Foreign currency translation		212,000			(417,000	)		(18,000	)		(673,000	)
Total comprehensive income (loss)		(2,000	)		(201,000	)		2,390,000			(459,000	)
Less: comprehensive income (loss) attributable to  noncontrolling interest		(64,000	)		(42,000	)		(197,000	)		(118,000	)
Total comprehensive income (loss) attributable to  common stockholders	$	62,000		$	(159,000	)	$	2,587,000		$	(341,000	)
Basic net income (loss) per common share	$	(0.01	)	$	0.02		$	0.15		$	0.02
Diluted net income (loss) per common share	$	(0.01	)	$	0.02		$	0.15		$	0.02
Weighted average shares outstanding
Basic		16,945,744			16,698,205			16,879,864			16,628,279
Diluted		16,945,744			16,701,737			16,879,864			16,671,016

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

5

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the nine months ended June 30, 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		12,212		-		13,000		-			-			-		-			-			13,000
Stock-based compensation costs		152,668		-		316,000		-			-			-		-			27,000			343,000
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		-		-		-		(18,000	)		-			-		-			-			(18,000	)
Net income (loss)		-		-		-		-			2,605,000			-		-			(197,000	)		2,408,000
Balance, June 30, 2017		17,842,164	$	9,000	$	21,294,000	$	(717,000	)	$	(507,000	)		810,160	$	(986,000	)	$	1,498,000		$	20,591,000

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

6

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	June 30,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	2,408,000		$	214,000
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense		343,000			592,000
Foreign exchange loss (gain)		11,000			164,000
Depreciation and amortization		926,000			939,000
Deferred income taxes		(2,775,000	)		29,000
Non-cash R&D services		238,000			-
Other		68,000			131,000
Other changes in assets and liabilities:
Accounts receivable, net		74,000			(1,760,000	)
Inventories		(408,000	)		(1,090,000	)
Costs in excess of billings and unbilled receivables		25,000			268,000
Prepaid expenses and other assets		188,000			(92,000	)
Accounts payable		(197,000	)		(74,000	)
Accrued expenses and other liabilities		(480,000	)		157,000
Deferred revenue		(129,000	)		119,000
Net cash from operating activities		292,000			(403,000	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(455,000	)		(1,267,000	)
Purchase of intangibles		(78,000	)		(75,000	)
Net cash from investing activities		(533,000	)		(1,342,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		13,000			11,000
Net proceeds from issuance of convertible notes		-			390,000
Principal payments on capital leases		(80,000	)		(101,000	)
Proceeds from (payments of) line of credit, net		-			649,000
Proceeds from (payments of) bank and subordinated debt, net		(490,000	)		(186,000	)
Net cash from financing activities		(557,000	)		763,000
Effect of exchange rates on cash and cash equivalents		(19,000	)		(81,000	)
Net change in cash and cash equivalents		(817,000	)		(1,063,000	)
Cash and cash equivalents, beginning	$	2,607,000		$	1,295,000
Cash and cash equivalents, ending	$	1,790,000		$	232,000
Supplemental disclosures of cash flow information:
Non cash activities:
Assets purchased under capital leases	$	-		$	240,000
Tax payments (refunds)		-			(64,000	)
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 June 30, 2017, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2017 and 2016, changes in stockholders’ equity for the nine months ended June 30, 2017 and cash flows for the nine months ended June 30, 2017 and 2016 of Dynasil Corporation of America and subsidiaries (“Dynasil” or 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 the Company’s fully-owned subsidiary Dynasil Biomedical Corp. and Mayo Clinic to spin out and separately fund the development of a tissue sealant technology. As of June 30, 2017, Dynasil Biomedical owned 61% 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 61% 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 June 30, 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

Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. In July 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-11 which is a two-part update. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Part II of this ASU addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity. The ASU becomes effective for the Company fiscal year 2020. Early adoption is permitted. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services. In May 2017, the FASB issued ASU 2017-10 which provides guidance for operating entities when they enter into a service concession arrangement with a public-sector grantor. The ASU becomes effective for the Company at the beginning of its 2019 fiscal year, at the time the Company adopts Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

8

Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. In May 2017, the FASB issued ASU No. 2017-09 which was issued to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, “Compensation – Stock Compensation” to changes in the terms and conditions of a share-based payment award. This update is required beginning with the Company’s 2019 fiscal year and should be applied prospectively to award modifications after the effective date. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Revenue from Contracts with Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). In May 2014, the FASB issued ASU 2014-09 which 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 year 2017, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its 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.

9

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, of which $0.5 million has been invested as of June 30, 2017 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 June 30, 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 June 30, 2017, DBM owned approximately 61% 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.)

10

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 note is recorded at fair value net of unamortized discount based on an imputed interest rate of 5.4%. 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 $33,000 of research and development expense recognized during the three months ended June 30, 2017 and approximately $238,000 recognized during the nine months ended June 30, 2017.

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2017		2016
Raw Materials	$	2,463,000	$	1,938,000
Work-in-Process		529,000		834,000
Finished Goods		1,125,000		954,000
	$	4,117,000	$	3,726,000

Note 5 – Intangible Assets

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

	Useful	Gross		Accumulated
June 30, 2017	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	716,000	$	519,000	$	197,000
Know How	15		512,000		307,000		205,000
Trade Names	Indefinite		271,000		-		271,000
Patents	20		404,000		10,000		394,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,163,000	$	1,096,000	$	1,067,000

	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

11

Amortization expense for the three months ended June 30, 2017 and 2016 was $24,000 and $43,000, respectively. Amortization expense for the nine months ended June 30, 2017 and 2016 was $75,000 and $129,000, respectively.

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

	2017 (3 months)		2018		2019		2020		2021		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	97,000	$	-	$	-	$	-	$	197,000
Know How		9,000		34,000		34,000		34,000		34,000		60,000		205,000
Patents		3,000		12,000		12,000		12,000		12,000		188,000		239,000
	$	32,000	$	126,000	$	143,000	$	46,000	$	46,000	$	248,000	$	641,000

As of June 30, 2017, Xcede had $155,000 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 three and nine months ended June 30, 2017.

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 nine months ended June 30, 2017.

Note 7 – Debt

Senior Debt

On May 16, 2017, the Company and Middlesex Savings Bank entered in an agreement to extend the Company’s existing line of credit and term loan through May 2020. Additionally, on May 16, 2017, the Company and Middlesex Savings Bank entered into an annual $1.0 million equipment line of credit agreement with a one year draw period 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.

12

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.

For purposes of computing diluted earnings per share for the three and nine months ended June 30, 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 three and nine months ended June 30, 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 three and nine months ended June 30, 2016, 3,532 and 42,737 shares of common stock, respectively, related to restricted stock were included in the denominator used to calculate diluted earnings per share. Additionally, for the three months ended June 30, 2017, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended June 30, 2017 and 2016 is as follows:

	June 30, 2017		June 30, 2016
Weighted average shares outstanding
Basic		16,945,744		16,698,205
Effect of dilutive securities
Stock options		-		-
Restricted stock		-		3,532
Dilutive average shares outstanding		16,945,744		16,701,737

The computation of the weighted shares outstanding for the nine months ended June 30, 2017 and 2016 is as follows:

	June 30, 2017		June 30, 2016
Weighted average shares outstanding
Basic		16,879,864		16,628,279
Effect of dilutive securities
Stock options		-		-
Restricted stock		-		42,737
Dilutive average shares outstanding		16,879,864		16,671,016

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.

13

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 nine months ended June 30, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	June 30, 2017		June 30, 2016
Stock grants	$	60,000	$	74,000
Restricted stock grants		13,000		13,000
Option grants		12,000		12,000
Employee stock purchase plan		1,000		1,000
Subsidiary stock grants		-		210,000
Subsidiary option grants		30,000		19,000
Total	$	116,000	$	329,000

	Nine Months Ended		Nine Months Ended
Stock Compensation Expense	June 30, 2017		June 30, 2016
Stock grants	$	183,000	$	259,000
Restricted stock grants		39,000		33,000
Option grants		37,000		29,000
Employee stock purchase plan		2,000		2,000
Subsidiary stock grants		-		210,000
Subsidiary option grants		82,000		59,000
Total	$	343,000	$	592,000

At June 30, 2017, there was approximately $126,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of nine months.

Restricted Stock Grants

A summary of restricted stock activity for the nine months ended June 30, 2017 is presented below:

Restricted Stock Activity for the Nine Months ended June 30, 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 at June 30, 2017		70,000		$	1.73

14

Stock Option Grants

The assumptions used in the Black-Scholes option pricing model for the stock option grant during the nine months ended June 30, 2017 were as follows:

	FY 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 nine months ended June 30, 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		2.59
Exercised		-			-
Cancelled		(21,980	)		3.03
Balance at June 30, 2017		196,769			1.98		1.89
Outstanding and exercisable at June 30, 2017		196,769		$	1.98		1.89

Subsidiary Stock Option Grants

During the nine months ended June 30, 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 nine months ended June 30, 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	%

15

A summary of Xcede stock option activity for the nine months ended June 30, 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 June 30, 2017		1,375,956			1.00		8.96
Outstanding and exercisable at June 30, 2017		827,155		$	1.00		8.47

At June 30, 2017, the Company’s Xcede joint venture had $182,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of eleven months.

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.

16

The Company’s segment information for the three months ended June 30, 2017 and 2016 is summarized below:

Results of Operations for the Three Months Ended June 30,

2017

	Optics			Contract Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)		36,000			69,000			(377,000	)		(272,000	)
Depreciation and amortization		248,000			52,000			1,000			301,000
Capital expenditures		179,000			54,000			26,000			259,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Results of Operations for the Three Months Ended June 30,

2016

	Optics			Contract Research			Biomedical			Total
Revenue	$	5,780,000		$	4,626,000		$	-		$	10,406,000
Gross profit		2,012,000			1,915,000			-			3,927,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,604,000			1,601,000			396,000			3,601,000
Operating income (loss)		408,000			314,000			(396,000	)		326,000
Depreciation and amortization		247,000			24,000			17,000			288,000
Capital expenditures		330,000			-			6,000			336,000
Intangibles, net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

17

The Company’s segment information for the nine months ended June 30, 2017 and 2016 is summarized below:

Results of Operations for the Nine Months Ended June 30,

2017

	Optics			Contract Research			Biomedical			Total
Revenue	$	14,524,000		$	13,541,000		$	-		$	28,065,000
Gross profit		5,144,000			5,535,000			-			10,679,000
GM %		35	%		41	%		-			38	%
Operating expenses		4,544,000			5,182,000			1,150,000			10,876,000
(Gain) loss on sale of assets		-			-			-			-
Operating income (loss)		600,000			353,000			(1,150,000	)		(197,000	)
Depreciation and amortization		719,000			200,000			7,000			926,000
Capital expenditures		373,000			88,000			72,000			533,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Results of Operations for the Nine Months Ended June 30,

2016

	Optics			Contract Research			Biomedical			Total
Revenue	$	18,415,000		$	14,484,000		$	-		$	32,899,000
Gross profit		6,330,000			5,639,000			-			11,969,000
GM %		34	%		39	%		-			36	%
Operating expenses		5,237,000			5,107,000			1,099,000			11,443,000
(Gain) loss on sale of assets		(4,000	)		-			-			(4,000	)
Operating income (loss)		1,097,000			532,000			(1,099,000	)		530,000
Depreciation and amortization		700,000			187,000			52,000			939,000
Capital expenditures		1,224,000			37,000			81,000			1,342,000
Intangibles, net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Customer Financial Information

For the three and nine months ended June 30, 2017, no customer in the Optics segment represented more than 10% of the total segment revenue. For the three and nine months ended June 30, 2016, one customer in the Optics segment represented more than 10% of the total segment revenue.

For both the three and nine months ended June 30, 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 nine months ended June 30, 2016, four and five customers, respectively, of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three months ended June 30, 2017 and 2016, these customers made up 52% and 72%, respectively, of Contract Research revenue. For the nine months ended June 30, 2017 and 2016, these customers made up 58% and 77%, respectively, of Contract Research revenue.

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Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2017 and 2016 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2017					June 30, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	6,928,000		78	%	$	7,908,000		76	%
Europe		962,000		11	%		1,868,000		18	%
Other		946,000		11	%		630,000		6	%
	$	8,836,000		100	%	$	10,406,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2017 and 2016 are as follows:

	Nine Months Ended					Nine Months Ended
	June 30, 2017					June 30, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	22,051,000		78	%	$	24,363,000		74	%
Europe		3,262,000		12	%		6,361,000		19	%
Other		2,752,000		10	%		2,175,000		7	%
	$	28,065,000		100	%	$	32,899,000		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 nine months ended June 30, 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.

19

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of June 30, 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 June 30, 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 34% and 13% for the three months ended June 30, 2017 and 2016, respectively.  The results for the nine months ended June 30, 2017 resulted in an overall effective rate of 767% 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 (43.6%) and 32% for the nine months ended June 30, 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.

20

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 June 30, 2017 was $8.8 million, compared to revenue of $10.4 million for the third quarter of fiscal year 2016. This 15% decrease in revenue resulted from a $1.0 million decrease in revenue in our Optics segment and a $0.6 million decrease in revenue in our Contract Research segment. The revenue decrease in the Optics segment was again, as in the prior quarters of fiscal year 2017, primarily the result of a reduction in shipments to two OEM customers as compared to fiscal year 2016. The decrease in our Contract Research segment was largely due to a significant delay in funding at two U.S. government agencies as a result of the presidential administration transition. We believe these were timing-related changes and not due to any longer term systemic issues. Indications are that both large commercial customers are returning to prior ordering levels during the fourth quarter and RMD is returning to more normal operations, as most delayed projects have now been funded.

Cost of revenue for the third quarter of 2017 was $5.5 million, as compared to $6.5 million for the quarter ended June 30, 2016. The $1.0 million decrease was primarily the result of the lower revenue within the current quarter ended June 30, 2017. Cost as a percent of revenue remained the same at 62% year over year.

Total operating expenses were $3.6 million for both the three month periods ended June 30, 2017 and 2016.

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 and G&A expenses in each of the third 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 subsequent quarters 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 June 30, 2017, the Company had invested $500,000 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 regulatory approvals of its tissue sealant technology.

Income (loss) from operations was a loss of ($0.3) million for the quarter ended June 30, 2017 and income of $0.3 million in the same period in 2016.

Net income (loss) attributable to common stockholders was a loss of ($0.2) million or ($0.01) per share for the quarter ended June 30, 2017 and income of $0.3 million or $0.02 per share for the quarter ended June 30, 2016.

21

Results of Operations

Results of Operations for the Three Months Ended June 30,

2017

	Optics			Contract Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)		36,000			69,000			(377,000	)		(272,000	)
Depreciation and amortization		248,000			52,000			1,000			301,000
Capital expenditures		179,000			54,000			26,000			259,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Results of Operations for the Three Months Ended June 30,

2016

	Optics			Contract Research			Biomedical			Total
Revenue	$	5,780,000		$	4,626,000		$	-		$	10,406,000
Gross profit		2,012,000			1,915,000			-			3,927,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,604,000			1,601,000			396,000			3,601,000
Operating income (loss)		408,000			314,000			(396,000	)		326,000
Depreciation and amortization		247,000			24,000			17,000			288,000
Capital expenditures		330,000			-			6,000			336,000
Intangibles, net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Consolidated revenue for the quarter ended June 30, 2017 was $8.8 million, compared to revenue of $10.4 million for the third quarter of fiscal year 2016.

The $1.0 million revenue decrease in the Optics segment was primarily the result of a reduction in shipments to two OEM customers as compared to fiscal year 2016.

The $0.6 million revenue decrease in our Contract Research segment was largely due to slowdowns in funding at two U.S. government agencies. Again, as in the prior quarters of Fiscal 2017, our commercial revenue in the third quarter of 2017 included shipments of our CLYC scintillation crystals to Thermo Fisher Scientific for use in their RadEye SPRD-GN spectroscopic personal radiation detectors. We continued to experience funding delays for awarded projects in the third quarter, due to the federal government’s transition to a new presidential administration, as well as government budget pressures on spending.While this slowdown in funding occurred, RMD had an excellent year for project awards and the research backlog for the Contracts Research segment grew to $32.2 million at June 30, 2017, as compared to $30.0 million at September 30, 2016. We anticipate RMD returning to a normal operating posture during the fourth quarter, as most delayed projects have now been funded.

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

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Gross profit for the three months ended June 30, 2017 was $3.4 million, or 38% of revenues, compared to $3.9 million, or 38% of revenues, for the three months ended June 30, 2016. Gross profit for the Optics segment decreased to $1.7 million at June 30, 2017, compared to $2.0 million for the quarter ended June 30, 2016, as a result of the decrease in revenue. Gross profit as a percent of sales in the Optics segment dipped slightly to 34%, as compared to 35% in the same quarter in fiscal year 2016, as a result of a change in mix of products being sold. Gross profit increased to 43% in the Contract Research segment compared to 41% in the third quarter of 2016, as a result of an increase in the sales of commercial products, which carry a stronger profit margin, within the contract research business.

The Biomedical segment product has not been approved for commercial use and consequently has no revenue or gross profit.

Total operating expenses remained at $3.6 million for the three months ended June 30, 2017, essentially the same as in the three months ended June 30, 2016. Operating expenses for both the Optics and the Contract Research segments remained at the same $1.6 million level of spending in the third quarter of fiscal year 2017, as compared to the same period last year. Biomedical segment expenses were also essentially the same in the three months ended June 30, 2017 and 2016 at $0.4 million.

As a result of the factors discussed above, primarily the decrease in revenue, income (loss) from operations was a loss of ($0.3) million for the quarter ended June 30, 2017 compared to income of $0.3 million in the same period in 2016.

Net interest expense was reduced slightly but remained approximately $0.1 million for the three months ended June 30, 2017 and 2016.

Net income (loss) attributable to common stockholders was a loss of ($0.2) million or ($0.01) per share for the quarter ended June 30, 2017 and income of $0.3 million or $0.02 per share for the quarter ended June 30, 2016.

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Results of Operations – Year to Date

Results of Operations for the Nine Months Ended June 30,

2017

	Optics			Contract Research			Biomedical			Total
Revenue	$	14,524,000		$	13,541,000		$	-		$	28,065,000
Gross profit		5,144,000			5,535,000			-			10,679,000
GM %		35	%		41	%		-			38	%
Operating expenses		4,544,000			5,182,000			1,150,000			10,876,000
(Gain) loss on sale of assets		-			-			-			-
Operating income (loss)		600,000			353,000			(1,150,000	)		(197,000	)
Depreciation and amortization		719,000			200,000			7,000			926,000
Capital expenditures		373,000			88,000			72,000			533,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Results of Operations for the Nine Months Ended June 30,

2016

	Optics			Contract Research			Biomedical			Total
Revenue	$	18,415,000		$	14,484,000		$	-		$	32,899,000
Gross profit		6,330,000			5,639,000			-			11,969,000
GM %		34	%		39	%		-			36	%
Operating expenses		5,237,000			5,107,000			1,099,000			11,443,000
(Gain) loss on sale of assets		(4,000	)		-			-			(4,000	)
Operating income (loss)		1,097,000			532,000			(1,099,000	)		530,000
Depreciation and amortization		700,000			187,000			52,000			939,000
Capital expenditures		1,224,000			37,000			81,000			1,342,000
Intangibles, net		549,000			239,000			308,000			1,096,000
Goodwill		1,001,000			4,939,000			-			5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000		$	25,722,000

Revenue for the nine months ended June 30, 2017 decreased $4.8 million, or 15%, to $28.1 million, as compared to $32.9 million for the nine months ended June 30, 2016.

The Optics segment revenue decreased by $3.9 million, or 21%, for the nine months ended June 30, 2017, compared with the same period in the prior year. The revenue decrease in the Optics segment was again, as in the prior quarters of fiscal year 2017, primarily the result of a reduction in shipped orders to a large U.K. customer in fiscal year 2017 compared to 2016.

Revenue from our Contract Research segment decreased $0.9 million, or 7%, for the nine months ended June 30, 2017 as compared to the same period in 2016, primarily due to slowdowns in funding at two U.S. government agencies. Contract revenue is down year over year but a significant amount of the decrease has been offset by increased product shipments of our CLYC crystal. Management is hopeful based on the release of the recent contracts that the delays we have been experiencing in funding subsequent to the granting of awards will start to be reduced.

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The Biomedical segment had no revenue in either the nine months ended June 30, 2017 or 2016.

Gross profit for the nine months ended June 30, 2017 was $10.7 million, or 38% of sales, compared to $12.0 million, or 36% of sales for the nine months ended June 30, 2016.

Gross profit for the Optics segment was 35% or $5.1 million for the nine months ended June 30, 2017 compared to 34% or $6.3 million for the same period in fiscal year 2016. The gross profit increase to 35% from 34% year over year was due to continued cost and sales price improvements and product mix. The $1.2 million dollar decrease was primarily a result of the decrease in revenues in the first nine months of fiscal 2017 versus the same period in 2016.

Gross profit for the Contract Research segment was 41% or $5.5 million for the nine months ended June 30, 2017 compared to 39% or $5.6 million for the same period in fiscal year 2016. The gross profit increase to 41% from 39% year over year was due to an increase in product sales in 2017 which carry a stronger profit margin. The $0.1 million dollar decrease was primarily a result of the decrease in revenues in the first nine months of fiscal 2017 versus the same period in 2016.

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

Total operating expenses decreased $0.5 million to $10.9 million for the nine months ended June 30, 2017, as compared to the total operating expenses of $11.4 million in the nine months ended June 30, 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 nine months ended June 30, 2017 was $(0.2) million compared to income from operations of $0.5 million for the prior year comparable period. The decrease in income of $0.7 million is primarily a result of the lower revenues year over year.

Net interest expense for both the nine month periods ended June 30, 2017 and 2016 was $0.2 million.

The 2017 nine month $2.8 million income tax credit is primarily a result of the 2017 first quarter adjustment of the provision for income taxes. Due to Xcede’s de-consolidation for Federal income tax reporting purposes beginning in November 2016, 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 Dynasil federal consolidated group without Xcede, it was determined that it is more likely than not that the federal, deferred tax assets, such as net operating losses, will be realized based upon positive earnings history and expected future profits of the Company without Xcede. 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 nine months ended June 30, 2017. 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 nine months ended June 30, 2017 was $2.6 million or $0.15 basic earnings per share, compared to net income of $0.3 million or $0.02 per share for the nine months ended June 30, 2016.

Liquidity and Capital Resources

Liquidity Overview and Outlook

Net cash as of June 30, 2017 was $1.8 million, or approximately $0.8 million less than the net cash of $2.6 million at September 30, 2016.

As of June 30, 2017, the Company was in compliance with the terms of all its outstanding indebtedness which consisted of $1.5 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 $0.9 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 June 30, 2017. On May 16, 2017, the Company and Middlesex Savings Bank entered in an agreement to extend the terms of the existing line of credit and term loan from May 2017 to May 2020. Additionally, the Company and Middlesex Savings Bank entered into a $1.0 million equipment line of credit agreement 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.

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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 June 30, 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 $500,000 has been paid as of June 30, 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 additional financing to fund further development activities and its pursuit of regulatory approval.

Cash From Operating Activities

In total, including the changes in accounts receivable and prepaids, operating activities, prior to changes in other assets and liabilities, generated cash of $1.3 million for the nine months ended June 30, 2017. This amount was offset by increases in inventories and decreases in accounts payable and accruals resulting in $0.3 million of cash being generated during the first nine months of 2017.

Cash From Investing and Financing Activities

The Company used cash of approximately $0.5 million for the purchase of property, plant, equipment and patents for the nine months ended June 30, 2017.

Total outstanding bank debt as of June 30, 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 $0.6 million for the nine months ended June 30, 2017 as a result of principal payments to Middlesex Savings Bank, Massachusetts Capital Resources Corporation and other financing agencies.

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.

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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 June 30, 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 nine months ended June 30, 2017.

27

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 nine months ended June 30, 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.

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Forward-Looking Statements

The statements contained in this Quarterly Report on Form 10-Q which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management, including, without limitation, our expectations regarding results of operations, our compliance with the financial covenants under our loan agreements with Middlesex Savings Bank and Massachusetts Capital Resource Company, 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 June 30, 2017. Based on this evaluation, our management concluded that as of June 30, 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.

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ITEM 6 Exhibits

10.01 Third Amendment to the Loan and Security Agreement between the Company and Middlesex Savings Bank, dated May 16, 2017.

10.02 Line of Credit by and between Middlesex Savings Bank, as Lender, and the Company, as Borrower, dated as of May 16, 2017.

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

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

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

99.1 Press release, dated August 14, 2017 issued by the Company announcing its financial results for the quarter ended June 30, 2017.

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

SIGNATURES

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

DYNASIL CORPORATION OF AMERICA

BY:	/s/ Peter Sulick	DATED: August 14, 2017
	Peter Sulick,
	Chief Executive Officer and President
	/s/ Robert J. Bowdring	DATED: August 14, 2017
	Robert J. Bowdring,
	Chief Financial Officer

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EX-10.01

Exhibit 10.01

LOAN DOCUMENT MODIFICATION AGREEMENT

This Loan Document Modification Agreement (this "Agreement") is made as of this 16 day of May, 2017, by and between Middlesex Savings Bank, a banking corporation organized and existing under the laws of Massachusetts, of 6 Main Street, Natick, Massachusetts 01760 "Lender"), and Dynasil Corporation of America of 313 Washington Street, Suite 403, Newton, Massachusetts 02458 (the "Borrower"); and Optometrics Corporation of 8 Nemco Way, Ayer, Massachusetts 01432, Radiation Monitoring Devices, Inc. of 44 Hunt Street, Watertown, Massachusetts 02472, RMD Instruments Corp. of 44 Hunt Street, Watertown, Massachusetts 02472, Evaporated Metal Films Corp. of 239 Cherry Street, Ithaca, New York 14850, and Dynasil Biomedical Corp. of 44 Hunt Street, Watertown, Massachusetts 02472 (the "Guarantors").

Whereas, on May 1, 2014 Lender made a loan (the "Loan") to Borrower evidenced by a Revolving Line of Credit Note dated May 1, 2014 from Borrower to Lender in the original principal amount of Four Million ($4,000,000) Dollars (the "LOC Note"); and

Whereas, as security for the payment and performance of Borrower's obligations under the LOC Note, Borrower and Guarantors executed and delivered to Lender, (i) a Loan and Security Agreement dated May 1, 2014 between Borrower and Lender (the "Loan Agreement"); and (ii) UCC-1 Financing Statements covering the Collateral described in the Loan Agreement and filed with the Secretary of State of the Commonwealth of Massachusetts, State of New York and State of Delaware (the "UCC-1 Financing Statements"); and (iii) Entity Guaranty and Security Agreements, all dated May 1, 2014 from Guarantors to Lender (the "Guaranties"); and (iv) a Stock Pledge Agreement by Borrower dated May 1, 2014 (the "Stock Pledge"); and (v) a Subordination Agreement dated as of May 1, 2014 given by Massachusetts Capital Resource Company ("MCRC") to Lender (the "MCRC Subordination") by which all debt of Borrower to MCRC (the "Junior Debt") is subordinated to all Obligations of Borrower to Lender. Collectively, the Loan Agreement, the UCC-1 Financing Statements, the Guaranties, the Stock Pledge, and the MCRC Subordination are referred to, together with various other documents referred to therein, as the "Security Instruments"; and

Whereas, Borrower and Lender amended the terms of the Loan pursuant to a Loan Document Modification Agreement dated September 29, 2015, by adding or modifying certain financial covenants by Lender, granting to Borrower consent to pay-down or pay-off certain amounts of the Junior Debt, and by adding an option on the part of Borrower to term out a certain amount of Advances made to Borrower under the LOC Note; and

Whereas, Borrower and Lender further amended the terms of the Loan pursuant to a Second Amendment of Loan Agreement dated December 2, 2016, to (i) provide for Borrower to pay dividends under certain circumstances, (ii) make a distribution to Dynasil Biomedical Corp. to invest in Xcede Technologies, and (iii) modify the debt service coverage covenant; and

Whereas, Lender has agreed to extend an equipment line of credit to Borrower and to extend the Advance Period Termination Date for the Loan as described herein.

Now, therefore, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as follows:

1.           The first paragraph of Section 1.1.2 of the Loan Agreement is hereby deleted in its entirety, and the following new first paragraph is substituted therefor:

"1.1.2         Revolving Line of Credit Loan. A Revolving Line of Credit Loan, evidenced by a Revolving Line of Credit Note dated May 1, 2014, allowing advances aggregating not more than Four Million and 00/100 ($4,000,000.00) Dollars (the 'Line of Credit Note'). The availability of Advances under the Revolving Line of Credit Loan shall expire on April 30, 2020, unless renewed by the Lender in writing. Such date, as it may be so extended, is referred to as the 'Advance Period Termination Date' upon which date all outstanding principal and unpaid interest shall become due and payable."

2.           The Loan Agreement is hereby amended to add the following new Section 1.1.3 thereto:

"1.1.3         Non-Revolving Equipment Line of Credit/Demand Loan. A Non-Revolving Equipment Line of Credit/Demand Loan evidenced by a Non-Revolving Equipment Line of Credit/Demand Note dated May 16, 2017, allowing advances aggregating not more than One Million ($1,000,000.00) Dollars (the 'Equipment Line of Credit Note'). Subject to the demand of Lender, the availability of credit under the Non-Revolving Equipment Line of Credit/Demand Loan shall expire on May 31, 2018, unless renewed by Lender in writing. Such Equipment Line of Credit Note and all Term Notes executed pursuant thereto, together are referred to as the 'Notes', as such Notes may be modified, extended and/or amended from time to time.

Borrower agrees to pay Lender all advances (each, an 'Advance'), whether pursuant to the Notes or otherwise, all of which, together with all other indebtedness, liabilities and commitments which Borrower owes to Lender, whether (a) arising under this Agreement or otherwise, (b) now existing or hereafter arising, or (c) direct or indirect, absolute or contingent, joint or several, due or not due, are referred to as the 'Obligation(s)'.

All advances under the Equipment Line of Credit Note are being made upon the terms contained in this Agreement, the Notes and any other Security Instruments (as defined herein), the terms of which are incorporated herein.

No Advance under the Equipment Line of Credit shall exceed eighty (80%) percent of the net purchase price (exclusive of any soft costs, transportation or installation charges) of new equipment or eighty (80%) percent of the Net Orderly Liquidation Value of used equipment. The term 'Net Orderly Liquidation Value' or 'NOLV' means the value of equipment that is estimated to be recoverable in an orderly liquidation of such equipment, stated at cost under a court authorized going out of business sale, net of liquidation expenses, such value to be as determined from time to time by Lender in its commercially reasonable discretion or by a qualified appraisal company selected by Lender (excluding all shipping and related soft costs) of the equipment, expenditures or improvements referred to therein."

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3.           The second paragraph of Section 1.4 of the Loan Agreement, commencing with the words "The Advance Rate", is hereby deleted in its entirety, and the following new second paragraph is substituted therefor:

"The Advance Rate shall also include fifty (50%) percent of Eligible Unbilled Receivables of the Borrowers and the Guarantors, which for the purposes hereof and in connection with the Borrowing Base Certificate, shall be defined as receivables that have not yet been billed but otherwise constitute Eligible Accounts Receivable as set forth herein, excluding those which remain unbilled for forty-five (45) or more days after completion of the goods or services to which such unbilled receivables relate."

4.           Section 3.4 of the Loan Agreement is hereby deleted in its entirety, and the following new Section 3.4 is substituted therefor:

"3.4         Loans and Investments; Make any loan or advance (other than in the ordinary course of business and other than inter-company loans made to a Guarantor) or declare any dividends or make any distributions to any individual or entity or make any investment in or with any individual or entity, except that (i) Borrower may pay dividends, provided that no Event of Default exists at the time of the proposed dividend after giving effect to such dividends and Borrower is in compliance with the financial covenants set forth in Section 4.9 and 4.9(a) of this Agreement, and (ii) Borrower may distribute the entirety of its fifty-nine (59%) percent shareholdings in Xcede Technologies (a joint venture between Biomedical and the Mayo Clinic) to the shareholders of Borrower, solely for the purpose of divestiture of Xcede Technologies, provided that no Event of Default exists at the time of the proposed distribution or after giving effect thereto and Borrower remains in compliance with the financial covenants contained in this Agreement."

5.           Section 6.1.1 of the Loan Agreement is hereby deleted in its entirety, and the following new Section 6.1.1 is substituted therefor:

"6.1.1 Borrower shall fail to make any payment of principal, interest, or any other charge, cost or expense pursuant to the Notes, any note executed and delivered by Borrower to Lender subsequent hereto evidencing Borrowers Obligations to Lender, or any of the Security Instruments as and when due and payable."

6.           Borrower and Guarantors confirm that the Security Instruments, as amended by or added to in connection with this Agreement, constitute the valid and enforceable obligations of Borrower and Guarantors, and that neither Borrower nor Guarantors has any existing claims, defenses or rights of setoff with respect thereto.

7.           Borrower and Guarantors hereby warrant and represent that the statements set forth in the recitals above are true and correct, and that all representations and warranties made by Borrower and Guarantors in the Security Instruments continue to be true and correct in all material respects.

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8.           It is further agreed that this Agreement shall not, in any manner, release, relinquish, or otherwise affect the liens, security interests, and rights created by or arising under the Security Instruments or its priority over other liens, charges, or encumbrances affecting the Collateral referred to therein (except by extending such lien to secure, inter alia, any and all new obligations created hereby and pursuant to the Equipment Line of Credit Note and any term notes executed in connection herewith) or Borrower’s or Guarantors' liability thereunder; and all other terms, conditions and covenants therein contained which are not hereby amended, are hereby ratified and confirmed as previously written.

9.           Borrower and Guarantors hereby acknowledge that there are and were no oral or written representations, warranties, understandings, stipulations, agreements or promises made by any party or by any agent, employee or other representative of any party, pertaining to the subject matter of this Agreement which have not been incorporated herein. No express or implied consent to any further modifications involving any of the matters set forth in the Security Instruments or herein shall be inferred or implied by Lender's execution of this Agreement. Any further modification of the Loan Agreement shall require the express written approval of Lender. No provision hereof shall be modified or limited except by a written instrument signed by the parties hereto, expressly referring hereto and to the provision so modified or limited.

10.         Except as expressly amended and modified by this Agreement all of the terms and conditions of the Security Instruments shall remain in full force and effect, and shall apply to any advances made pursuant to the Equipment Line of Credit Note and any term notes executed in connection therewith.

[Remainder of Page Left Intentionally Blank

Signature Page to Follow]

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Executed under seal this 16 day of May, 2017.

MIDDLESEX SAVINGS BANK
By:	s/ Tony Zhang
	Tony Zhang, Senior Vice President
DYNASIL CORPORATION OF AMERICA
By:	s/ Robert Bowdring
	Robert Bowdring, Chief Financial Officer
OPTOMETRICS CORPORATION
By:	s/ Robert Bowdring
	Robert Bowdring, Chief Financial Officer
RADIATION MONITORING DEVICES, INC.
By:	s/ Robert Bowdring
	Robert Bowdring, Chief Financial Officer
RMD INSTRUMENTS CORP.
By:	s/ Robert Bowdring
	Robert Bowdring, Chief Financial Officer
EVAPORATED METAL FILMS CORP.
By:	s/ Robert Bowdring
	Robert Bowdring, Chief Financial Officer
DYNASIL BIOMEDICAL CORP.
By:	s/ Robert Bowdring
	Robert Bowdring, Chief Financial Officer

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EX-10.02

Exhibit 10.02

LINE OF CREDIT AGREEMENT

FOR THE ACQUISITION OF EQUIPMENT

($1,000,000.00 Line)

May 16, 2017

Dynasil Corporation of America

313 Washington Street, Suite 403

Newton, MA 02458

Gentlemen:

We (the "Lender") are pleased to advise you (the "Borrower") that Lender has established a line of credit of up to One Million and 00/100 ($1,000,000.00) Dollars (subject to limitations contained herein) (the "Credit Limit") for Borrower to be used exclusively for the purchase of equipment; subject to Lender's periodic review. This line of credit will be subject to the following terms and conditions:

1.         Any advances, extensions of credit, or loan of funds pursuant to this line of credit (collectively and separately referred to as the "Loan") will be made only if in the opinion of Lender there has been no material adverse change of circumstances and if there exists no Event(s) of Default (as hereinafter defined). No advances, extensions of credit, or loan of funds will be made after the first to occur of: (a) demand, (b) the date on which outstanding principal balance of the Loans equals the Credit Limit; or (c) on May 31, 2018, unless renewed by the Lender in writing. Any sums repaid hereunder shall not be readvanced.

2.         Borrower agrees that each monthly or other statement of account mailed or delivered by Lender to Borrower pertaining to the outstanding balance of the Loan, the amount of interest due thereon, fees, and costs and expenses shall be final, conclusive and binding on Borrower absent manifest error and shall constitute an "account stated" with respect to the matters contained therein unless within twenty (20) calendar days from when such statement is mailed or if not mailed, delivered to Borrower, Borrower shall deliver to Lender written notice of any objections which it may have as to such statement of account and in such event, only the terms to which objection is expressly made in such notice shall be considered to be disputed by Borrower.

3.         Interest will be charged to Borrower at a rate set forth in the Secured Non-Revolving Demand Note (Equipment) of even date (the "Note") which shall be executed by the Borrower and delivered to the Lender in connection with this Agreement. Interest shall be calculated on the basis of actual days elapsed and a 360-day year. If the Note is not paid in full upon demand for payment thereof, interest on unpaid balances shall thereafter be payable on demand at the default rate set forth in the Note.

4.         The Borrower hereby authorizes Lender to charge the amount of all interest, principal payments and fees, when due and payable hereunder, against Borrower's loan account created in connection with the Loan Agreement.

5.         The Loan may, but need not, be evidenced by notes in a form reasonably satisfactory to Lender, but in the absence of notes, shall be conclusively evidenced by Lender's records of disbursements, absent manifest error. The Loan, together with interest thereon, is secured pursuant to a Loan and Security Agreement by and between Borrower and Lender dated May 1, 2014, as the same may be further amended, modified or restated from time to time (the "Loan and Security Agreement").

6.         Borrower may draw upon this line of credit by presenting to Lender: (i) an invoice from the vendor of such equipment or improvement in a form acceptable to Lender, which includes, without limitation, the purchase price of such equipment or improvement, including all accessions thereto, net of all discounts, rebates, and other dealer or manufacturer incentives; and (ii) a certificate of origin, bill of sale, or other documentation satisfactory to Lender evidencing the ownership of the equipment (Items (i) and (ii) are hereinafter referred to as the "Equipment Documentation"). The Equipment Documentation shall be delivered to the Lender accompanied by an Equipment Documentation Certification in the form of Exhibit A annexed hereto.

7.         The aggregate principal amount of any Loan made against any Equipment Documentation shall not exceed eighty (80%) percent of the net purchase price (exclusive of any soft costs, transportation or installation charges) of new equipment or eighty (80%) percent of the Net Orderly Liquidation Value of used equipment. The term "Net Orderly Liquidation Value" or "NOLV" means the value of Equipment that is estimated to be recoverable in an orderly liquidation of such Equipment, stated at cost under a court authorized going out of business sale, net of liquidation expenses, such value to be as determined from time to time by Lender in its commercially reasonable discretion or by a qualified appraisal company selected by Lender (excluding all shipping and related soft costs) of the equipment, expenditures or improvements referred to therein.

8.         Lender agrees that so long as Borrower complies with the terms and conditions of this Line of Credit Agreement, and provides not less than forty-eight (48) hours notice of any proposed Loan, Lender shall cause the amount of such Loan to be made available to Borrower at the time and in the manner requested by Borrower; provided, however, that Lender shall have no obligation to make the requested Loan if, after giving effect to the requested Loan, the outstanding principal balance of all Loans under this Line of Credit Agreement will exceed the Credit Limit.

9.         Borrower will pay or reimburse Lender for all reasonable expenses, including attorneys' fees, which Lender may in any way incur in connection with this agreement or any other agreement between Borrower and Lender or with any Loan or which result from any claim or action by any third person against Lender which would not have been asserted were it not for Lender's relationship with Borrower hereunder or otherwise.

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10.       Absent demand, the Loan will be due and payable in full on April ___, 2018, unless renewed by Lender in writing. Whether the Loan is renewed or not, the then outstanding principal balance of the Loan shall be converted into a term loan each year that the Loan remains outstanding on the anniversary date of this Agreement by execution of a Secured Term Note (Equipment) in substantially the form of Exhibit B attached hereto, with appropriate insertions in the space provided reflecting the actual amount of the Loan. Interest shall accrue and be payable at a fixed rate equal to the Federal Home Loan Bank of Boston Amortizing Rate ("FHLBB") plus two and one-half (2.5%) percent per annum based upon the applicable FHLBB Index in effect two (2) days prior to the date on which the Secured Term Note (Equipment) is executed based upon a five (5) year term. The Loan shall then mature and bear interest as provided in the applicable Secured Term Note (Equipment) and shall otherwise be subject to the terms and conditions of that Note, the Loan and Security Agreement and this Line of Credit Agreement.

11.       Upon demand or the occurrence of any one or more of the following events (hereinafter "Events of Default"), any and all obligations of Borrower to Lender shall become immediately due and payable, at the option of Lender and without notice. The occurrence of any such Event of Default shall also constitute, without notice or demand, a default under all other agreements between Lender and Borrower and instruments and papers given Lender by Borrower, whether such agreements, instruments, or papers now exist or hereafter arise.

(a)       The failure by Borrower to pay when due or on demand any amount due under this Line of Credit Agreement.

(b)       An Event of Default under the Loan and Security Agreement or termination of the Loan and Security Agreement for any reason. Notwithstanding the foregoing and at the option of Lender in its sole discretion, in the event that payment is made in full pursuant to the terms and conditions of the Loan and Security Agreement, all terms, conditions and covenants contained therein, including without limitation the Debt Service Coverage ratio as set forth in Section 4.9 therein shall survive and remain in full force and effect and shall continue to apply to the Borrower hereunder until all of the obligations of Borrower hereunder or under the Note and any Secured Term Note (s) (Equipment) executed pursuant to the terms hereof shall be finally and irrevocably paid in full.

12.       This Line of Credit Agreement is supplementary to each and every other agreement between Borrower and Lender and shall not be so construed as to limit or otherwise derogate from any of the rights or remedies of Lender or any of the liabilities, obligations or undertakings of Borrower under any such agreement, nor shall any contemporaneous or subsequent agreement between Borrower and Lender be construed to limit or otherwise derogate from any of the rights or remedies of Lender or any of the liabilities, obligations or undertakings of Borrower hereunder unless such other agreement specifically refers to this Line of Credit Agreement and expressly so provides.

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13.       This Line of Credit Agreement and the covenants and agreements herein contained shall continue in full force and effect and shall be applicable not only in respect of the Loan, but also to all other obligations, liabilities and undertakings of Borrower to Lender whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising or acquired, until all such obligations, liabilities and undertakings have been paid or otherwise satisfied in full. No delay or omission on the part of Lender in exercising any right hereunder shall operate as a waiver of such right or any other right and waiver on any one or more occasions shall not be construed as a bar to or waiver of any right or remedy of Lender on any future occasion. This Line of Credit Agreement is intended to take effect as a sealed instrument, shall be governed by and construed according to the laws of the Commonwealth of Massachusetts, shall be binding upon Borrower's successors and assigns and shall inure to the benefit of Lender's successors and assigns.

14.       THE BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS LINE OF CREDIT AGREEMENT. The Borrower hereby certifies that neither Lender nor any of its representatives, agents or counsel has represented, expressly or otherwise, that Lender would not, in the event of any such suit, action or proceeding, seek to enforce this waiver of right to trial by jury. The Borrower acknowledges that it has read the provisions of this Line of Credit Agreement and in particular, this Section; has consulted legal counsel; understands the right it is granting in this Line of Credit Agreement and is waiving in this Section in particular; and makes the above waiver knowingly, voluntarily and intentionally.

15.       The Borrower and Lender agree that any action or proceeding to enforce or arising out of this Line of Credit Agreement may be commenced in any court of the Commonwealth of Massachusetts sitting in the counties of Suffolk, or Middlesex, or in the District Court of the United States for the District of Massachusetts, and the Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and confer personal jurisdiction if served by registered or certified mail to the Borrower, or as otherwise provided by the laws of the Commonwealth of Massachusetts or the United States of America.

16.       This Agreement may be executed in multiple counterparts, each of which shall be effective upon delivery and, thereafter, shall be deemed to be an original, and all of which shall be taken as one and the same instrument with the same effect as if each party hereto had signed on the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signature thereto and may be attached to another part of this Agreement identical in form hereto and having attached to it one or more additional signature pages. This Agreement may be transmitted by facsimile machine or by electronic mail in portable document format ("pdf") and signatures appearing on faxed instruments and/or electronic mail instruments shall be treated as original signatures. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability or binding effect hereof.

[Remainder of Page Left Intentionally Blank

Signature Page to Follow]

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17.         Please acknowledge your agreement to the matters contained herein by signing this letter in the space provided and returning it to the undersigned, whereupon it shall take effect as an instrument under seal.

Very truly yours,
MIDDESEX SAVINGS BANK
By:	s/ Tony Zhang
	Tony Zhang, Senior Vice President

ACCEPTED AND AGREED TO:
DYNASIL CORPORATION OF AMERICA
By:	s/Robert Bowdring
	Robert Bowdring, Chief Financial Officer
ACKNOWLEDGED BY GUARANTORS:
OPTOMETRICS CORPORATION
By:	s/ Robert Bowdring
Name:	Robert Bowdring
Title:	Chief Financial Officer
RADIATION MONITORING DEVICES, INC.
By:	s/ Robert Bowdring
Name:	Robert Bowdring
Title:	Chief Financial Officer
RMD INSTRUMENTS CORP.
By:	s/ Robert Bowdring
Name:	Robert Bowdring
Title:	Chief Financial Officer
EVAPORATED METAL FILMS CORP.
By:	s/ Robert Bowdring
Name:	Robert Bowdring
Title:	Chief Financial Officer
DYNASIL BIOMEDICAL CORP.
By:	s/ Robert Bowdring
Name:	Robert Bowdring
Title:	Chief Financial Officer

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EXHIBIT A

EQUIPMENT DOCUMENTATION CERTIFICATION

The undersigned, ___________________ of Dynasil Corporation of America (the "Borrower") hereby certifies to Middlesex Savings Bank that:

1. The attached copy of the Equipment Documentation (as defined in Paragraph 6 of the Borrower's Line of Credit Agreement for the Acquisition of Equipment dated May ___, 2017), is a true, correct and complete copy of the Equipment Documentation;

2. The net purchase price (exclusive of soft cost, transportation and installation charges) of the equipment referred to in the attached Equipment Documentation is in the amount of $____________;

3. The aggregate principal amount of the Loan requested in connection with the attached Equipment Documentation does not exceed eighty (80%) percent of the net purchase price of the equipment (for new equipment) or eighty (80%) percent of the Net Orderly Liquidation Value of the equipment (for used equipment).

DYNASIL CORPORATION OF AMERICA

By:

Print Name:

Print Title:

Date: ______________, _____

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EXHIBIT B

SECURED TERM NOTE

(Equipment)

$___________ ___________, 20__

Boston, Massachusetts

For value received, the undersigned, Dynasil Corporation of America, a Delaware corporation (the "Borrower"), promises to pay to Middlesex Savings Bank, a Massachusetts savings bank (the "Bank"), or order, at the office of the Bank located at 6 Main Street, Natick, Massachusetts 01760, the principal sum of __________________________ ($_______) Dollars, together with interest at a fixed per annum rate equal to ______ (_____%) percent per annum in sixty (60) consecutive combined monthly installments of principal and interest, each in the amount of $_____________ (except the final installment which shall be in the amount of the unpaid principal balance), commencing on ______, 20__, and on the like day of each of the month thereafter until this Note is paid in full. If not sooner paid, this Note shall be due and payable in full on _______, 20__. Interest shall be calculated on the basis of actual days elapsed and a 360-day year.

If any payment of principal or interest hereunder is not paid in full when due or after the occurrence of an event of default, interest on such unpaid balance shall thereafter accrue and be payable at a per annum rate equal to four (4%) percent greater than the rate of interest otherwise applicable to such balance (the "Default Rate"). In no event, however, shall this Note bear interest in excess of the maximum interest permitted by applicable law. If the entire amount of any payment of principal or interest required hereunder is not paid within ten (10) days after the same becomes due, the Borrower shall pay to the Bank a late fee equal to five (5%) percent of the required payment.

The Borrower hereby authorizes Bank to charge any and all amounts due from Borrower to Bank pursuant to this Note or otherwise, to Borrower's loan account maintained with Bank as required for this transaction.

At the option of the Bank, this note shall become immediately due and payable without notice or demand upon the occurrence at any time of: (i) the failure to pay in full and when due any installment of principal or interest hereunder; (ii) an Event of Default as defined in the Loan and Security Agreement between the Bank and the Borrower dated May 1, 2014, as amended from time to time (the "Loan and Security Agreement") (iii) an Event of Default pursuant to that certain Line of Credit Agreement for the Acquisition of Equipment between the Borrower and the Bank dated May ____, 2017, as amended from time to time (the "Agreement"); or (iv) the termination of the Loan and Security Agreement for any reason.

This Note may be prepaid, in whole or in part, upon at least five (5) days prior notice to the Bank, accompanied by the payment of a prepayment fee in amount equal to five (5%) percent of the prepayment amount if prepaid in year one of the term hereof, four (4%) percent of the prepayment amount if prepaid in year two of the term hereof, three (3%) percent of the prepayment amount if prepaid in year three of the term hereof, two (2%) percent of the prepayment amount if prepaid in year four of the term hereof, and one (1%) percent of the prepayment amount if prepaid in year five of the term hereof. The prepayment fee set forth above shall be due and payable upon the acceleration of the maturity of the loan evidenced hereby (which for purposes hereof shall be considered as a prepayment of this Note) in addition to interest at the default rate set forth above.

No delay or omission on the part of the Bank in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Bank, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Borrower and every other maker and every endorser or guarantor of this Note, regardless of the time, order or place of signing, waives presentment, demand, protest and notices of every kind and assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person primarily or secondarily liable.

The Borrower agrees to pay all reasonable costs of collection of the principal of and interest on this Note; including, without limitation, reasonable attorneys' fees.

THE BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY THAT THE BORROWER OR THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

All payments hereunder shall be in lawful money of the United States in immediately available funds.

If this Note or any payment hereunder becomes due on a day which is not a banking day, the due date of this Note or payment shall be extended to the next succeeding banking day and such extension of time shall be included in computing interest and fees in connection with such payment.

 -2-

All rights and obligations hereunder shall be governed by the laws of the Commonwealth of Massachusetts, and this Note shall be deemed to be under seal.

WITNESS:	DYNASIL CORPORATION OF AMERICA
s/ Patricia Kehe	By:	s/ Robert Bowdring
Print Name: Patricia Kehe	Print Name: Robert Bowdring
	Print Title:  Chief Financial Officer

THIS NOTE IS SECURED PURSUANT TO A LOAN AND SECURITY AGREEMENT DATED MAY 1, 2014

-3- 

EX-31.1(A)

EXHIBIT 31.1 (a)

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

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Peter Sulick, certify that:

1. I have reviewed this Form 10-Q of Dynasil Corporation of America;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15 d-15(f))for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 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: August 14, 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 June 30, 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

August 14, 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

Third Quarter Fiscal 2017 Results

Newton, MA, August 14, 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 it is continuing its efforts to improve gross profit margin in the Company’s operating segments.

“Our third quarter was particularly difficult across our core research and optics businesses,” said Peter Sulick, Dynasil CEO. “While we have maintained operating profitability and margins, the combination of the loss in revenue from two large OEM customers, one a UK customer and the other a domestic customer, and a substantial delay in funding our approved government projects all hit us during the same quarter. The results of these revenue disruptions were a reduction of $1.0 million in Optics revenue for the quarter and a $0.6 million reduction in contract research revenue. Fortunately, all of this was timing-related and not due to any longer term systemic issues. Indications are that both large commercial customers are returning to prior order levels during the fourth quarter.

“We anticipate RMD returning to a normal operating posture during the fourth quarter. On the positive side, most delayed projects have now been funded and RMD had an excellent year for project awards,” continued Mr. Sulick. “Consequently, as of today, RMD’s project backlog and funded project levels are at one of the highest points in the past five years. This unusual swing was unanticipated and disruptive, but the situation at RMD is normalizing.

“One bright spot continues to be the RMD commercial revenue which should end the year at approximately three times the prior year level of $600,000. RMD’s CLYC dual mode scintillator is getting considerable market traction, particularly within the personalized radiation detector (PRD) market. We anticipate this business to continue to grow into 2018. In addition, RMD has a product pipeline which we anticipate coming on line serially over the next eighteen months, resulting in continued growth in RMD commercial revenue.

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 June 30, 2017

	Optics			Contract Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)	$	36,000		$	69,000		$	(377,000	)	$	(272,000	)

Results of Operations for the Three Months Ended June 30, 2016

	Optics			Contract Research			Biomedical			Total
Revenue	$	5,780,000		$	4,626,000		$	-		$	10,406,000
Gross profit		2,012,000			1,915,000			-			3,927,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,604,000			1,601,000			396,000			3,601,000
Operating income (loss)	$	408,000		$	314,000		$	(396,000	)	$	326,000

Dynasil’s net income (loss) attributable to common stockholders was approximately ($0.2) million or ($0.01) per share for the quarter ended June 30, 2017, compared to net income of $0.3 million or $0.02 per share for the quarter ended June 30, 2016.

Earnings attributable to common stockholders for the nine months ended June 30, 2017 were $2.6 million or $0.15 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 nine months ended June 30, 2017.

Conference Call Information

Dynasil will host a conference call for investors and analysts at 5:00 p.m. ET today, Monday, August 14, 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)

	June 30, 2017		September 30, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	1,790,000	$	2,607,000
Accounts receivable, net		3,404,000		3,502,000
Costs in excess of billings and unbilled receivables		1,183,000		1,208,000
Inventories, net of reserves		4,117,000		3,726,000
Prepaid expenses and other current assets		1,133,000		1,078,000
Total current assets		11,627,000		12,121,000
Property, Plant and Equipment, net		6,815,000		7,223,000
Other Assets
Intangibles, net		1,067,000		1,067,000
Deferred tax asset		2,766,000		-
Goodwill		5,894,000		5,898,000
Security deposits		13,000		60,000
Total other assets		9,740,000		7,025,000
Total Assets	$	28,182,000	$	26,369,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	1,994,000	$	2,477,000
Capital lease obligations, current		96,000		105,000
Convertible notes and accrued interest		-		3,085,000
Accounts payable		1,426,000		1,627,000
Deferred revenue		109,000		238,000
Accrued expenses and other liabilities		2,392,000		2,955,000
Total current liabilities		6,017,000		10,487,000
Long-term Liabilities
Long-term debt, net of current portion		1,182,000		736,000
Capital lease obligations, net of current portion		102,000		173,000
Deferred tax liability		253,000		263,000
Other long-term liabilities		37,000		43,000
Total long-term liabilities		1,574,000		1,215,000
Stockholders' Equity
Dynasil stockholders' equity		19,093,000		14,973,000
Noncontrolling interest		1,498,000		(306,000	)
Total stockholders' equity		20,591,000		14,667,000
Total Liabilities and Stockholders' Equity	$	28,182,000	$	26,369,000

Dynasil Corporation of America

Consolidated Statement of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Net revenue	$	8,836,000		$	10,406,000		$	28,065,000		$	32,899,000
Cost of revenue		5,472,000			6,479,000			17,386,000			20,930,000
Gross profit		3,364,000			3,927,000			10,679,000			11,969,000
Operating expenses:
Sales and marketing		255,000			246,000			848,000			923,000
Research and development		176,000			196,000			707,000			761,000
General and administrative		3,205,000			3,159,000			9,321,000			9,759,000
(Gain) loss on sale of assets		-			-			-			(4,000	)
Total operating expenses		3,636,000			3,601,000			10,876,000			11,439,000
Income (loss) from operations		(272,000	)		326,000			(197,000	)		530,000
Interest expense, net		53,000			78,000			164,000			215,000
Income (loss) before taxes		(325,000	)		248,000			(361,000	)		315,000
Income tax (credit)		(111,000	)		32,000			(2,769,000	)		101,000
Net income (loss)		(214,000	)		216,000			2,408,000			214,000
Less: Net loss attributable to noncontrolling interest		(64,000	)		(42,000	)		(197,000	)		(118,000	)
Net income (loss) attributable to common stockholders	$	(150,000	)	$	258,000		$	2,605,000		$	332,000
Net income (loss)	$	(214,000	)	$	216,000		$	2,408,000		$	214,000
Other comprehensive income (loss):
Foreign currency translation		212,000			(417,000	)		(18,000	)		(673,000	)
Total comprehensive income (loss)		(2,000	)		(201,000	)		2,390,000			(459,000	)
Less: comprehensive income (loss) attributable to  noncontrolling interest		(64,000	)		(42,000	)		(197,000	)		(118,000	)
Total comprehensive income (loss) attributable to common stockholders	$	62,000		$	(159,000	)	$	2,587,000		$	(341,000	)
Basic net income (loss) per common share	$	(0.01	)	$	0.02		$	0.15		$	0.02
Diluted net income (loss) per common share	$	(0.01	)	$	0.02		$	0.15		$	0.02
Weighted average shares outstanding
Basic		16,945,744			16,698,205			16,879,864			16,628,279
Diluted		16,945,744			16,701,737			16,879,864			16,671,016

XML

Document And Entity Information - shares	9 Months Ended
	Jun. 30, 2017	Aug. 07, 2017
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Entity Registrant Name	DYNASIL CORP OF AMERICA
Entity Central Index Key	0000030831
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Trading Symbol	DYSL
Entity Common Stock, Shares Outstanding		17,063,507

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2017	Sep. 30, 2016
Current Assets
Cash and cash equivalents	$ 1,790,000	$ 2,607,000
Accounts receivable, net of allowances of $187,000 and $171,000 at June 30, 2017 and September 30, 2016, respectively	3,404,000	3,502,000
Costs in excess of billings and unbilled receivables	1,183,000	1,208,000
Inventories, net of reserves	4,117,000	3,726,000
Prepaid expenses and other current assets	1,133,000	1,078,000
Total current assets	11,627,000	12,121,000
Property, Plant and Equipment, net	6,815,000	7,223,000
Other Assets
Intangibles, net	1,067,000	1,067,000
Deferred tax asset	2,766,000	0
Goodwill	5,894,000	5,898,000
Security deposits	13,000	60,000
Total other assets	9,740,000	7,025,000
Total Assets	28,182,000	26,369,000
Current Liabilities
Current portion of long-term debt	1,994,000	2,477,000
Capital lease obligations, current	96,000	105,000
Convertible notes	0	3,085,000
Accounts payable	1,426,000	1,627,000
Deferred revenue	109,000	238,000
Accrued expenses and other liabilities	2,392,000	2,955,000
Total current liabilities	6,017,000	10,487,000
Long-term Liabilities
Long-term debt, net of current portion	1,182,000	736,000
Capital lease obligations, net of current portion	102,000	173,000
Deferred tax liability, net	253,000	263,000
Other long-term liabilities	37,000	43,000
Total long-term liabilities	1,574,000	1,215,000
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 17,842,164 and 17,677,284 shares issued, 17,032,004 and and 16,867,124 shares outstanding at June 30, 2017 and September 30, 2016, respectively.	9,000	9,000
Additional paid in capital	21,294,000	20,128,000
Accumulated other comprehensive income (loss)	(717,000)	(699,000)
Accumulated deficit	(507,000)	(3,479,000)
Less 810,160 shares of treasury stock - at cost	(986,000)	(986,000)
Total Dynasil stockholders' equity	19,093,000	14,973,000
Noncontrolling interest	1,498,000	(306,000)
Total stockholders' equity	20,591,000	14,667,000
Total Liabilities and Stockholders' Equity	$ 28,182,000	$ 26,369,000

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] - USD ($)	Jun. 30, 2017	Sep. 30, 2016
Allowance for doubtful accounts (in dollars)	$ 187,000	$ 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	17,842,164	17,677,284
Common stock, shares outstanding	17,032,004	16,867,124
Treasury stock, shares	810,160	810,160

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net revenue	$ 8,836,000	$ 10,406,000	$ 28,065,000	$ 32,899,000
Cost of revenue	5,472,000	6,479,000	17,386,000	20,930,000
Gross profit	3,364,000	3,927,000	10,679,000	11,969,000
Operating expenses:
Sales and marketing	255,000	246,000	848,000	923,000
Research and development	176,000	196,000	707,000	761,000
General and administrative	3,205,000	3,159,000	9,321,000	9,759,000
(Gain) loss on sale of assets	0	0	0	(4,000)
Total operating expenses	3,636,000	3,601,000	10,876,000	11,439,000
Income (loss) from operations	(272,000)	326,000	(197,000)	530,000
Interest expense, net	53,000	78,000	164,000	215,000
Income (loss) before taxes	(325,000)	248,000	(361,000)	315,000
Income tax (credit)	(111,000)	32,000	(2,769,000)	101,000
Net income (loss)	(214,000)	216,000	2,408,000	214,000
Less: Net loss attributable to noncontrolling interest	(64,000)	(42,000)	(197,000)	(118,000)
Net income (loss) attributable to common stockholders	(150,000)	258,000	2,605,000	332,000
Net income (loss)	(214,000)	216,000	2,408,000	214,000
Other comprehensive income (loss):
Foreign currency translation	212,000	(417,000)	(18,000)	(673,000)
Total comprehensive income (loss)	(2,000)	(201,000)	2,390,000	(459,000)
Less: comprehensive income (loss) attributable to noncontrolling interest	(64,000)	(42,000)	(197,000)	(118,000)
Total comprehensive income (loss) attributable to common stockholders	$ 62,000	$ (159,000)	$ 2,587,000	$ (341,000)
Basic net income (loss) per common share	$ (0.01)	$ 0.02	$ 0.15	$ 0.02
Diluted net income (loss) per common share	$ (0.01)	$ 0.02	$ 0.15	$ 0.02
Weighted average shares outstanding
Basic	16,945,744	16,698,205	16,879,864	16,628,279
Diluted	16,945,744	16,701,737	16,879,864	16,671,016

XML

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY - 9 months ended Jun. 30, 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	13,000	$ 0	13,000	0	0	$ 0	0
Issuance of shares of common stock under employee stock purchase plan (in shares)		12,212				0
Stock-based compensation costs	343,000	$ 0	316,000	0	0	$ 0	27,000
Stock-based compensation costs (in shares)		152,668				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	(18,000)	0	0	(18,000)	0	0	0
Net income (loss)	2,408,000	0	0	0	2,605,000	0	(197,000)
Balance at Jun. 30, 2017	$ 20,591,000	$ 9,000	$ 21,294,000	$ (717,000)	$ (507,000)	$ (986,000)	$ 1,498,000
Balance (in shares) at Jun. 30, 2017		17,842,164				810,160

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows from operating activities:
Net income (loss)	$ 2,408,000	$ 214,000
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense	343,000	592,000
Foreign exchange loss (gain)	11,000	164,000
Depreciation and amortization	926,000	939,000
Deferred income taxes	(2,775,000)	29,000
Non-cash R&D services	238,000	0
Other	68,000	131,000
Other changes in assets and liabilities:
Accounts receivable, net	74,000	(1,760,000)
Inventories	(408,000)	(1,090,000)
Costs in excess of billings and unbilled receivables	25,000	268,000
Prepaid expenses and other assets	188,000	(92,000)
Accounts payable	(197,000)	(74,000)
Accrued expenses and other liabilities	(480,000)	157,000
Deferred revenue	(129,000)	119,000
Net cash from operating activities	292,000	(403,000)
Cash flows from investing activities:
Purchases of property, plant and equipment	(455,000)	(1,267,000)
Purchase of intangibles	(78,000)	(75,000)
Net cash from investing activities	(533,000)	(1,342,000)
Cash flows from financing activities:
Proceeds from issuance of common stock	13,000	11,000
Net proceeds from issuance of convertible notes	0	390,000
Principal payments on capital leases	(80,000)	(101,000)
Proceeds from (payments of) line of credit, net	0	649,000
Proceeds from (payments of) bank and subordinated debt, net	(490,000)	(186,000)
Net cash from financing activities	(557,000)	763,000
Effect of exchange rates on cash and cash equivalents	(19,000)	(81,000)
Net change in cash and cash equivalents	(817,000)	(1,063,000)
Cash and cash equivalents, beginning	2,607,000	1,295,000
Cash and cash equivalents, ending	1,790,000	232,000
Non cash activities:
Assets purchased under capital leases	0	240,000
Tax payments (refunds)	0	(64,000)
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

XML

Basis of Presentation

9 Months Ended

Jun. 30, 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 June 30, 2017, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2017 and 2016, changes in stockholders’ equity for the nine months ended June 30, 2017 and cash flows for the nine months ended June 30, 2017 and 2016 of Dynasil Corporation of America and subsidiaries (“Dynasil” or 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 the Company’s fully-owned subsidiary Dynasil Biomedical Corp. and Mayo Clinic to spin out and separately fund the development of a tissue sealant technology. As of June 30, 2017, Dynasil Biomedical owned 61% 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 61% 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 June 30, 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.

XML

Recent Accounting Pronouncements

9 Months Ended

Jun. 30, 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

Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. In July 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-11 which is a two-part update. Part I of this ASU addresses the complexity of accounting for certain financial instruments with down round features. Part II of this ASU addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity. The ASU becomes effective for the Company fiscal year 2020. Early adoption is permitted. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services. In May 2017, the FASB issued ASU 2017-10 which provides guidance for operating entities when they enter into a service concession arrangement with a public-sector grantor. The ASU becomes effective for the Company at the beginning of its 2019 fiscal year, at the time the Company adopts Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. In May 2017, the FASB issued ASU No. 2017-09 which was issued to clarify and reduce both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, “Compensation – Stock Compensation” to changes in the terms and conditions of a share-based payment award. This update is required beginning with the Company’s 2019 fiscal year and should be applied prospectively to award modifications after the effective date. The Company is currently in the process of assessing the impact of this ASU on its consolidated financial statements.

Revenue from Contracts with Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). In May 2014, the FASB issued ASU 2014-09 which 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 year 2017, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its 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

9 Months Ended

Jun. 30, 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, of which $0.5 million has been invested as of June 30, 2017 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 June 30, 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 June 30, 2017, DBM owned approximately 61% 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 note is recorded at fair value net of unamortized discount based on an imputed interest rate of 5.4%. 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 $33,000 of research and development expense recognized during the three months ended June 30, 2017 and approximately $238,000 recognized during the nine months ended June 30, 2017.

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Inventories

9 Months Ended

Jun. 30, 2017

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2017		2016
Raw Materials	$	2,463,000	$	1,938,000
Work-in-Process		529,000		834,000
Finished Goods		1,125,000		954,000
	$	4,117,000	$	3,726,000

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Intangible Assets

9 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 5 – Intangible Assets

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

	Useful	Gross		Accumulated
June 30, 2017	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	716,000	$	519,000	$	197,000
Know How	15		512,000		307,000		205,000
Trade Names	Indefinite		271,000		-		271,000
Patents	20		404,000		10,000		394,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,163,000	$	1,096,000	$	1,067,000

	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 June 30, 2017 and 2016 was $24,000 and $43,000, respectively. Amortization expense for the nine months ended June 30, 2017 and 2016 was $75,000 and $129,000, respectively.

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

	2017 (3 months)		2018		2019		2020		2021		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	97,000	$	-	$	-	$	-	$	197,000
Know How		9,000		34,000		34,000		34,000		34,000		60,000		205,000
Patents		3,000		12,000		12,000		12,000		12,000		188,000		239,000
	$	32,000	$	126,000	$	143,000	$	46,000	$	46,000	$	248,000	$	641,000

As of June 30, 2017, Xcede had $155,000 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 three and nine months ended June 30, 2017.

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Goodwill

9 Months Ended

Jun. 30, 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 nine months ended June 30, 2017.

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Debt

9 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 7 – Debt

Senior Debt

On May 16, 2017, the Company and Middlesex Savings Bank entered in an agreement to extend the Company’s existing line of credit and term loan through May 2020. Additionally, on May 16, 2017, the Company and Middlesex Savings Bank entered into an annual $1.0 million equipment line of credit agreement with a one year draw period 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

9 Months Ended

Jun. 30, 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 three and nine months ended June 30, 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 three and nine months ended June 30, 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 three and nine months ended June 30, 2016, 3,532 and 42,737 shares of common stock, respectively, related to restricted stock were included in the denominator used to calculate diluted earnings per share. Additionally, for the three months ended June 30, 2017, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended June 30, 2017 and 2016 is as follows:

	June 30, 2017		June 30, 2016
Weighted average shares outstanding
Basic		16,945,744		16,698,205
Effect of dilutive securities
Stock options		-		-
Restricted stock		-		3,532
Dilutive average shares outstanding		16,945,744		16,701,737

The computation of the weighted shares outstanding for the nine months ended June 30, 2017 and 2016 is as follows:

	June 30, 2017		June 30, 2016
Weighted average shares outstanding
Basic		16,879,864		16,628,279
Effect of dilutive securities
Stock options		-		-
Restricted stock		-		42,737
Dilutive average shares outstanding		16,879,864		16,671,016

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Stock Based Compensation

9 Months Ended

Jun. 30, 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 nine months ended June 30, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	June 30, 2017		June 30, 2016
Stock grants	$	60,000	$	74,000
Restricted stock grants		13,000		13,000
Option grants		12,000		12,000
Employee stock purchase plan		1,000		1,000
Subsidiary stock grants		-		210,000
Subsidiary option grants		30,000		19,000
Total	$	116,000	$	329,000

	Nine Months Ended		Nine Months Ended
Stock Compensation Expense	June 30, 2017		June 30, 2016
Stock grants	$	183,000	$	259,000
Restricted stock grants		39,000		33,000
Option grants		37,000		29,000
Employee stock purchase plan		2,000		2,000
Subsidiary stock grants		-		210,000
Subsidiary option grants		82,000		59,000
Total	$	343,000	$	592,000

At June 30, 2017, there was approximately $126,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of nine months.

Restricted Stock Grants

A summary of restricted stock activity for the nine months ended June 30, 2017 is presented below:

Restricted Stock Activity for the Nine Months ended			Weighted-Average
June 30, 2017	Shares		Grant-Date Fair Value
Nonvested at September 30, 2016		100,000	$	1.73
Granted		-		-
Vested		(30,000)		1.73
Cancelled		-		-
Nonvested at June 30, 2017		70,000	$	1.73

Stock Option Grants

The assumptions used in the Black-Scholes option pricing model for the stock option grant during the nine months ended June 30, 2017 were as follows:

	FY 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 nine months ended June 30, 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		2.59
Exercised		-		-
Cancelled		(21,980)		3.03
Balance at June 30, 2017		196,769		1.98		1.89
Outstanding and exercisable at June 30, 2017		196,769	$	1.98		1.89

Subsidiary Stock Option Grants

During the nine months ended June 30, 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 nine months ended June 30, 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 nine months ended June 30, 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 June 30, 2017		1,375,956		1.00		8.96
Outstanding and exercisable at June 30, 2017		827,155	$	1.00		8.47

At June 30, 2017, the Company’s Xcede joint venture had $182,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of eleven months.

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Segment, Customer and Geographical Reporting

9 Months Ended

Jun. 30, 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 June 30, 2017 and 2016 is summarized below:

Results of Operations for the Three Months Ended June 30,

2017

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	4,837,000		$	3,999,000		$	-	$	8,836,000
Gross profit		1,655,000			1,709,000			-		3,364,000
GM %		34	%		43	%		-		38	%
Operating expenses		1,619,000			1,640,000			377,000		3,636,000
Operating income (loss)		36,000			69,000			(377,000)		(272,000)
Depreciation and amortization		248,000			52,000			1,000		301,000
Capital expenditures		179,000			54,000			26,000		259,000
Intangibles, net		468,000			205,000			394,000		1,067,000
Goodwill		955,000			4,939,000			-		5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000	$	28,182,000

Results of Operations for the Three Months Ended June 30,

2016

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	5,780,000		$	4,626,000		$	-	$	10,406,000
Gross profit		2,012,000			1,915,000			-		3,927,000
GM %		35	%		41	%		-		38	%
Operating expenses		1,604,000			1,601,000			396,000		3,601,000
Operating income (loss)		408,000			314,000			(396,000)		326,000
Depreciation and amortization		247,000			24,000			17,000		288,000
Capital expenditures		330,000			-			6,000		336,000
Intangibles, net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

The Company’s segment information for the nine months ended June 30, 2017 and 2016 is summarized below:

Results of Operations for the Nine Months Ended June 30,

2017

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	14,524,000		$	13,541,000		$	-	$	28,065,000
Gross profit		5,144,000			5,535,000			-		10,679,000
GM %		35	%		41	%		-		38	%
Operating expenses		4,544,000			5,182,000			1,150,000		10,876,000
(Gain) loss on sale of assets		-			-			-		-
Operating income (loss)		600,000			353,000			(1,150,000)		(197,000)
Depreciation and amortization		719,000			200,000			7,000		926,000
Capital expenditures		373,000			88,000			72,000		533,000
Intangibles, net		468,000			205,000			394,000		1,067,000
Goodwill		955,000			4,939,000			-		5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000	$	28,182,000

Results of Operations for the Nine Months Ended June 30,

2016

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	18,415,000		$	14,484,000		$	-	$	32,899,000
Gross profit		6,330,000			5,639,000			-		11,969,000
GM %		34	%		39	%		-		36	%
Operating expenses		5,237,000			5,107,000			1,099,000		11,443,000
(Gain) loss on sale of assets		(4,000)			-			-		(4,000)
Operating income (loss)		1,097,000			532,000			(1,099,000)		530,000
Depreciation and amortization		700,000			187,000			52,000		939,000
Capital expenditures		1,224,000			37,000			81,000		1,342,000
Intangibles, net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Customer Financial Information

For the three and nine months ended June 30, 2017, no customer in the Optics segment represented more than 10% of the total segment revenue. For the three and nine months ended June 30, 2016, one customer in the Optics segment represented more than 10% of the total segment revenue.

For both the three and nine months ended June 30, 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 nine months ended June 30, 2016, four and five customers, respectively, of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three months ended June 30, 2017 and 2016, these customers made up 52% and 72%, respectively, of Contract Research revenue. For the nine months ended June 30, 2017 and 2016, these customers made up 58% 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 June 30, 2017 and 2016 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2017					June 30, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	6,928,000		78	%	$	7,908,000		76	%
Europe		962,000		11	%		1,868,000		18	%
Other		946,000		11	%		630,000		6	%
	$	8,836,000		100	%	$	10,406,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2017 and 2016 are as follows:

	Nine Months Ended					Nine Months Ended
	June 30, 2017					June 30, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	22,051,000		78	%	$	24,363,000		74	%
Europe		3,262,000		12	%		6,361,000		19	%
Other		2,752,000		10	%		2,175,000		7	%
	$	28,065,000		100	%	$	32,899,000		100	%

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Income Taxes

9 Months Ended

Jun. 30, 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 nine months ended June 30, 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 June 30, 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 June 30, 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 34% and 13% for the three months ended June 30, 2017 and 2016, respectively.  The results for the nine months ended June 30, 2017 resulted in an overall effective rate of 767% 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 (43.6%) and 32% for the nine months ended June 30, 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

9 Months Ended

Jun. 30, 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)

9 Months Ended

Jun. 30, 2017

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2017		2016
Raw Materials	$	2,463,000	$	1,938,000
Work-in-Process		529,000		834,000
Finished Goods		1,125,000		954,000
	$	4,117,000	$	3,726,000

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Intangible Assets (Tables)

9 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

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

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

	Useful	Gross		Accumulated
June 30, 2017	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	716,000	$	519,000	$	197,000
Know How	15		512,000		307,000		205,000
Trade Names	Indefinite		271,000		-		271,000
Patents	20		404,000		10,000		394,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,163,000	$	1,096,000	$	1,067,000

	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 (3 months)		2018		2019		2020		2021		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	97,000	$	-	$	-	$	-	$	197,000
Know How		9,000		34,000		34,000		34,000		34,000		60,000		205,000
Patents		3,000		12,000		12,000		12,000		12,000		188,000		239,000
	$	32,000	$	126,000	$	143,000	$	46,000	$	46,000	$	248,000	$	641,000

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Earnings (Loss) Per Common Share (Tables)

9 Months Ended

Jun. 30, 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 June 30, 2017 and 2016 is as follows:

	June 30, 2017		June 30, 2016
Weighted average shares outstanding
Basic		16,945,744		16,698,205
Effect of dilutive securities
Stock options		-		-
Restricted stock		-		3,532
Dilutive average shares outstanding		16,945,744		16,701,737

The computation of the weighted shares outstanding for the nine months ended June 30, 2017 and 2016 is as follows:

	June 30, 2017		June 30, 2016
Weighted average shares outstanding
Basic		16,879,864		16,628,279
Effect of dilutive securities
Stock options		-		-
Restricted stock		-		42,737
Dilutive average shares outstanding		16,879,864		16,671,016

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Stock Based Compensation (Tables)

9 Months Ended

Jun. 30, 2017

Schedule Of Stock Compensation Expense [Table Text Block]

Stock compensation expense for the three and nine months ended June 30, 2017 and 2016 is as follows:

	Three Months Ended		Three Months Ended
Stock Compensation Expense	June 30, 2017		June 30, 2016
Stock grants	$	60,000	$	74,000
Restricted stock grants		13,000		13,000
Option grants		12,000		12,000
Employee stock purchase plan		1,000		1,000
Subsidiary stock grants		-		210,000
Subsidiary option grants		30,000		19,000
Total	$	116,000	$	329,000

	Nine Months Ended		Nine Months Ended
Stock Compensation Expense	June 30, 2017		June 30, 2016
Stock grants	$	183,000	$	259,000
Restricted stock grants		39,000		33,000
Option grants		37,000		29,000
Employee stock purchase plan		2,000		2,000
Subsidiary stock grants		-		210,000
Subsidiary option grants		82,000		59,000
Total	$	343,000	$	592,000

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

A summary of restricted stock activity for the nine months ended June 30, 2017 is presented below:

Restricted Stock Activity for the Nine Months ended			Weighted-Average
June 30, 2017	Shares		Grant-Date Fair Value
Nonvested at September 30, 2016		100,000	$	1.73
Granted		-		-
Vested		(30,000)		1.73
Cancelled		-		-
Nonvested at June 30, 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 assumptions used in the Black-Scholes option pricing model for the stock option grant during the nine months ended June 30, 2017 were as follows:

	FY 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 nine months ended June 30, 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		2.59
Exercised		-		-
Cancelled		(21,980)		3.03
Balance at June 30, 2017		196,769		1.98		1.89
Outstanding and exercisable at June 30, 2017		196,769	$	1.98		1.89

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 nine months ended June 30, 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 June 30, 2017		1,375,956		1.00		8.96
Outstanding and exercisable at June 30, 2017		827,155	$	1.00		8.47

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Segment, Customer and Geographical Reporting (Tables)

9 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

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

The Company’s segment information for the three months ended June 30, 2017 and 2016 is summarized below:

Results of Operations for the Three Months Ended June 30,

2017

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	4,837,000		$	3,999,000		$	-	$	8,836,000
Gross profit		1,655,000			1,709,000			-		3,364,000
GM %		34	%		43	%		-		38	%
Operating expenses		1,619,000			1,640,000			377,000		3,636,000
Operating income (loss)		36,000			69,000			(377,000)		(272,000)
Depreciation and amortization		248,000			52,000			1,000		301,000
Capital expenditures		179,000			54,000			26,000		259,000
Intangibles, net		468,000			205,000			394,000		1,067,000
Goodwill		955,000			4,939,000			-		5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000	$	28,182,000

Results of Operations for the Three Months Ended June 30,

2016

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	5,780,000		$	4,626,000		$	-	$	10,406,000
Gross profit		2,012,000			1,915,000			-		3,927,000
GM %		35	%		41	%		-		38	%
Operating expenses		1,604,000			1,601,000			396,000		3,601,000
Operating income (loss)		408,000			314,000			(396,000)		326,000
Depreciation and amortization		247,000			24,000			17,000		288,000
Capital expenditures		330,000			-			6,000		336,000
Intangibles, net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

The Company’s segment information for the nine months ended June 30, 2017 and 2016 is summarized below:

Results of Operations for the Nine Months Ended June 30,

2017

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	14,524,000		$	13,541,000		$	-	$	28,065,000
Gross profit		5,144,000			5,535,000			-		10,679,000
GM %		35	%		41	%		-		38	%
Operating expenses		4,544,000			5,182,000			1,150,000		10,876,000
(Gain) loss on sale of assets		-			-			-		-
Operating income (loss)		600,000			353,000			(1,150,000)		(197,000)
Depreciation and amortization		719,000			200,000			7,000		926,000
Capital expenditures		373,000			88,000			72,000		533,000
Intangibles, net		468,000			205,000			394,000		1,067,000
Goodwill		955,000			4,939,000			-		5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000	$	28,182,000

Results of Operations for the Nine Months Ended June 30,

2016

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	18,415,000		$	14,484,000		$	-	$	32,899,000
Gross profit		6,330,000			5,639,000			-		11,969,000
GM %		34	%		39	%		-		36	%
Operating expenses		5,237,000			5,107,000			1,099,000		11,443,000
(Gain) loss on sale of assets		(4,000)			-			-		(4,000)
Operating income (loss)		1,097,000			532,000			(1,099,000)		530,000
Depreciation and amortization		700,000			187,000			52,000		939,000
Capital expenditures		1,224,000			37,000			81,000		1,342,000
Intangibles, net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Schedule Of Segment Revenue By Geographical Location [Table Text Block]

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2017 and 2016 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2017					June 30, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	6,928,000		78	%	$	7,908,000		76	%
Europe		962,000		11	%		1,868,000		18	%
Other		946,000		11	%		630,000		6	%
	$	8,836,000		100	%	$	10,406,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2017 and 2016 are as follows:

	Nine Months Ended					Nine Months Ended
	June 30, 2017					June 30, 2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	22,051,000		78	%	$	24,363,000		74	%
Europe		3,262,000		12	%		6,361,000		19	%
Other		2,752,000		10	%		2,175,000		7	%
	$	28,065,000		100	%	$	32,899,000		100	%

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Basis of Presentation (Details Textual)	Jun. 30, 2017	Nov. 18, 2016
Xcede Technologies inc [Member]
Noncontrolling Interest, Ownership Percentage by Parent	61.00%	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	9 Months Ended
	Nov. 30, 2016	Nov. 30, 2016	Jun. 30, 2017	Jun. 30, 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			61.00%	61.00%	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.
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
Expense Recognized In Long Term Contract			$ 33,000	$ 238,000
Imputed Interest Rate				5.40%
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 ($)	Jun. 30, 2017	Sep. 30, 2016
Inventory Current [Line Items]
Raw Materials	$ 2,463,000	$ 1,938,000
Work-in-Process	529,000	834,000
Finished Goods	1,125,000	954,000
Inventory, Net, Total	$ 4,117,000	$ 3,726,000

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Intangible Assets (Details) - USD ($)	9 Months Ended	12 Months Ended
	Jun. 30, 2017	Sep. 30, 2016	Jun. 30, 2016
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 2,163,000	$ 2,088,000
Accumulated Amortization	1,096,000	1,021,000
Net	1,067,000	1,067,000	$ 1,096,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	716,000	718,000
Accumulated Amortization	519,000	473,000
Net	$ 197,000	$ 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	307,000	282,000
Net	205,000	230,000
Trade Name [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	271,000	272,000
Accumulated Amortization	0	0
Net	$ 271,000	$ 272,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	20 years	20 years
Gross Amount	$ 404,000	$ 326,000
Accumulated Amortization	10,000	6,000
Net	$ 394,000	$ 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)	Jun. 30, 2017 USD ($)
Finite-Lived Intangible Assets [Line Items]
2017 (3 months)	$ 32,000
2018	126,000
2019	143,000
2020	46,000
2021	46,000
Thereafter	248,000
Total	641,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
2017 (3 months)	20,000
2018	80,000
2019	97,000
2020	0
2021	0
Thereafter	0
Total	197,000
Know How [Member]
Finite-Lived Intangible Assets [Line Items]
2017 (3 months)	9,000
2018	34,000
2019	34,000
2020	34,000
2021	34,000
Thereafter	60,000
Total	205,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2017 (3 months)	3,000
2018	12,000
2019	12,000
2020	12,000
2021	12,000
Thereafter	188,000
Total	$ 239,000

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Sep. 30, 2016
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 24,000	$ 43,000	$ 75,000	$ 129,000
Finite-Lived Intangible Assets, Gross	2,163,000		2,163,000		$ 2,088,000
Parent [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	$ 155,000		$ 155,000

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Debt (Details Textual) - USD ($) $ in Millions	1 Months Ended
	Nov. 30, 2016	May 16, 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]
Debt [Line Items]
Debt, Current		$ 1.0

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Earnings (Loss) Per Common Share (Details) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Weighted average shares outstanding
Basic	16,945,744	16,698,205	16,879,864	16,628,279
Effect of dilutive securities
Dilutive Average Shares Outstanding	16,945,744	16,701,737	16,879,864	16,671,016
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	3,532	0	42,737

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Earnings (Loss) Per Common Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	196,769	123,147	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		70,000
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	0	3,532	0	42,737

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Stock Based Compensation (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 116,000	$ 329,000	$ 343,000	$ 592,000
Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	60,000	74,000	183,000	259,000
Restricted Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	13,000	13,000	39,000	33,000
Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	12,000	12,000	37,000	29,000
Employee Stock Purchase Plan [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	1,000	1,000	2,000	2,000
Subsidiary Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	0	210,000	0	210,000
Subsidiary Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 30,000	$ 19,000	$ 82,000	$ 59,000

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Stock Based Compensation (Details 1) - Restricted Stock [Member]	9 Months Ended
	Jun. 30, 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)	9 Months Ended
	Jun. 30, 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	9 Months Ended	12 Months Ended
	Jun. 30, 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 7 months 2 days
Balance, Weighted Average Remain Contractual Term (in Years)	1 year 10 months 20 days	1 year 8 months 8 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	1 year 10 months 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	827,155	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)	8 years 11 months 16 days	8 years 4 months 6 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	8 years 5 months 19 days	8 years 4 days

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Stock Based Compensation (Details Textual)	9 Months Ended
	Jun. 30, 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 | $	$ 182,000
Employee Stock Plan [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options | $	$ 126,000

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Segment, Customer and Geographical Reporting (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Sep. 30, 2016
Segment Reporting Information [Line Items]
Revenue	$ 8,836,000	$ 10,406,000	$ 28,065,000	$ 32,899,000
Gross profit	$ 3,364,000	$ 3,927,000	$ 10,679,000	$ 11,969,000
GM %	38.00%	38.00%	38.00%	36.00%
Operating Expenses, Total	$ 3,636,000	$ 3,601,000	$ 10,876,000	$ 11,439,000
Gain on sale of assets	0	0	0	(4,000)
Operating income (loss)	(272,000)	326,000	(197,000)	530,000
Depreciation and amortization	301,000	288,000	926,000	939,000
Capital expenditures	259,000	336,000	533,000	1,342,000
Intangibles, net	1,067,000	1,096,000	1,067,000	1,096,000	$ 1,067,000
Goodwill	5,894,000	5,940,000	5,894,000	5,940,000	5,898,000
Total assets	28,182,000	25,722,000	28,182,000	25,722,000	$ 26,369,000
Optics [Member]
Segment Reporting Information [Line Items]
Revenue	4,837,000	5,780,000	14,524,000	18,415,000
Gross profit	$ 1,655,000	$ 2,012,000	$ 5,144,000	$ 6,330,000
GM %	34.00%	35.00%	35.00%	34.00%
Operating Expenses, Total	$ 1,619,000	$ 1,604,000	$ 4,544,000	$ 5,237,000
Gain on sale of assets			0	(4,000)
Operating income (loss)	36,000	408,000	600,000	1,097,000
Depreciation and amortization	248,000	247,000	719,000	700,000
Capital expenditures	179,000	330,000	373,000	1,224,000
Intangibles, net	468,000	549,000	468,000	549,000
Goodwill	955,000	1,001,000	955,000	1,001,000
Total assets	19,488,000	16,752,000	19,488,000	16,752,000
Contract Research [Member]
Segment Reporting Information [Line Items]
Revenue	3,999,000	4,626,000	13,541,000	14,484,000
Gross profit	$ 1,709,000	$ 1,915,000	$ 5,535,000	$ 5,639,000
GM %	43.00%	41.00%	41.00%	39.00%
Operating Expenses, Total	$ 1,640,000	$ 1,601,000	$ 5,182,000	$ 5,107,000
Gain on sale of assets			0	0
Operating income (loss)	69,000	314,000	353,000	532,000
Depreciation and amortization	52,000	24,000	200,000	187,000
Capital expenditures	54,000	0	88,000	37,000
Intangibles, net	205,000	239,000	205,000	239,000
Goodwill	4,939,000	4,939,000	4,939,000	4,939,000
Total assets	8,004,000	8,546,000	8,004,000	8,546,000
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%
Operating Expenses, Total	$ 377,000	$ 396,000	$ 1,150,000	$ 1,099,000
Gain on sale of assets			0	0
Operating income (loss)	(377,000)	(396,000)	(1,150,000)	(1,099,000)
Depreciation and amortization	1,000	17,000	7,000	52,000
Capital expenditures	26,000	6,000	72,000	81,000
Intangibles, net	394,000	308,000	394,000	308,000
Goodwill	0	0	0	0
Total assets	$ 690,000	$ 424,000	$ 690,000	$ 424,000

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Segment, Customer and Geographical Reporting (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 8,836,000	$ 10,406,000	$ 28,065,000	$ 32,899,000
% of Total	100.00%	100.00%	100.00%	100.00%
United State [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 6,928,000	$ 7,908,000	$ 22,051,000	$ 24,363,000
% of Total	78.00%	76.00%	78.00%	74.00%
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 962,000	$ 1,868,000	$ 3,262,000	$ 6,361,000
% of Total	11.00%	18.00%	12.00%	19.00%
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 946,000	$ 630,000	$ 2,752,000	$ 2,175,000
% of Total	11.00%	6.00%	10.00%	7.00%

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Segment, Customer and Geographical Reporting (Details Textual)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Customer Three [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%		10.00%
Customer Four [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage		10.00%		10.00%
Customer Five [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage		10.00%		10.00%
Optics [Member] | Customer One [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage		10.00%		10.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	52.00%	72.00%	58.00%	77.00%

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Income Taxes (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Nov. 18, 2016
Income Tax [Line Items]
Income Tax Expense (Benefit)	$ (111,000)	$ 32,000	$ (2,769,000)	$ 101,000
Effective Income Tax Rate Reconciliation, Percent	34.00%	13.00%	767.00%
Excluding The Impact Of Valuation Allowance [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Percent			(43.60%)	32.00%
Xcede Technologies inc [Member]
Income Tax [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	61.00%		61.00%		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%