10-Q

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

¨ 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 every Interactive Data File required to be submitted 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 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 x	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. Yes ¨ No ¨

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange of which registered
Common stock	DYSL	Nasdaq Capital Market

As of May 7, 2019 there were 17,541,300 shares of common stock, par value $.0005 per share, outstanding.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

INDEX

	Page
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2019 AND SEPTEMBER 30, 2018	3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2019 and 2018	5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2019 AND 2018	6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2019 and 2018	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 4.  Controls and Procedures	37
PART II.  OTHER INFORMATION	38
Item 1A. Risk Factors	38
Item 6. Exhibits	39
Signatures	40

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,		September 30,
	2019		2018
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	350,000	$	2,327,000
Accounts receivable, net of allowances of $267,000 and $262,000 at March 31, 2019 and September 30, 2018, respectively		3,950,000		4,069,000
Unbilled receivables		2,553,000		1,214,000
Contract assets		19,000		1,000
Inventories, net of reserves		4,525,000		4,106,000
Prepaid expenses and other current assets		847,000		664,000
Total current assets		12,244,000		12,381,000
Property, Plant and Equipment, net		8,020,000		8,098,000
Other Assets
Intangibles, net		701,000		755,000
Deferred tax asset		4,198,000		4,333,000
Goodwill		5,900,000		5,900,000
Long term contract assets		26,000		7,000
Security deposits		53,000		58,000
Total other assets		10,878,000		11,053,000
Total Assets	$	31,142,000	$	31,532,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Equipment line of credit	$	484,000	$	-
Current portion of long-term debt		1,307,000		1,246,000
Capital lease obligations, current portion		33,000		40,000
Accounts payable		2,218,000		2,355,000
Contract liabilities		25,000		253,000
Accrued expenses and other liabilities		2,469,000		2,803,000
Total current liabilities		6,536,000		6,697,000
Long-term Liabilities
Long-term debt, net of current portion		1,660,000		2,075,000
Capital lease obligations, net of current portion		38,000		52,000
Deferred tax liability, net		205,000		205,000
Other long-term liabilities		180,000		175,000
Total long-term liabilities		2,083,000		2,507,000

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

3

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)

	March 31,			September 30,
	2019			2018
	(Unaudited)
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 18,301,216 and 18,152,074 shares issued, 17,491,056 and and 17,341,914 shares outstanding at March 31, 2019 and September 30, 2018, respectively.		9,000			9,000
Additional paid in capital		22,060,000			21,865,000
Accumulated other comprehensive income (loss)		(696,000	)		(700,000	)
Retained earnings		862,000			841,000
Less 810,160 shares of treasury stock - at cost		(986,000	)		(986,000	)
Total Dynasil stockholders' equity		21,249,000			21,029,000
Noncontrolling interest		1,274,000			1,299,000
Total stockholders' equity		22,523,000			22,328,000
Total Liabilities and Stockholders' Equity	$	31,142,000		$	31,532,000

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

4

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2018			2019			2018
Net revenue	$	11,532,000		$	10,255,000		$	21,560,000		$	19,443,000
Cost of revenue		7,174,000			6,310,000			13,510,000			11,958,000
Gross profit		4,358,000			3,945,000			8,050,000			7,485,000
Operating expenses:
Sales and marketing		477,000			388,000			875,000			667,000
Research and development		147,000			215,000			324,000			524,000
General and administrative		3,410,000			3,262,000			6,652,000			6,418,000
Total operating expenses		4,034,000			3,865,000			7,851,000			7,609,000
Income (loss) from operations		324,000			80,000			199,000			(124,000	)
Interest expense, net		46,000			45,000			88,000			88,000
Income (loss) before taxes		278,000			35,000			111,000			(212,000	)
Income tax (benefit)		206,000			(1,255,000	)		141,000			(595,000	)
Net income (loss)		72,000			1,290,000			(30,000	)		383,000
Less: Net loss attributable to noncontrolling interest		(4,000	)		(33,000	)		(13,000	)		(108,000	)
Net income (loss) attributable to common stockholders	$	76,000		$	1,323,000		$	(17,000	)	$	491,000
Net income (loss)	$	72,000		$	1,290,000		$	(30,000	)	$	383,000
Other comprehensive income (loss):
Foreign currency translation		145,000			222,000			4,000			257,000
Total comprehensive income (loss)		217,000			1,512,000			(26,000	)		640,000
Less: comprehensive income (loss) attributable to noncontrolling interest		(4,000	)		(33,000	)		(13,000	)		(108,000	)
Total comprehensive income (loss) attributable to common stockholders	$	221,000		$	1,545,000		$	(13,000	)	$	748,000
Basic net income (loss) per common share	$	0.00		$	0.08		$	(0.00	)	$	0.03
Diluted net income (loss) per common share	$	0.00		$	0.08		$	(0.00	)	$	0.03
Weighted average shares outstanding
Basic		17,433,249			17,133,468			17,379,113			17,090,530
Diluted		17,433,249			17,133,468			17,379,113			17,090,530

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)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2018			2019			2018
Common Amount
Balance, beginning of period	$	9,000		$	9,000		$	9,000		$	9,000
Balance, end of period		9,000			9,000			9,000			9,000
Additional Paid-in Capital
Balance, beginning of period		21,946,000			21,499,000			21,865,000			21,406,000
Issuance of shares of common stock under employee stock purchase plan		4,000			4,000			9,000			8,000
Stock-based compensation costs		110,000			132,000			186,000			221,000
Balance, end of period		22,060,000			21,635,000			22,060,000			21,635,000
Other Comprehensive Income (Loss)
Balance, beginning of period		(841,000	)		(504,000	)		(700,000	)		(539,000	)
Foreign currency translation adjustment		145,000			222,000			4,000			257,000
Balance, end of period		(696,000	)		(282,000	)		(696,000	)		(282,000	)
Retained Earnings (Accumulated Deficit)
Balance, beginning of period		770,000			(1,751,000	)		841,000			(919,000	)
Impact of change in accounting policy		-			-			22,000			-
Xcede stock surrender of Series A Preferred		16,000			-			16,000			-
Net income (loss)		76,000			1,323,000			(17,000	)		491,000
Balance, end of period		862,000			(428,000	)		862,000			(428,000	)
Treasury Stock
Balance, beginning of period		(986,000	)		(986,000	)		(986,000	)		(986,000	)
Balance, end of period		(986,000	)		(986,000	)		(986,000	)		(986,000	)
Noncontrolling Interest
Balance, beginning of period		1,292,000			1,383,000			1,299,000			1,454,000
Stock-based compensation costs		2,000			5,000			4,000			9,000
Xcede stock surrender of Series A Preferred		(16,000	)		-			(16,000	)		-
Net income (loss)		(4,000	)		(33,000	)		(13,000	)		(108,000	)
Balance, end of period		1,274,000			1,355,000			1,274,000			1,355,000
Total Stockholders' Equity	$	22,523,000		$	21,303,000		$	22,523,000		$	21,303,000
Common Shares
Number of shares, beginning of period		18,198,121			17,929,183			18,152,074			17,893,763
Issuance of shares of common stock under employee stock purchase plan		5,512			3,536			11,830			7,956
Stock-based compensation costs		97,583			76,152			137,312			107,152
Number of shares, end of period		18,301,216			18,008,871			18,301,216			18,008,871
Treasury Shares
Number of shares, beginning of period		810,160			810,160			810,160			810,160
Number of shares, end of period		810,160			810,160			810,160			810,160

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

6

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	March 31,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(30,000	)	$	383,000
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense		190,000			230,000
Foreign exchange loss (gain)		8,000			(33,000	)
Depreciation and amortization		693,000			610,000
Deferred income taxes		136,000			(710,000	)
Non-cash R&D services		-			200,000
Other		14,000			50,000
Other changes in assets and liabilities:
Accounts receivable, net		120,000			(811,000	)
Unbilled receivables		(1,299,000	)		472,000
Contract assets		(37,000	)		-
Inventories		(437,000	)		(279,000	)
Prepaid expenses and other assets		(180,000	)		189,000
Accounts payable		(137,000	)		(646,000	)
Accrued expenses and other liabilities		(335,000	)		123,000
Contract liabilities		(228,000	)		(3,000	)
Net cash from operating activities		(1,522,000	)		(225,000	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(561,000	)		(1,005,000	)
Purchase of intangibles		-			(45,000	)
Net cash from investing activities		(561,000	)		(1,050,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		10,000			8,000
Principal payments on capital leases		(21,000	)		(50,000	)
Proceeds from (payments of) equipment line of credit, net		484,000			281,000
Proceeds from (payments of) bank and subordinated debt, net		(360,000	)		(277,000	)
Net cash from financing activities		113,000			(38,000	)
Effect of exchange rates on cash and cash equivalents		(7,000	)		28,000
Net change in cash and cash equivalents		(1,977,000	)		(1,285,000	)
Cash and cash equivalents, beginning	$	2,327,000		$	2,415,000
Cash and cash equivalents, ending	$	350,000		$	1,130,000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	83,000		$	77,000
Tax payments (refunds)		(5,000	)		5,000
Non cash activities:
Xcede stock surrender of Series A Preferred		18,000			-

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

7

DYNASIL CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Basis of Presentation

The accompanying consolidated balance sheet as of March 31, 2019, the consolidated statements of operations and comprehensive income (loss) for the three and six months ended March 31, 2019 and 2018, changes in stockholders’ equity for the three and six months ended March 31, 2019 and 2018, and cash flows for the six months ended March 31, 2019 and 2018 of Dynasil Corporation of America and subsidiaries (the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. Xcede Technologies, Inc. (“Xcede”) is a joint venture between Dynasil Biomedical and Mayo Clinic to spin out and separately fund the development of a tissue sealant technology. As of March 31, 2019, Dynasil Biomedical owned 63% 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 remaining 37% of Xcede’s stock is owned by others and is 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, 2018 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2019, 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

Effective October 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, and all the related amendments using the modified retrospective transition method. Under the modified retrospective approach, the Company applied the standards to new contracts and those that were not completed as of October 1, 2018 which resulted in a cumulative adjustment to increase the retained earnings in the amount of $22,000. Prior periods will not be retrospectively adjusted, but the Company will maintain dual reporting for the year of initial application in order to maintain comparability of the periods presented. The cumulative effect of the changes made to the October 1, 2018 unaudited consolidated balance sheet for the adoption of Topic 606 was as follows:

8

	Balance at		Adjustment for			Adjusted balance at
	September 30, 2018		Topic 606			October 1, 2018
Assets:
Unbilled receivables		1,214,000		40,000			1,254,000
Inventories, net of reserves		4,106,000		(18,000	)		4,088,000
Liabilities:
Contract liabilities		253,000		-			253,000
Stockholders' equity:
Retained earnings		841,000		22,000			863,000

Contract assets were formerly reported within costs in excess of billings and unbilled receivables. Contract liabilities were formerly reported as deferred revenue. The titles have been changed in the table below to be consistent with accounts currently used under the new standard.

	September 30, 2018
	As Reported		As Adopted
Unbilled receivables		1,215,000		1,214,000
Contract assets		-		1,000
Security and other deposits		65,000		58,000
Long term contract assets		-		7,000
Deferred revenue		253,000		-
Contract liabilities		-		253,000

The Company receives payments from customers based on a billing schedule as established in our contracts. Contract asset relates to our conditional right to consideration for our completed performance under the contract. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract liability relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) we perform under the contract. The Company recognized revenue in the amount of $137,000 during the three months ended March 31, 2019 and $252,000 during the six months ended March 31, 2019 for amounts included in the contract liability balance at September 30, 2018.

Under the new standard, most contracts in the Innovation and Development (formerly Contract Research) segment, which primarily provide contract research services, were not materially impacted upon the adoption of Topic 606 as revenue will continue to be recognized over time. Contracts in the Optics segment generally provide for the following revenue sources: standard product sales, custom product development and sales, and non-recurring engineering contracts. Revenues for this segment are recognized using either the “point in time” or “over time” methods of Topic 606, depending upon the revenue source. The change in revenue recognition for the Optics segment related to certain custom optics products and the related non-recurring engineering costs which changed from “point in time” to “over time” upon the adoption of Topic 606. This change will result in the recognition of revenue over time when compared to existing standards with the cumulative adjustment relating to contracts that are not complete as of September 30, 2018 recognized as an adjustment of $22,000 to opening retained earnings on October 1, 2018. The revenue for the standard products will be recognized using the "point in time" model of Topic 606, and the timing of such revenue recognition is not expected to differ materially from the historical revenue recognition. Other immaterial adjustments related to the Optics segment that are sometimes offered to customers include customer rights of return and volume discounts. The Company has elected the practical expedient that the Company will not be required to adjust promised amounts of consideration for the effects of a significant financing component if the transfer of promised goods or services will occur in one year or less.

9

The impact of the adoption of ASC 606 on the Company’s consolidated financial statements for the three and six months ended March 31, 2019 was immaterial as compared to what would have been reported under the previous guidance.

Innovation and Development Segment Revenues

The Company performs research and development for U.S. Federal government agencies, educational institutions and commercial organizations. The Company accounts for a research contract when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. Revenue is earned under reimbursement of costs plus fees, fixed price, or time and material type contracts.

The Company’s contracts with agencies of the U.S. government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided. In evaluating the probability of funding for purposes of assessing collectability of the contract price, the Company considers previous experience with the customers, communication with the customers regarding funding status, and knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is reasonably assured.

Under the typical payment terms of the Company’s U.S. government contracts, the customer pays either performance-based payments or progress payments. Performance-based payments, which are typically used in the firm fixed price contracts, are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments, which are typically used in the Company’s cost-plus type contracts, are interim payments based on costs incurred as the work progresses. For the Company’s U.S. government cost-plus contracts, the customer generally pays during the performance period for 80%-90% of the actual costs incurred. Because the customer retains a small portion of the contract price until completion of the contract and audit of allowable costs, cost-plus type contracts generally result in revenue recognized in excess of billings which the Company presents as contract assets on the balance sheet. Amounts billed and due from customers are classified as receivables on the balance sheet, whereas amounts earned, but not yet billed to the Company’s customers due to timing, are classified as unbilled receivables on the balance sheet. The Company recognizes a liability for performance-based payments paid in advance which are in excess of the revenue recognized and presents these amounts as contract liabilities on the balance sheet.

To determine the proper revenue recognition method for research and development contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single modified contract and whether the combined or single contract should be accounted for as more than one performance obligation. For instances where a contract has options that were bid with the initial contract and awarded at a later date, the Company combines the options with the original contract when options are awarded. For most contracts, the customer contracts for research with multiple milestones that are interdependent, thus, the entire contract is accounted for as one performance obligation. The effect of the combined or modified contract on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

Contract revenue recognition is measured over time as the Company performs the work because of continuous transfer of knowledge and control to the customer. For U.S. government contracts which are typically subject to the Federal Acquisition Regulation ("FAR"), this continuous transfer of knowledge and control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay for cost incurred plus a reasonable profit, and take control of any work in process. From time to time, as part of normal management processes, facts may change, causing revisions to estimated total costs or revenues expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known.

10

Because of knowledge and control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. The Company generally uses the input method, more specifically the cost-to-cost measure of progress for the contracts because it best depicts the transfer of knowledge and control to the customer which occurs as the Company incur costs on these contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The underlying bases for estimating contract research revenues are measurable expenses, such as labor, subcontractor costs and materials, and data that are updated on a regular basis for purposes of preparing cost estimates. The Company’s research contracts generally have a period of performance of six months to three years, and estimates of contract costs have historically been consistent with actual results. Revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on operating results, and the Company does not expect future changes in these estimates to be material. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known.

Under cost-plus contracts, the Company is reimbursed for costs that are determined to be reasonable, allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between the Company and the contracting agency. Revenue from cost-plus contracts is recognized as costs are incurred plus an estimate of applicable fees earned. The Company considers fixed fees under cost-plus contracts to be earned in proportion to the allowable costs incurred in performance of the contract.

Revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs. The Company has elected the practical expedient to recognize revenue in the amount for which it has the right to invoice the customer, provided that invoiced amount corresponds directly with the value to the customer of the Company’s performance to date.

Fixed price contracts may include either a product delivery or specific service performance throughout a period. For fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables, the Company recognizes revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements. For fixed price contracts that provide for the development and delivery of a specific prototype or product, revenue is recognized based upon the performance completed to date, using an output method of revenue recognition based on milestones reached.

Whether certain costs under government contracts are allowable is subject to audit by the government. Certain indirect costs are charged to contracts using provisional or estimated indirect rates, which are subject to later revision based on government audits of those costs. Management is of the opinion that costs subsequently disallowed, if any, would not likely have a significant impact on revenues recognized for those contracts.

11

Optics Segment Revenues

The Company produces standard and customized products for commercial organizations, educational institutions, and U.S. Federal government agencies. In addition, the Company also offers services which include non-recurring engineering services. To determine the proper revenue recognition method for Optics contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. The Company recognizes revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on their relative stand-alone selling prices. In such circumstances, the Company uses the observable price of goods or services which are sold separately in similar circumstances to similar customers. If these prices are not observable, then the Company will estimate the stand-alone selling price using information that is reasonably available. For the majority of the Company’s standard products and services, price list, and discount structures related to customer type are available. For products and services that do not have price list and discount structures, the Company may use one or more of the following: (i) adjusted market assessment approach or (ii) expected cost plus a margin approach. The adjusted market approach requires evaluation of the market in which the Company sells goods or services and estimates the price that a customer in that market would be willing to pay for those goods or services. The expected cost plus margin approach requires the Company to forecast expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service. Shipping and handling activities primarily occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations. Similarly, sales and similar taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price.

Unfulfilled Performance Obligations

For standard products, the Company recognizes revenue at a point in time when control passes to the customer. Absent substantial product acceptance clauses, this is based on the shipping terms. For custom products that require engineering and development based on customer requirements and provide for cost plus reasonable margin throughout the contract, the Company recognizes revenue over time using the output method for any items shipped and any finished goods or work in process that is produced for balances of open sales orders. For any finished goods or work in process that has been produced for the balance of open sales orders the Company recognizes revenue by applying the average selling price for such open order to the lesser of the on hand balance in finished goods or open sales order quantity which the Company presents as a contract asset on the balance sheet. Cost of sales is recognized based on the standard cost of the finished goods and work in process associated with this revenue and inventory balances are reduced accordingly.

Unfulfilled performance obligations represent amounts expected to be earned on executed contracts. Indefinite delivery and quantity contracts and unexercised options are not reported in total unfulfilled performance obligations. Unfulfilled performance obligations include funded obligations, which is the amount for which money has been directly authorized by the U.S. government and  by a commercial customer for which a purchase order has been received, and unfunded obligations, representing firm orders for which funding has not yet been appropriated. The approximate value of our Innovation and Development segment unfulfilled performance obligations was $32.8 million at March 31, 2019. The Company expects to satisfy 46% of the performance obligations in fiscal year 2019, 41% in fiscal year 2020, and the remaining amount by fiscal year 2024. The approximate value of our Optics segment unfulfilled performance obligations was $3.2 million at March 31, 2019. The Company expects to satisfy 86% of the performance obligations in fiscal year 2019 and 14% in fiscal year 2020.

The Company disaggregates revenue from contracts with customers by geographic locations, customer-type, contract type, timing of recognition, and major categories for each segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. See details in the tables below.

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	Three Months Ended March 31, 2019						Six Months Ended March 31, 2019
	Optics		Innovation & Development		Total		Optics		Innovation & Development		Total
Total Revenue by Geographic Location
United States	$	3,605,000	$	5,168,000	$	8,773,000	$	6,880,000	$	9,353,000	$	16,233,000
Asia		858,000		7,000		865,000		1,773,000		22,000		1,795,000
Europe		1,701,000		12,000		1,713,000		3,186,000		51,000		3,237,000
Other		62,000		119,000		181,000		108,000		187,000		295,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Contract Type
Firm-fixed price	$	6,226,000	$	605,000	$	6,831,000	$	11,947,000	$	1,163,000	$	13,110,000
Non-Firm Fixed price		-		4,701,000		4,701,000		-		8,450,000		8,450,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Major Customer Type
U.S. government revenue	$	-	$	5,035,000	$	5,035,000	$	3,000	$	9,216,000	$	9,219,000
U.S. commercial revenue		3,605,000		132,000		3,737,000		6,877,000		137,000		7,014,000
Foreign commercial and other revenue		2,621,000		139,000		2,760,000		5,067,000		260,000		5,327,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Major Products/Services
Optical components	$	6,194,000	$	-	$	6,194,000	$	11,833,000	$	-	$	11,833,000
Contract research		-		5,223,000		5,223,000		-		9,421,000		9,421,000
Other products and services		32,000		83,000		115,000		114,000		192,000		306,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Timing of Recognition
Goods/services transferred over time	$	508,000	$	5,223,000	$	5,731,000	$	1,068,000	$	9,421,000	$	10,489,000
Goods transferred at a point in time		5,718,000		83,000		5,801,000		10,879,000		192,000		11,071,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000

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. This update is effective for the Company in the fiscal year beginning October 1, 2018, at the time the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company implemented this ASU on October 1, 2018 and it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued ASU 2016-16 which eliminates the exception, other than for inventory transfers, under current U.S. GAAP under which the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. Upon adoption of ASU 2016-16, the Company will recognize the tax expense from the sale of that asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. The cumulative-effect adjustment, if any, would consist of the net impact from (1) the write-off of any unamortized tax expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any necessary valuation allowances. The impact of the adoption of this standard on future periods will be dependent on future asset transfers, which generally occur in connection with acquisitions and other business structuring activities. The Company implemented this ASU on October 1, 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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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 Company implemented this ASU on October 1, 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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 effective for the Company in the fiscal year beginning October 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Leases (Topic 842). In February 2016, the FASB issued ASU 2016-02 (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20) which requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP. The transitional guidance for adopting the requirements of ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities may elect to apply. In addition, ASU 2018-11 provides for an additional (and optional) transition method by which entities may elect to initially apply the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and without retrospective application to any comparative prior periods presented. Also, ASU 2018-20 provides certain narrow-scope improvements to Topic 842 as it relates to lessors. The guidance in ASU 2016-02 will become effective for the Company as of the beginning of the 2020 fiscal year. The Company has begun reviewing vendor relationships and assessing the impact of this ASU on its consolidated financial statements with the intention to adopt this ASU in fiscal year 2020.

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 by eliminating Step 2 from the Goodwill impairment test. This new guidance is effective for the Company beginning in fiscal year 2021. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

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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 $5.2 million in the aggregate principal amount of convertible notes bearing interest at 5% (“the Notes”). In November of 2016, the Notes were converted into Series A convertible preferred stock of Xcede (“Series A Preferred”). 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.

Additionally, DBM invested $1.2 million of cash into Xcede in exchange for Series B convertible preferred stock of Xcede (“Series B Preferred”). Series A Preferred was issued at a 20% discount to the price per share of the Series B Preferred, in accordance with the amended provisions of the Notes. The value of DBM’s Series A Preferred and Series B Preferred, as they are wholly owned by DBM, is eliminated in consolidation.

Each share of Series A Preferred and Series B Preferred (together “the Preferred Stock”) is 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 is entitled to one vote for each share of Common Stock that the holder of the Preferred Stock would be entitled to receive upon the conversion of the holder’s Preferred Stock into Common Stock. Upon any liquidation event, which includes certain change of control events, following payment of pre-equity distributions, the remaining proceeds or net assets of Xcede shall be paid and distributed in the following amounts and order of priority: (1) to satisfy the liquidation preference payment due to each holder of Series B Preferred, (2) to satisfy the liquidation preference payment due to each holder of Series A Preferred, (3) payment in full of any acquisition transaction payment, and (4) the remaining assets available to be distributed ratably among the holders of the Common Stock. If a liquidation event were to occur, the Series A Preferred’s liquidation value would be $1.016 per share and Series B Preferred’s liquidation value would be $1.27 per share. As of March 31, 2019, the liquidation value of the Series B Preferred would be approximately $1.5 million and the Series A Preferred would be approximately $5.5 million, of which $2.4 million is DBM’s portion and $3.1 million would be attributed to noncontrolling shareholders.

As of March 31, 2019, DBM owned approximately 63% 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.

In 2016, Xcede signed agreements with Cook Biotech Inc. (“CBI”) in connection with the development, regulatory approval and production of Xcede’s hemostatic patch (the “Xcede Patch”) in which CBI committed to fund up to $1.5 million for the pre-clinical testing for the Xcede Patch. Xcede utilized $0.5 million in CBI services in exchange for a note that is currently outstanding.

On July 20, 2018, Xcede received a notice of termination from CBI claiming that the results of a recent animal study showed that it is not commercially reasonable, in CBI’s assessment, to continue to the next development phase of the Patch.

In light of the foregoing, Xcede has halted clinical trial preparations at this time and has curtailed its operations to a minimal level while the Board of Directors of Xcede evaluates alternatives, including the viability of modifying the Xcede Patch to address the shortcomings cited by CBI and/or the possible sale or license of Xcede IP assets, subject to amending CBI’s security interest. Additionally, Xcede and the Company’s RMD subsidiary have begun an investigation of possible continued development of the Xcede Patch, which includes seeking government funding of this development. In April 2019, RMD filed an application for a Phase I SBIR grant for $225,000, which is currently being reviewed. There can be no assurances with respect to any such alternatives or that any additional outside funding to continue development of the Xcede Patch will be available to Xcede.

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Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	March 31,		September 30,
	2019		2018
Raw Materials	$	2,626,000	$	2,362,000
Work-in-Process		930,000		890,000
Finished Goods		969,000		854,000
	$	4,525,000	$	4,106,000

Note 5 – Intangible Assets

Intangible assets at March 31, 2019 and September 30, 2018 consist of the following:

	Useful	Gross		Accumulated
March 31, 2019	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	719,000	$	633,000	$	86,000
Know How	15		512,000		367,000		145,000
Trade Names	Indefinite		273,000		-		273,000
Patents	20		223,000		26,000		197,000
Biomedical Technologies	5		260,000		260,000		-
		$	1,987,000	$	1,286,000	$	701,000
	Useful	Gross		Accumulated
September 30, 2018	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	719,000	$	601,000	$	118,000
Know How	15		512,000		350,000		162,000
Trade Names	Indefinite		272,000		-		272,000
Patents	20		223,000		20,000		203,000
Biomedical Technologies	5		260,000		260,000		-
		$	1,986,000	$	1,231,000	$	755,000

Amortization expense for the three months ended March 31, 2019 and 2018 was $27,000 and $28,000, respectively. Amortization expense for the six months ended March 31, 2019 and 2018 was $54,000 and $56,000, respectively.

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

	2019 (6 months)		2020		2021		2022		2023		Thereafter		Total
Acquired Customer Base	$	40,000	$	46,000	$	-	$	-	$	-	$	-	$	86,000
Know How		17,000		34,000		34,000		34,000		26,000		-		145,000
Patents		6,000		11,000		11,000		11,000		11,000		147,000		197,000
	$	63,000	$	91,000	$	45,000	$	45,000	$	37,000	$	147,000	$	428,000

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, aside from foreign exchange rate fluctuations, in the carrying value of long-lived assets, during the six months ended March 31, 2019 and 2018.

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;

· 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 six months ended March 31, 2019 and 2018.

Note 7 – Debt

Subordinated Debt

On November 27, 2018, 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, 2019. Such amendment also extended the maturity date from July 31, 2019 to November 30, 2021.

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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 the three and six months ended March 31, 2019 and 2018, no common share equivalents related to stock options were included in the calculation of dilutive shares, as all of the 95,602 and 160,537 common stock options outstanding, respectively, had exercise prices above the applicable period’s average market price per share and the inclusion of common share equivalents would be anti-dilutive. Additionally, for the three and six months ended March 31, 2019 and 2018, 30,000 and 40,000 shares of restricted common stock were excluded from the calculation of dilutive shares, respectively, as the effect of their inclusion would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended March 31, 2019 and 2018 is as follows:

	March 31, 2019		March 31, 2018
Weighted average shares outstanding
Basic		17,433,249		17,133,468
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		17,433,249		17,133,468

The computation of the weighted shares outstanding for the six months ended March 31, 2019 and 2018 is as follows:

	March 31, 2019		March 31, 2018
Weighted average shares outstanding
Basic		17,379,113		17,090,530
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		17,379,113		17,090,530

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.

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As of March 31, 2019, DBM owned approximately 63% of Xcede’s outstanding Common Stock and Preferred Stock. No significant change in the Company’s position with respect to the ownership of Xcede’s stock occurred during the three months ended March 31, 2019.

Stock compensation expense for the three and six months ended March 31, 2019 and 2018 is as follows:

	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Stock Grants	$	91,000	$	91,000
Restricted Stock Grants		9,000		13,000
Option Grants		-		5,000
Employee Stock Purchase Plan		1,000		-
Subsidiary Option Grants		11,000		28,000
Total	$	112,000	$	137,000
	Six Months Ended		Six Months Ended
	March 31, 2019		March 31, 2018
Stock Grants	$	142,000	$	130,000
Restricted Stock Grants		24,000		26,000
Option Grants		-		17,000
Employee Stock Purchase Plan		2,000		1,000
Subsidiary Option Grants		22,000		56,000
Total	$	190,000	$	230,000

At March 31, 2019, there was approximately $32,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of approximately thirteen months.

Restricted Stock Grants

A summary of restricted stock activity for the six months ended March 31, 2019 is presented below:

Restricted Stock Activity for the Six Months ended March 31, 2019	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2018		60,000		$	1.61
Granted		-			-
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at March 31, 2019		30,000		$	1.48

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Stock Option Grants

During the six months ended March 31, 2019, no Dynasil stock options were granted. A summary of stock option activity for the six months ended March 31, 2019 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2018		160,537		$	2.01		0.93
Outstanding and exercisable at September 30, 2018		160,537		$	2.01		0.93
Granted		-			-
Exercised		-			-
Cancelled		(64,935	)		2.33
Balance at March 31, 2019		95,602		$	1.80		0.84
Outstanding and exercisable at March 31, 2019		95,602		$	1.80		0.84

Subsidiary Stock Option Grants

During the six months ended March 31, 2019, no Xcede stock options were granted. A summary of Xcede stock option activity for the six months ended March 31, 2019 is presented below:

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2018		1,300,956	$	1.00		7.31
Outstanding and exercisable at September 30, 2018		1,229,685		1.00		7.11
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance at March 31, 2019		1,300,956		1.00		6.60
Outstanding and exercisable at March 31, 2019		1,266,581	$	1.00		6.60

At March 31, 2019, the Company’s Xcede joint venture had approximately $21,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a period of six months.

Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil reports three reportable segments: innovation and development (“Innovation and Development”), (formerly known as the Contract Research segment), 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 (“Hilger”), 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 Innovation and Development 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.

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The Company’s segment information for the three months ended March 31, 2019 and 2018 is summarized below:

Results of Operations for the Three Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	6,226,000		$	5,306,000		$	-		$	11,532,000
Gross profit		2,159,000			2,199,000			-			4,358,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,871,000			2,141,000			22,000			4,034,000
Operating income (loss)		288,000			58,000			(22,000	)		324,000
Depreciation and amortization		292,000			60,000			3,000			355,000
Capital expenditures		313,000			47,000			-			360,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Three Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	5,910,000		$	4,345,000		$	-		$	10,255,000
Gross profit		2,050,000			1,895,000			-			3,945,000
GM %		35	%		44	%		-			38	%
Operating expenses		1,858,000			1,813,000			194,000			3,865,000
Operating income (loss)		192,000			82,000			(194,000	)		80,000
Depreciation and amortization		247,000			61,000			3,000			311,000
Capital expenditures		339,000			58,000			29,000			426,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

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The Company’s segment information for the six months ended March 31, 2019 and 2018 is summarized below:

Results of Operations for the Six Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	11,947,000		$	9,613,000		$	-		$	21,560,000
Gross profit		4,009,000			4,041,000			-			8,050,000
GM %		34	%		42	%		-			37	%
Operating expenses		3,756,000			4,020,000			75,000			7,851,000
Operating income (loss)		253,000			21,000			(75,000	)		199,000
Depreciation and amortization		566,000			120,000			7,000			693,000
Capital expenditures		497,000			64,000			-			561,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Six Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	10,853,000		$	8,590,000		$	-		$	19,443,000
Gross profit		3,740,000			3,745,000			-			7,485,000
GM %		34	%		44	%		-			38	%
Operating expenses		3,433,000			3,537,000			639,000			7,609,000
Operating income (loss)		307,000			208,000			(639,000	)		(124,000	)
Depreciation and amortization		477,000			126,000			7,000			610,000
Capital expenditures		928,000			77,000			45,000			1,050,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

Customer Financial Information

For three and six months ended March 31, 2019, one customer in the Optics segment represented more than 10% of the total segment revenue. For the three and six months ended March 31, 2018, no customer in the Optics segment represented more than 10% of the total segment revenue.

For the three and six months ended March 31, 2019, three customers of the Innovation and Development segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three and six months ended March 31, 2018, four customers of the Innovation and Development segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment 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 March 31, 2019 and 2018 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2019					March 31, 2018
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,773,000		76	%	$	8,129,000		79	%
Asia		865,000		7	%		671,000		7	%
Europe		1,713,000		15	%		1,365,000		13	%
Other		181,000		2	%		90,000		1	%
	$	11,532,000		100	%	$	10,255,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2019 and 2018 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2019					March 31, 2018
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	16,233,000		75	%	$	15,481,000		80	%
Asia		1,795,000		8	%		1,193,000		6	%
Europe		3,237,000		15	%		2,633,000		13	%
Other		295,000		2	%		136,000		1	%
	$	21,560,000		100	%	$	19,443,000		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 is no longer included in Dynasil’s federal consolidated tax return and files a separate federal return. Xcede continues 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 is no longer 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 was reversed resulting in an income tax benefit in the amount of $2.7 million during the quarter ending December 31, 2016. 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.

23

As a result of Xcede’s decision to halt clinical trial preparations and curtail operations to a minimal level while the Board of Directors of Xcede evaluates alternative avenues to develop the Xcede Patch, following the July 2018 notice of termination from Cook Biotech Inc. (“CBI”) claiming that the results of a recent animal study showed that it is not commercially reasonable, in CBI’s assessment, to continue to the next development phase of the Xcede Patch, the Company has concluded that it is more likely than not that the deferred tax assets associated with the Company’s unitary state filings will be realized based on future profit for the group and thus has reversed the related valuation allowance on the Company’s NOLs of approximately $0.6 million. In addition, the Company conducted a research and experimentation study which released the tax valuation allowance and increased deferred tax assets by $0.6 million. The reversal resulted in an income tax benefit of approximately $1.2 million recorded during the year ended September 30, 2018. 

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of March 31, 2019 and September 30, 2018, the Company has no liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of March 31, 2019 and September 30, 2018, 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. 

On December 22, 2017, the 2017 Tax Act was signed into law. The 2017 Tax Act, which was effective on December 22, 2017, significantly revised the U.S. tax code by, among other changes, lowering the corporate income tax rate from 35% to 21%, requiring a one-time transition tax on accumulated foreign earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings.  The Company has completed its accounting for the tax effects of the 2017 Tax Act. 

The Company re-measured certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%, and recorded an income tax expense of $0.7 million related to such re-measurement in the quarter ended December 31, 2018. The one-time transition tax was based on the total unremitted earnings of the Company’s foreign subsidiary, Hilger, which had previously been deferred from U.S. income taxes. The Company recorded a provision for its one-time transition liability of its foreign subsidiary resulting in additional income tax expense of $0.2 million in fiscal year 2018.

During the fiscal year ended, September 30, 2018, the Company has federal research credits of $2.9 million, primarily resulted from a benefit in the second quarter of fiscal year 2018 related to R&E tax credits for the years ended 2013 through 2016. The federal credits begin expiring in fiscal year 2030. During the fiscal year ended September 30, 2018, the Company had state research credits of $852,000 which begin expiring in fiscal year 2027. 

The effective tax rates were 74% and (3,586%) for the three months ended March 31, 2019 and 2018, respectively. The effective tax rates were 127% and 281% for the six months ended March 31, 2019 and 2018, respectively. The effective tax rates for the three and six months ended March 31, 2019 were a result of the anticipated non-deductible transaction costs resulting from the Board of Directors’ plan to cease the registration of the Company’s common stock under federal securities laws (see Note 12 - Subsequent Events). The effective tax rate for the six months ended March 31, 2018 was a result of the 2017 Tax Act. The effective tax rate excluding the impact of the 2017 Tax Act was (16%) for the six months ended March 31, 2018.

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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Note 12 – Subsequent Events

On April 30, 2019, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $484,000, which was outstanding on March 31, 2019, into a five year term note with an interest rate of 5.17%. Additionally, on May 1, 2019, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2020, at which time the outstanding balance will be converted into a five year term note.

On May 2, 2019, the Company announced that a Special Committee of the Company’s Board of Directors comprised of three independent directors has recommended, and its Board of Directors has approved, a plan to cease the registration of the Company’s common stock under federal securities laws following the completion of a proposed reverse stock split transaction and to delist its shares of common stock from trading on the Nasdaq Capital Market. It is expected that this plan would be effectuated in the late summer 2019, subject to Dynasil’s stockholders approving the proposed reverse stock split at a Special Meeting of Stockholders, as described below.

Dynasil is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company's resources on enhancing long-term stockholder value. The Company anticipates savings exceeding $900,000 on an annual basis as a result of the proposed deregistration and delisting transaction.

The proposed reverse stock split is a 1-for-8,000 split, in which holders of less than 8,000 shares of the Company’s common stock would be cashed out at a price of $1.15 per share for their pre-split number of shares. Such price represents a premium above the common stock’s closing price on May 1, 2019 and is supported by a fairness opinion by Mirus Capital Advisors Inc., whom the Special Committee engaged for such purpose. Stockholders owning 8,000 or more shares of the Company’s common stock prior to the reverse stock split would remain stockholders in Dynasil, which would no longer be encumbered by the expenses and distraction of a public reporting company. The number of shares they would own following the proposed transaction would be unchanged, as immediately after the reverse stock split a forward split of 8,000-for-1 would be applied to the continuing stockholders, negating any effects to them. Dynasil estimates that approximately 1.4 million shares (or less than 8% of the shares of its common stock currently outstanding) would be cashed out in the proposed transaction and the aggregate cost to the Company of the proposed transaction would be approximately $1.6 million, plus transaction expenses, which are estimated to be approximately $650,000. Dynasil intends to fund such costs using cash-on-hand and borrowings available under its existing credit facilities.

Dynasil’s Board of Directors has determined the proposed transaction is in the best interests of all of the Company’s stockholders. Dynasil currently realizes none of the traditional benefits of public company status, yet incurs all of the significant annual expenses and indirect costs associated with being a public company. Without its public company status, Dynasil would have an ongoing cost structure befitting its current and foreseeable scale of operations and its management would be able to have an increased focus on core operations.

Subject to regulatory clearance of the Company’s proxy statement to be filed relating to the proposed stock splits and stockholder approval thereof, it is anticipated that the proposed transaction would become effective shortly after the Special Meeting of Stockholders, which is expected to be held this summer 2019. Approval of the proposed transaction requires the affirmative vote of a majority of the shares cast (represented in person or by proxy) and entitled to vote at the Special Meeting. As of the date hereof, the Company’s directors and executive officers own approximately 37% of the Company’s currently issued and outstanding shares and are expected to vote “FOR” the transaction.

Promptly after the Special Meeting, the Company expects to terminate the registration of its common stock with the SEC and de-list its common stock from the Nasdaq Capital Market. As a result, at such time, (i) the Company would cease to file annual, quarterly, current, and other reports and documents with the SEC, and stockholders would cease to receive annual reports and proxy statements, and (ii) the Company’s common stock would no longer be listed on the Nasdaq Capital Market.

The Board reserves the right to change the ratio of the reverse stock split to the extent they believe it is necessary or desirable in order to accomplish the goal of staying below 300 record holders. They may also abandon the proposed reverse stock split at any time prior to the completion of the proposed transaction if they believe that the proposed transaction is no longer in the best interests of the Company or its stockholders.

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

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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, 2018.

General Business Overview

Operations

Consolidated revenue for the quarter ended March 31, 2019 was $11.5 million, compared to revenue of $10.3 million for the second quarter of fiscal year 2018. This $1.2 million or 12% increase resulted from a 5% increase in Optics segment revenue and a 22% increase in Innovations and Development segment revenue.

Gross profit for the quarter ended March 31, 2019 was $4.4 million, or 38% of revenue, as compared to the gross profit of $3.9 million, or 38% of revenue for the quarter ended March 31, 2018.

Total operating expenses were $4.0 million for the three-month period ended March 31, 2019, a 3% increase over the $3.9 million in operating expenses for the three months ended March 31, 2018. The increase was attributable to promotional activities from our new marketing team along with higher patent and recruiting expenses. The operating expenses in our Biomedical segment decreased by $0.2 million over the same period last year. In the first two quarters of fiscal year 2018, our majority owned joint venture, Xcede Technologies, Inc. (“Xcede”), was preparing for clinical trials. As described below, these activities have since been suspended due to a notice of termination Xcede received from Cook Biotech, Inc. (“CBI”) in July 2018, in which CBI asserted its termination rights under the Note Agreement and Development Agreement between Xcede and CBI, claiming that in CBI’s assessment it is not commercially reasonable to continue to the next development phase of Xcede’s hemostatic patch.

In light of the foregoing, Xcede has halted clinical trial preparations at this time and has curtailed its operations to a minimal level while the Board of Directors of Xcede evaluates alternatives, including the viability of modifying the Xcede Patch to address the shortcomings cited by CBI and/or the possible sale or license of Xcede IP assets, subject to amending CBI's security interest. Additionally, the Company’s RMD subsidiary and Xcede have begun an investigation of the possible continued development of the Xcede Patch, which includes seeking government funding of this development. In April 2019, Xcede filed an application for a government grant seeking $225,000, which is currently being reviewed. There can be no assurances with respect to any such alternatives or that any additional outside funding to continue development of the Xcede Patch will be available to Xcede. Without such funding, the Board of Directors of Xcede may be required to cease all operations of Xcede. In the event that such a determination were to be made by the Xcede Board of Directors in the future, the Company expects that it would be required to account for Xcede at such time as discontinued operations in accordance with ASC 205-20 and would recognize a non-cash gain based on the losses absorbed by the Company in excess of their actual ownership percentage. This potential gain will have no impact on the Company’s cash position when and if it is recognized or in the future.

Income from operations for the quarter ended March 31, 2019 was $0.3 million, compared with $0.1 million for the quarter ended March 31, 2018.

The provision for income taxes for the second quarter of 2019 was approximately $0.2 million, as compared to a benefit of $1.3 million for the second quarter of fiscal year 2018. The second quarter 2018 provision was primarily the result of the estimate of the PATH 2015 R&E Tax Credit for the years 2012 thru 2016 that the Company was in the process of conducting in fiscal year 2018.

Net income attributable to common stockholders was essentially breakeven, or $0.00 per share, as compared to $1.3 million, or $0.08 per share for the quarters ended March 31, 2019 and 2018, respectively, largely as a result of the income tax event in the fiscal year 2018.

Recent Business Developments

On May 2, 2019, the Company announced that a Special Committee of the Company’s Board of Directors comprised of three independent directors has recommended, and its Board of Directors has approved, a plan to cease the registration of the Company’s common stock under federal securities laws following the completion of a proposed reverse stock split transaction and to delist its shares of common stock from trading on the Nasdaq Capital Market. It is expected that this plan would be effectuated in the late summer 2019, subject to Dynasil’s stockholders approving the proposed reverse stock split at a Special Meeting of Stockholders, as described below.

26

Dynasil is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company's resources on enhancing long-term stockholder value. The Company anticipates savings exceeding $900,000 on an annual basis as a result of the proposed deregistration and delisting transaction.

The proposed reverse stock split is a 1-for-8,000 split, in which holders of less than 8,000 shares of the Company’s common stock would be cashed out at a price of $1.15 per share for their pre-split number of shares. Such price represents a premium above the common stock’s closing price on May 1, 2019 and is supported by a fairness opinion by Mirus Capital Advisors Inc., whom the Special Committee engaged for such purpose. Stockholders owning 8,000 or more shares of the Company’s common stock prior to the reverse stock split would remain stockholders in Dynasil, which would no longer be encumbered by the expenses and distraction of a public reporting company. The number of shares they would own following the proposed transaction would be unchanged, as immediately after the reverse stock split a forward split of 8,000-for-1 would be applied to the continuing stockholders, negating any effects to them. Dynasil estimates that approximately 1.4 million shares (or less than 8% of the shares of its common stock currently outstanding) would be cashed out in the proposed transaction and the aggregate cost to the Company of the proposed transaction would be approximately $1.6 million, plus transaction expenses, which are estimated to be approximately $650,000. Dynasil intends to fund such costs using cash-on-hand and borrowings available under its existing credit facilities.

Dynasil’s Board of Directors has determined the proposed transaction is in the best interests of all of the Company’s stockholders. Dynasil currently realizes none of the traditional benefits of public company status, yet incurs all of the significant annual expenses and indirect costs associated with being a public company. Without its public company status, Dynasil would have an ongoing cost structure befitting its current and foreseeable scale of operations and its management would be able to have an increased focus on core operations.

Subject to regulatory clearance of the Company’s proxy statement to be filed relating to the proposed stock splits and stockholder approval thereof, it is anticipated that the proposed transaction would become effective shortly after the Special Meeting of Stockholders, which is expected to be held this summer 2019. Approval of the proposed transaction requires the affirmative vote of a majority of the shares cast (represented in person or by proxy) and entitled to vote at the Special Meeting. As of the date hereof, the Company’s directors and executive officers own approximately 38% of the Company’s currently issued and outstanding shares and are expected to vote “FOR” the transaction.

Promptly after the Special Meeting, the Company expects to terminate the registration of its common stock with the SEC and de-list its common stock from the Nasdaq Capital Market. As a result, at such time, (i) the Company would cease to file annual, quarterly, current, and other reports and documents with the SEC, and stockholders would cease to receive annual reports and proxy statements, and (ii) the Company’s common stock would no longer be listed on the Nasdaq Capital Market.

The Board reserves the right to change the ratio of the reverse stock split to the extent they believe it is necessary or desirable in order to accomplish the goal of staying below 300 record holders. They may also abandon the proposed reverse stock split at any time prior to the completion of the proposed transaction if they believe that the proposed transaction is no longer in the best interests of the Company or its stockholders.

27

Results of Operations

Results of Operations for the Three Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	6,226,000		$	5,306,000		$	-		$	11,532,000
Gross profit		2,159,000			2,199,000			-			4,358,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,871,000			2,141,000			22,000			4,034,000
Operating income (loss)		288,000			58,000			(22,000	)		324,000
Depreciation and amortization		292,000			60,000			3,000			355,000
Capital expenditures		313,000			47,000			-			360,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Three Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	5,910,000		$	4,345,000		$	-		$	10,255,000
Gross profit		2,050,000			1,895,000			-			3,945,000
GM %		35	%		44	%		-			38	%
Operating expenses		1,858,000			1,813,000			194,000			3,865,000
Operating income (loss)		192,000			82,000			(194,000	)		80,000
Depreciation and amortization		247,000			61,000			3,000			311,000
Capital expenditures		339,000			58,000			29,000			426,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

Consolidated revenue for the quarter ended March 31, 2019, was $11.5 million, a 12% increase as compared with revenue of $10.3 million for the quarter ended March 31, 2018.

Optics segment revenue increased $0.3 million, or 5%, for the three months ended March 31, 2019 compared with the same period in the prior year, primarily as a result of revenue growth in three of the four operating units in this segment. The growth in this quarter is largely the result of increased orders from a few of our large key customers.

Innovation and Development segment revenue increased by $1.0 million or 22% to $5.3 million for the second quarter of fiscal year 2019, as compared with the same period in the prior year due to an increase in funded research contract awards. The research backlog for the Innovation and Development segment remains strong at $32.8 million at March 31, 2019.

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The Biomedical segment has no revenue as it is currently exploring development options for Xcede’s tissue sealant technology.

Cost of revenue for the quarter ended March 31, 2019 was 62%, or $7.2 million, as compared to 62% or $6.3 million for the quarter ended March 31, 2018.

Gross profit for the three months ended March 31, 2019 was $4.4 million, compared to $3.9 million, for the three months ended March 31, 2018. The gross profit as a percent of revenue for the second quarter in both 2019 and 2018 was 38%. The gross profit for the Optics segment was $2.2 million for the quarter ended March 31, 2019, compared to $2.0 million, for the quarter ended March 31, 2018. The gross profit as a percent of revenue for the Optics segment was 35% in both the second quarter of 2019 and 2018. The Innovation and Development segment gross profit increased to $2.2 million, as compared to $1.9 million in the same period in fiscal year 2018, as a result of actively working on an increased number of contract research projects in 2019. Gross profit as a percent of revenue decreased in the second quarter of 2019 by 3% as compared to 2018 due to fewer commercial product sales in 2019 which have higher margins than contract research sales.

The Biomedical segment, through Xcede, is engaged in exploring development options for a tissue sealant technology which has not been approved for commercial use, and consequently it has no gross profit.

Total operating expenses increased to $4.0 million for the three months ended March 31, 2019 from $3.9 million for the same quarter in fiscal year 2018. Operating expenses for the Optics segment remained essentially the same in the second quarter year over year. Innovation and Development segment expenses increased to $2.1 million in the second quarter of fiscal year 2019, as compared to $1.8 million in the second quarter of fiscal year 2018, as a result of increases in patent and hiring costs. Biomedical segment expenses decreased by $0.2 million in the three months ended March 31, 2019, compared to the three months ended March 31, 2018, primarily due to the cessation of work on its preparations for first-in-human clinical trials.

As a result of the items discussed above, income from operations for the three months ended March 31, 2019 was $0.3 million compared to of $0.1 million for the same period in fiscal year 2018.

Net interest expense was essentially the same in both the three month periods ended March 31, 2019 and 2018.

The provision for income taxes for the second quarter of 2019 was approximately $0.2 million, as compared to a benefit of $1.3 million for the second quarter of fiscal year 2018. The second quarter 2018 provision was primarily the result of the estimate of the PATH 2015 R&E Tax Credit for the years 2012 thru 2016 that the Company was in the process of conducting in fiscal year 2018.

Net income for the three months ended March 31, 2019 was essentially breakeven, or $0.00 in basic earnings per share, as compared to $1.3 million, or $0.08 in basic earnings per share, for the quarter ended March 31, 2018.

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Results of Operations – Year to Date

Results of Operations for the Six Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	11,947,000		$	9,613,000		$	-		$	21,560,000
Gross profit		4,009,000			4,041,000			-			8,050,000
GM %		34	%		42	%		-			37	%
Operating expenses		3,756,000			4,020,000			75,000			7,851,000
Operating income (loss)		253,000			21,000			(75,000	)		199,000
Depreciation and amortization		566,000			120,000			7,000			693,000
Capital expenditures		497,000			64,000			-			561,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Six Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	10,853,000		$	8,590,000		$	-		$	19,443,000
Gross profit		3,740,000			3,745,000			-			7,485,000
GM %		34	%		44	%		-			38	%
Operating expenses		3,433,000			3,537,000			639,000			7,609,000
Operating income (loss)		307,000			208,000			(639,000	)		(124,000	)
Depreciation and amortization		477,000			126,000			7,000			610,000
Capital expenditures		928,000			77,000			45,000			1,050,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

Revenue for the six months ended March 31, 2019 increased 11% to $21.6 million, a $2.2 million increase over the six months ended March 31, 2018.

Optics segment revenue increased $1.1 million, or 10%, for the six months ended March 31, 2019, compared with the same period in the prior year, primarily as a result of revenue growth in three of the four operating units in this segment. Our Optics segment revenue showed increased orders from a number of our larger established customers.

Revenue from our Innovation and Development segment increased $1.0 million, or 12%, for the six months ended March 31, 2019 as compared to the same period in 2018, primarily due to increased orders from some of our key government customers, partially offset by a delay in our commercial product orders.

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The Biomedical segment had no revenue in either the six months ended March 31, 2019 or 2018.

Gross profit for the six months ended March 31, 2019 was $8.1 million, or 37% of sales, compared to $7.5 million, or 38% of sales for the six months ended March 31, 2018. The $0.6 gross profit increase was attributed to the higher revenue generated in the first six months.

Gross profit for the Optics segment increased approximately $0.3 million to $4.0 million for the six months ended March 31, 2019, compared to the gross profit for the same period in fiscal year 2018, primarily as a result of the increase in revenues in the first six months of fiscal 2019 as compared to the same period in 2018.

Gross profit for the Innovation and Development segment increased by approximately $0.3 million to $4.0 million for the six months ended March 31, 2019, compared to the six months ended March 31, 2018, largely due to the increased revenue year over year.

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

Total operating expenses increased $0.3 million to $7.9 million for the six months ended March 31, 2019, as compared to the total operating expenses of $7.6 million for the six months ended March 31, 2018. This increase was spread fairly consistently across the organization as we have added and upgraded resources in 2019, compared to 2018, as we work on new initiatives.

Income (loss) from operations was $0.2 for the six months ended March 31, 2019 and ($0.1) for the same six month period in 2018.

Net interest expense for both the six month periods ended March 31, 2019 and 2018 was $0.1 million.

The provision for income taxes for the first six months of 2019 was a $0.1 million as compared to a benefit of $0.6 million for the same period in fiscal year 2018. The 2018 provision was the result of the $1.3 million PATH 2015 R&E Tax Credit estimate for the years 2012 thru 2016 that was recognized in the second quarter of 2018, offset by the result of the 2017 Tax Act, in which we estimated the rate reduction impact to be $0.5 million, the earnings and profit transition tax of our Hilger Crystals subsidiary to be $0.1 million and the first quarter earnings provision of $0.1 million.

Net income attributable to common stockholders for the six months ended March 31, 2019 was essentially breakeven or ($0.00) basic earnings per share, compared to net income of $0.5 million or $0.03 basic earnings per share for the six months ended March 31, 2018.

Liquidity and Capital Resources

Net cash as of March 31, 2019 was $0.4 million, or approximately $1.9 million less than net cash of $2.3 million at September 30, 2018.

As of March 31, 2019, the Company was in full compliance with all of its bank covenants. The Company has $4.0 million of available cash under its Middlesex Savings Bank line of credit based on its collateral calculations as of March 31, 2019. Management believes that its cash on hand, together with availability under its line of credit, are adequate to meet the Company’s current liquidity requirements for the next twelve months.

On November 27, 2018, the Company amended the Note Purchase Agreement with Massachusetts Capital Resource Company (“MCRC”) to reinstate the interest-only payment requirements of the loan and defer principal repayment requirements to November 30, 2019. Such amendment also extended the maturity date from July 31, 2019 to November 30, 2021. On March 31, 2019, approximately $865,000 in principal was outstanding on the MCRC loan.

On April 30, 2019, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $484,000, which was outstanding on March 31, 2019, into a five year term note with an interest rate of 5.17%. Additionally, on May 1, 2019, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2020, at which time the outstanding balance will be converted into a five year term note.

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On March 31, 2019, Xcede had $0.5 million of outstanding indebtedness owed to CBI. The note was recorded at fair value at issuance net of unamortized discount based on an imputed interest rate of 5.4%. On July 20, 2018, Xcede received a notice of termination from CBI, which included CBI’s assertion that the foregoing study results trigger an immediate repayment of the $500,000 promissory note owed by Xcede to CBI under the Note Agreement and cancelled the remaining availability under the Note Agreement. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI. The Company carries the promissory note in short-term debt. Upon termination of the CBI agreements, research and development expense of $35,000 was recorded to accrete the note to face value. See Note 3 – Xcede Technologies, Inc. Joint Venture.

Cash From Operating Activities

In total, operating activities used cash of $1.5 million for the six months ended March 31, 2019. Approximately $0.4 million of cash was used for inventory increases to ensure the proper supply of material is available to meet customer demand and $0.5 million was used to pay down year end accrued expenses and accounts payable. In addition, unbilled receivables increased and contract liabilities decreased, which used approximately $1.5 million of cash along with an increase in prepaid expenses of $0.1 million. The decreases in cash were offset by net income, net of non-cash items of approximately $1.0 million.

Cash From Investing and Financing Activities

The Company used cash of approximately $0.6 million for the purchase of property, plant, and equipment for the six months ended March 31, 2019.

Total outstanding bank debt as of March 31, 2019 increased approximately $0.2 million to $3.5 million from $3.3 million at September 30, 2018. The net cash increase from financing activities during the six months ended March 31, 2019 was approximately $0.1 million as a result of $0.4 million in principal payments to Middlesex Savings Bank, offset by approximately $0.5 million in financing from the new Middlesex Savings Bank equipment line of credit.

Critical Accounting Policies and Estimates

During the six months ended March 31, 2019, we adopted ASU 2014-09, which provides for new requirements in regards to revenue recognition. See Note 2 – Recent Accounting Pronouncements for further details. Aside from the adoption of ASU 2014-09, there been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2018. 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, 2018 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

We generate revenues from contract research, product sales, and non-recurring engineering contracts.

Our Optics segment produces standard and customized products for commercial organizations, educational institutions, and U.S. Federal government agencies. In addition, we also offer services which include non-recurring engineering services. We recognize revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on their relative stand-alone selling prices. In such circumstances, the Company uses the observable price of goods or services which are sold separately in similar circumstances to similar customers. If these prices are not observable, then we will estimate the stand-alone selling price using information that is reasonably available. For the majority of our standard products and services, price list, and discount structures related to customer type are available. For products and services that do not have price list and discount structures, we may use one or both of the following: (i) adjusted market assessment approach or (ii) expected cost plus a margin approach. The adjusted market approach requires evaluation of the market in which we sell goods or services and estimation of the price that a customer in that market would be willing to pay for those goods or services. The expected cost plus margin approach requires the Company to forecast expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service. Shipping and handling activities primarily occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations.

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Our Innovation and Development segment performs research and development for U.S. Federal government agencies, educational institutions and commercial organizations. We account for a research contract when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. Revenue is earned under reimbursement of costs plus fees, fixed price, or time and material type contracts. Revenue is recognized when the contract has been approved by both parties, each entity can identify each’s party’s rights regarding goods and services to be transferred, the payment terms have been identified, the contract has commercial substance, and it is probable that we will collect substantially all of the consideration to which it is entitled in exchange for the goods or services transferred.

Under the typical payment terms of our U.S. government contracts, the customer pays either performance-based payments or progress payments. Performance-based payments, which are typically used in the firm fixed price contracts, are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments, which are typically used in our cost-plus type contracts, are interim payments based on costs incurred as the work progresses. For our U.S. government cost-plus contracts, the customer generally pays during the performance period for 80%-90% of the actual costs incurred. Because the customer retains a small portion of the contract price until completion of the contract and audit of allowable costs, cost-plus type contracts generally result in revenue recognized in excess of billings which we present as contract assets on the balance sheet. Amounts billed and due from customers are classified as receivables on the balance sheet, whereas amounts earned, but not yet billed to the Company’s customers due to timing, are classified as unbilled receivables on the balance sheet. We recognize a liability for performance-based payments paid in advance which are in excess of the revenue recognized and presents these amounts as contract liabilities on the balance sheet.

Effective October 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition method, and implemented changes to its business processes, systems and controls to support revenue recognition and the related disclosures under this ASU. Under the modified retrospective approach, we applied the standards to new contracts and those that were not completed as of October 1, 2018. For those contracts not completed as of October 1, 2018, this method resulted in a cumulative adjustment to increase the Company’s retained earnings in the amount of $22,000.

This guidance has resulted in very few changes in revenue recognition for the standard contracts in both the Optics and the Innovation and Development segments. This new guidance may lead to recognition of certain revenue transactions sooner than in the past on contracts that require us to maintain stated inventory levels, as we have an enforceable right to payment for the required inventory, and on contracts such as engineering services and design and tooling transactions, as we have an enforceable right to payment for these performance obligations satisfied over time.

Goodwill

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

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

· An adverse finding or rejection from a regulatory body involved in new product regulatory approvals;

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· 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 Innovation and Development 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 six-month periods ended March 31, 2019 or 2018.

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, aside from foreign exchange rate fluctuations, in the carrying value of intangible and indefinite-lived assets, during the six months ended March 31, 2019.

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, aside from foreign exchange rate fluctuations, in the carrying value of long-lived assets, during the six months ended March 31, 2019.

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.

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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.

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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 tax assets 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 adoption of ASC 2014-09, which provides for new requirements in regards to revenue recognition, as well as respective dates of adoption or expected adoption and effects on our consolidated financial position, results of operations and cash flows.

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, including the Xcede patch and our dual mode detectors, the success of efforts to develop a successful Xcede Patch and to fund that development, our development of new technologies including at Dynasil Biomedical, the adequacy of our current financing sources to fund our current operations, our growth initiatives, our capital expenditures, the strength of our intellectual property portfolio, perceived benefits and costs of the proposed stock split transaction, the number of shares of the Company’s common stock that are expected to be cashed out in the such transaction and the timing and stockholder approval of such transaction.. 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 hemostatic patch, clinical results of Xcede’s programs which may not support further development, the ability of our RMD business unit to identify and pursue possible continued development opportunities for the Xcede patch, which is not assured, 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, seasonality, the many variables that may impact the Company’s projected cost savings, variables and risks related to consummation of the proposed stock split transaction, SEC regulatory review of the Company’s filings related to the such transaction, and the continuing determination of the Board of Directors and Special Committee that such transaction is in the best interests of all stockholders. as well as the uncertainties set forth in the Company’s Annual Report on Form 10-K, filed on December 21, 2018, 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. 

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ITEM 4       CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

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

Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2019. Based on the evaluation of our disclosure controls and procedures as of March 31, 2019, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective.

As disclosed in our Annual Report on Form 10-K for the year ended September 30, 2018, we identified a material weakness in our internal control over financial reporting as of September 30, 2018. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) are an integral part of disclosure controls and procedures. This material weakness, which is described in detail in our 2018 Annual Report on Form 10-K, can be summarized as relating to our controls over the revenue recognition process. Specifically, we lacked personnel with an appropriate level of knowledge, experience and training in contract review and management to provide reasonable assurance that revenue was being properly recorded in accordance with GAAP. Additionally, as our cost recognition system for contract revenue is a manual entry system, additional training and in-depth review for accuracy and completeness are required.

The measures that we have identified and implemented to address the material weakness are also discussed in detail in our 2018 Form 10-K. The Company believes that it has taken steps that it believes will remediate the previously identified material weakness. However, certain controls designed and implemented during the second quarter of the 2019 fiscal year to address the material weakness in the initial contract review and period-end financial reporting processes have not been operational for a sufficient period of time to allow management to conclude that they are operating effectively. As a result, management has determined as of March 31, 2019 the control deficiency that existed in the prior year still exists, and, that our internal controls do not effectively mitigate the risk that a material misstatement in our financial statements could occur and not be prevented or detected. We expect the evaluation and testing of the steps previously taken to remediate the previously identified material weaknesses will continue throughout fiscal year 2019 in order to allow management sufficient basis to conclude that the controls are operating effectively.

Changes in Internal Control Over Financial Reporting

As a result of our adoption of the new revenue standard (Topic 606), we implemented controls to ensure adequate evaluation of contracts and assessment of the impact of the new accounting standard related to revenue recognition on our financial statements to facilitate its adoption on October 1, 2018. There were not any significant changes to our internal control over financial reporting due to the adoption of the new standard, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) during the period covered by this Quarterly Report or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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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 herein and in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2018, which could materially affect our business, financial condition or future results. The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Risks Related To Dynasil’s Stock

Subject to stockholder approval, the board of directors of the Company has approved a plan to effectuate a reverse/forward stock split to reduce the number of record holders of the Common Stock and terminate the registration of the Common Stock under the Exchange Act.

If the proposed reverse/forward stock split is effected, the Company intends to terminate the registration of the Common Stock under the Exchange Act. Following deregistration, the Company will no longer file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Accordingly, there will be significantly less information regarding the Company available to stockholders and potential investors. In addition, the Company will no longer be subject to the provisions of the Sarbanes-Oxley Act and certain of the liability provisions of the Exchange Act, although the Company will still be subject to the antifraud provisions of the Exchange Act and any applicable state securities laws. Following deregistration, the Company’s executive officers, directors and 10% stockholders will no longer be required to file reports relating to their transactions in the Common Stock with the SEC. In addition, the Company’s executive officers, directors and 10% stockholders will no longer be subject to the recovery of short-swing profits provision of the Exchange Act, and persons acquiring 5% of the Common Stock will no longer be required to report their beneficial ownership under the Exchange Act. In addition, following the effective time of the reverse/forward stock split, the Company plans to delist its common stock from the Nasdaq Stock Market. Any trading in our common stock after the deregistration and delisting would only occur in privately negotiated sales or potentially on the OTC Pink Market, if one or more brokers chooses to make a market for our common stock there and complies with applicable regulatory requirements; however, there can be no assurances regarding any such trading. The lack of public information and increased illiquidity will make trading in our shares of common stock more difficult, which may cause the value of our common stock to decrease.

The Company will file a preliminary proxy statement that includes important information regarding the proposed reverse/forward stock split. A definitive proxy statement will be filed with the Securities and Exchange Commission and mailed to stockholders at least 20 calendar days prior to the special stockholders meeting at which the proposed transaction will be voted on. Stockholders are urged to read the definitive proxy statement carefully.

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ITEM 6       EXHIBITS

10.01	Equipment Line of Credit Term Note between the Company and Middlesex Savings Bank, dated April 30, 2019 and filed herewith.
31.1(a)	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1(b)	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934).
99.1	Press release, dated May 14, 2019 issued by Dynasil Corporation of America announcing its financial results for the quarter ended March 31, 2019.
101	The following materials from Dynasil Corporation of America’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2019 and September 30, 2018, (ii) Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended March 31, 2019 and 2018; (iv) Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

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SIGNATURES

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

DYNASIL CORPORATION OF AMERICA

BY:	/s/ Peter Sulick	DATED:	May 14, 2019
	Peter Sulick,
	Chief Executive Officer and President
	/s/ Robert J. Bowdring	DATED:	May 14, 2019
	Robert J. Bowdring,
	Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

EQUIPMENT LINE OF CREDIT TERM NOTE

$483,876.14 April 30, 2019

FOR VALUE RECEIVED, the undersigned, with a principal place of business located at, 313 Washington Street, Suite 403, Newton, Massachusetts 02458 (hereinafter called the "Borrower"), promises to pay to MIDDLESEX SAVINGS BANK, a Massachusetts banking corporation, at its principal office at 6 Main Street, Natick, Massachusetts 01760 (hereinafter called the "Lender"), OR TO ITS ORDER, the principal sum of FOUR HUNDRED EIGHTY THREE THOUSAND EIGHT HUNDRED SEVENTY SIX and 14/100 ($483,876.14) DOLLARS, or such lesser amount as may actually be advanced, with interest on the unpaid balance hereof from the date hereof until paid, at the rate and in the manner hereinafter provided, in lawful money of the United States of America.

Fixed Rate; Payments: The unpaid principal of this Note from time to time outstanding shall bear interest, computed on the basis of the actual number of days elapsed over a year assumed to have 360 days, at an annual rate equal to five and seventeen one hundredth of one percent (5.1 7%)("Interest Rate").

Beginning on May 31, 2019, and on the same day of each and every month thereafter during the term hereof, Borrower shall make monthly payments of principal and interest in the amount of Nine Thousand One Hundred Sixty Nine and 07/100 Dollars ($9,169.07) each. Principal not paid when due hereunder shall bear interest at the rate set forth above from the date due until so paid. Each payment shall be applied first to interest then due on the unpaid balance of principal and then to such principal.

Such monthly payments shall be based upon a five (5) year amortization schedule.

All indebtedness evidenced by this Note shall be due and payable five (5) years from the date hereof (the "Maturity Date"), unless such date is extended in a written agreement executed by Borrower and Lender.

Late Charge: Whenever any installment of principal and interest due hereunder shall not be paid within fifteen (15) days of its due date, the Borrower shall pay in addition thereto as a late charge, five percent (5%) of the amount of any such installment.

Security: This Note is secured by a first priority security interest in all assets of the Borrower, pursuant to a Loan and Security Agreement dated May 1, 2014, as amended, between Borrower and Lender (the "Loan and Security Agreement"), which assets are located at 313 Washington Street, Suite 403, Newton, Massachusetts 02458, and a Stock Pledge Agreement from Borrower regarding one hundred thirty (130) shares of Hilger Crystals Limited dated May 1, 2014. All of Borrower's obligations to the Lender however characterized (the "Obligations") are guaranteed pursuant to each Entity Guaranty and Security Agreement, all dated May 1, 2014, from Optometrics Corporation, Radiation Monitoring Devices, Inc., RMD Instruments Corp, Evaporated Metal Films Corp. and Dynasil Biomedical Corp. (the "Guarantors") (hereinafter, each a "Guaranty"). Such documents, together with various other instruments securing this Note (the terms and provisions of all of which are incorporated herein by reference) are hereinafter referred to as the "Security Instruments".

Dynasil Corporation of America

Term Note - April 30, 2019

- 1 -

Default: An Event of Default under any of the Security Instruments shall constitute an Event of Default hereunder, and such events of default include, but are not limited to, the failure of Borrower to make any payments of principal, interest or other charge when due hereunder. Upon the occurrence of an Event of Default, the Lender may, at its option, without notice or demand, declare the unpaid principal and all accrued interest under this Note to be immediately due and payable without presentment, demand, protest, notice of protest or other notice of dishonor of any kind, all of which are hereby expressly waived. No course of dealing or delay in accelerating the maturity of this Note or in taking any other action with respect to any Event of Default shall affect Lender's rights to take action with respect thereto, and no waiver as to any one Event of Default shall affect any of Lender's rights as to any other Event of Default.

Setoff: Any deposits or other sums at any time credited by or due from the holder to the Borrower or Guarantors and any securities or other property of Borrower or Guarantors in the possession or custody of the holder may at all times be held and treated as collateral security for the payment of this Note and any and all other liabilities, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of said respective Borrower or Guarantors to the holder. The holder hereof on or after default in payment hereof may apply such deposits or other sums to said Obligations and sell any such securities or other property at broker's board or at public or private sale without demand, notice or adve1iisement of any kind, all of which are hereby expressly waived.

Default Rate: Lender shall have the option of imposing, and Borrower shall pay upon billing therefore, an interest rate which is four percent (4%) per annum above the interest rate otherwise payable hereunder ("Default Rate"): (a) while any monetary default exists and is continuing, during that period between the due date and the date of payment; (b) following any Event of Default, unless and until the Event of Default is waived by Lender; and (c) after the Maturity Date.

Collection Costs: If this Note shall not be paid in full upon demand, the Borrower agrees to pay all costs and expenses of collection, including court costs and reasonable attorneys' fees.

Prepayment: Borrower may make partial or a full prepayment of principal due hereunder without penalty, provided however, that as to full prepayments made with funds provided by another lending institution, a prepayment charge will be applicable for the first three (3) year period of the loan. The charge will be equal to three (3%) percent of the amount of principal prepaid for the first such year, two (2%) percent for the second such year, and one (1%) percent for the third such year.

Dynasil Corporation of America

Term Note - April 30, 2019

- 2 -

Waiver: The Borrower agrees , by making this Note or by making any agreement to pay any of the indebtedness evidenced by this Note, to waive presentment for payment, protest and demand, notice of protest, demand and of dishonor and nonpayment of this Note, and consents without notice or further assent (a) to the substitution, exchange or release of the collateral securing this Note or any part thereof at any time, (b) to the acceptance by the holder or holders at any time of any additional collateral or security for or other guarantors of this Note, (c) to the modification or amendment at any time, and from time to time of this Note, the Loan and Security Agreement hereinabove referred to, and any instrument securing this Note, at the request of any person liable hereon, (d) to the granting by the holder hereof of any extension of the time for payment of this Note or for the performance of the agreements, covenants and conditions contained in this Note, the Loan and Security Agreement hereinabove referred to, or any instrument securing this Note, at the request of any other person liable hereon, and (e) to any and all forbearances and indulgences whatsoever; and such consent shall not alter or diminish the liability of any person.

Jury Trial Waiver: Borrower and Lender mutually hereby knowingly, voluntarily and intentionally waive the right to a trial by jury in respect of any litigation based on this Note, arising out of, under or in connection with the Loan and Security Agreement or any other Security Instruments contemplated to be executed in connection herewith, or any course of conduct, course of dealings, statements (whether verbal or written) or actions of any party. This waiver constitutes a material inducement for Borrower and Lender to enter into the transactions contemplated hereby.

The Borrower has received a copy of this Note.

This Note shall be the joint and several obligation of the Borrower and all sureties, guarantors and endorsers, and shall be binding upon them and their respective successors and assigns and each or any of them.

IN WITNESS WHEREOF, the Borrower has executed this Note as an instrument under seal, as of the day and year first above written.

Signed in the presence of: DYNASIL CORPORATION OF AMERICA

/s/Holly Hicks	By:	Robert J. Bowdring
Witness		Chief Financial Officer

Dynasil Corporation of America

Term Note - April 30, 2019

- 3 -

EX-31.1A

EXHIBIT 31.1 (a)

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

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Peter Sulick, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 14, 2019	/s/ Peter Sulick
	Peter Sulick,
	Chief Executive Officer and President

EX-31.1B

EXHIBIT 31.1 (b)

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

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Robert Bowdring, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 14, 2019	/s/ Robert J. Bowdring
	Robert J. Bowdring
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DYNASIL CORPORATION OF AMERICA (the "Company") on Form 10-Q for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Peter Sulick, Chief Executive Officer and President of the Company and Robert J. Bowdring, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Peter Sulick

Peter Sulick

Chief Executive Officer and President

/s/ Robert J. Bowdring

Robert J. Bowdring

Chief Financial Officer

May 14, 2019

EX-99.1

EXHIBIT 99.1

Contact:

Patty Kehe

Corporate Secretary

Dynasil Corporation of America

Phone: 617.668.6855

pkehe@dynasil.com

Dynasil Corporation of America Reports

Second Quarter Fiscal 2019 Results

Newton, MA, May 14, 2019 – 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 second quarter fiscal 2019 results.

Second Quarter Fiscal 2019 Results

Consolidated revenue was $11.5 million for the three months ended March 31, 2019. This $1.2 million or 12% revenue increase resulted from both a 5% increase in Optics segment revenue and a 22% increase in Innovations and Development segment revenue each as compared to the quarter ended March 31, 2018.

Gross profit for the quarter ended March 31, 2019 was $4.4 million, or 38% of revenue, as compared to the gross profit of $3.9 million, or 38% of revenue for the quarter ended March 31, 2018.

Total operating expenses were $4.0 million for the three-month period ended March 31, 2019, a 3% increase over the $3.9 million in operating expenses for the three months ended March 31, 2018. The increase was attributable to our continued investments in our new initiatives, including promotional activities from our new marketing team along with higher patent and recruiting expenses.

Income from operations for the quarter ended March 31, 2019 was $0.3 million, compared with $0.1 million for the quarter ended March 31, 2018.

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

Results of Operations for the Three Months Ended March 31, 2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	6,226,000		$	5,306,000		$	-		$	11,532,000
Gross profit		2,159,000			2,199,000			-			4,358,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,871,000			2,141,000			22,000			4,034,000
Operating income (loss)	$	288,000		$	58,000		$	(22,000	)	$	324,000

Results of Operations for the Three Months Ended March 31, 2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	5,910,000		$	4,345,000		$	-		$	10,255,000
Gross profit		2,050,000			1,895,000			-			3,945,000
GM %		35	%		44	%		-			38	%
Operating expenses		1,858,000			1,813,000			194,000			3,865,000
Operating income (loss)	$	192,000		$	82,000		$	(194,000	)	$	80,000

*Formerly Contract Research

Net income for the three months ended March 31, 2019 was essentially breakeven, or $0.00 in basic earnings per share, compared to $1.3 million, or $0.08 in basic earnings per share, for the quarter ended March 31, 2018. The provision for income taxes for the second quarter of 2019 was approximately $0.2 million, whereas, during the quarter ended March 31, 2018, the Company had a tax provision benefit of $1.3 million primarily as the result of the estimate of the PATH 2015 R&E Tax Credit for the years 2012 thru 2016 that the Company was in the process of conducting in fiscal year 2018.

Plan to Deregister and Delist the Common Stock

On May 2, 2019, the Company announced that a Special Committee of independent directors has recommended, and its Board of Directors has approved, a plan to cease the registration of the Company’s common stock under the federal securities laws following the completion of a proposed reverse stock split transaction and to delist its shares of common stock from trading on the Nasdaq Capital Market. It is expected that this plan would be effectuated in late summer 2019, subject to Dynasil’s stockholders approving the proposed reverse stock split at a Special Meeting of Stockholders to be held for that purpose. The Company expects to file a preliminary proxy statement with the SEC later in May. Once available, the Company encourages investors to read the proxy statement.

As the Company is currently in a proxy filing process with respect to the above announcement, it will not be hosting a quarterly conference call with respect to its second quarter fiscal 2019 results.

About Dynasil

Dynasil Corporation of America (NASDAQ: DYSL) develops and manufactures optics and photonics products, optical detection and analysis technology and optical 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 selling and continuing to develop products for dual-mode radiation detection solutions for 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, Massachusetts, with additional operations in Massachusetts, New Jersey, New York 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, 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, including the Xcede patch and our dual mode detectors, the success of efforts to develop a successful Xcede Patch and to fund that development, our development of new technologies including at Dynasil Biomedical, the adequacy of our current financing sources to fund our current operations, our growth initiatives, our capital expenditures, the strength of our intellectual property portfolio, perceived benefits and costs of the proposed stock split transaction, the number of shares of the Company’s common stock that are expected to be cashed out in the such transaction and the timing and stockholder approval of such transaction.. 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 hemostatic patch, clinical results of Xcede’s programs which may not support further development, the ability of our RMD business unit to identify and pursue possible continued development opportunities for the Xcede patch, which is not assured, 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, seasonality, the many variables that may impact the Company’s projected cost savings, variables and risks related to consummation of the proposed stock split transaction, SEC regulatory review of the Company’s filings related to the such transaction, and the continuing determination of the Board of Directors and Special Committee that such transaction is in the best interests of all stockholders. as well as the uncertainties set forth in the Company’s Annual Report on Form 10-K, filed on December 21, 2018, 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.

Dynasil Corporation of America and Subsidiaries

Consolidated Balance Sheets (Unaudited)

	March 31, 2019		September 30, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	350,000	$	2,327,000
Accounts receivable, net		3,950,000		4,069,000
Unbilled receivables		2,553,000		1,215,000
Contract assets		19,000		-
Inventories, net of reserves		4,525,000		4,106,000
Prepaid expenses and other current assets		847,000		664,000
Total current assets		12,244,000		12,381,000
Property, Plant and Equipment, net		8,020,000		8,098,000
Other Assets
Intangibles, net		701,000		755,000
Deferred tax asset		4,198,000		4,333,000
Goodwill		5,900,000		5,900,000
Long term contract assets		26,000		7,000
Security deposits		53,000		58,000
Total other assets		10,878,000		11,053,000
Total Assets	$	31,142,000	$	31,532,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Equipment line of credit	$	484,000	$	-
Current portion of long-term debt		1,307,000		1,246,000
Capital lease obligations, current		33,000		40,000
Accounts payable		2,218,000		2,355,000
Contract liabilities		25,000		253,000
Accrued expenses and other liabilities		2,469,000		2,803,000
Total current liabilities		6,536,000		6,697,000
Long-term Liabilities
Long-term debt		1,660,000		2,075,000
Long-term capital lease obligations		38,000		52,000
Deferred tax liability		205,000		205,000
Other long-term liabilities		180,000		175,000
Total long-term liabilities		2,083,000		2,507,000
Stockholders' Equity
Dynasil stockholders' equity		21,249,000		21,029,000
Noncontrolling interest		1,274,000		1,299,000
Total stockholders' equity		22,523,000		22,328,000
Total Liabilities and Stockholders' Equity	$	31,142,000	$	31,532,000

Dynasil Corporation of America

Consolidated Statement of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2019			2018			2019			2018
Net revenue	$	11,532,000		$	10,255,000		$	21,560,000		$	19,443,000
Cost of revenue		7,174,000			6,310,000			13,510,000			11,958,000
Gross profit		4,358,000			3,945,000			8,050,000			7,485,000
Operating expenses:
Sales and marketing		477,000			388,000			875,000			667,000
Research and development		147,000			215,000			324,000			524,000
General and administrative		3,410,000			3,262,000			6,652,000			6,418,000
Total operating expenses		4,034,000			3,865,000			7,851,000			7,609,000
Income (loss) from operations		324,000			80,000			199,000			(124,000	)
Interest expense, net		46,000			45,000			88,000			88,000
Income (loss) before taxes		278,000			35,000			111,000			(212,000	)
Income tax (benefit)		206,000			(1,255,000	)		141,000			(595,000	)
Net income (loss)		72,000			1,290,000			(30,000	)		383,000
Less: Net loss attributable to noncontrolling interest		(4,000	)		(33,000	)		(13,000	)		(108,000	)
Net income (loss) attributable to common stockholders	$	76,000		$	1,323,000		$	(17,000	)	$	491,000
Net income (loss)	$	72,000		$	1,290,000		$	(30,000	)	$	383,000
Other comprehensive income (loss):
Foreign currency translation		145,000			222,000			4,000			257,000
Total comprehensive income (loss)		217,000			1,512,000			(26,000	)		640,000
Less: comprehensive income (loss) attributable to noncontrolling interest		(4,000	)		(33,000	)		(13,000	)		(108,000	)
Total comprehensive income (loss) attributable to common stockholders	$	221,000		$	1,545,000		$	(13,000	)	$	748,000
Basic net income (loss) per common share	$	0.00		$	0.08		$	(0.00	)	$	0.03
Diluted net income (loss) per common share	$	0.00		$	0.08		$	(0.00	)	$	0.03
Weighted average shares outstanding
Basic		17,433,249			17,133,468			17,379,113			17,090,530
Diluted		17,433,249			17,133,468			17,379,113			17,090,530

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2019	May 07, 2019
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Entity Registrant Name	DYNASIL CORP OF AMERICA
Entity Central Index Key	0000030831
Current Fiscal Year End Date	--09-30
Entity Filer Category	Non-accelerated Filer
Trading Symbol	DYSL
Entity Common Stock, Shares Outstanding		17,541,300
Entity Emerging Growth Company	false
Entity Small Business	true

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2019	Sep. 30, 2018
Current Assets
Cash and cash equivalents	$ 350,000	$ 2,327,000
Accounts receivable, net of allowances of $267,000 and $262,000 at March 31, 2019 and September 30, 2018, respectively	3,950,000	4,069,000
Unbilled receivables	2,553,000	1,214,000
Contract assets	19,000	1,000
Inventories, net of reserves	4,525,000	4,106,000
Prepaid expenses and other current assets	847,000	664,000
Total current assets	12,244,000	12,381,000
Property, Plant and Equipment, net	8,020,000	8,098,000
Other Assets
Intangibles, net	701,000	755,000
Deferred tax asset	4,198,000	4,333,000
Goodwill	5,900,000	5,900,000
Long term contract assets	26,000	7,000
Security deposits	53,000	58,000
Total other assets	10,878,000	11,053,000
Total Assets	31,142,000	31,532,000
Current Liabilities
Equipment line of credit	484,000	0
Current portion of long-term debt	1,307,000	1,246,000
Capital lease obligations, current portion	33,000	40,000
Accounts payable	2,218,000	2,355,000
Contract liabilities	25,000	253,000
Accrued expenses and other liabilities	2,469,000	2,803,000
Total current liabilities	6,536,000	6,697,000
Long-term Liabilities
Long-term debt, net of current portion	1,660,000	2,075,000
Capital lease obligations, net of current portion	38,000	52,000
Deferred tax liability, net	205,000	205,000
Other long-term liabilities	180,000	175,000
Total long-term liabilities	2,083,000	2,507,000
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 18,301,216 and 18,152,074 shares issued, 17,491,056 and and 17,341,914 shares outstanding at March 31, 2019 and September 30, 2018, respectively.	9,000	9,000
Additional paid in capital	22,060,000	21,865,000
Accumulated other comprehensive income (loss)	(696,000)	(700,000)
Retained earnings	862,000	841,000
Less 810,160 shares of treasury stock - at cost	(986,000)	(986,000)
Total Dynasil stockholders' equity	21,249,000	21,029,000
Noncontrolling interest	1,274,000	1,299,000
Total stockholders' equity	22,523,000	22,328,000
Total Liabilities and Stockholders' Equity	$ 31,142,000	$ 31,532,000

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] - USD ($)	Mar. 31, 2019	Sep. 30, 2018
Allowance for doubtful accounts (in dollars)	$ 267,000	$ 262,000
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	18,301,216	18,152,074
Common stock, shares outstanding	17,491,056	17,341,914
Treasury stock, shares	810,160	810,160

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Net revenue	$ 11,532,000	$ 10,255,000	$ 21,560,000	$ 19,443,000
Cost of revenue	7,174,000	6,310,000	13,510,000	11,958,000
Gross profit	4,358,000	3,945,000	8,050,000	7,485,000
Operating expenses:
Sales and marketing	477,000	388,000	875,000	667,000
Research and development	147,000	215,000	324,000	524,000
General and administrative	3,410,000	3,262,000	6,652,000	6,418,000
Total operating expenses	4,034,000	3,865,000	7,851,000	7,609,000
Income (loss) from operations	324,000	80,000	199,000	(124,000)
Interest expense, net	46,000	45,000	88,000	88,000
Income (loss) before taxes	278,000	35,000	111,000	(212,000)
Income tax (benefit)	206,000	(1,255,000)	141,000	(595,000)
Net income (loss)	72,000	1,290,000	(30,000)	383,000
Less: Net loss attributable to noncontrolling interest	(4,000)	(33,000)	(13,000)	(108,000)
Net income (loss) attributable to common stockholders	76,000	1,323,000	(17,000)	491,000
Net income (loss)	72,000	1,290,000	(30,000)	383,000
Other comprehensive income (loss):
Foreign currency translation	145,000	222,000	4,000	257,000
Total comprehensive income (loss)	217,000	1,512,000	(26,000)	640,000
Less: comprehensive income (loss) attributable to noncontrolling interest	(4,000)	(33,000)	(13,000)	(108,000)
Total comprehensive income (loss) attributable to common stockholders	$ 221,000	$ 1,545,000	$ (13,000)	$ 748,000
Basic net income (loss) per common share	$ 0.00	$ 0.08	$ 0.00	$ 0.03
Diluted net income (loss) per common share	$ 0.00	$ 0.08	$ 0.00	$ 0.03
Weighted average shares outstanding
Basic	17,433,249	17,133,468	17,379,113	17,090,530
Diluted	17,433,249	17,133,468	17,379,113	17,090,530

XML

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Other Comprehensive Income (Loss) [Member]	Retained Earnings (Accumulated Deficit) [Member]	Retained Earnings (Accumulated Deficit) [Member] Series A Preferred Stock [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]	Noncontrolling Interest [Member] Series A Preferred Stock [Member]
Balance at Sep. 30, 2017		$ 9,000	$ 21,406,000	$ (539,000)	$ (919,000)		$ (986,000)	$ 1,454,000
Balance (in shares) at Sep. 30, 2017		17,893,763					810,160
Impact of change in accounting policy					0
Xcede stock surrender of Series A Preferred						$ 0			$ 0
Issuance of shares of common stock under employee stock purchase plan			8,000
Issuance of shares of common stock under employee stock purchase plan (in shares)		7,956
Stock-based compensation costs			221,000					9,000
Stock-based compensation costs (in shares)		107,152
Foreign currency translation adjustment				257,000
Net income (loss)	$ 383,000				491,000			(108,000)
Balance at Mar. 31, 2018	21,303,000	$ 9,000	21,635,000	(282,000)	(428,000)		$ (986,000)	1,355,000
Balance (in shares) at Mar. 31, 2018		18,008,871					810,160
Balance at Dec. 31, 2017	21,303,000	$ 9,000	21,499,000	(504,000)	(1,751,000)		$ (986,000)	1,383,000
Balance (in shares) at Dec. 31, 2017		17,929,183					810,160
Impact of change in accounting policy					0
Xcede stock surrender of Series A Preferred						0			0
Issuance of shares of common stock under employee stock purchase plan			4,000
Issuance of shares of common stock under employee stock purchase plan (in shares)		3,536
Stock-based compensation costs			132,000					5,000
Stock-based compensation costs (in shares)		76,152
Foreign currency translation adjustment				222,000
Net income (loss)	1,290,000				1,323,000			(33,000)
Balance at Mar. 31, 2018	21,303,000	$ 9,000	21,635,000	(282,000)	(428,000)		$ (986,000)	1,355,000
Balance (in shares) at Mar. 31, 2018		18,008,871					810,160
Balance at Sep. 30, 2018	22,328,000	$ 9,000	21,865,000	(700,000)	841,000		$ (986,000)	1,299,000
Balance (in shares) at Sep. 30, 2018		18,152,074					810,160
Impact of change in accounting policy					22,000
Xcede stock surrender of Series A Preferred						16,000			(16,000)
Issuance of shares of common stock under employee stock purchase plan			9,000
Issuance of shares of common stock under employee stock purchase plan (in shares)		11,830
Stock-based compensation costs			186,000					4,000
Stock-based compensation costs (in shares)		137,312
Foreign currency translation adjustment				4,000
Net income (loss)	(30,000)				(17,000)			(13,000)
Balance at Mar. 31, 2019	22,523,000	$ 9,000	22,060,000	(696,000)	862,000		$ (986,000)	1,274,000
Balance (in shares) at Mar. 31, 2019		18,301,216					810,160
Balance at Dec. 31, 2018	22,523,000	$ 9,000	21,946,000	(841,000)	770,000		$ (986,000)	1,292,000
Balance (in shares) at Dec. 31, 2018		18,198,121					810,160
Impact of change in accounting policy					0
Xcede stock surrender of Series A Preferred						$ 16,000			$ (16,000)
Issuance of shares of common stock under employee stock purchase plan			4,000
Issuance of shares of common stock under employee stock purchase plan (in shares)		5,512
Stock-based compensation costs			110,000					2,000
Stock-based compensation costs (in shares)		97,583
Foreign currency translation adjustment				145,000
Net income (loss)	72,000				76,000			(4,000)
Balance at Mar. 31, 2019	$ 22,523,000	$ 9,000	$ 22,060,000	$ (696,000)	$ 862,000		$ (986,000)	$ 1,274,000
Balance (in shares) at Mar. 31, 2019		18,301,216					810,160

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income (loss)	$ (30,000)	$ 383,000
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense	190,000	230,000
Foreign exchange loss (gain)	8,000	(33,000)
Depreciation and amortization	693,000	610,000
Deferred income taxes	136,000	(710,000)
Non-cash R&D services	0	200,000
Other	14,000	50,000
Other changes in assets and liabilities:
Accounts receivable, net	120,000	(811,000)
Unbilled receivables	(1,299,000)	472,000
Contract assets	(37,000)	0
Inventories	(437,000)	(279,000)
Prepaid expenses and other assets	(180,000)	189,000
Accounts payable	(137,000)	(646,000)
Accrued expenses and other liabilities	(335,000)	123,000
Contract liabilities	(228,000)	(3,000)
Net cash from operating activities	(1,522,000)	(225,000)
Cash flows from investing activities:
Purchases of property, plant and equipment	(561,000)	(1,005,000)
Purchase of intangibles	0	(45,000)
Net cash from investing activities	(561,000)	(1,050,000)
Cash flows from financing activities:
Proceeds from issuance of common stock	10,000	8,000
Principal payments on capital leases	(21,000)	(50,000)
Proceeds from (payments of) equipment line of credit, net	484,000	281,000
Proceeds from (payments of) bank and subordinated debt, net	(360,000)	(277,000)
Net cash from financing activities	113,000	(38,000)
Effect of exchange rates on cash and cash equivalents	(7,000)	28,000
Net change in cash and cash equivalents	(1,977,000)	(1,285,000)
Cash and cash equivalents, beginning	2,327,000	2,415,000
Cash and cash equivalents, ending	350,000	1,130,000
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest	83,000	77,000
Cash paid during the year for: Tax payments (refunds)	(5,000)	5,000
Non cash activities:
Xcede stock surrender of Series A Preferred (in shares)	$ 18,000	$ 0

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Basis of Presentation

6 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Note 1 - Basis of Presentation

The accompanying consolidated balance sheet as of March 31, 2019, the consolidated statements of operations and comprehensive income (loss) for the three and six months ended March 31, 2019 and 2018, changes in stockholders’ equity for the three and six months ended March 31, 2019 and 2018, and cash flows for the six months ended March 31, 2019 and 2018 of Dynasil Corporation of America and subsidiaries (the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. Xcede Technologies, Inc. (“Xcede”) is a joint venture between Dynasil Biomedical and Mayo Clinic to spin out and separately fund the development of a tissue sealant technology. As of March 31, 2019, Dynasil Biomedical owned 63% 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 remaining 37% of Xcede’s stock is owned by others and is 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, 2018 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2019, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.

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Recent Accounting Pronouncements

6 Months Ended

Mar. 31, 2019

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

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

Note 2 – Recent Accounting Pronouncements

Effective October 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, and all the related amendments using the modified retrospective transition method. Under the modified retrospective approach, the Company applied the standards to new contracts and those that were not completed as of October 1, 2018 which resulted in a cumulative adjustment to increase the retained earnings in the amount of $22,000. Prior periods will not be retrospectively adjusted, but the Company will maintain dual reporting for the year of initial application in order to maintain comparability of the periods presented. The cumulative effect of the changes made to the October 1, 2018 unaudited consolidated balance sheet for the adoption of Topic 606 was as follows:

	Balance at		Adjustment for			Adjusted balance at
	September 30, 2018		Topic 606			October 1, 2018
Assets:
Unbilled receivables		1,214,000		40,000			1,254,000
Inventories, net of reserves		4,106,000		(18,000	)		4,088,000
Liabilities:
Contract liabilities		253,000		-			253,000
Stockholders' equity:
Retained earnings		841,000		22,000			863,000

Contract assets were formerly reported within costs in excess of billings and unbilled receivables. Contract liabilities were formerly reported as deferred revenue. The titles have been changed in the table below to be consistent with accounts currently used under the new standard.

	September 30, 2018
	As Reported		As Adopted
Unbilled receivables		1,215,000		1,214,000
Contract assets		-		1,000
Security and other deposits		65,000		58,000
Long term contract assets		-		7,000
Deferred revenue		253,000		-
Contract liabilities		-		253,000

The Company receives payments from customers based on a billing schedule as established in our contracts. Contract asset relates to our conditional right to consideration for our completed performance under the contract. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract liability relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) we perform under the contract. The Company recognized revenue in the amount of $137,000 during the three months ended March 31, 2019 and $252,000 during the six months ended March 31, 2019 for amounts included in the contract liability balance at September 30, 2018.

Under the new standard, most contracts in the Innovation and Development (formerly Contract Research) segment, which primarily provide contract research services, were not materially impacted upon the adoption of Topic 606 as revenue will continue to be recognized over time. Contracts in the Optics segment generally provide for the following revenue sources: standard product sales, custom product development and sales, and non-recurring engineering contracts. Revenues for this segment are recognized using either the “point in time” or “over time” methods of Topic 606, depending upon the revenue source. The change in revenue recognition for the Optics segment related to certain custom optics products and the related non-recurring engineering costs which changed from “point in time” to “over time” upon the adoption of Topic 606. This change will result in the recognition of revenue over time when compared to existing standards with the cumulative adjustment relating to contracts that are not complete as of September 30, 2018 recognized as an adjustment of $22,000 to opening retained earnings on October 1, 2018. The revenue for the standard products will be recognized using the "point in time" model of Topic 606, and the timing of such revenue recognition is not expected to differ materially from the historical revenue recognition. Other immaterial adjustments related to the Optics segment that are sometimes offered to customers include customer rights of return and volume discounts. The Company has elected the practical expedient that the Company will not be required to adjust promised amounts of consideration for the effects of a significant financing component if the transfer of promised goods or services will occur in one year or less.

The impact of the adoption of ASC 606 on the Company’s consolidated financial statements for the three and six months ended March 31, 2019 was immaterial as compared to what would have been reported under the previous guidance.

Innovation and Development Segment Revenues

The Company performs research and development for U.S. Federal government agencies, educational institutions and commercial organizations. The Company accounts for a research contract when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. Revenue is earned under reimbursement of costs plus fees, fixed price, or time and material type contracts.

The Company’s contracts with agencies of the U.S. government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided. In evaluating the probability of funding for purposes of assessing collectability of the contract price, the Company considers previous experience with the customers, communication with the customers regarding funding status, and knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is reasonably assured.

Under the typical payment terms of the Company’s U.S. government contracts, the customer pays either performance-based payments or progress payments. Performance-based payments, which are typically used in the firm fixed price contracts, are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments, which are typically used in the Company’s cost-plus type contracts, are interim payments based on costs incurred as the work progresses. For the Company’s U.S. government cost-plus contracts, the customer generally pays during the performance period for 80%-90% of the actual costs incurred. Because the customer retains a small portion of the contract price until completion of the contract and audit of allowable costs, cost-plus type contracts generally result in revenue recognized in excess of billings which the Company presents as contract assets on the balance sheet. Amounts billed and due from customers are classified as receivables on the balance sheet, whereas amounts earned, but not yet billed to the Company’s customers due to timing, are classified as unbilled receivables on the balance sheet. The Company recognizes a liability for performance-based payments paid in advance which are in excess of the revenue recognized and presents these amounts as contract liabilities on the balance sheet.

To determine the proper revenue recognition method for research and development contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single modified contract and whether the combined or single contract should be accounted for as more than one performance obligation. For instances where a contract has options that were bid with the initial contract and awarded at a later date, the Company combines the options with the original contract when options are awarded. For most contracts, the customer contracts for research with multiple milestones that are interdependent, thus, the entire contract is accounted for as one performance obligation. The effect of the combined or modified contract on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

Contract revenue recognition is measured over time as the Company performs the work because of continuous transfer of knowledge and control to the customer. For U.S. government contracts which are typically subject to the Federal Acquisition Regulation ("FAR"), this continuous transfer of knowledge and control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay for cost incurred plus a reasonable profit, and take control of any work in process. From time to time, as part of normal management processes, facts may change, causing revisions to estimated total costs or revenues expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known.

Because of knowledge and control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. The Company generally uses the input method, more specifically the cost-to-cost measure of progress for the contracts because it best depicts the transfer of knowledge and control to the customer which occurs as the Company incur costs on these contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The underlying bases for estimating contract research revenues are measurable expenses, such as labor, subcontractor costs and materials, and data that are updated on a regular basis for purposes of preparing cost estimates. The Company’s research contracts generally have a period of performance of six months to three years, and estimates of contract costs have historically been consistent with actual results. Revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on operating results, and the Company does not expect future changes in these estimates to be material. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known.

Under cost-plus contracts, the Company is reimbursed for costs that are determined to be reasonable, allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between the Company and the contracting agency. Revenue from cost-plus contracts is recognized as costs are incurred plus an estimate of applicable fees earned. The Company considers fixed fees under cost-plus contracts to be earned in proportion to the allowable costs incurred in performance of the contract.

Revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs. The Company has elected the practical expedient to recognize revenue in the amount for which it has the right to invoice the customer, provided that invoiced amount corresponds directly with the value to the customer of the Company’s performance to date.

Fixed price contracts may include either a product delivery or specific service performance throughout a period. For fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables, the Company recognizes revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements. For fixed price contracts that provide for the development and delivery of a specific prototype or product, revenue is recognized based upon the performance completed to date, using an output method of revenue recognition based on milestones reached.

Whether certain costs under government contracts are allowable is subject to audit by the government. Certain indirect costs are charged to contracts using provisional or estimated indirect rates, which are subject to later revision based on government audits of those costs. Management is of the opinion that costs subsequently disallowed, if any, would not likely have a significant impact on revenues recognized for those contracts.

Optics Segment Revenues

The Company produces standard and customized products for commercial organizations, educational institutions, and U.S. Federal government agencies. In addition, the Company also offers services which include non-recurring engineering services. To determine the proper revenue recognition method for Optics contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. The Company recognizes revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on their relative stand-alone selling prices. In such circumstances, the Company uses the observable price of goods or services which are sold separately in similar circumstances to similar customers. If these prices are not observable, then the Company will estimate the stand-alone selling price using information that is reasonably available. For the majority of the Company’s standard products and services, price list, and discount structures related to customer type are available. For products and services that do not have price list and discount structures, the Company may use one or more of the following: (i) adjusted market assessment approach or (ii) expected cost plus a margin approach. The adjusted market approach requires evaluation of the market in which the Company sells goods or services and estimates the price that a customer in that market would be willing to pay for those goods or services. The expected cost plus margin approach requires the Company to forecast expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service. Shipping and handling activities primarily occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations. Similarly, sales and similar taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price.

Unfulfilled Performance Obligations

For standard products, the Company recognizes revenue at a point in time when control passes to the customer. Absent substantial product acceptance clauses, this is based on the shipping terms. For custom products that require engineering and development based on customer requirements and provide for cost plus reasonable margin throughout the contract, the Company recognizes revenue over time using the output method for any items shipped and any finished goods or work in process that is produced for balances of open sales orders. For any finished goods or work in process that has been produced for the balance of open sales orders the Company recognizes revenue by applying the average selling price for such open order to the lesser of the on hand balance in finished goods or open sales order quantity which the Company presents as a contract asset on the balance sheet. Cost of sales is recognized based on the standard cost of the finished goods and work in process associated with this revenue and inventory balances are reduced accordingly.

Unfulfilled performance obligations represent amounts expected to be earned on executed contracts. Indefinite delivery and quantity contracts and unexercised options are not reported in total unfulfilled performance obligations. Unfulfilled performance obligations include funded obligations, which is the amount for which money has been directly authorized by the U.S. government and  by a commercial customer for which a purchase order has been received, and unfunded obligations, representing firm orders for which funding has not yet been appropriated. The approximate value of our Innovation and Development segment unfulfilled performance obligations was $32.8 million at March 31, 2019. The Company expects to satisfy 46% of the performance obligations in fiscal year 2019, 41% in fiscal year 2020, and the remaining amount by fiscal year 2024. The approximate value of our Optics segment unfulfilled performance obligations was $3.2 million at March 31, 2019. The Company expects to satisfy 86% of the performance obligations in fiscal year 2019 and 14% in fiscal year 2020.

The Company disaggregates revenue from contracts with customers by geographic locations, customer-type, contract type, timing of recognition, and major categories for each segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. See details in the tables below.

	Three Months Ended March 31, 2019						Six Months Ended March 31, 2019
	Optics		Innovation & Development		Total		Optics		Innovation & Development		Total
Total Revenue by Geographic Location
United States	$	3,605,000	$	5,168,000	$	8,773,000	$	6,880,000	$	9,353,000	$	16,233,000
Asia		858,000		7,000		865,000		1,773,000		22,000		1,795,000
Europe		1,701,000		12,000		1,713,000		3,186,000		51,000		3,237,000
Other		62,000		119,000		181,000		108,000		187,000		295,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Contract Type
Firm-fixed price	$	6,226,000	$	605,000	$	6,831,000	$	11,947,000	$	1,163,000	$	13,110,000
Non-Firm Fixed price		-		4,701,000		4,701,000		-		8,450,000		8,450,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Major Customer Type
U.S. government revenue	$	-	$	5,035,000	$	5,035,000	$	3,000	$	9,216,000	$	9,219,000
U.S. commercial revenue		3,605,000		132,000		3,737,000		6,877,000		137,000		7,014,000
Foreign commercial and other revenue		2,621,000		139,000		2,760,000		5,067,000		260,000		5,327,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Major Products/Services
Optical components	$	6,194,000	$	-	$	6,194,000	$	11,833,000	$	-	$	11,833,000
Contract research		-		5,223,000		5,223,000		-		9,421,000		9,421,000
Other products and services		32,000		83,000		115,000		114,000		192,000		306,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Timing of Recognition
Goods/services transferred over time	$	508,000	$	5,223,000	$	5,731,000	$	1,068,000	$	9,421,000	$	10,489,000
Goods transferred at a point in time		5,718,000		83,000		5,801,000		10,879,000		192,000		11,071,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000

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. This update is effective for the Company in the fiscal year beginning October 1, 2018, at the time the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company implemented this ASU on October 1, 2018 and it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, the FASB issued ASU 2016-16 which eliminates the exception, other than for inventory transfers, under current U.S. GAAP under which the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to a third party or otherwise recovered through use. Upon adoption of ASU 2016-16, the Company will recognize the tax expense from the sale of that asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. The cumulative-effect adjustment, if any, would consist of the net impact from (1) the write-off of any unamortized tax expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any necessary valuation allowances. The impact of the adoption of this standard on future periods will be dependent on future asset transfers, which generally occur in connection with acquisitions and other business structuring activities. The Company implemented this ASU on October 1, 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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 Company implemented this ASU on October 1, 2018 and it did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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 effective for the Company in the fiscal year beginning October 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Leases (Topic 842). In February 2016, the FASB issued ASU 2016-02 (as subsequently amended by ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20) which requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP. The transitional guidance for adopting the requirements of ASU 2016-02 calls for a modified retrospective approach that includes a number of optional practical expedients that entities may elect to apply. In addition, ASU 2018-11 provides for an additional (and optional) transition method by which entities may elect to initially apply the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption and without retrospective application to any comparative prior periods presented. Also, ASU 2018-20 provides certain narrow-scope improvements to Topic 842 as it relates to lessors. The guidance in ASU 2016-02 will become effective for the Company as of the beginning of the 2020 fiscal year. The Company has begun reviewing vendor relationships and assessing the impact of this ASU on its consolidated financial statements with the intention to adopt this ASU in fiscal year 2020.

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 by eliminating Step 2 from the Goodwill impairment test. This new guidance is effective for the Company beginning in fiscal year 2021. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

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Xcede Technologies, Inc. Joint Venture

6 Months Ended

Mar. 31, 2019

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 $5.2 million in the aggregate principal amount of convertible notes bearing interest at 5% (“the Notes”). In November of 2016, the Notes were converted into Series A convertible preferred stock of Xcede (“Series A Preferred”). 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.

Additionally, DBM invested $1.2 million of cash into Xcede in exchange for Series B convertible preferred stock of Xcede (“Series B Preferred”). Series A Preferred was issued at a 20% discount to the price per share of the Series B Preferred, in accordance with the amended provisions of the Notes. The value of DBM’s Series A Preferred and Series B Preferred, as they are wholly owned by DBM, is eliminated in consolidation.

Each share of Series A Preferred and Series B Preferred (together “the Preferred Stock”) is 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 is entitled to one vote for each share of Common Stock that the holder of the Preferred Stock would be entitled to receive upon the conversion of the holder’s Preferred Stock into Common Stock. Upon any liquidation event, which includes certain change of control events, following payment of pre-equity distributions, the remaining proceeds or net assets of Xcede shall be paid and distributed in the following amounts and order of priority: (1) to satisfy the liquidation preference payment due to each holder of Series B Preferred, (2) to satisfy the liquidation preference payment due to each holder of Series A Preferred, (3) payment in full of any acquisition transaction payment, and (4) the remaining assets available to be distributed ratably among the holders of the Common Stock. If a liquidation event were to occur, the Series A Preferred’s liquidation value would be $1.016 per share and Series B Preferred’s liquidation value would be $1.27 per share. As of March 31, 2019, the liquidation value of the Series B Preferred would be approximately $1.5 million and the Series A Preferred would be approximately $5.5 million, of which $2.4 million is DBM’s portion and $3.1 million would be attributed to noncontrolling shareholders.

As of March 31, 2019, DBM owned approximately 63% 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.

In 2016, Xcede signed agreements with Cook Biotech Inc. (“CBI”) in connection with the development, regulatory approval and production of Xcede’s hemostatic patch (the “Xcede Patch”) in which CBI committed to fund up to $1.5 million for the pre-clinical testing for the Xcede Patch. Xcede utilized $0.5 million in CBI services in exchange for a note that is currently outstanding.

On July 20, 2018, Xcede received a notice of termination from CBI claiming that the results of a recent animal study showed that it is not commercially reasonable, in CBI’s assessment, to continue to the next development phase of the Patch.

In light of the foregoing, Xcede has halted clinical trial preparations at this time and has curtailed its operations to a minimal level while the Board of Directors of Xcede evaluates alternatives, including the viability of modifying the Xcede Patch to address the shortcomings cited by CBI and/or the possible sale or license of Xcede IP assets, subject to amending CBI’s security interest. Additionally, Xcede and the Company’s RMD subsidiary have begun an investigation of possible continued development of the Xcede Patch, which includes seeking government funding of this development. In April 2019, RMD filed an application for a Phase I SBIR grant for $225,000, which is currently being reviewed. There can be no assurances with respect to any such alternatives or that any additional outside funding to continue development of the Xcede Patch will be available to Xcede.

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Inventories

6 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	March 31,		September 30,
	2019		2018
Raw Materials	$	2,626,000	$	2,362,000
Work-in-Process		930,000		890,000
Finished Goods		969,000		854,000
	$	4,525,000	$	4,106,000

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Intangible Assets

6 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 5 – Intangible Assets

Intangible assets at March 31, 2019 and September 30, 2018 consist of the following:

	Useful	Gross		Accumulated
March 31, 2019	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	719,000	$	633,000	$	86,000
Know How	15		512,000		367,000		145,000
Trade Names	Indefinite		273,000		-		273,000
Patents	20		223,000		26,000		197,000
Biomedical Technologies	5		260,000		260,000		-
		$	1,987,000	$	1,286,000	$	701,000
	Useful	Gross		Accumulated
September 30, 2018	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	719,000	$	601,000	$	118,000
Know How	15		512,000		350,000		162,000
Trade Names	Indefinite		272,000		-		272,000
Patents	20		223,000		20,000		203,000
Biomedical Technologies	5		260,000		260,000		-
		$	1,986,000	$	1,231,000	$	755,000

Amortization expense for the three months ended March 31, 2019 and 2018 was $27,000 and $28,000, respectively. Amortization expense for the six months ended March 31, 2019 and 2018 was $54,000 and $56,000, respectively.

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

	2019 (6 months)		2020		2021		2022		2023		Thereafter		Total
Acquired Customer Base	$	40,000	$	46,000	$	-	$	-	$	-	$	-	$	86,000
Know How		17,000		34,000		34,000		34,000		26,000		-		145,000
Patents		6,000		11,000		11,000		11,000		11,000		147,000		197,000
	$	63,000	$	91,000	$	45,000	$	45,000	$	37,000	$	147,000	$	428,000

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, aside from foreign exchange rate fluctuations, in the carrying value of long-lived assets, during the six months ended March 31, 2019 and 2018.

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Goodwill

6 Months Ended

Mar. 31, 2019

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;
	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 six months ended March 31, 2019 and 2018.

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Debt

6 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 7 – Debt

Subordinated Debt

On November 27, 2018, 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, 2019. Such amendment also extended the maturity date from July 31, 2019 to November 30, 2021.

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Earnings (Loss) Per Common Share

6 Months Ended

Mar. 31, 2019

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 the three and six months ended March 31, 2019 and 2018, no common share equivalents related to stock options were included in the calculation of dilutive shares, as all of the 95,602 and 160,537 common stock options outstanding, respectively, had exercise prices above the applicable period’s average market price per share and the inclusion of common share equivalents would be anti-dilutive. Additionally, for the three and six months ended March 31, 2019 and 2018, 30,000 and 40,000 shares of restricted common stock were excluded from the calculation of dilutive shares, respectively, as the effect of their inclusion would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended March 31, 2019 and 2018 is as follows:

	March 31, 2019		March 31, 2018
Weighted average shares outstanding
Basic		17,433,249		17,133,468
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		17,433,249		17,133,468

The computation of the weighted shares outstanding for the six months ended March 31, 2019 and 2018 is as follows:

	March 31, 2019		March 31, 2018
Weighted average shares outstanding
Basic		17,379,113		17,090,530
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		17,379,113		17,090,530

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Stock Based Compensation

6 Months Ended

Mar. 31, 2019

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.

As of March 31, 2019, DBM owned approximately 63% of Xcede’s outstanding Common Stock and Preferred Stock. No significant change in the Company’s position with respect to the ownership of Xcede’s stock occurred during the three months ended March 31, 2019.

Stock compensation expense for the three and six months ended March 31, 2019 and 2018 is as follows:

	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Stock Grants	$	91,000	$	91,000
Restricted Stock Grants		9,000		13,000
Option Grants		-		5,000
Employee Stock Purchase Plan		1,000		-
Subsidiary Option Grants		11,000		28,000
Total	$	112,000	$	137,000
	Six Months Ended		Six Months Ended
	March 31, 2019		March 31, 2018
Stock Grants	$	142,000	$	130,000
Restricted Stock Grants		24,000		26,000
Option Grants		-		17,000
Employee Stock Purchase Plan		2,000		1,000
Subsidiary Option Grants		22,000		56,000
Total	$	190,000	$	230,000

At March 31, 2019, there was approximately $32,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of approximately thirteen months.

Restricted Stock Grants

A summary of restricted stock activity for the six months ended March 31, 2019 is presented below:

Restricted Stock Activity for the Six Months ended March 31, 2019	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2018		60,000		$	1.61
Granted		-			-
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at March 31, 2019		30,000		$	1.48

Stock Option Grants

During the six months ended March 31, 2019, no Dynasil stock options were granted. A summary of stock option activity for the six months ended March 31, 2019 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2018		160,537		$	2.01		0.93
Outstanding and exercisable at September 30, 2018		160,537		$	2.01		0.93
Granted		-			-
Exercised		-			-
Cancelled		(64,935	)		2.33
Balance at March 31, 2019		95,602		$	1.80		0.84
Outstanding and exercisable at March 31, 2019		95,602		$	1.80		0.84

Subsidiary Stock Option Grants

During the six months ended March 31, 2019, no Xcede stock options were granted. A summary of Xcede stock option activity for the six months ended March 31, 2019 is presented below:

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2018		1,300,956	$	1.00		7.31
Outstanding and exercisable at September 30, 2018		1,229,685		1.00		7.11
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance at March 31, 2019		1,300,956		1.00		6.60
Outstanding and exercisable at March 31, 2019		1,266,581	$	1.00		6.60

At March 31, 2019, the Company’s Xcede joint venture had approximately $21,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a period of six months.

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Segment, Customer and Geographical Reporting

6 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil reports three reportable segments: innovation and development (“Innovation and Development”), (formerly known as the Contract Research segment), 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 (“Hilger”), 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 Innovation and Development segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment consists of a single operating segment, Dynasil Biomedical Corporation (“Dynasil Biomedical”), a medical technology incubator which owns rights to certain early stage medical technologies. Dynasil Biomedical holds common and preferred stock in the Xcede joint venture which is developing a tissue sealant technology and currently has no other operations.

The Company’s segment information for the three months ended March 31, 2019 and 2018 is summarized below:

Results of Operations for the Three Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	6,226,000		$	5,306,000		$	-		$	11,532,000
Gross profit		2,159,000			2,199,000			-			4,358,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,871,000			2,141,000			22,000			4,034,000
Operating income (loss)		288,000			58,000			(22,000	)		324,000
Depreciation and amortization		292,000			60,000			3,000			355,000
Capital expenditures		313,000			47,000			-			360,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Three Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	5,910,000		$	4,345,000		$	-		$	10,255,000
Gross profit		2,050,000			1,895,000			-			3,945,000
GM %		35	%		44	%		-			38	%
Operating expenses		1,858,000			1,813,000			194,000			3,865,000
Operating income (loss)		192,000			82,000			(194,000	)		80,000
Depreciation and amortization		247,000			61,000			3,000			311,000
Capital expenditures		339,000			58,000			29,000			426,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

The Company’s segment information for the six months ended March 31, 2019 and 2018 is summarized below:

Results of Operations for the Six Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	11,947,000		$	9,613,000		$	-		$	21,560,000
Gross profit		4,009,000			4,041,000			-			8,050,000
GM %		34	%		42	%		-			37	%
Operating expenses		3,756,000			4,020,000			75,000			7,851,000
Operating income (loss)		253,000			21,000			(75,000	)		199,000
Depreciation and amortization		566,000			120,000			7,000			693,000
Capital expenditures		497,000			64,000			-			561,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Six Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	10,853,000		$	8,590,000		$	-		$	19,443,000
Gross profit		3,740,000			3,745,000			-			7,485,000
GM %		34	%		44	%		-			38	%
Operating expenses		3,433,000			3,537,000			639,000			7,609,000
Operating income (loss)		307,000			208,000			(639,000	)		(124,000	)
Depreciation and amortization		477,000			126,000			7,000			610,000
Capital expenditures		928,000			77,000			45,000			1,050,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

Customer Financial Information

For three and six months ended March 31, 2019, one customer in the Optics segment represented more than 10% of the total segment revenue. For the three and six months ended March 31, 2018, no customer in the Optics segment represented more than 10% of the total segment revenue.

For the three and six months ended March 31, 2019, three customers of the Innovation and Development segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three and six months ended March 31, 2018, four customers of the Innovation and Development segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue.

Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended March 31, 2019 and 2018 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2019					March 31, 2018
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,773,000		76	%	$	8,129,000		79	%
Asia		865,000		7	%		671,000		7	%
Europe		1,713,000		15	%		1,365,000		13	%
Other		181,000		2	%		90,000		1	%
	$	11,532,000		100	%	$	10,255,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2019 and 2018 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2019					March 31, 2018
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	16,233,000		75	%	$	15,481,000		80	%
Asia		1,795,000		8	%		1,193,000		6	%
Europe		3,237,000		15	%		2,633,000		13	%
Other		295,000		2	%		136,000		1	%
	$	21,560,000		100	%	$	19,443,000		100	%

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Income Taxes

6 Months Ended

Mar. 31, 2019

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 is no longer included in Dynasil’s federal consolidated tax return and files a separate federal return. Xcede continues 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 is no longer 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 was reversed resulting in an income tax benefit in the amount of $2.7 million during the quarter ending December 31, 2016. 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.

As a result of Xcede’s decision to halt clinical trial preparations and curtail operations to a minimal level while the Board of Directors of Xcede evaluates alternative avenues to develop the Xcede Patch, following the July 2018 notice of termination from Cook Biotech Inc. (“CBI”) claiming that the results of a recent animal study showed that it is not commercially reasonable, in CBI’s assessment, to continue to the next development phase of the Xcede Patch, the Company has concluded that it is more likely than not that the deferred tax assets associated with the Company’s unitary state filings will be realized based on future profit for the group and thus has reversed the related valuation allowance on the Company’s NOLs of approximately $0.6 million. In addition, the Company conducted a research and experimentation study which released the tax valuation allowance and increased deferred tax assets by $0.6 million. The reversal resulted in an income tax benefit of approximately $1.2 million recorded during the year ended September 30, 2018. 

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of March 31, 2019 and September 30, 2018, the Company has no liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of March 31, 2019 and September 30, 2018, 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. 

On December 22, 2017, the 2017 Tax Act was signed into law. The 2017 Tax Act, which was effective on December 22, 2017, significantly revised the U.S. tax code by, among other changes, lowering the corporate income tax rate from 35% to 21%, requiring a one-time transition tax on accumulated foreign earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings.  The Company has completed its accounting for the tax effects of the 2017 Tax Act. 

The Company re-measured certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%, and recorded an income tax expense of $0.7 million related to such re-measurement in the quarter ended December 31, 2018. The one-time transition tax was based on the total unremitted earnings of the Company’s foreign subsidiary, Hilger, which had previously been deferred from U.S. income taxes. The Company recorded a provision for its one-time transition liability of its foreign subsidiary resulting in additional income tax expense of $0.2 million in fiscal year 2018.

During the fiscal year ended, September 30, 2018, the Company has federal research credits of $2.9 million, primarily resulted from a benefit in the second quarter of fiscal year 2018 related to R&E tax credits for the years ended 2013 through 2016. The federal credits begin expiring in fiscal year 2030. During the fiscal year ended September 30, 2018, the Company had state research credits of $852,000 which begin expiring in fiscal year 2027. 

The effective tax rates were 74% and (3,586%) for the three months ended March 31, 2019 and 2018, respectively. The effective tax rates were 127% and 281% for the six months ended March 31, 2019 and 2018, respectively. The effective tax rates for the three and six months ended March 31, 2019 were a result of the anticipated non-deductible transaction costs resulting from the Board of Directors’ plan to cease the registration of the Company’s common stock under federal securities laws (see Note 12 - Subsequent Events). The effective tax rate for the six months ended March 31, 2018 was a result of the 2017 Tax Act. The effective tax rate excluding the impact of the 2017 Tax Act was (16%) for the six months ended March 31, 2018.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company’s tax filings for federal and state jurisdictions for the tax years beginning with 2013 are still subject to examination.

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Subsequent Events

6 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 12 – Subsequent Events

On April 30, 2019, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $484,000, which was outstanding on March 31, 2019, into a five year term note with an interest rate of 5.17%. Additionally, on May 1, 2019, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2020, at which time the outstanding balance will be converted into a five year term note.

On May 2, 2019, the Company announced that a Special Committee of the Company’s Board of Directors comprised of three independent directors has recommended, and its Board of Directors has approved, a plan to cease the registration of the Company’s common stock under federal securities laws following the completion of a proposed reverse stock split transaction and to delist its shares of common stock from trading on the Nasdaq Capital Market. It is expected that this plan would be effectuated in the late summer 2019, subject to Dynasil’s stockholders approving the proposed reverse stock split at a Special Meeting of Stockholders, as described below.

Dynasil is taking these steps to avoid the substantial cost and expense of being a public reporting company and to focus the Company's resources on enhancing long-term stockholder value. The Company anticipates savings exceeding $900,000 on an annual basis as a result of the proposed deregistration and delisting transaction.

The proposed reverse stock split is a 1-for-8,000 split, in which holders of less than 8,000 shares of the Company’s common stock would be cashed out at a price of $1.15 per share for their pre-split number of shares. Such price represents a premium above the common stock’s closing price on May 1, 2019 and is supported by a fairness opinion by Mirus Capital Advisors Inc., whom the Special Committee engaged for such purpose. Stockholders owning 8,000 or more shares of the Company’s common stock prior to the reverse stock split would remain stockholders in Dynasil, which would no longer be encumbered by the expenses and distraction of a public reporting company. The number of shares they would own following the proposed transaction would be unchanged, as immediately after the reverse stock split a forward split of 8,000-for-1 would be applied to the continuing stockholders, negating any effects to them. Dynasil estimates that approximately 1.4 million shares (or less than 8% of the shares of its common stock currently outstanding) would be cashed out in the proposed transaction and the aggregate cost to the Company of the proposed transaction would be approximately $1.6 million, plus transaction expenses, which are estimated to be approximately $650,000. Dynasil intends to fund such costs using cash-on-hand and borrowings available under its existing credit facilities.

Dynasil’s Board of Directors has determined the proposed transaction is in the best interests of all of the Company’s stockholders. Dynasil currently realizes none of the traditional benefits of public company status, yet incurs all of the significant annual expenses and indirect costs associated with being a public company. Without its public company status, Dynasil would have an ongoing cost structure befitting its current and foreseeable scale of operations and its management would be able to have an increased focus on core operations.

Subject to regulatory clearance of the Company’s proxy statement to be filed relating to the proposed stock splits and stockholder approval thereof, it is anticipated that the proposed transaction would become effective shortly after the Special Meeting of Stockholders, which is expected to be held this summer 2019. Approval of the proposed transaction requires the affirmative vote of a majority of the shares cast (represented in person or by proxy) and entitled to vote at the Special Meeting. As of the date hereof, the Company’s directors and executive officers own approximately 37% of the Company’s currently issued and outstanding shares and are expected to vote “FOR” the transaction.

Promptly after the Special Meeting, the Company expects to terminate the registration of its common stock with the SEC and de-list its common stock from the Nasdaq Capital Market. As a result, at such time, (i) the Company would cease to file annual, quarterly, current, and other reports and documents with the SEC, and stockholders would cease to receive annual reports and proxy statements, and (ii) the Company’s common stock would no longer be listed on the Nasdaq Capital Market.

The Board reserves the right to change the ratio of the reverse stock split to the extent they believe it is necessary or desirable in order to accomplish the goal of staying below 300 record holders. They may also abandon the proposed reverse stock split at any time prior to the completion of the proposed transaction if they believe that the proposed transaction is no longer in the best interests of the Company or its stockholders.

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

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Recent Accounting Pronouncements (Tables)

6 Months Ended

Mar. 31, 2019

Contract with Customer, Asset and Liability [Table Text Block]

Contract assets were formerly reported within costs in excess of billings and unbilled receivables. Contract liabilities were formerly reported as deferred revenue. The titles have been changed in the table below to be consistent with accounts currently used under the new standard.

	September 30, 2018
	As Reported		As Adopted
Unbilled receivables		1,215,000		1,214,000
Contract assets		-		1,000
Security and other deposits		65,000		58,000
Long term contract assets		-		7,000
Deferred revenue		253,000		-
Contract liabilities		-		253,000

Disaggregation of Revenue [Table Text Block]

The Company disaggregates revenue from contracts with customers by geographic locations, customer-type, contract type, timing of recognition, and major categories for each segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. See details in the tables below.

	Three Months Ended March 31, 2019						Six Months Ended March 31, 2019
	Optics		Innovation & Development		Total		Optics		Innovation & Development		Total
Total Revenue by Geographic Location
United States	$	3,605,000	$	5,168,000	$	8,773,000	$	6,880,000	$	9,353,000	$	16,233,000
Asia		858,000		7,000		865,000		1,773,000		22,000		1,795,000
Europe		1,701,000		12,000		1,713,000		3,186,000		51,000		3,237,000
Other		62,000		119,000		181,000		108,000		187,000		295,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Contract Type
Firm-fixed price	$	6,226,000	$	605,000	$	6,831,000	$	11,947,000	$	1,163,000	$	13,110,000
Non-Firm Fixed price		-		4,701,000		4,701,000		-		8,450,000		8,450,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Major Customer Type
U.S. government revenue	$	-	$	5,035,000	$	5,035,000	$	3,000	$	9,216,000	$	9,219,000
U.S. commercial revenue		3,605,000		132,000		3,737,000		6,877,000		137,000		7,014,000
Foreign commercial and other revenue		2,621,000		139,000		2,760,000		5,067,000		260,000		5,327,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Major Products/Services
Optical components	$	6,194,000	$	-	$	6,194,000	$	11,833,000	$	-	$	11,833,000
Contract research		-		5,223,000		5,223,000		-		9,421,000		9,421,000
Other products and services		32,000		83,000		115,000		114,000		192,000		306,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000
Total Revenue by Timing of Recognition
Goods/services transferred over time	$	508,000	$	5,223,000	$	5,731,000	$	1,068,000	$	9,421,000	$	10,489,000
Goods transferred at a point in time		5,718,000		83,000		5,801,000		10,879,000		192,000		11,071,000
Total	$	6,226,000	$	5,306,000	$	11,532,000	$	11,947,000	$	9,613,000	$	21,560,000

Accounting Standards Update 2014-09 [Member]

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

The cumulative effect of the changes made to the October 1, 2018 unaudited consolidated balance sheet for the adoption of Topic 606 was as follows:

	Balance at		Adjustment for			Adjusted balance at
	September 30, 2018		Topic 606			October 1, 2018
Assets:
Unbilled receivables		1,214,000		40,000			1,254,000
Inventories, net of reserves		4,106,000		(18,000	)		4,088,000
Liabilities:
Contract liabilities		253,000		-			253,000
Stockholders' equity:
Retained earnings		841,000		22,000			863,000

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Inventories (Tables)

6 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories, net of reserves, consists of the following:

	March 31,		September 30,
	2019		2018
Raw Materials	$	2,626,000	$	2,362,000
Work-in-Process		930,000		890,000
Finished Goods		969,000		854,000
	$	4,525,000	$	4,106,000

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Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

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

Intangible assets at March 31, 2019 and September 30, 2018 consist of the following:

	Useful	Gross		Accumulated
March 31, 2019	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	719,000	$	633,000	$	86,000
Know How	15		512,000		367,000		145,000
Trade Names	Indefinite		273,000		-		273,000
Patents	20		223,000		26,000		197,000
Biomedical Technologies	5		260,000		260,000		-
		$	1,987,000	$	1,286,000	$	701,000
	Useful	Gross		Accumulated
September 30, 2018	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	719,000	$	601,000	$	118,000
Know How	15		512,000		350,000		162,000
Trade Names	Indefinite		272,000		-		272,000
Patents	20		223,000		20,000		203,000
Biomedical Technologies	5		260,000		260,000		-
		$	1,986,000	$	1,231,000	$	755,000

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:

	2019 (6 months)		2020		2021		2022		2023		Thereafter		Total
Acquired Customer Base	$	40,000	$	46,000	$	-	$	-	$	-	$	-	$	86,000
Know How		17,000		34,000		34,000		34,000		26,000		-		145,000
Patents		6,000		11,000		11,000		11,000		11,000		147,000		197,000
	$	63,000	$	91,000	$	45,000	$	45,000	$	37,000	$	147,000	$	428,000

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Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

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

The computation of the weighted shares outstanding for the three months ended March 31, 2019 and 2018 is as follows:

	March 31, 2019		March 31, 2018
Weighted average shares outstanding
Basic		17,433,249		17,133,468
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		17,433,249		17,133,468

The computation of the weighted shares outstanding for the six months ended March 31, 2019 and 2018 is as follows:

	March 31, 2019		March 31, 2018
Weighted average shares outstanding
Basic		17,379,113		17,090,530
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		-		-
Dilutive Average Shares Outstanding		17,379,113		17,090,530

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Stock Based Compensation (Tables)

6 Months Ended

Mar. 31, 2019

Schedule Of Stock Compensation Expense [Table Text Block]

Stock compensation expense for the three and six months ended March 31, 2019 and 2018 is as follows:

	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Stock Grants	$	91,000	$	91,000
Restricted Stock Grants		9,000		13,000
Option Grants		-		5,000
Employee Stock Purchase Plan		1,000		-
Subsidiary Option Grants		11,000		28,000
Total	$	112,000	$	137,000
	Six Months Ended		Six Months Ended
	March 31, 2019		March 31, 2018
Stock Grants	$	142,000	$	130,000
Restricted Stock Grants		24,000		26,000
Option Grants		-		17,000
Employee Stock Purchase Plan		2,000		1,000
Subsidiary Option Grants		22,000		56,000
Total	$	190,000	$	230,000

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

A summary of restricted stock activity for the six months ended March 31, 2019 is presented below:

Restricted Stock Activity for the Six Months ended March 31, 2019	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2018		60,000		$	1.61
Granted		-			-
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at March 31, 2019		30,000		$	1.48

Stock Option Grants [Member]

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

During the six months ended March 31, 2019, no Dynasil stock options were granted. A summary of stock option activity for the six months ended March 31, 2019 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2018		160,537		$	2.01		0.93
Outstanding and exercisable at September 30, 2018		160,537		$	2.01		0.93
Granted		-			-
Exercised		-			-
Cancelled		(64,935	)		2.33
Balance at March 31, 2019		95,602		$	1.80		0.84
Outstanding and exercisable at March 31, 2019		95,602		$	1.80		0.84

Subsidiary Option Grants [Member]

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

During the six months ended March 31, 2019, no Xcede stock options were granted. A summary of Xcede stock option activity for the six months ended March 31, 2019 is presented below:

	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2018		1,300,956	$	1.00		7.31
Outstanding and exercisable at September 30, 2018		1,229,685		1.00		7.11
Granted		-		-
Exercised		-		-
Cancelled		-		-
Balance at March 31, 2019		1,300,956		1.00		6.60
Outstanding and exercisable at March 31, 2019		1,266,581	$	1.00		6.60

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Segment, Customer and Geographical Reporting (Tables)

6 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

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

The Company’s segment information for the three months ended March 31, 2019 and 2018 is summarized below:

Results of Operations for the Three Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	6,226,000		$	5,306,000		$	-		$	11,532,000
Gross profit		2,159,000			2,199,000			-			4,358,000
GM %		35	%		41	%		-			38	%
Operating expenses		1,871,000			2,141,000			22,000			4,034,000
Operating income (loss)		288,000			58,000			(22,000	)		324,000
Depreciation and amortization		292,000			60,000			3,000			355,000
Capital expenditures		313,000			47,000			-			360,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Three Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	5,910,000		$	4,345,000		$	-		$	10,255,000
Gross profit		2,050,000			1,895,000			-			3,945,000
GM %		35	%		44	%		-			38	%
Operating expenses		1,858,000			1,813,000			194,000			3,865,000
Operating income (loss)		192,000			82,000			(194,000	)		80,000
Depreciation and amortization		247,000			61,000			3,000			311,000
Capital expenditures		339,000			58,000			29,000			426,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

The Company’s segment information for the six months ended March 31, 2019 and 2018 is summarized below:

Results of Operations for the Six Months Ended March 31,
2019
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	11,947,000		$	9,613,000		$	-		$	21,560,000
Gross profit		4,009,000			4,041,000			-			8,050,000
GM %		34	%		42	%		-			37	%
Operating expenses		3,756,000			4,020,000			75,000			7,851,000
Operating income (loss)		253,000			21,000			(75,000	)		199,000
Depreciation and amortization		566,000			120,000			7,000			693,000
Capital expenditures		497,000			64,000			-			561,000
Intangibles, net		358,000			145,000			198,000			701,000
Goodwill		961,000			4,939,000			-			5,900,000
Total assets	$	21,482,000		$	9,456,000		$	204,000		$	31,142,000

Results of Operations for the Six Months Ended March 31,
2018
	Optics			Innovation and Development*			Biomedical			Total
Revenue	$	10,853,000		$	8,590,000		$	-		$	19,443,000
Gross profit		3,740,000			3,745,000			-			7,485,000
GM %		34	%		44	%		-			38	%
Operating expenses		3,433,000			3,537,000			639,000			7,609,000
Operating income (loss)		307,000			208,000			(639,000	)		(124,000	)
Depreciation and amortization		477,000			126,000			7,000			610,000
Capital expenditures		928,000			77,000			45,000			1,050,000
Intangibles, net		455,000			179,000			363,000			997,000
Goodwill		1,070,000			4,939,000			-			6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000		$	29,517,000

*Formerly Contract Research

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

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended March 31, 2019 and 2018 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2019					March 31, 2018
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,773,000		76	%	$	8,129,000		79	%
Asia		865,000		7	%		671,000		7	%
Europe		1,713,000		15	%		1,365,000		13	%
Other		181,000		2	%		90,000		1	%
	$	11,532,000		100	%	$	10,255,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2019 and 2018 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2019					March 31, 2018
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	16,233,000		75	%	$	15,481,000		80	%
Asia		1,795,000		8	%		1,193,000		6	%
Europe		3,237,000		15	%		2,633,000		13	%
Other		295,000		2	%		136,000		1	%
	$	21,560,000		100	%	$	19,443,000		100	%

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Basis of Presentation (Details Textual) - Xcede Technologies inc [Member]	Mar. 31, 2019	Nov. 18, 2016
Noncontrolling Interest, Ownership Percentage by Parent	63.00%	59.00%
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	37.00%

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Recent Accounting Pronouncements (Details) - USD ($)	Mar. 31, 2019	Oct. 01, 2018	Sep. 30, 2018
Assets:
Unbilled receivables	$ 2,553,000		$ 1,214,000
Inventories, net of reserves	4,525,000		4,106,000
Liabilities [Abstract]
Contract liabilities	25,000		253,000
Stockholders' equity:
Retained earnings	$ 862,000		841,000
Adjustment for Topic 606 [Member]
Assets:
Unbilled receivables			40,000
Inventories, net of reserves			(18,000)
Liabilities [Abstract]
Contract liabilities			0
Stockholders' equity:
Retained earnings			$ 22,000
Adjusted balance at 1-Oct-18
Assets:
Unbilled receivables		$ 1,254,000
Inventories, net of reserves		4,088,000
Liabilities [Abstract]
Contract liabilities		253,000
Stockholders' equity:
Retained earnings		$ 863,000

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Recent Accounting Pronouncements (Details 1) - USD ($)	Mar. 31, 2019	Sep. 30, 2018
Unbilled receivables	$ 2,553,000	$ 1,214,000
Contract assets	19,000	1,000
Security and other deposits	53,000	58,000
Long term contract assets	26,000	7,000
Deferred revenue		0
Contract liabilities	$ 25,000	253,000
Previously Reported [Member]
Unbilled receivables		1,215,000
Contract assets		0
Security and other deposits		65,000
Long term contract assets		0
Deferred revenue		253,000
Contract liabilities		$ 0

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Recent Accounting Pronouncements (Details 2) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Revenues	$ 11,532,000	$ 10,255,000	$ 21,560,000	$ 19,443,000
Geographic Location [Member]
Revenues	11,532,000		21,560,000
Contract Type [Member]
Revenues	11,532,000		21,560,000
Major Customer Type [Member]
Revenues	11,532,000		21,560,000
Products/Services [Member]
Revenues	11,532,000		21,560,000
Timing of Recognition [Member]
Revenues	11,532,000		21,560,000
Optics [Member] | Geographic Location [Member]
Revenues	6,226,000		11,947,000
Optics [Member] | Contract Type [Member]
Revenues	6,226,000		11,947,000
Optics [Member] | Major Customer Type [Member]
Revenues	6,226,000		11,947,000
Optics [Member] | Products/Services [Member]
Revenues	6,226,000		11,947,000
Optics [Member] | Timing of Recognition [Member]
Revenues	6,226,000		11,947,000
Innovation and Development [Member] | Geographic Location [Member]
Revenues	5,306,000		9,613,000
Innovation and Development [Member] | Contract Type [Member]
Revenues	5,306,000		9,613,000
Innovation and Development [Member] | Major Customer Type [Member]
Revenues	5,306,000		9,613,000
Innovation and Development [Member] | Products/Services [Member]
Revenues	5,306,000		9,613,000
Innovation and Development [Member] | Timing of Recognition [Member]
Revenues	5,306,000		9,613,000
Goods/services transferred over time [Member] | Timing of Recognition [Member]
Revenues	5,731,000		10,489,000
Goods/services transferred over time [Member] | Optics [Member] | Timing of Recognition [Member]
Revenues	508,000		1,068,000
Goods/services transferred over time [Member] | Innovation and Development [Member] | Timing of Recognition [Member]
Revenues	5,223,000		9,421,000
Goods transferred at a point in time [Member] | Timing of Recognition [Member]
Revenues	5,801,000		11,071,000
Goods transferred at a point in time [Member] | Optics [Member] | Timing of Recognition [Member]
Revenues	5,718,000		10,879,000
Goods transferred at a point in time [Member] | Innovation and Development [Member] | Timing of Recognition [Member]
Revenues	83,000		192,000
Optical components [Member] | Products/Services [Member]
Revenues	6,194,000		11,833,000
Optical components [Member] | Optics [Member] | Products/Services [Member]
Revenues	6,194,000		11,833,000
Optical components [Member] | Innovation and Development [Member] | Products/Services [Member]
Revenues	0		0
Contract research [Member] | Products/Services [Member]
Revenues	5,223,000		9,421,000
Contract research [Member] | Optics [Member] | Products/Services [Member]
Revenues	0		0
Contract research [Member] | Innovation and Development [Member] | Products/Services [Member]
Revenues	5,223,000		9,421,000
Other products and services [Member] | Products/Services [Member]
Revenues	115,000		306,000
Other products and services [Member] | Optics [Member] | Products/Services [Member]
Revenues	32,000		114,000
Other products and services [Member] | Innovation and Development [Member] | Products/Services [Member]
Revenues	83,000		192,000
U.S. government revenue [Member] | Major Customer Type [Member]
Revenues	5,035,000		9,219,000
U.S. government revenue [Member] | Optics [Member] | Major Customer Type [Member]
Revenues	0		3,000
U.S. government revenue [Member] | Innovation and Development [Member] | Major Customer Type [Member]
Revenues	5,035,000		9,216,000
U.S. commercial revenue [Member] | Major Customer Type [Member]
Revenues	3,737,000		7,014,000
U.S. commercial revenue [Member] | Optics [Member] | Major Customer Type [Member]
Revenues	3,605,000		6,877,000
U.S. commercial revenue [Member] | Innovation and Development [Member] | Major Customer Type [Member]
Revenues	132,000		137,000
Foreign commercial and other revenue [Member] | Major Customer Type [Member]
Revenues	2,760,000		5,327,000
Foreign commercial and other revenue [Member] | Optics [Member] | Major Customer Type [Member]
Revenues	2,621,000		5,067,000
Foreign commercial and other revenue [Member] | Innovation and Development [Member] | Major Customer Type [Member]
Revenues	139,000		260,000
Firm-fixed price [Member] | Contract Type [Member]
Revenues	6,831,000		13,110,000
Firm-fixed price [Member] | Optics [Member] | Contract Type [Member]
Revenues	6,226,000		11,947,000
Firm-fixed price [Member] | Innovation and Development [Member] | Contract Type [Member]
Revenues	605,000		1,163,000
Non-Firm Fixed price [Member] | Contract Type [Member]
Revenues	4,701,000		8,450,000
Non-Firm Fixed price [Member] | Optics [Member] | Contract Type [Member]
Revenues	0		0
Non-Firm Fixed price [Member] | Innovation and Development [Member] | Contract Type [Member]
Revenues	4,701,000		8,450,000
United States [Member] | Geographic Location [Member]
Revenues	8,773,000		16,233,000
United States [Member] | Optics [Member] | Geographic Location [Member]
Revenues	3,605,000		6,880,000
United States [Member] | Innovation and Development [Member] | Geographic Location [Member]
Revenues	5,168,000		9,353,000
Asia [Member] | Geographic Location [Member]
Revenues	865,000		1,795,000
Asia [Member] | Optics [Member] | Geographic Location [Member]
Revenues	858,000		1,773,000
Asia [Member] | Innovation and Development [Member] | Geographic Location [Member]
Revenues	7,000		22,000
Europe [Member] | Geographic Location [Member]
Revenues	1,713,000		3,237,000
Europe [Member] | Optics [Member] | Geographic Location [Member]
Revenues	1,701,000		3,186,000
Europe [Member] | Innovation and Development [Member] | Geographic Location [Member]
Revenues	12,000		51,000
Other [Member] | Geographic Location [Member]
Revenues	181,000		295,000
Other [Member] | Optics [Member] | Geographic Location [Member]
Revenues	62,000		108,000
Other [Member] | Innovation and Development [Member] | Geographic Location [Member]
Revenues	$ 119,000		$ 187,000

XML

Recent Accounting Pronouncements (Details Textual) - USD ($)	3 Months Ended	6 Months Ended
	Mar. 31, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Oct. 01, 2018
Contract with Customer, Liability, Revenue Recognized	$ 137,000	$ 252,000
Revenue, Performance Obligation, Description of Payment Terms	cost-plus contracts, the customer generally pays during the performance period for 80%-90% of the actual costs incurred.
Innovation and Development Segment [Member]
Revenue, Remaining Performance Obligation, Amount	$ 32,800,000	32,800,000
Optics [Member]
Revenue, Remaining Performance Obligation, Amount	$ 3,200,000	$ 3,200,000
Scenario, Forecast [Member] | Innovation and Development Segment [Member]
Revenue, Remaining Performance Obligation, Percentage			41.00%	46.00%
Scenario, Forecast [Member] | Optics [Member]
Revenue, Remaining Performance Obligation, Percentage			14.00%	86.00%
Retained Earnings [Member]
Impact of Restatement on Opening Retained Earnings, Net of Tax					$ 22,000

XML

Xcede Technologies, Inc. Joint Venture (Details Textual) - USD ($)	1 Months Ended		6 Months Ended
	Apr. 30, 2019	Nov. 30, 2016	Mar. 31, 2019
Cook Biotech Inc [Member]
Line of Credit Facility, Maximum Borrowing Capacity			$ 1,500,000
Long-term Line of Credit			$ 500,000
Noncontrolling Interest [Member]
Debt Conversion, Original Debt, Amount		$ 3,100,000
Debt Conversion, Converted Instrument, Shares Issued		3,100,000
Subsequent Event [Member] | Phase I SBIR [Member]
Application Grant value	$ 225,000
Xcede Technologies inc [Member]
Debt Instrument, Interest Rate, Stated Percentage		5.00%
Committed Investment In Cash		$ 1,200,000
Debt Conversion, Converted Instrument, Shares Issued		3,055,551
Capital Stock Financing Discount Percentage		20.00%
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.
Equity Method Investment, Ownership Percentage			63.00%
Dynasil Biomedical [Member]
Debt Conversion, Original Debt, Amount		$ 2,400,000
Debt Conversion, Converted Instrument, Shares Issued		2,338,569
External Funding [Member] | Convertible Debt [Member]
Debt Conversion, Original Debt, Amount		$ 5,200,000
Series B Preferred Stock [Member]
Preferred Stock, Liquidation Preference Per Share			$ 1.27
Preferred Stock, Liquidation Preference, Value			$ 1,500,000
Series A Preferred Stock [Member]
Preferred Stock, Liquidation Preference Per Share			$ 1.016
Preferred Stock, Liquidation Preference, Value			$ 5,500,000
Series A Preferred Stock [Member] | Dynasil Biomedical [Member]
Preferred Stock, Liquidation Preference, Value			$ 2,400,000

XML

Inventories (Details) - USD ($)	Mar. 31, 2019	Sep. 30, 2018
Inventory Current [Line Items]
Raw Materials	$ 2,626,000	$ 2,362,000
Work-in-Process	930,000	890,000
Finished Goods	969,000	854,000
Inventory, Net, Total	$ 4,525,000	$ 4,106,000

XML

Intangible Assets (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Sep. 30, 2018	Mar. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 1,987,000	$ 1,986,000
Accumulated Amortization	1,286,000	1,231,000
Net	701,000	755,000	$ 997,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	719,000	719,000
Accumulated Amortization	633,000	601,000
Net	$ 86,000	$ 118,000
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	367,000	350,000
Net	145,000	162,000
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	273,000	272,000
Accumulated Amortization	0	0
Net	$ 273,000	$ 272,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	20 years	20 years
Gross Amount	$ 223,000	$ 223,000
Accumulated Amortization	26,000	20,000
Net	$ 197,000	$ 203,000
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

XML

Intangible Assets (Details 1)	Mar. 31, 2019 USD ($)
Finite-Lived Intangible Assets [Line Items]
2019 (6 months)	$ 63,000
2020	91,000
2021	45,000
2022	45,000
2023	37,000
Thereafter	147,000
Total	428,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
2019 (6 months)	40,000
2020	46,000
2021	0
2022	0
2023	0
Thereafter	0
Total	86,000
Know How [Member]
Finite-Lived Intangible Assets [Line Items]
2019 (6 months)	17,000
2020	34,000
2021	34,000
2022	34,000
2023	26,000
Thereafter	0
Total	145,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2019 (6 months)	6,000
2020	11,000
2021	11,000
2022	11,000
2023	11,000
Thereafter	147,000
Total	$ 197,000

XML

Intangible Assets (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 27,000	$ 28,000	$ 54,000	$ 56,000

XML

Debt (Details Textual)	6 Months Ended
	Mar. 31, 2019
Debt [Line Items]
Debt Instrument, Maturity Date, Description	November 30, 2021

XML

Earnings (Loss) Per Common Share (Details) - shares	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Weighted average shares outstanding
Basic	17,433,249	17,133,468	17,379,113	17,090,530
Effect of dilutive securities
Dilutive average shares outstanding	17,433,249	17,133,468	17,379,113	17,090,530
Employee Stock Option [Member]
Effect of dilutive securities
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	0	0	0	0
Restricted Stock [Member]
Effect of dilutive securities
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	0	0	0	0

XML

Earnings (Loss) Per Common Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Earnings Loss Per Common Share [Line Items]
Weighted Average Number of Shares Outstanding, Diluted	17,433,249	17,133,468	17,379,113	17,090,530
Employee Stock Option [Member]
Earnings Loss Per Common Share [Line Items]
Weighted Average Number of Shares Outstanding, Diluted	95,602	160,537	95,602	160,537
Restricted Stock [Member]
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	30,000	40,000	30,000	40,000

XML

Stock Based Compensation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 112,000	$ 137,000	$ 190,000	$ 230,000
Stock grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	91,000	91,000	142,000	130,000
Restricted stock grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	9,000	13,000	24,000	26,000
Option grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	0	5,000	0	17,000
Employee stock purchase plan [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	1,000	0	2,000	1,000
Subsidiary option grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 11,000	$ 28,000	$ 22,000	$ 56,000

XML

Stock Based Compensation (Details 1) - Restricted Stock [Member]	6 Months Ended
	Mar. 31, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Nonvested, Beginning Balance | shares	60,000
Shares, Granted | shares	0
Shares, Vested | shares	(30,000)
Shares, Cancelled | shares	0
Shares, Nonvested and expected to vest, Ending Balance | shares	30,000
Weighted-Average Grant-Date Fair Value, Nonvested, Beginning Balance | $ / shares	$ 1.61
Weighted-Average Grant-Date Fair Value, Granted | $ / shares
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 and expected to vest, Ending Balance | $ / shares	$ 1.48

XML

Stock Based Compensation (Details 2) - $ / shares	6 Months Ended	12 Months Ended
	Mar. 31, 2019	Sep. 30, 2018
Stock Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance, Options Outstanding	160,537
Outstanding and exercisable, Options Outstanding	160,537
Granted, Options Outstanding	0
Exercised, Options Outstanding	0
Cancelled, Options Outstanding	(64,935)
Balance, Options Outstanding	95,602	160,537
Outstanding and exercisable, Options Outstanding	95,602	160,537
Beginning Balance, Weighted Average Exercise Price per Share	$ 2.01
Outstanding and exercisable, Weighted Average Exercise Price per Share	2.01
Granted, Weighted Average Exercise Price per Share	0
Exercised, Weighted Average Exercise Price per Share	0
Cancelled, Weighted Average Exercise Price per Share	2.33
Ending Balance, Weighted Average Exercise Price per Share	1.80	$ 2.01
Outstanding and exercisable, Weighted Average Exercise Price per Share	$ 1.80	$ 2.01
Balance, Weighted Average Remain Contractual Term (in Years)	10 months 2 days	11 months 4 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	10 months 2 days	11 months 4 days
Subsidiary Stock Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance, Options Outstanding	1,300,956
Outstanding and exercisable, Options Outstanding	1,229,685
Granted, Options Outstanding	0
Exercised, Options Outstanding	0
Cancelled, Options Outstanding	0
Balance, Options Outstanding	1,300,956	1,300,956
Outstanding and exercisable, Options Outstanding	1,266,581	1,229,685
Beginning Balance, Weighted Average Exercise Price per Share	$ 1.00
Outstanding and exercisable, Weighted Average Exercise Price per Share	1.00
Granted, Weighted Average Exercise Price per Share	0
Exercised, Weighted Average Exercise Price per Share	0
Cancelled, Weighted Average Exercise Price per Share	0
Ending Balance, Weighted Average Exercise Price per Share	1.00	$ 1.00
Outstanding and exercisable, Weighted Average Exercise Price per Share	$ 1.00	$ 1.00
Balance, Weighted Average Remain Contractual Term (in Years)	6 years 7 months 6 days	7 years 3 months 21 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	6 years 7 months 6 days	7 years 1 month 9 days

XML

Stock Based Compensation (Details Textual)	Mar. 31, 2019 USD ($)
Xcede Technologies inc [Member]
Class of Stock [Line Items]
Equity Method Investment, Ownership Percentage	63.00%
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	$ 21,000
Employee Stock Plan [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 32,000

XML

Segment, Customer and Geographical Reporting (Details) - USD ($)	3 Months Ended			6 Months Ended
	Mar. 31, 2019		Mar. 31, 2018	Mar. 31, 2019		Mar. 31, 2018	Sep. 30, 2018
Segment Reporting Information [Line Items]
Revenue	$ 11,532,000		$ 10,255,000	$ 21,560,000		$ 19,443,000
Gross profit	$ 4,358,000		$ 3,945,000	$ 8,050,000		$ 7,485,000
GM %	38.00%		38.00%	37.00%		38.00%
Operating expenses	$ 4,034,000		$ 3,865,000	$ 7,851,000		$ 7,609,000
Operating income (loss)	324,000		80,000	199,000		(124,000)
Depreciation and amortization	355,000		311,000	693,000		610,000
Capital expenditures	360,000		426,000	561,000		1,050,000
Intangibles, net	701,000		997,000	701,000		997,000	$ 755,000
Goodwill	5,900,000		6,009,000	5,900,000		6,009,000	5,900,000
Total assets	31,142,000		29,517,000	31,142,000		29,517,000	$ 31,532,000
Optics [Member]
Segment Reporting Information [Line Items]
Revenue	6,226,000		5,910,000	11,947,000		10,853,000
Gross profit	$ 2,159,000		$ 2,050,000	$ 4,009,000		$ 3,740,000
GM %	35.00%		35.00%	34.00%		34.00%
Operating expenses	$ 1,871,000		$ 1,858,000	$ 3,756,000		$ 3,433,000
Operating income (loss)	288,000		192,000	253,000		307,000
Depreciation and amortization	292,000		247,000	566,000		477,000
Capital expenditures	313,000		339,000	497,000		928,000
Intangibles, net	358,000		455,000	358,000		455,000
Goodwill	961,000		1,070,000	961,000		1,070,000
Total assets	21,482,000		20,903,000	21,482,000		20,903,000
Innovation and Development [Member]
Segment Reporting Information [Line Items]
Revenue	5,306,000	[1]	4,345,000	9,613,000		8,590,000
Gross profit	$ 2,199,000	[1]	$ 1,895,000	$ 4,041,000		$ 3,745,000
GM %	41.00%	[1]	44.00%	42.00%		44.00%
Operating expenses	$ 2,141,000	[1]	$ 1,813,000	$ 4,020,000		$ 3,537,000
Operating income (loss)	58,000	[1]	82,000	21,000		208,000
Depreciation and amortization	60,000	[1]	61,000	120,000		126,000
Capital expenditures	47,000	[1]	58,000	64,000		77,000
Intangibles, net	145,000	[1]	179,000	145,000	[1]	179,000
Goodwill	4,939,000	[1]	4,939,000	4,939,000	[1]	4,939,000
Total assets	9,456,000	[1]	8,028,000	9,456,000	[1]	8,028,000
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	$ 22,000		$ 194,000	$ 75,000		$ 639,000
Operating income (loss)	(22,000)		(194,000)	(75,000)		(639,000)
Depreciation and amortization	3,000		3,000	7,000		7,000
Capital expenditures	0		29,000	0		45,000
Intangibles, net	198,000		363,000	198,000		363,000
Goodwill	0		0	0		0
Total assets	$ 204,000		$ 586,000	$ 204,000		$ 586,000

[1] Formerly Contract Research

XML

Segment, Customer and Geographical Reporting (Details 1) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Mar. 31, 2018
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 11,532,000	$ 10,255,000	$ 21,560,000	$ 19,443,000
% of Total	100.00%	100.00%	100.00%	100.00%
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 8,773,000	$ 8,129,000	$ 16,233,000	$ 15,481,000
% of Total	76.00%	79.00%	75.00%	80.00%
Asia [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 865,000	$ 671,000	$ 1,795,000	$ 1,193,000
% of Total	7.00%	7.00%	8.00%	6.00%
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 1,713,000	$ 1,365,000	$ 3,237,000	$ 2,633,000
% of Total	15.00%	13.00%	15.00%	13.00%
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 181,000	$ 90,000	$ 295,000	$ 136,000
% of Total	2.00%	1.00%	2.00%	1.00%

XML

Segment, Customer and Geographical Reporting (Details Textual)	3 Months Ended	6 Months Ended
	Mar. 31, 2019	Mar. 31, 2019
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%
Customer One [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%
Customer Two [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%
Customer Three [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%

XML

Income Taxes (Details Textual) - USD ($)	3 Months Ended				6 Months Ended		12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2016	Mar. 31, 2019	Mar. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Nov. 18, 2016
Income Tax [Line Items]
Income Tax Expense (Benefit)	$ 206,000		$ (1,255,000)	$ 2,700,000	$ 141,000	$ (595,000)	$ 1,200,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent							21.00%	35.00%
Provision for Income Tax Expense		$ 700,000
Additional Income Tax Expense							$ 200,000
Effective Income Tax Rate Reconciliation, Percent	74.00%		3586.00%		127.00%	281.00%
Deferred Tax Assets, Operating Loss Carryforwards, Domestic							600,000
Research Tax Credit Carryforward [Member]
Income Tax [Line Items]
Deferred Tax Assets, Valuation Allowance							0.6
Excluding The Impact Of The 2017 Tax Act [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Percent						16.00%
Xcede Technologies inc [Member]
Income Tax [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	63.00%				63.00%				59.00%
Federal [Member]
Income Tax [Line Items]
Deferred Tax Assets, Tax Credit Carryforwards, Research							2,900,000
State and Local Jurisdiction [Member]
Income Tax [Line Items]
Deferred Tax Assets, Tax Credit Carryforwards, Research							$ 852,000

XML

Subsequent Events (Details Textual) - USD ($)		1 Months Ended
	May 02, 2019	May 01, 2019	Apr. 30, 2019	Mar. 31, 2019
Line of Credit [Member]
Subsequent Event [Line Items]
Debt Instrument, Interest Rate, Stated Percentage				5.17%
Subsequent Event [Member]
Subsequent Event [Line Items]
Share Holders Equity Estimated Cash Out Payments		$ 1,400,000
Reverse Stock Split Estimated Cost		1,600,000
Reverse Stock Split Transaction Expenses		$ 650,000
Annual Anticipated Saving Due To Stock Split	$ 900,000
Percentage Of Common Stock Currently Outstanding		8.00%
Subsequent Event [Member] | FOR [Member]
Subsequent Event [Line Items]
Percentage of Voting in Special Meeting		37.00%
Subsequent Event [Member] | Common Stock [Member]
Subsequent Event [Line Items]
Stock Issued During Period, Shares, Reverse Stock Splits	8,000
Shares Holders Equity Reverse Stock Split Minimum Shares	8,000
Reverse Stock Split Cash Payout Per Fractional Share	$ 1.15
Share Holders Equity Forward Split		8,000-for-1
Subsequent Event [Member] | Line of Credit [Member]
Subsequent Event [Line Items]
Long-term Line of Credit		$ 750,000	$ 484,000