10-Q

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018

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

Commission file number: 001-35011

DYNASIL CORPORATION OF AMERICA

(Exact name of registrant as specified in its charter)

Delaware	22-1734088
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

313 Washington Street, Suite 403, Newton, MA	02458
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 668-6855

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of August 6, 2018 there were 17,317,611 shares of common stock, par value $.0005 per share, outstanding.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

INDEX

	Page
PART 1.   FINANCIAL INFORMATION
Item 1.   Financial Statements
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2018 AND SEPTEMBER 30, 2017	3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2018 AND 2017	5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED JUNE 30, 2018	6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2018 AND 2017	7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 4.  Controls and Procedures	31
PART II.  OTHER INFORMATION	31
Item 1A. Risk Factors	31
Item 5(a). Other Information	31
Item 6.   Exhibits	32
Signatures	32

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30,		September 30,
	2018		2017
ASSETS
Current Assets
Cash and cash equivalents	$	1,511,000	$	2,415,000
Accounts receivable, net of allowances of $183,000 and $200,000 at June 30, 2018 and September 30, 2017, respectively		3,766,000		3,407,000
Costs in excess of billings and unbilled receivables		1,065,000		1,317,000
Inventories, net of reserves		4,457,000		4,326,000
Prepaid expenses and other current assets		792,000		973,000
Total current assets		11,591,000		12,438,000
Property, Plant and Equipment, net		7,960,000		7,032,000
Other Assets
Intangibles, net		959,000		987,000
Deferred tax asset		3,167,000		2,642,000
Goodwill		5,907,000		5,940,000
Security deposits		58,000		58,000
Total other assets		10,091,000		9,627,000
Total Assets	$	29,642,000	$	29,097,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Equipment line of credit	$	281,000	$	-
Current portion of long-term debt		1,652,000		2,007,000
Capital lease obligations, current		52,000		91,000
Accounts payable		1,924,000		2,380,000
Deferred revenue		109,000		129,000
Accrued expenses and other liabilities		2,652,000		2,667,000
Total current liabilities		6,670,000		7,274,000
Long-term Liabilities
Long-term debt, net of current portion		1,090,000		1,045,000
Capital lease obligations, net of current portion		62,000		81,000
Deferred tax liability, net		230,000		234,000
Other long-term liabilities		172,000		38,000
Total long-term liabilities		1,554,000		1,398,000

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

3

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED) (Continued)

	June 30,			September 30,
	2018			2017
LIABILITIES AND STOCKHOLDERS' EQUITY (Continued)
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 18,091,931 and 17,893,763 shares issued, 17,281,771 and and 17,083,603 shares outstanding at June 30, 2018 and September 30, 2017, respectively.		9,000			9,000
Additional paid in capital		21,756,000			21,406,000
Accumulated other comprehensive income (loss)		(666,000	)		(539,000	)
Accumulated deficit		(39,000	)		(919,000	)
Less 810,160 shares of treasury stock - at cost		(986,000	)		(986,000	)
Total Dynasil stockholders' equity		20,074,000			18,971,000
Noncontrolling interest		1,344,000			1,454,000
Total stockholders' equity		21,418,000			20,425,000
Total Liabilities and Stockholders' Equity	$	29,642,000		$	29,097,000

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

4

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net revenue	$	10,542,000		$	8,836,000		$	29,985,000		$	28,065,000
Cost of revenue		6,367,000			5,472,000			18,326,000			17,386,000
Gross profit		4,175,000			3,364,000			11,659,000			10,679,000
Operating expenses:
Sales and marketing		288,000			255,000			955,000			848,000
Research and development		177,000			176,000			701,000			707,000
General and administrative		3,100,000			3,205,000			9,519,000			9,321,000
Total operating expenses		3,565,000			3,636,000			11,175,000			10,876,000
Income (loss) from operations		610,000			(272,000	)		484,000			(197,000	)
Interest expense, net		44,000			53,000			132,000			164,000
Income (loss) before taxes		566,000			(325,000	)		352,000			(361,000	)
Income tax expense (benefit)		190,000			(111,000	)		(404,000	)		(2,769,000	)
Net income (loss)		376,000			(214,000	)		756,000			2,408,000
Less: Net loss attributable to noncontrolling interest		(15,000	)		(64,000	)		(124,000	)		(197,000	)
Net income (loss) attributable to common stockholders	$	391,000		$	(150,000	)	$	880,000		$	2,605,000
Net income (loss)	$	376,000		$	(214,000	)	$	756,000		$	2,408,000
Other comprehensive income (loss):
Foreign currency translation		(384,000	)		212,000			(127,000	)		(18,000	)
Total comprehensive income (loss)		(8,000	)		(2,000	)		629,000			2,390,000
Less: comprehensive income (loss) attributable to noncontrolling interest		(15,000	)		(64,000	)		(124,000	)		(197,000	)
Total comprehensive income (loss) attributable to common stockholders	$	7,000		$	62,000		$	753,000		$	2,587,000
Basic net income (loss) per common share	$	0.02		$	(0.01	)	$	0.05		$	0.15
Diluted net income (loss) per common share	$	0.02		$	(0.01	)	$	0.05		$	0.15
Weighted average shares outstanding
Basic		17,203,965			16,945,744			17,127,834			16,879,864
Diluted		17,221,199			16,945,744			17,147,228			16,879,864

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

5

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the nine months ended June 30, 2018

					Additional		Other														Total
	Common		Common		Paid-in		Comprehensive			Accumulated			Treasury Stock					Noncontrolling			Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Shares		Amount			Interest			Equity
Balance, September 30, 2017		17,893,763	$	9,000	$	21,406,000	$	(539,000	)	$	(919,000	)		810,160	$	(986,000	)	$	1,454,000		$	20,425,000
Issuance of shares of common stock under employee stock purchase plan		11,593		-		13,000		-			-			-		-			-			13,000
Stock-based compensation costs		186,575		-		337,000		-			-			-		-			14,000			351,000
Foreign currency translation adjustment		-		-		-		(127,000	)		-			-		-			-			(127,000	)
Net income (loss)		-		-		-		-			880,000			-		-			(124,000	)		756,000
Balance, June 30, 2018		18,091,931	$	9,000	$	21,756,000	$	(666,000	)	$	(39,000	)		810,160	$	(986,000	)	$	1,344,000		$	21,418,000

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

6

DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	756,000		$	2,408,000
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense		351,000			343,000
Foreign exchange loss (gain)		13,000			11,000
Depreciation and amortization		927,000			926,000
Deferred income taxes		(524,000	)		(2,775,000	)
Non-cash R&D services		209,000			238,000
Other		(6,000	)		68,000
Other changes in assets and liabilities:
Accounts receivable, net		(362,000	)		74,000
Inventories		(153,000	)		(408,000	)
Costs in excess of billings and unbilled receivables		253,000			25,000
Prepaid expenses and other assets		42,000			188,000
Accounts payable		(447,000	)		(197,000	)
Accrued expenses and other liabilities		55,000			(480,000	)
Deferred revenue		(20,000	)		(129,000	)
Net cash from operating activities		1,094,000			292,000
Cash flows from investing activities:
Purchases of property, plant and equipment		(1,788,000	)		(455,000	)
Purchase of intangibles		(65,000	)		(78,000	)
Net cash from investing activities		(1,853,000	)		(533,000	)
Cash flows from financing activities:
Proceeds from issuance of common stock		13,000			13,000
Principal payments on capital leases		(72,000	)		(80,000	)
Proceeds from (payments of) equipment line of credit, net		281,000			-
Proceeds from (payments of) bank and subordinated debt, net		(329,000	)		(490,000	)
Net cash from financing activities		(107,000	)		(557,000	)
Effect of exchange rates on cash and cash equivalents		(38,000	)		(19,000	)
Net change in cash and cash equivalents		(904,000	)		(817,000	)
Cash and cash equivalents, beginning	$	2,415,000		$	2,607,000
Cash and cash equivalents, ending	$	1,511,000		$	1,790,000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	109,000		$	136,000
Tax payments (refunds)		7,000			3,000
Non cash activities:
Assets purchased under capital leases		12,000			-
Recapitalization of Xcede - conversion of non controlling notes payable to preferred stock		-			(3,103,000	)
Subsidiary stock options issued to settle liabilities		-			75,000
Subsidiary debt issued to fund research activities		-			500,000

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

7

DYNASIL CORPORATION OF AMERICA

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 - Basis of Presentation

The accompanying consolidated balance sheet as of June 30, 2018, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2018 and 2017, changes in stockholders’ equity for the nine months ended June 30, 2018 and cash flows for the nine months ended June 30, 2018 and 2017 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 June 30, 2018, 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, 2017 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2018, 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, 2017, the Company adopted the guidance issued in Accounting Standard Update 2016-09, Improvements to Employee Share-Based Payment Accounting, which intends to simplify various aspects of how share-based payments are accounted for and presented in financial statements. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes in the new standard eliminate the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital. In addition, the new standard eliminates the limitation on recognition of excess stock compensation benefits until such benefits are actually realized, and instead applies the general recognition standard to these deferred tax assets. This standard was applied using a modified retrospective approach and the Company will recognize forfeitures of awards as they occur. The adoption of the ASU had no impact on the retained earnings, other components of equity or net assets as of the beginning of the period of adoption. For the nine month period ended June 30, 2018, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit as a discrete event. The Company has elected to present the cash flow statement on a prospective transition method and no prior periods have been adjusted.

8

Effective October 1, 2017, the Company adopted the guidance issued in Accounting Standard Update 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The adoption of this ASU did not have an impact on the Company’s financial statements.

Revenue from Contracts with Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606.  The new revenue recognition standard relates to revenue from contracts with customers, which, along with subsequent amendments issued, will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance.

As of June 30, 2018, the Company has made significant progress towards completing its assessment of the potential effects of ASU 2014-09 and its amendments on its consolidated financial statements, and is actively assessing the potential effects on business processes, systems and controls to support revenue recognition and the related disclosures under this ASU. The Company is required to adopt the new standards on October 1, 2018, and expects to do so using the modified retrospective transition method with the cumulative effect of initially applying the guidance recognized at the date of initial application. With the assistance of a third party engaged for this purpose, the Company’s assessment includes a detailed review of representative contracts from each of the Company’s revenue streams and a comparison of its historical accounting policies and practices to the new standard. The Company's preliminary assessment of this adoption method supports the determination that there are no expected changes in the accounting for the Research segment’s contract research revenue. Across other revenue streams, the timing of revenue recognition could be affected for multiple types of contracts, primarily multiple element contracts in its Optics segment, but those differences are not expected to have a material impact on the consolidated financial statements. However, the Company's assessment is not yet finalized and is subject to change. Additionally, the Company is currently evaluating any tax implications the adoption of this new standard may have on the consolidated financial statements. As part of this analysis, the Company is evaluating its information technology capabilities and systems, and does not expect to incur significant information technology costs to modify systems currently in place.

The Company is in the process of assessing its current revenue controls, and identifying and implementing any changes that may be necessary to comply with its new revenue policies and the provisions of ASU 2014-09, which will be effective for the Company as of October 1, 2018.

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

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

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.  This new guidance is effective for the Company beginning in fiscal 2019, with early adoption permitted. 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 adoption of this standard is not expected to have a material impact on the Company’s financial statements.

9

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

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

On December 22, 2017, the date the Tax Cuts and Jobs Act (“2017 Tax Act”) was signed into law, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding accounting for the income tax effects of the Tax Cuts Act, including the impact of the Tax Cuts Act on deferred tax assets and liabilities for financial statements issued in the reporting period that includes the enactment date of December 22, 2017. The Company estimated and accounted for the tax implications of the Tax Cuts Act in the quarter ended December 31, 2017 and the resultant changes are reflected in the current financial statements. 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 provisionally recorded an income tax expense of $0.5 million related to such re-measurement in the first quarter of fiscal 2018. It is still analyzing certain aspects of the Tax Act and refining its calculations during the measurement period. See Note 11 – Income Taxes.

Note 3 – Xcede Technologies, Inc. Joint Venture

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

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

In November 2016, Dynasil committed to invest $1.2 million of cash into Xcede over the following 18 months, all of which was invested prior to January 31, 2018, in exchange for Series B convertible preferred stock of Xcede (“Series B Preferred”). The value of the Series B Preferred, as it is wholly owned by DBM, was eliminated in consolidation. In conjunction with Dynasil’s committed investment, all $5.5 million in existing Notes and accrued interest were converted into 5,394,120 shares of Series A convertible preferred stock of Xcede (“Series A Preferred”) at a 20% discount to the price per share of the Series B Preferred, in accordance with the amended provisions of the Notes. The original conversion terms of the Notes were amended to require conversion into Series A Preferred rather than the class of stock issued in conjunction with the financing (Series B Preferred). Because the original conversion terms of the Notes were amended and as a result of assessing the impact of the rights and features of the Note amendment and their effect on the value to the issuer and holders, the transaction is recorded at fair value with a resulting gain on extinguishment of debt in the quarter ended December 31, 2016. Fair value was determined by management based on an independent valuation using a market and income approach and an option pricing model to allocate value to the respective shares. The fair value of the Series A Preferred was approximately $3.6 million on the date of issuance, as compared to the carrying value of the convertible principal and accrued interest of $5.5 million, resulting in a gain of approximately $1.9 million. Due to the related party nature of the transaction, this gain was recorded within the equity of Xcede. Of that $1.9 million, approximately $1.6 million was attributed to DBM and eliminated in consolidation, and approximately $0.3 million was attributed to noncontrolling interest.

10

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

Each share of Series A Preferred and Series B Preferred (together the “Preferred Stock”) shall be convertible, at the option of the holder, into such number of fully paid and non-assessable shares of Xcede common stock (“Common Stock”) as determined by dividing the original issue price, as defined, by the conversion price in effect on the date of conversion, which is 1:1. Each holder of the Preferred Stock shall have one vote for each share of Common Stock that the holder of the Preferred Stock would be entitled to receive upon the conversion of the holder’s Preferred Stock into Common Stock. Upon any liquidation event, which includes certain change of control events, following payment of pre-equity distributions, the remaining proceeds or net assets of Xcede shall be paid and distributed in the following amounts and order of priority: (1) to satisfy the liquidation preference payment due to each holder of Series B Preferred, (2) to satisfy the liquidation preference payment due to each holder of Series A Preferred, (3) payment in full of any acquisition transaction payment, and (4) the remaining assets available to be distributed ratably among the holders of the Common Stock. If a liquidation event were to occur, the Series A Preferred’s liquidation value would be $1.016 per share and Series B Preferred’s liquidation value would be $1.27 per share. As of June 30, 2018, 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 June 30, 2018, 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.

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

As previously disclosed, in January 2016, Xcede announced that it had signed three agreements with Cook Biotech Inc. of West Lafayette, Indiana (“CBI”), including a Development Agreement, a License Agreement and a Supply Agreement, in connection with the development, regulatory approval and production of Xcede’s hemostatic patch (“Xcede Patch”). In November 2016, Xcede entered into another Services Agreement, a Secured Promissory Note, a Loan Agreement, a Security Agreement and an Intellectual Property Security Agreement (collectively the “Note Agreement”) with CBI, in which CBI committed to fund the pre-clinical testing of, and subject to the receipt of applicable regulatory approvals to initiate first in human clinical trial for, the Xcede Patch. Under the terms of the Note Agreement, in exchange for the services performed by CBI, Xcede committed to a multiple draw credit facility in the aggregate amount not to exceed $1.5 million. The Note Agreement made available three draws of principal, each in the amount of $500,000, upon satisfaction of conditions identified in the Note Agreement. The principal amounts outstanding bear interest at a fixed rate of 2% and are secured by all the rights of Xcede under the Development Agreement, Supply Agreement, and License Agreement, all the rights to the data and work product arising from the clinical trial being performed under the Services Agreement, all regulatory approvals for the Xcede Patch, all patent and patent applications owned or controlled by Xcede, and all trademark and service mark registrations and applications. The note was recorded at fair value net of unamortized discount based on an imputed interest rate of 5.4%. The outstanding principal and unpaid interest are due and payable in full at the earlier of closing of an acquisition transaction or December 31, 2025. Xcede will recognize research and development expense as the related services are performed by CBI. There was approximately $8,000 and $33,000 of research and development expense recognized during the three months ended June 30, 2018 and 2017, respectively. There was approximately $209,000 and $238,000 recognized during the nine months ended June 30, 2018 and 2017, respectively.

11

On July 20, 2018, Xcede received a notice of termination from CBI, its collaboration partner with respect to the Xcede Patch currently under development. CBI asserted its termination rights under the Services Agreement dated November 16, 2016 and Development Agreement dated January 6, 2016 between Xcede and 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. Upon a valid termination, CBI has no obligation to conduct further developmental activities with respect to the Xcede Patch, including any further in-kind funding under the Loan Agreement dated November 16, 2016 between Xcede and CBI. In addition, CBI has asserted that these study results trigger an immediate repayment of the $500,000 promissory note owed by Xcede to CBI under the Loan Agreement, which otherwise has a stated maturity of December 31, 2025. The Xcede promissory note is collateralized by a security interest which CBI has in all of Xcede’s intellectual property. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI. The Company continues to carry the promissory note in long-term debt.

As a result of this action by CBI, 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 the security interest described above. There can be no assurances with respect to any such alternatives.

Dynasil is the sole holder of Xcede Series B Preferred Stock, which ranks senior to the other classes of outstanding Xcede equity, but junior to all Xcede indebtedness. Dynasil also owns shares of Xcede Series A Preferred Stock and Common Stock. On an as-converted basis, Dynasil indirectly owns about 63% of the shares outstanding.

Dynasil has no contractual obligation with respect to Xcede indebtedness. The Xcede promissory note is a contractual obligation solely of Xcede and is secured by Xcede’s intellectual property.

Dynasil’s Biomedical segment consists of a single business unit, Dynasil Biomedical Corporation, which has no operations other than to its equity ownership in Xcede. Since inception, this segment has had no revenue and has operated at a substantial loss. Dynasil does not currently anticipate any material impairment of assets or write-offs affecting its consolidated financial statements with respect to this segment as a result of this development.

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2018		2017
Raw Materials	$	2,362,000	$	2,540,000
Work-in-Process		1,066,000		798,000
Finished Goods		1,029,000		988,000
	$	4,457,000	$	4,326,000

12

Note 5 – Intangible Assets

Intangible assets at June 30, 2018 and September 30, 2017 consist of the following:

	Useful	Gross		Accumulated
June 30, 2018	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	722,000	$	588,000	$	134,000
Know How	15		512,000		341,000		171,000
Trade Names	Indefinite		274,000		-		274,000
Patents	20		397,000		17,000		380,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,165,000	$	1,206,000	$	959,000
	Useful		Gross		Accumulated
September 30, 2017	Life (years)		Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	737,000	$	551,000	$	186,000
Know How	15		512,000		316,000		196,000
Trade Names	Indefinite		281,000		-		281,000
Patents	20		333,000		9,000		324,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,123,000	$	1,136,000	$	987,000

Amortization expense for the three months ended June 30, 2018 and 2017 was $28,000 and $24,000, respectively. Amortization expense for the nine months ended June 30, 2018 and 2017 was $84,000 and $75,000, respectively.

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

	2018 (3 months)		2019		2020		2021		2022		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	34,000	$	-	$	-	$	-	$	134,000
Know How		9,000		34,000		34,000		34,000		34,000		26,000		171,000
Patents		3,000		11,000		11,000		11,000		11,000		162,000		209,000
	$	32,000	$	125,000	$	79,000	$	45,000	$	45,000	$	188,000	$	514,000

As of June 30, 2018, Xcede had $171,000 in patents that have not yet been granted, therefore, the amortization related to these patents is not included in the five-year amortization table above.

The Company continually assesses whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of its long-lived assets or whether the remaining balances of those assets should be evaluated for possible impairment. There were no changes, aside from foreign exchange rate fluctuations, in the carrying value of long-lived assets, during the nine months ended June 30, 2018 and 2017.

Note 6 – Goodwill

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

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

· 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.

13

There were no changes, aside from foreign exchange rate fluctuations, in the carrying value of goodwill, during the nine months ended June 30, 2018 and 2017.

Note 7 – Debt

Senior Debt

On July 31, 2018, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%. Additionally, on August 9, 2018, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2019, at which time the outstanding balance will be converted into a five year term note. As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.

On both March 31, 2018 and June 30, 2018, the Company was in compliance with all but one of the financial covenants contained in the loan agreement with Middlesex that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total debt and senior debt. On August 9, 2018, Middlesex issued a waiver for these events, as this circumstance arose due to the timing of equipment purchases as the Company invests for the future. The current year forecast shows Dynasil quickly resolving this situation and coming back into compliance with this covenant for the end of the fiscal year.

Subordinated Debt

On January 3, 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, 2018. Such amendment also increased the interest rate of the note from six percent (6%) to seven percent (7%) per annum.

Note 8 – Earnings (Loss) Per Common Share

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

For purposes of computing diluted earnings per share for the three and nine months ended June 30, 2018 and 2017, no common stock options were included in the calculation of dilutive shares as all of the 160,537 and 196,769 common stock options outstanding, respectively, had exercise prices above the applicable period’s average market price per share and their inclusion would be anti-dilutive. For both the three and nine months ended June 30, 2017, 70,000 shares of unvested restricted common stock were excluded from the calculation of dilutive shares, as the effect of their inclusion would be anti-dilutive. Additionally, for the three months ended June 30, 2017, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended June 30, 2018 and 2017 is as follows:

	June 30, 2018		June 30, 2017
Weighted average shares outstanding
Basic		17,203,965		16,945,744
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		17,234		-
Dilutive Average Shares Outstanding		17,221,199		16,945,744

14

The computation of the weighted shares outstanding for the nine months ended June 30, 2018 and 2017 is as follows:

	June 30, 2018		June 30, 2017
Weighted average shares outstanding
Basic		17,127,834		16,879,864
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		19,394		-
Dilutive Average Shares Outstanding		17,147,228		16,879,864

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 within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. The dividend yield is expected to be zero because historically the Company has not paid dividends on common stock.

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

Stock compensation expense for the three and nine months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended		Three Months Ended
	June 30, 2018		June 30, 2017
Stock Grants	$	78,000	$	60,000
Restricted Stock Grants		14,000		13,000
Option Grants		-		12,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		27,000		30,000
Total	$	120,000	$	116,000

	Nine Months Ended		Nine Months Ended
	June 30, 2018		June 30, 2017
Stock Grants	$	209,000	$	183,000
Restricted Stock Grants		40,000		39,000
Option Grants		17,000		37,000
Employee Stock Purchase Plan		2,000		2,000
Subsidiary Option Grants		83,000		82,000
Total	$	351,000	$	343,000

15

At June 30, 2018, there was approximately $71,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of approximately twelve months.

Restricted Stock Grants

A summary of restricted stock activity for the nine months ended June 30, 2018 is presented below:

Restricted Stock Activity for the Nine Months ended June 30, 2018	Shares			Weighted-Average Grant-Date Fair Value
Nonvested at September 30, 2017		70,000		$	1.73
Granted		20,000			1.37
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at June 30, 2018		60,000		$	1.61

Stock Option Grants

During the nine months ended June 30, 2018, no Dynasil stock options were granted. A summary of stock option activity for the nine months ended June 30, 2018 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2017		196,769		$	1.98		1.64
Outstanding and exercisable at September 30, 2017		196,769		$	1.98		1.64
Granted		-			-
Exercised		-			-
Cancelled		(36,232	)		1.82
Balance at June 30, 2018		160,537		$	2.01		1.18
Outstanding and exercisable at June 30, 2018		160,537		$	2.01		1.18

Subsidiary Stock Option Grants

During the three months ended June 30, 2018, no Xcede stock options were granted. A summary of Xcede stock option activity for the nine months ended June 30, 2018 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2016		123,147		$	2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147		$	2.30		1.69
Granted		95,602			1.80		2.59
Exercised		-			-
Cancelled		(21,980	)		3.03
Balance at June 30, 2017		196,769		$	1.98		1.89
Outstanding and exercisable at June 30, 2017		196,769		$	1.98		1.89

At June 30, 2018, the Company’s Xcede joint venture had approximately $70,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of seven months.

16

Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil reports three reportable segments: contract research (“Contract Research”), optics (“Optics”) and biomedical (“Biomedical”). Within these segments, there is a segregation of operating segments based upon the organizational structure used to evaluate performance and make decisions on resource allocation, as well as availability and materiality of separate financial results consistent with that structure. The Optics segment aggregates four operating segments – Dynasil Fused Silica, Optometrics, Hilger Crystals (“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 Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment consists of a single operating segment, Dynasil Biomedical Corporation (“Dynasil Biomedical”), a medical technology incubator which owns rights to certain early stage medical technologies. Dynasil Biomedical holds common and preferred stock in the Xcede joint venture which is developing a tissue sealant technology and currently has no other operations.

The Company’s segment information for the three months ended June 30, 2018 and 2017 is summarized below:

Results of Operations for the Three Months Ended June 30,
2018
	Optics			Contract Research			Biomedical			Total
Revenue	$	6,159,000		$	4,383,000		$	-		$	10,542,000
Gross profit		2,299,000			1,876,000			-			4,175,000
GM %		37	%		43	%		-			40	%
Operating expenses		1,721,000			1,760,000			84,000			3,565,000
Operating income (loss)		578,000			116,000			(84,000	)		610,000
Depreciation and amortization		261,000			53,000			3,000			317,000
Capital expenditures		707,000			76,000			20,000			803,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Three Months Ended June 30,
2017
		Optics			Contract Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)		36,000			69,000			(377,000	)		(272,000	)
Depreciation and amortization		248,000			52,000			1,000			301,000
Capital expenditures		179,000			54,000			26,000			259,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

The Company’s segment information for the nine months ended June 30, 2018 and 2017 is summarized below:

17

Results of Operations for the Nine Months Ended June 30,
2018
	Optics			Contract Research			Biomedical			Total
Revenue	$	17,011,000		$	12,974,000		$	-		$	29,985,000
Gross profit		6,038,000			5,621,000			-			11,659,000
GM %		35	%		43	%		-			39	%
Operating expenses		5,154,000			5,297,000			724,000			11,175,000
Operating income (loss)		884,000			324,000			(724,000	)		484,000
Depreciation and amortization		738,000			179,000			10,000			927,000
Capital expenditures		1,635,000			153,000			65,000			1,853,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Nine Months Ended June 30,
2017
		Optics			Contract Research			Biomedical			Total
Revenue	$	14,524,000		$	13,541,000		$	-		$	28,065,000
Gross profit		5,144,000			5,535,000			-			10,679,000
GM %		35	%		41	%		-			38	%
Operating expenses		4,544,000			5,182,000			1,150,000			10,876,000
Operating income (loss)		600,000			353,000			(1,150,000	)		(197,000	)
Depreciation and amortization		719,000			200,000			7,000			926,000
Capital expenditures		373,000			88,000			72,000			533,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Customer Financial Information

For both the three and nine months ended June 30, 2018 and 2017, no customer in the Optics segment represented more than 10% of the total segment revenue.

For the three months ended June 30, 2018, four customers of the Contract Research segment, three various agencies of the U.S. Government and one commercial customer, each represented more than 10% of the total segment revenue. For the nine months ended June 30, 2018, three customers of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three and nine months ended June 30, 2017, three customers of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three months ended June 30, 2018 and 2017, these customers made up 72% and 52%, respectively, of Contract Research revenue. For the nine months ended June 30, 2018 and 2017, these customers made up 59% and 58%, respectively, of Contract Research revenue.

18

Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2018 and 2017 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2018					June 30, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,512,000		71	%	$	6,928,000		78	%
Europe		2,029,000		19	%		962,000		11	%
Other		1,001,000		10	%		946,000		11	%
	$	10,542,000		100	%	$	8,836,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2018 and 2017 are as follows:

	Nine Months Ended					Nine Months Ended
	June 30, 2018					June 30, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	22,993,000		77	%	$	22,051,000		78	%
Europe		4,662,000		15	%		3,262,000		12	%
Other		2,330,000		8	%		2,752,000		10	%
	$	29,985,000		100	%	$	28,065,000		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 will no longer be able to offset taxable income with Xcede’s current or cumulative net operating losses. Upon review of relevant criteria for the new Dynasil federal consolidated group, it was determined that it is more likely than not that the federal deferred tax assets of the new Dynasil federal consolidated group will be realized based upon positive earnings history and expected future profits of the group. As a result, the federal deferred tax asset valuation allowance associated with the Dynasil federal consolidated group 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.

19

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of June 30, 2018 and September 30, 2017, the Company has no liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of June 30, 2018 and September 30, 2017, 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.  At June 30, 2018, the Company has not completed its accounting for the tax effects of the 2017 Tax Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.  The Company is reviewing and will continue to review its accounting of the tax effects of the 2017 Tax Act through the end of the fiscal year.

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 provisionally recorded an income tax expense of $0.5 million related to such re-measurement in the first quarter of fiscal 2018. It is still analyzing certain aspects of the Tax Act and refining its calculations during the measurement period.

The one-time transition tax is based on the total unremitted earnings of the Company’s foreign subsidiary, Hilger, which has previously been deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition liability of its foreign subsidiary resulting in additional income tax expense of $0.2 million in the first quarter of fiscal 2018. The Company has not yet completed its calculation of the total unremitted earnings of Hilger. The transition tax is based in part on the amount of those earnings held in cash and other specified assets. The amount may change when the Company finalizes the calculation of Hilger’s total unremitted earnings previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets.

There are Research and Experimentation tax credits available at both the federal and state levels resulting from the PATH Act of 2015 (“PATH 2015 R&E Tax Credit”). These credits are designed to encourage and reward companies for efforts in areas of research and experimentation. In June 2018, the Company completed a study encompassing all business activities and contracts in these areas for the years 2012 through 2016. As a result, the Company will have net tax credits of approximately $1.3 million on its federal income tax returns for the years ended September 30, 2012, 2013, 2014, 2015 and 2016 and approximately $0.8 million in state tax credits for the same time periods. 

During the quarter ended June 30, 2018, the Company completed its state PATH 2015 R&E Tax Credit analysis which resulted in an additional $800,000 of tax credits, largely against future state tax expenses. Due to the Company’s state tax filing status requiring Dynasil to continue to consolidate the Xcede losses for state tax purposes, this credit had a full tax valuation reserve applied to it and, accordingly, is not reflected in the statement of operations for the quarter. The PATH 2015 R&E Tax Credit totals approximately $2.1 million, of which the Federal component of $1.3 million is reflected in the Statement of Operations for the nine months ended June 30, 2018. This $800,000 of additional state PATH 2015 R&E Tax Credit is available as an offset to future state tax expenses.

The effective tax rates were 34% and 34% for the three months ended June 30, 2018 and 2017, respectively.  The effective tax rates were (115%) and 767% for the nine months ended June 30, 2018 and 2017, respectively. The results for both nine month periods ended June 30, 2018 and 2017 had significant events which resulted in an extreme variation in tax rates. The effective tax rate for the nine months ended, June 30, 2018 was primarily driven by the recently signed 2017 Tax Act, as well as the R&E tax credit study completed in the second quarter of fiscal year 2018. The effective tax rate for the nine months ended June 30, 2017 was primarily the result of the tax benefit of $2.7 million recorded for the release of the valuation allowance as a result of the tax deconsolidation of its Xcede subsidiary. The effective tax rate excluding the impact of the 2017 Tax Act was (308%) for the nine months ended June 30, 2018. The effective tax rates excluding the impact of the 2017 Tax Act, the PATH 2015 R&E Tax Credit, and the valuation allowance were 69% and (46%) for the nine months ended June 30, 2018 and 2017, respectively.

20

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 2014 are still subject to examination.

Note 12 – Subsequent Events

On July 20, 2018, Xcede received a notice of termination from CBI, its collaboration partner with respect to the Xcede Patch currently under development. CBI asserted its termination rights under the Services Agreement dated November 16, 2016 and Development Agreement dated January 6, 2016 between Xcede and 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. Upon a valid termination, CBI has no obligation to conduct further developmental activities with respect to the Xcede Patch, including any further in-kind funding under the Loan Agreement dated November 16, 2016 between Xcede and CBI. In addition, CBI has asserted that these study results trigger an immediate repayment of the $500,000 promissory note owed by Xcede to CBI under the Loan Agreement, which otherwise has a stated maturity of December 31, 2025. The Xcede promissory note is collateralized by a security interest which CBI has in all of Xcede’s intellectual property. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI. See Note 3 for additional information.

On July 31, 2018, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%. Additionally, on August 9, 2018, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2019, at which time the outstanding balance will be converted into a five year term note. As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.

On both March 31, 2018 and June 30, 2018, the Company was in compliance with all but one of the financial covenants contained in the loan agreement with Middlesex that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total debt and senior debt. On August 9, 2018, Middlesex issued a waiver for these events, as this circumstance arose due to the timing of equipment purchases as the Company invests for the future. The current year forecast shows Dynasil quickly resolving this situation and coming back into compliance with this covenant for the end of the fiscal year.

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

21

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, 2017.

General Business Overview

Operations

Consolidated revenue for the quarter ended June 30, 2018 was $10.5 million, compared to revenue of $8.8 million for the third quarter of fiscal year 2017. This 19% increase in revenue was attributable to a 27% increase in our Optics segment revenue and a 10% increase in our Research segment revenue this period.

Consolidated revenue for the nine months ended June 30, 2018 also showed an increase over the same period in 2017, rising 7% to $30.0 million from $28.1 million. Our Optics segment revenue increased 17% year to date over the prior period, offsetting the Research segment revenue decrease of 4%, due to both lower commercial revenue as anticipated orders were delayed, and lower research revenue, due to the timing of contracts in the first two quarters of 2018.

Cost of revenue for the third quarter of 2018 was $6.4 million or 60% of revenue, a decrease of 2% over the 62% or $5.5 million cost of revenue for the quarter ended June 30, 2017. The decrease in percentage of revenue from fiscal year 2018 to fiscal year 2017 is reflective of the slight increase in overall revenue during the quarter, along with steps taken in the Optics segment to reduce manufacturing costs.

Total operating expenses were $3.6 million for the three-month period ended June 30, 2018, essentially the same as in the same period in fiscal year 2017. Despite the significant increase in revenue, expenses were held in check primarily due to a $0.3 million decrease in the Biomedical segment expenses. The reduced spending in Biomedical offset the increased spending across multiple areas, such as customer-related travel, IT, facilities and marketing in both the Optics and Research segments

Our Biomedical segment primarily consists of the results of our majority owned joint venture, Xcede Technologies, Inc. (“Xcede”). Xcede incurred $0.1 million in operating expenses in the third quarter of fiscal year 2018 compared to $0.4 million for the same three month period in 2017.

On July 20, 2018, Xcede received a notice of termination from Cook Biotech, Inc. (“CBI”), its collaboration partner with respect to Xcede’s hemostatic patch (“Patch”) currently under development. CBI asserted its termination rights under the Services Agreement dated November 16, 2016 and Development Agreement dated January 6, 2016 between Xcede and 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. Upon a valid termination, CBI has no obligation to conduct further developmental activities with respect to the Patch, including any further in-kind funding under the Loan Agreement dated November 16, 2016 between Xcede and CBI. In addition, CBI has asserted that the study results trigger an immediate repayment of the $0.5 million promissory note owed by Xcede to CBI under the Loan Agreement, which otherwise has a stated maturity of December 31, 2025. The Xcede promissory note is collateralized by a security interest which CBI has in all of Xcede’s intellectual property. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI.

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. Dynasil does not currently anticipate any material impairment of assets or write-offs affecting its consolidated financial statements with respect to this segment as a result of this development.

Income from operations for the quarter ended June 30, 2018 was $0.6 million compared to a loss from operations of ($0.3) million for the same period in 2017. Income from operations for the nine month period ended June 30, 2018 was $0.5 million compared to a loss from operations of ($0.2) million for the same nine month period in 2017.

22

During the quarter ended June 30, 2018, the Company completed its state PATH 2015 R&E Tax Credit analysis which resulted in an additional $800,000 of tax credits, largely against future state tax expenses. Due to the Company’s state tax filing status requiring Dynasil to continue to consolidate the Xcede losses for state tax purposes, this credit had a full tax valuation reserve applied to it and, accordingly, is not reflected in the statement of operations for the quarter. The PATH 2015 R&E Tax Credit totals approximately $2.1 million, of which the Federal component of $1.3 million is reflected in the Statement of Operations for the nine months ended June 30, 2018. This $800,000 of additional state PATH 2015 R&E Tax Credit is available as an offset to future state tax expenses.

Net income (loss) attributable to common stockholders was approximately $0.4 million or $0.02 per share for the quarter ended June 30, 2018 and approximately ($0.2) million or ($0.01) per share for the quarter ended June 30, 2017. Net income attributable to common stockholders was approximately $0.9 million or $0.05 per share for the nine months ended June 30, 2018 and approximately $2.6 million or $0.15 per share for the nine month period ended June 30, 2017, largely as a result of the release of the tax valuation allowance due to the federal tax deconsolidation of Xcede from the Company in the first quarter of fiscal year 2017.

Results of Operations

Results of Operations for the Three Months Ended June 30,
2018
	Optics			Contract Research			Biomedical			Total
Revenue	$	6,159,000		$	4,383,000		$	-		$	10,542,000
Gross profit		2,299,000			1,876,000			-			4,175,000
GM %		37	%		43	%		-			40	%
Operating expenses		1,721,000			1,760,000			84,000			3,565,000
Operating income (loss)		578,000			116,000			(84,000	)		610,000
Depreciation and amortization		261,000			53,000			3,000			317,000
Capital expenditures		707,000			76,000			20,000			803,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Three Months Ended June 30,
2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)		36,000			69,000			(377,000	)		(272,000	)
Depreciation and amortization		248,000			52,000			1,000			301,000
Capital expenditures		179,000			54,000			26,000			259,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Consolidated revenue for the quarter ended June 30, 2018 was $10.5 million, compared to revenue of $8.8 million for the third quarter of fiscal year 2017.

23

The Optics segment revenue increased $1.3 million, or 27%, for the three months ended June 30, 2018 compared with the same period in the prior year, largely resulting from increased demand from our customers in the semiconductor/microlithography market.

Contract Research segment revenue increased $0.4 million, or 10%, for the three months ended June 30, 2018, as compared to the same three month period in 2017. Commercial revenue in the segment increased in the current quarter due to an increase in orders. The research backlog for the Contracts Research segment has increased in the current quarter to approximately $34.2 million at June 30, 2018.

The Biomedical segment had no revenues.

Gross profit for the three months ended June 30, 2018 was $4.2 million, or 40% of revenues, compared to $3.4 million, or 38% of revenues, for the three months ended June 30, 2017. Gross profit for the Optics segment increased to $2.3 million, or 37% of revenues, compared to $1.7 million, or 34% of revenues, as a direct result of the increase in revenue and specific steps taken to improve gross margin. Gross profit in the Contract Research segment remained steady at 43% in the quarter ended June 30, 2018, compared to the same quarter in 2017, largely as a result of the mix of active contracts during the third quarter of 2018.

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

Total operating expenses were $3.6 million for both the three months ended June 30, 2018 and 2017. Operating expenses for the Optics segment increased $0.1 million largely due to increases in headcount and related costs. Contract Research segment expenses increased to $1.8 million in the third quarter of fiscal year 2018, as compared to the $1.6 million in the same period last year due to increased spending in IT and customer-related travel. Biomedical segment expenses decreased $0.3 million in the quarter ended June 30, 2018 from $0.4 million in the quarter ended June 30, 2017 due to a reduction in spending resulting from to the delay of Xcede’s planned clinical trial, as disclosed elsewhere.

As a result of the factors discussed above, income from operations for the quarter ended June 30, 2018 was $0.6 million, compared to a loss from operations of ($0.3) million for the same period in 2017.

Net interest expense was essentially the same in both the three months ended June 30, 2018 and 2017.

The provision for income taxes for the third quarter of 2018 was $0.2 million as compared to a benefit of $0.1 million for the same period in fiscal year 2017. The 2018 provision in the third quarter of fiscal year 2018 was the result of the $0.6 million operating profit earned during the current quarter compared to the $0.3 million loss in 2017. During the quarter ended June 30, 2018, the Company completed its state PATH 2015 R&E Tax Credit analysis which resulted in an additional $800,000 of tax credits, largely against future state tax expenses. Due to the Company’s state tax filing status requiring Dynasil to continue to consolidate the Xcede losses for state tax purposes, this credit had a full tax valuation reserve applied to it and, accordingly, is not reflected in the statement of operations for the quarter. The PATH 2015 R&E Tax Credit totals approximately $2.1 million, of which the Federal component of $1.3 million is reflected in the Statement of Operations for the nine months ended June 30, 2018. This $800,000 of additional state PATH 2015 R&E Tax Credit is available as an offset to future state tax expenses.

During the third quarter of 2018 the Company completed its analysis of its federal and state PATH 2015 R&E Tax Credits for the years 2012 thru 2016. The Company will receive a future benefit of an additional $0.8 million in tax credits due to the Massachusetts state tax credits earned. These credits are not reflected in the Consolidated Statements of Operations and Comprehensive Income (loss) as the Company recorded a full valuation reserve due to the Company’s state tax filing status requiring Dynasil to continue to consolidate the Xcede losses for state tax purposes.

Net income (loss) attributable to common stockholders was approximately $0.4 million or $0.02 per share for the quarter ended June 30, 2018 and ($0.2) million or ($0.01) per share for the quarter ended June 30, 2017.

24

Results of Operations – Year to Date

Results of Operations for the Nine Months Ended June 30,
2018
	Optics			Contract Research			Biomedical			Total
Revenue	$	17,011,000		$	12,974,000		$	-		$	29,985,000
Gross profit		6,038,000			5,621,000			-			11,659,000
GM %		35	%		43	%		-			39	%
Operating expenses		5,154,000			5,297,000			724,000			11,175,000
Operating income (loss)		884,000			324,000			(724,000	)		484,000
Depreciation and amortization		738,000			179,000			10,000			927,000
Capital expenditures		1,635,000			153,000			65,000			1,853,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Nine Months Ended June 30,
2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	14,524,000		$	13,541,000		$	-		$	28,065,000
Gross profit		5,144,000			5,535,000			-			10,679,000
GM %		35	%		41	%		-			38	%
Operating expenses		4,544,000			5,182,000			1,150,000			10,876,000
Operating income (loss)		600,000			353,000			(1,150,000	)		(197,000	)
Depreciation and amortization		719,000			200,000			7,000			926,000
Capital expenditures		373,000			88,000			72,000			533,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Revenue for the nine months ended June 30, 2018 was $30.0 million, a $1.9 million increase over the nine months ended June 30, 2017.

Optics segment revenue increased $2.5 million, or 17%, for the nine months ended June 30, 2018, compared with the same period in the prior year. This increase was largely the result of a general increase in sales in all of our Optics businesses with a significant amount coming from our customers in the semiconductor/microlithography industries over the same period last year.

Revenue from our Contract Research segment decreased $0.6 million, or 4%, for the nine months ended June 30, 2018 as compared to the same period in 2017, primarily due to a delay in our commercial revenue orders. This business has begun to show an increase in orders in the third quarter of fiscal year 2018.

The Biomedical segment had no revenue in either the nine months ended June 30, 2018 or 2017.

Gross profit for the nine months ended June 30, 2018 was $11.7 million, or 39% of sales, compared to $10.7 million, or 38% of sales for the nine months ended June 30, 2017.

25

Gross profit for the Optics segment increased approximately $0.9 million to $6.0 million for the nine months ended June 30, 2018, compared to the gross profit for the same period in fiscal year 2017, primarily as a result of the increase in revenues in the first nine months of fiscal 2018 as compared to the same period in 2017. The Optics segment’s gross margin as a percent of revenue remained steady year over year at 35% due to a conscious effort to control costs.

Gross profit for the Contract Research segment increased $0.1 million to $5.6 million for the nine months ended June 30, 2018, compared to the nine months ended June 30, 2017, primarily as a result of improved efficiencies in 2018 as compared to 2017. The Contract Research segment gross profit as a percent of revenue was 43% for the nine months ended June 30, 2018 as compared to 41% for the same period in the prior year due to research contracts utilizing internal resources versus sub-contractors.

The Biomedical segment, through Xcede, has been 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 $11.2 million for the nine months ended June 30, 2018, as compared to the nine months ended June 30, 2017. This increase was spread fairly consistently across the organization, as we have upgraded resources, added people and improved systems in 2018, in preparation for new initiatives in 2019.

Income (loss) from operations was $0.5 million for the nine months ended June 30, 2018 and a loss of ($0.2) million for the same nine month period in 2017.

Net interest expense for the nine month period ended June 30, 2018 was $0.1 million as compared to $0.2 million in the same period in 2017. The primary reason for this reduction was the conversion of the Xcede notes into stock in the first quarter of 2017.

The provision for income taxes for the first nine months of 2018 was a benefit of $0.4 million as compared to a benefit of $2.8 million for the same period in fiscal year 2017. The 2018 provision was the result of the PATH 2015 R&E Tax Credit for the years 2012 through 2016, offset by the result of the 2017 Tax Act, in which we estimated the rate reduction impact to be $0.5 million, and the earnings and profit transition tax of our Hilger Crystals subsidiary to be $0.2 million. The 2017 benefit resulted from the deconsolidation of Xcede, which resulted in the Company no longer being able to offset taxable income with Xcede’s net operating loss results or carryforwards.

Net income attributable to common stockholders for the nine months ended June 30, 2018 was $0.9 million or $0.05 basic earnings per share, compared to net income of $2.6 million or $0.15 basic earnings per share for the nine months ended June 30, 2017.

Liquidity and Capital Resources

Liquidity Overview and Outlook

Net cash as of June 30, 2018 was $1.5 million, or approximately $0.9 million less than the net cash of $2.4 million at September 30, 2017.

Cash From Operating Activities

The Company generated approximately $1.1 million in cash from operating results, in which net income contributed $0.8 million, and the noncash items had an impact of $1.0 million, which was mainly offset by both the increase in accounts receivable of approximately $0.4 million and the decrease in accounts payable of $0.5 million. The accounts receivable increase was due to increased revenue in the Optics segment for the quarter ended June 30, 2018 compared to the quarter ended September 30, 2017. Other increases and reductions in assets and liabilities, including prepaids, costs in excess of billings, and accrued expenses, offset each other. 

Cash From Investing and Financing Activities

The Company used cash of approximately $1.9 million for the purchase of property, plant, equipment and patents for the nine months ended June 30, 2018 as we invest in new equipment for future product offerings and upgrade existing machinery.

26

Total outstanding bank debt as of June 30, 2018 was $3.0 million, essentially the same as at September 30, 2017. The net cash from financing activities during the nine months ended June 30, 2018 consisted of $0.3 million in principal payments, offset by $0.3 million in financing from the new Middlesex Savings Bank equipment line of credit.

As of June 30, 2018, the Company’s outstanding indebtedness to Middlesex Savings Bank (“Middlesex”) consisted of $1.3 million of senior debt borrowed under the $2.0 million fixed rate, five-year term note that was established in February 2016 and $0.3 million owed to Middlesex under the equipment line of credit.

On July 31, 2018, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%. Additionally, on August 9, 2018, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2019, at which time the outstanding balance will be converted into a five year term note. As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.

On both March 31, 2018 and June 30, 2018, the Company was in compliance with all but one of the financial covenants contained in the loan agreement with Middlesex that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total debt and senior debt. On August 9, 2018, Middlesex issued a waiver for these events, as this circumstance arose due to the timing of equipment purchases as the Company invests for the future. The current year forecast shows Dynasil quickly resolving this situation and coming back into compliance with this covenant for the end of the fiscal year.

On January 3, 2018, the Company amended the Note Purchase Agreement (the “Note”) with Massachusetts Capital Resource Company to reinstate the interest only payment requirements of the loan, defer principal repayment requirements to November 30, 2018, and institute a 1% rate increase, raising the Note’s interest rate to 7% per annum. As of June 30, 2018 $0.8 million of subordinated debt is owed to the Massachusetts Capital Resources Company.

Management believes that the cash and availability under the lines of credit discussed above are adequate to meet the Company’s current liquidity requirements for the next twelve months.

As of June 30, 2018, Xcede had $0.5 million of outstanding indebtedness, which consisted of a promissory note issued to Cook Biotech Inc. (“CBI”) in November 2016 and due on December 31, 2025. As disclosed elsewhere, CBI has asserted that it is entitled to immediate repayment of this note due to results of a recent animal study conducted pursuant to the collaboration between Xcede and CBI. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2017. 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, 2017 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:

27

Revenue Recognition

Revenues from the sale of the Company’s products and services are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. The Company generally ships products F.O.B. shipping point. Revenue from research and development activities is derived generally from the following types of contracts: reimbursement of costs plus fees, fixed price or time and material type contracts. Revenue is recognized when the products are shipped per customers’ instructions, the contract has been executed, the contract or sales price is fixed or determinable, delivery of services or products has occurred and the Company’s ability to collect the contract price is considered reasonably assured.

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

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

In May 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Using these guidelines, a comprehensive framework was established for determining how much revenue to recognize and when it should be recognized. The standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In 2016 and 2017, the FASB issued several ASU’s related to ASU 2014-09, which simplify and provide additional guidance to companies for implementation of the standard. To be consistent with this core principle, an entity is required to apply the following five-step approach:

· Identify the contract(s) with a customer;

· Identify each performance obligation in the contract;

· Determine the transaction price;

· Allocate the transaction price to each performance obligation; and

· Recognize revenue when or as each performance obligation is satisfied.

As of June 30, 2018, the Company has made significant progress towards completing its assessment of the potential effects of ASU 2014-09 and its amendments on its consolidated financial statements, and is actively assessing the potential effects on business processes, systems and controls to support revenue recognition and the related disclosures under this ASU. The Company is required to adopt the new standards on October 1, 2018, and expects to do so using the modified retrospective transition method with the cumulative effect of initially applying the guidance recognized at the date of initial application. With the assistance of a third party engaged for this purpose, the Company’s assessment includes a detailed review of representative contracts from each of the Company’s revenue streams and a comparison of its historical accounting policies and practices to the new standard. The Company's preliminary assessment of this adoption method supports the determination that there are no expected changes in the accounting for the Research segment’s contract research revenue. Across other revenue streams, the timing of revenue recognition could be affected for multiple types of contracts, primarily multiple element contracts in its Optics segment, but those differences are not expected to have a material impact on the consolidated financial statements. However, the Company's assessment is not yet finalized and is subject to change. Additionally, the Company is currently evaluating any tax implications the adoption of this new standard may have on the consolidated financial statements. As part of this analysis, the Company is evaluating its information technology capabilities and systems, and does not expect to incur significant information technology costs to modify systems currently in place.

28

The Company is in the process of assessing its current revenue controls, and identifying and implementing any changes that may be necessary to comply with its new revenue policies and the provisions of ASU 2014-09, which will be effective for the Company as of October 1, 2018.

Goodwill

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

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

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

· Failure of an anticipated commercialization product line;

· Unanticipated competition or a disruptive technology introduction;

· The testing for recoverability under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 of a significant asset group within a reporting unit;

· A loss of key personnel; and

· An expectation that a reporting unit carrying goodwill, or a significant portion of a reporting unit, will be sold or otherwise disposed of.

Goodwill is tested by reviewing the carrying value compared to the fair value at the reporting unit level. Fair value for the reporting unit is derived using the income approach. Under the income approach, fair value is calculated based on the present value of estimated future cash flows. Assumptions by management are necessary to evaluate the impact of operating and economic changes and to estimate future cash flows. Management’s evaluation includes assumptions on future growth rates and cost of capital that are consistent with internal projections and operating plans.

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

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 June 30, 2018 or 2017.

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. The only changes in in the carrying value of intangible and indefinite-lived assets during the nine months ended June 30, 2018 were the addition of patents and fluctuations in foreign exchange rate.

Impairment of Long-Lived Assets

The Company’s long-lived assets include property, plant and equipment. 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.

29

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 nine months ended June 30, 2018.

Allowance for Doubtful Accounts Receivable

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

Stock-Based Compensation

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

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax provision (benefit) in each of the jurisdictions in which we operate. This process involves estimating our current income tax provision (benefit) together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We regularly evaluate our ability to recover the reported amount of our deferred income 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 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 the commercialization of our technology, our development of new technologies, the future prospects of Xcede’s patch technology, the adequacy of our current financing sources to fund our current operations, our growth initiatives, governmental budgetary and funding matters, our capital expenditures and the strength of our intellectual property portfolio. These forward-looking statements may be identified by the use of words such as “plans”, “intends,” “may,” “could,” “expect,” “estimate,” “anticipate,” “continue” or similar terms, though not all forward-looking statements contain such words. The actual results of the future events described in such forward looking statements could differ materially from those stated in such forward looking statements due to a number of important factors. These factors that could cause actual results to differ from those anticipated or predicted include, without limitation, our ability to develop and commercialize our products, including obtaining regulatory approvals, the size and growth of the potential markets for our products and our ability to serve those markets, the rate and degree of market acceptance of any of our products, the ability of Xcede’s Board of Directors to successfully contest the assertions by CBI under the collaboration arrangement and otherwise preserve value for its stockholders, including the viability of modifying the Xcede patch to address the shortcomings cited by CBI or selling or licensing Xcede’s IP assets, 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, results of Xcede’s programs which may not support further development, competition, the loss of key management and technical personnel, our ability to obtain timely payment of our invoices to governmental customers, changing priorities or reductions in government spending, litigation, the effect of governmental regulatory developments, the availability of financing sources, our ability to comply with our debt obligations, our ability to deleverage our balance sheet, our ability to identify and execute on acquisition opportunities and integrate such acquisitions into our business, and seasonality, as well as the uncertainties set forth in the Company’s Annual Report on Form 10-K, filed on December 20, 2017, 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.

30

ITEM 4 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

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

Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2018. Based on this evaluation, our management concluded that as of June 30, 2018, these disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1A.  RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2017, and from time to time in the Company’s other filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

ITEM 5(a). OTHER INFORMATION

On July 31, 2018, the Company exercised its right under its existing equipment line of credit with Middlesex Savings Bank (“Middlesex”) to convert the outstanding balance on the line of credit of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%.

Additionally, on August 9, 2018, Middlesex renewed the Company’s equipment line of credit for $750,000, to remain in effect until April 30, 2019, at which time the outstanding balance thereunder will be converted into a five year term note. Such renewal was made pursuant to the Company’s existing loan and security agreement with Middlesex, dated May 4, 2014, as amended, and the line of credit is subject to the terms and conditions of that agreement. In connection with the renewal process and due to Middlesex extending the additional credit to the Company, the loan and security agreement with Middlesex was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.

31

The loan and security agreement with Middlesex contains, among other customary provisions, a financial covenant that requires us to maintain a minimum debt service ratio (the “Financial Covenant”). On both March 31, 2018 and June 30, 2018, the Company was not in compliance the Financial Covenant, as a result of the timing of equipment purchases as the Company invests for the future. On August 9, 2018, Middlesex issued a waiver of our requirement to meet the Financial Covenant as of such dates. Based on our current year forecast, we anticipate being in compliance with the Financial Covenant as of the end of the fiscal year.

ITEM 6 EXHIBITS

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

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

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

99.1 Press release, dated August 14, 2018 issued by Dynasil Corporation of America announcing its financial results for the quarter ended June 30, 2018.

101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2018 and September 30, 2017, (ii) Consolidated Statements of Operations for the three and nine months ended June 30, 2018 and 2017, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended June 30, 2018; (iv) Consolidated Statements of Cash Flows for the nine months ended June 30, 2018 and 2017, and (v) Notes to Consolidated Financial Statements.

SIGNATURES

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

DYNASIL CORPORATION OF AMERICA
BY:	/s/ Peter Sulick	DATED: August 14, 2018
	Peter Sulick,
	Chief Executive Officer and President
	/s/ Robert J. Bowdring	DATED: August 14, 2018
	Robert J. Bowdring,
	Chief Financial Officer

32

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: August 14, 2018	/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: August 14, 2018	/s/ Robert J. Bowdring
	Robert J. Bowdring
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of DYNASIL CORPORATION OF AMERICA (the "Company") on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Peter Sulick, Chief Executive Officer and President of the Company and Robert J. Bowdring, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

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

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

	/s/ Peter Sulick
	Peter Sulick
	Chief Executive Officer and President
	/s/ Robert J. Bowdring
	Robert J. Bowdring
	Chief Financial Officer
August 14, 2018

EX-99.1

Exhibit 99.1

Contact:

Patty Kehe
Corporate Secretary
Dynasil Corporation of America
Phone: 617.668.6855
pkehe@dynasil.com

Dynasil Corporation of America Reports

Third Quarter Fiscal 2018 Revenue Increase of 19%

Newton, MA, August 14, 2018 – 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 consolidated revenue of $10.5 million in the third quarter of fiscal year 2018, a 19% increase over the same period in fiscal year 2017.

“I am happy to report our Optics segment revenue showed a 27% increase for the quarter as compared to the same period last year – the third consecutive quarter of double-digit growth in Optics’ revenue,” said CEO Peter Sulick. “Our Research segment revenue increased 10% this quarter as compared to the same quarter last year, largely due to an increase in commercial revenue.

“Additionally, gross profit for the three months was 40% of revenues, as compared to 38% of revenues for the three months ended June 30, 2017. Our Optics segment gross margin increased to 37% of revenues in the quarter ended June 30, 2018, as compared to 34% of revenues for the same period in 2017, as a direct result of the increase in revenue and specific steps taken to improve gross margin. Gross profit in the Contract Research segment remained steady at 43% in the quarter ended June 30, 2018, compared to the same quarter in 2017.”

For the nine months ended June 30, 2018, overall gross profit was $11.7 million, or 39% of sales, compared to $10.7 million, or 38% of sales for the nine months ended June 30, 2017. Gross profit for the Optics segment increased approximately $0.9 million to $6.0 million for the nine months ended June 30, 2018, compared to the gross profit for the same period in fiscal year 2017.

“The significantly improved performance of our operating companies is a further confirmation of our continuing strategy of growing the commercial side of our company and our product revenue within RMD, while maintaining our Contract Research revenue at a steady level with a $30.0 million backlog,” continued Mr. Sulick. “We adopted this strategy four years ago. We anticipate a number of products coming to market for RMD over the next few years. While we do not anticipate any one of these products being extremely significant for RMD, the cumulative effect should be noticeably positive for RMD’s commercial revenue in the coming two to three years. This is exciting for us as it is confirmation that our contract research business can supply product development opportunities for our operating divisions, as well as for RMD.”

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 June 30, 2018
	Optics			Contract Research			Biomedical			Total
Revenue	$	6,159,000		$	4,383,000		$	-		$	10,542,000
Gross profit		2,299,000			1,876,000			-			4,175,000
GM %		37	%		43	%		-			40	%
Operating expenses		1,721,000			1,760,000			84,000			3,565,000
Operating income (loss)	$	578,000		$	116,000		$	(84,000	)	$	610,000

Results of Operations for the Three Months Ended June 30, 2017
	Optics			Contract Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)	$	36,000		$	69,000		$	(377,000	)	$	(272,000	)

Net income attributable to common stockholders was approximately $0.4 million or $0.02 per share for the quarter ended June 30, 2018 and a net loss of approximately ($0.2) million or ($0.01) per share for the quarter ended June 30, 2017. Year to date net income attributable to common stockholders was approximately $0.9 million or $0.05 per share for the nine months ended June 30, 2018 and approximately $2.6 million or $0.15 per share for the nine month period ended June 30, 2017, largely as a result of the release of the tax valuation allowance due to the federal tax deconsolidation of Xcede from the Company in the first quarter of fiscal year 2017.

During the quarter ended June 30, 2018, the Company completed its state PATH 2015 R&E Tax Credit analysis which resulted in an additional $800,000 of tax credits, largely against future state tax expenses. Due to the Company’s state tax filing status requiring Dynasil to continue to consolidate the Xcede losses for state tax purposes, this credit had a full tax valuation reserve applied to it and, accordingly, is not reflected in the statement of operations for the quarter. The PATH 2015 R&E Tax Credit totals approximately $2.1 million, of which the Federal component of $1.3 million is reflected in the Statement of Operations for the nine months ended June 30, 2018. This $800,000 of additional state PATH 2015 R&E Tax Credit is available as an offset to future state tax expenses.

Conference Call Information

Dynasil will host a conference call for investors and analysts at 5:00 p.m. ET today, Tuesday, August 14, 2018. The call will be hosted by Chairman, CEO and President Peter Sulick and Chief Financial Officer Robert Bowdring. Those who wish to listen to the conference call can go to the event page or visit the Investor Information section of the Company’s website at www.dynasil.com. The call also may be accessed by dialing (888) 346-2613 or (412) 902-4252. For interested individuals unable to join the live conference call, a webcast replay will be available on the Company’s website for one year.

About Dynasil

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

Forward-Looking Statements

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 the commercialization of our technology, our development of new technologies, the future prospects of Xcede’s patch technology, the adequacy of our current financing sources to fund our current operations, our growth initiatives, governmental budgetary and funding matters, our capital expenditures and the strength of our intellectual property portfolio. These forward-looking statements may be identified by the use of words such as “plans”, “intends,” “may,” “could,” “expect,” “estimate,” “anticipate,” “continue” or similar terms, though not all forward-looking statements contain such words. The actual results of the future events described in such forward looking statements could differ materially from those stated in such forward looking statements due to a number of important factors. These factors that could cause actual results to differ from those anticipated or predicted include, without limitation, our ability to develop and commercialize our products, including obtaining regulatory approvals, the size and growth of the potential markets for our products and our ability to serve those markets, the rate and degree of market acceptance of any of our products, the ability of Xcede’s Board of Directors to successfully contest the assertions by CBI under the collaboration arrangement and otherwise preserve value for its stockholders, including the viability of modifying the Xcede patch to address the shortcomings cited by CBI or selling or licensing Xcede’s IP assets, 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, results of Xcede’s programs which may not support further development, competition, the loss of key management and technical personnel, our ability to obtain timely payment of our invoices to governmental customers, changing priorities or reductions in government spending, litigation, the effect of governmental regulatory developments, the availability of financing sources, our ability to comply with our debt obligations, our ability to deleverage our balance sheet, our ability to identify and execute on acquisition opportunities and integrate such acquisitions into our business, and seasonality, as well as the uncertainties set forth in the Company’s Annual Report on Form 10-K, filed on December 20, 2017, 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)

	June 30, 2018		September 30, 2017
ASSETS
Current Assets
Cash and cash equivalents	$	1,511,000	$	2,415,000
Accounts receivable, net		3,766,000		3,407,000
Costs in excess of billings and unbilled receivables		1,065,000		1,317,000
Inventories, net of reserves		4,457,000		4,326,000
Prepaid expenses and other current assets		792,000		973,000
Total current assets		11,591,000		12,438,000
Property, Plant and Equipment, net		7,960,000		7,032,000
Other Assets
Intangibles, net		959,000		987,000
Deferred tax asset		3,167,000		2,642,000
Goodwill		5,907,000		5,940,000
Security deposits		58,000		58,000
Total other assets		10,091,000		9,627,000
Total Assets	$	29,642,000	$	29,097,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt	$	1,933,000	$	2,007,000
Capital lease obligations, current		52,000		91,000
Accounts payable		1,924,000		2,380,000
Deferred revenue		109,000		129,000
Accrued expenses and other liabilities		2,652,000		2,667,000
Total current liabilities		6,670,000		7,274,000
Long-term Liabilities
Long-term debt, net of current portion		1,090,000		1,045,000
Capital lease obligations, net of current portion		62,000		81,000
Deferred tax liability, net		230,000		234,000
Other long-term liabilities		172,000		38,000
Total long-term liabilities		1,554,000		1,398,000
Stockholders' Equity
Dynasil stockholders' equity		20,074,000		18,971,000
Noncontrolling interest		1,344,000		1,454,000
Total stockholders' equity		21,418,000		20,425,000
Total Liabilities and Stockholders' Equity	$	29,642,000	$	29,097,000

Dynasil Corporation of America

Consolidated Statement of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net revenue	$	10,542,000		$	8,836,000		$	29,985,000		$	28,065,000
Cost of revenue		6,367,000			5,472,000			18,326,000			17,386,000
Gross profit		4,175,000			3,364,000			11,659,000			10,679,000
Operating expenses:
Sales and marketing		288,000			255,000			955,000			848,000
Research and development		177,000			176,000			701,000			707,000
General and administrative		3,100,000			3,205,000			9,519,000			9,321,000
Total operating expenses		3,565,000			3,636,000			11,175,000			10,876,000
Income (loss) from operations		610,000			(272,000	)		484,000			(197,000	)
Interest expense, net		44,000			53,000			132,000			164,000
Income (loss) before taxes		566,000			(325,000	)		352,000			(361,000	)
Income tax (benefit)		190,000			(111,000	)		(404,000	)		(2,769,000	)
Net income (loss)		376,000			(214,000	)		756,000			2,408,000
Less: Net loss attributable to noncontrolling interest		(15,000	)		(64,000	)		(124,000	)		(197,000	)
Net income (loss) attributable to common stockholders	$	391,000		$	(150,000	)	$	880,000		$	2,605,000
Net income (loss)	$	376,000		$	(214,000	)	$	756,000		$	2,408,000
Other comprehensive income (loss):
Foreign currency translation		(384,000	)		212,000			(127,000	)		(18,000	)
Total comprehensive income (loss)		(8,000	)		(2,000	)		629,000			2,390,000
Less: comprehensive income (loss) attributable to noncontrolling interest		(15,000	)		(64,000	)		(124,000	)		(197,000	)
Total comprehensive income (loss) attributable to common stockholders	$	7,000		$	62,000		$	753,000		$	2,587,000
Basic net income (loss) per common share	$	0.02		$	(0.01	)	$	0.05		$	0.15
Diluted net income (loss) per common share	$	0.02		$	(0.01	)	$	0.05		$	0.15
Weighted average shares outstanding
Basic		17,203,965			16,945,744			17,127,834			16,879,864
Diluted		17,221,199			16,945,744			17,147,228			16,879,864

XML

Document And Entity Information - shares	9 Months Ended
	Jun. 30, 2018	Aug. 06, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Entity Registrant Name	DYNASIL CORP OF AMERICA
Entity Central Index Key	0000030831
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Trading Symbol	DYSL
Entity Common Stock, Shares Outstanding		17,317,611

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2018	Sep. 30, 2017
Current Assets
Cash and cash equivalents	$ 1,511,000	$ 2,415,000
Accounts receivable, net of allowances of $183,000 and $200,000 at June 30, 2018 and September 30, 2017, respectively	3,766,000	3,407,000
Costs in excess of billings and unbilled receivables	1,065,000	1,317,000
Inventories, net of reserves	4,457,000	4,326,000
Prepaid expenses and other current assets	792,000	973,000
Total current assets	11,591,000	12,438,000
Property, Plant and Equipment, net	7,960,000	7,032,000
Other Assets
Intangibles, net	959,000	987,000
Deferred tax asset	3,167,000	2,642,000
Goodwill	5,907,000	5,940,000
Security deposits	58,000	58,000
Total other assets	10,091,000	9,627,000
Total Assets	29,642,000	29,097,000
Current Liabilities
Equipment line of credit	281,000	0
Current portion of long-term debt	1,652,000	2,007,000
Capital lease obligations, current	52,000	91,000
Accounts payable	1,924,000	2,380,000
Deferred revenue	109,000	129,000
Accrued expenses and other liabilities	2,652,000	2,667,000
Total current liabilities	6,670,000	7,274,000
Long-term Liabilities
Long-term debt, net of current portion	1,090,000	1,045,000
Capital lease obligations, net of current portion	62,000	81,000
Deferred tax liability, net	230,000	234,000
Other long-term liabilities	172,000	38,000
Total long-term liabilities	1,554,000	1,398,000
Stockholders' Equity
Common Stock, $0.0005 par value, 40,000,000 shares authorized, 18,091,931 and 17,893,763 shares issued, 17,281,771 and and 17,083,603 shares outstanding at June 30, 2018 and September 30, 2017, respectively.	9,000	9,000
Additional paid in capital	21,756,000	21,406,000
Accumulated other comprehensive income (loss)	(666,000)	(539,000)
Accumulated deficit	(39,000)	(919,000)
Less 810,160 shares of treasury stock - at cost	(986,000)	(986,000)
Total Dynasil stockholders' equity	20,074,000	18,971,000
Noncontrolling interest	1,344,000	1,454,000
Total stockholders' equity	21,418,000	20,425,000
Total Liabilities and Stockholders' Equity	$ 29,642,000	$ 29,097,000

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] - USD ($)	Jun. 30, 2018	Sep. 30, 2017
Allowance for doubtful accounts (in dollars)	$ 183,000	$ 200,000
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	18,091,931	17,893,763
Common stock, shares outstanding	17,281,771	17,083,603
Treasury stock, shares	810,160	810,160

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net revenue	$ 10,542,000	$ 8,836,000	$ 29,985,000	$ 28,065,000
Cost of revenue	6,367,000	5,472,000	18,326,000	17,386,000
Gross profit	4,175,000	3,364,000	11,659,000	10,679,000
Operating expenses:
Sales and marketing	288,000	255,000	955,000	848,000
Research and development	177,000	176,000	701,000	707,000
General and administrative	3,100,000	3,205,000	9,519,000	9,321,000
Total operating expenses	3,565,000	3,636,000	11,175,000	10,876,000
Income (loss) from operations	610,000	(272,000)	484,000	(197,000)
Interest expense, net	44,000	53,000	132,000	164,000
Income (loss) before taxes	566,000	(325,000)	352,000	(361,000)
Income tax expense (benefit)	190,000	(111,000)	(404,000)	(2,769,000)
Net income (loss)	376,000	(214,000)	756,000	2,408,000
Less: Net loss attributable to noncontrolling interest	(15,000)	(64,000)	(124,000)	(197,000)
Net income (loss) attributable to common stockholders	391,000	(150,000)	880,000	2,605,000
Net income (loss)	376,000	(214,000)	756,000	2,408,000
Other comprehensive income (loss):
Foreign currency translation	(384,000)	212,000	(127,000)	(18,000)
Total comprehensive income (loss)	(8,000)	(2,000)	629,000	2,390,000
Less: comprehensive income (loss) attributable to noncontrolling interest	(15,000)	(64,000)	(124,000)	(197,000)
Total comprehensive income (loss) attributable to common stockholders	$ 7,000	$ 62,000	$ 753,000	$ 2,587,000
Basic net income (loss) per common share	$ 0.02	$ (0.01)	$ 0.05	$ 0.15
Diluted net income (loss) per common share	$ 0.02	$ (0.01)	$ 0.05	$ 0.15
Weighted average shares outstanding
Basic	17,203,965	16,945,744	17,127,834	16,879,864
Diluted	17,221,199	16,945,744	17,147,228	16,879,864

XML

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Jun. 30, 2018 - USD ($)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Other Comprehensive Income (Loss) [Member]	Accumulated Deficit [Member]	Treasury Stock [Member]	Noncontrolling Interest [Member]
Balance at Sep. 30, 2017	$ 20,425,000	$ 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
Issuance of shares of common stock under employee stock purchase plan	13,000	$ 0	13,000	0	0	$ 0	0
Issuance of shares of common stock under employee stock purchase plan (in shares)		11,593				0
Stock-based compensation costs	351,000	$ 0	337,000	0	0	$ 0	14,000
Stock-based compensation costs (in shares)		186,575				0
Foreign currency translation adjustment	(127,000)	$ 0	0	(127,000)	0	$ 0	0
Net income (loss)	756,000	0	0	0	880,000	0	(124,000)
Balance at Jun. 30, 2018	$ 21,418,000	$ 9,000	$ 21,756,000	$ (666,000)	$ (39,000)	$ (986,000)	$ 1,344,000
Balance (in shares) at Jun. 30, 2018		18,091,931				810,160

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net income (loss)	$ 756,000	$ 2,408,000
Adjustments to reconcile net income (loss) to net cash:
Stock compensation expense	351,000	343,000
Foreign exchange loss (gain)	13,000	11,000
Depreciation and amortization	927,000	926,000
Deferred income taxes	(524,000)	(2,775,000)
Non-cash R&D services	209,000	238,000
Other	(6,000)	68,000
Other changes in assets and liabilities:
Accounts receivable, net	(362,000)	74,000
Inventories	(153,000)	(408,000)
Costs in excess of billings and unbilled receivables	253,000	25,000
Prepaid expenses and other assets	42,000	188,000
Accounts payable	(447,000)	(197,000)
Accrued expenses and other liabilities	55,000	(480,000)
Deferred revenue	(20,000)	(129,000)
Net cash from operating activities	1,094,000	292,000
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,788,000)	(455,000)
Purchase of intangibles	(65,000)	(78,000)
Net cash from investing activities	(1,853,000)	(533,000)
Cash flows from financing activities:
Proceeds from issuance of common stock	13,000	13,000
Principal payments on capital leases	(72,000)	(80,000)
Proceeds from (payments of) equipment line of credit, net	281,000	0
Proceeds from (payments of) bank and subordinated debt, net	(329,000)	(490,000)
Net cash from financing activities	(107,000)	(557,000)
Effect of exchange rates on cash and cash equivalents	(38,000)	(19,000)
Net change in cash and cash equivalents	(904,000)	(817,000)
Cash and cash equivalents, beginning	2,415,000	2,607,000
Cash and cash equivalents, ending	1,511,000	1,790,000
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest	109,000	136,000
Cash paid during the year for: Tax payments (refunds)	7,000	3,000
Non cash activities:
Assets purchased under capital leases	12,000	0
Recapitalization of Xcede - conversion of non controlling notes payable to preferred stock	0	(3,103,000)
Subsidiary stock options issued to settle liabilities	0	75,000
Subsidiary debt issued to fund research activities	$ 0	$ 500,000

XML

Basis of Presentation

9 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Note 1 - Basis of Presentation

The accompanying consolidated balance sheet as of June 30, 2018, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2018 and 2017, changes in stockholders’ equity for the nine months ended June 30, 2018 and cash flows for the nine months ended June 30, 2018 and 2017 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 June 30, 2018, 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, 2017 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

The Company considers events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2018, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.

XML

Recent Accounting Pronouncements

9 Months Ended

Jun. 30, 2018

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, 2017, the Company adopted the guidance issued in Accounting Standard Update 2016-09, Improvements to Employee Share-Based Payment Accounting, which intends to simplify various aspects of how share-based payments are accounted for and presented in financial statements. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes in the new standard eliminate the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital. In addition, the new standard eliminates the limitation on recognition of excess stock compensation benefits until such benefits are actually realized, and instead applies the general recognition standard to these deferred tax assets. This standard was applied using a modified retrospective approach and the Company will recognize forfeitures of awards as they occur. The adoption of the ASU had no impact on the retained earnings, other components of equity or net assets as of the beginning of the period of adoption. For the nine month period ended June 30, 2018, the Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit as a discrete event. The Company has elected to present the cash flow statement on a prospective transition method and no prior periods have been adjusted.

Effective October 1, 2017, the Company adopted the guidance issued in Accounting Standard Update 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control, which amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The adoption of this ASU did not have an impact on the Company’s financial statements.

Revenue from Contracts with Customers (Topic 606) Section A—Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs—Contracts with Customers (Subtopic 340-40). In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606.  The new revenue recognition standard relates to revenue from contracts with customers, which, along with subsequent amendments issued, will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance.

As of June 30, 2018, the Company has made significant progress towards completing its assessment of the potential effects of ASU 2014-09 and its amendments on its consolidated financial statements, and is actively assessing the potential effects on business processes, systems and controls to support revenue recognition and the related disclosures under this ASU. The Company is required to adopt the new standards on October 1, 2018, and expects to do so using the modified retrospective transition method with the cumulative effect of initially applying the guidance recognized at the date of initial application. With the assistance of a third party engaged for this purpose, the Company’s assessment includes a detailed review of representative contracts from each of the Company’s revenue streams and a comparison of its historical accounting policies and practices to the new standard. The Company's preliminary assessment of this adoption method supports the determination that there are no expected changes in the accounting for the Research segment’s contract research revenue. Across other revenue streams, the timing of revenue recognition could be affected for multiple types of contracts, primarily multiple element contracts in its Optics segment, but those differences are not expected to have a material impact on the consolidated financial statements. However, the Company's assessment is not yet finalized and is subject to change. Additionally, the Company is currently evaluating any tax implications the adoption of this new standard may have on the consolidated financial statements. As part of this analysis, the Company is evaluating its information technology capabilities and systems, and does not expect to incur significant information technology costs to modify systems currently in place.

The Company is in the process of assessing its current revenue controls, and identifying and implementing any changes that may be necessary to comply with its new revenue policies and the provisions of ASU 2014-09, which will be effective for the Company as of October 1, 2018.

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

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

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.  This new guidance is effective for the Company beginning in fiscal 2019, with early adoption permitted. 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 adoption of this standard is not expected to have a material impact on the Company’s financial statements.

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

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

On December 22, 2017, the date the Tax Cuts and Jobs Act (“2017 Tax Act”) was signed into law, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance regarding accounting for the income tax effects of the Tax Cuts Act, including the impact of the Tax Cuts Act on deferred tax assets and liabilities for financial statements issued in the reporting period that includes the enactment date of December 22, 2017. The Company estimated and accounted for the tax implications of the Tax Cuts Act in the quarter ended December 31, 2017 and the resultant changes are reflected in the current financial statements. 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 provisionally recorded an income tax expense of $0.5 million related to such re-measurement in the first quarter of fiscal 2018. It is still analyzing certain aspects of the Tax Act and refining its calculations during the measurement period. See Note 11 – Income Taxes.

XML

Xcede Technologies, Inc. Joint Venture

9 Months Ended

Jun. 30, 2018

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments and Joint Ventures Disclosure [Text Block]

Note 3 – Xcede Technologies, Inc. Joint Venture

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

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

In November 2016, Dynasil committed to invest $1.2 million of cash into Xcede over the following 18 months, all of which was invested prior to January 31, 2018, in exchange for Series B convertible preferred stock of Xcede (“Series B Preferred”). The value of the Series B Preferred, as it is wholly owned by DBM, was eliminated in consolidation. In conjunction with Dynasil’s committed investment, all $5.5 million in existing Notes and accrued interest were converted into 5,394,120 shares of Series A convertible preferred stock of Xcede (“Series A Preferred”) at a 20% discount to the price per share of the Series B Preferred, in accordance with the amended provisions of the Notes. The original conversion terms of the Notes were amended to require conversion into Series A Preferred rather than the class of stock issued in conjunction with the financing (Series B Preferred). Because the original conversion terms of the Notes were amended and as a result of assessing the impact of the rights and features of the Note amendment and their effect on the value to the issuer and holders, the transaction is recorded at fair value with a resulting gain on extinguishment of debt in the quarter ended December 31, 2016. Fair value was determined by management based on an independent valuation using a market and income approach and an option pricing model to allocate value to the respective shares. The fair value of the Series A Preferred was approximately $3.6 million on the date of issuance, as compared to the carrying value of the convertible principal and accrued interest of $5.5 million, resulting in a gain of approximately $1.9 million. Due to the related party nature of the transaction, this gain was recorded within the equity of Xcede. Of that $1.9 million, approximately $1.6 million was attributed to DBM and eliminated in consolidation, and approximately $0.3 million was attributed to noncontrolling interest.

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

Each share of Series A Preferred and Series B Preferred (together the “Preferred Stock”) shall be convertible, at the option of the holder, into such number of fully paid and non-assessable shares of Xcede common stock (“Common Stock”) as determined by dividing the original issue price, as defined, by the conversion price in effect on the date of conversion, which is 1:1. Each holder of the Preferred Stock shall have one vote for each share of Common Stock that the holder of the Preferred Stock would be entitled to receive upon the conversion of the holder’s Preferred Stock into Common Stock. Upon any liquidation event, which includes certain change of control events, following payment of pre-equity distributions, the remaining proceeds or net assets of Xcede shall be paid and distributed in the following amounts and order of priority: (1) to satisfy the liquidation preference payment due to each holder of Series B Preferred, (2) to satisfy the liquidation preference payment due to each holder of Series A Preferred, (3) payment in full of any acquisition transaction payment, and (4) the remaining assets available to be distributed ratably among the holders of the Common Stock. If a liquidation event were to occur, the Series A Preferred’s liquidation value would be $1.016 per share and Series B Preferred’s liquidation value would be $1.27 per share. As of June 30, 2018, 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 June 30, 2018, 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.

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

As previously disclosed, in January 2016, Xcede announced that it had signed three agreements with Cook Biotech Inc. of West Lafayette, Indiana (“CBI”), including a Development Agreement, a License Agreement and a Supply Agreement, in connection with the development, regulatory approval and production of Xcede’s hemostatic patch (“Xcede Patch”). In November 2016, Xcede entered into another Services Agreement, a Secured Promissory Note, a Loan Agreement, a Security Agreement and an Intellectual Property Security Agreement (collectively the “Note Agreement”) with CBI, in which CBI committed to fund the pre-clinical testing of, and subject to the receipt of applicable regulatory approvals to initiate first in human clinical trial for, the Xcede Patch. Under the terms of the Note Agreement, in exchange for the services performed by CBI, Xcede committed to a multiple draw credit facility in the aggregate amount not to exceed $1.5 million. The Note Agreement made available three draws of principal, each in the amount of $500,000, upon satisfaction of conditions identified in the Note Agreement. The principal amounts outstanding bear interest at a fixed rate of 2% and are secured by all the rights of Xcede under the Development Agreement, Supply Agreement, and License Agreement, all the rights to the data and work product arising from the clinical trial being performed under the Services Agreement, all regulatory approvals for the Xcede Patch, all patent and patent applications owned or controlled by Xcede, and all trademark and service mark registrations and applications. The note was recorded at fair value net of unamortized discount based on an imputed interest rate of 5.4%. The outstanding principal and unpaid interest are due and payable in full at the earlier of closing of an acquisition transaction or December 31, 2025. Xcede will recognize research and development expense as the related services are performed by CBI. There was approximately $8,000 and $33,000 of research and development expense recognized during the three months ended June 30, 2018 and 2017, respectively. There was approximately $209,000 and $238,000 recognized during the nine months ended June 30, 2018 and 2017, respectively.

On July 20, 2018, Xcede received a notice of termination from CBI, its collaboration partner with respect to the Xcede Patch currently under development. CBI asserted its termination rights under the Services Agreement dated November 16, 2016 and Development Agreement dated January 6, 2016 between Xcede and 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. Upon a valid termination, CBI has no obligation to conduct further developmental activities with respect to the Xcede Patch, including any further in-kind funding under the Loan Agreement dated November 16, 2016 between Xcede and CBI. In addition, CBI has asserted that these study results trigger an immediate repayment of the $500,000 promissory note owed by Xcede to CBI under the Loan Agreement, which otherwise has a stated maturity of December 31, 2025. The Xcede promissory note is collateralized by a security interest which CBI has in all of Xcede’s intellectual property. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI. The Company continues to carry the promissory note in long-term debt.

As a result of this action by CBI, 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 the security interest described above. There can be no assurances with respect to any such alternatives.

Dynasil is the sole holder of Xcede Series B Preferred Stock, which ranks senior to the other classes of outstanding Xcede equity, but junior to all Xcede indebtedness. Dynasil also owns shares of Xcede Series A Preferred Stock and Common Stock. On an as-converted basis, Dynasil indirectly owns about 63% of the shares outstanding.

Dynasil has no contractual obligation with respect to Xcede indebtedness. The Xcede promissory note is a contractual obligation solely of Xcede and is secured by Xcede’s intellectual property.

Dynasil’s Biomedical segment consists of a single business unit, Dynasil Biomedical Corporation, which has no operations other than to its equity ownership in Xcede. Since inception, this segment has had no revenue and has operated at a substantial loss. Dynasil does not currently anticipate any material impairment of assets or write-offs affecting its consolidated financial statements with respect to this segment as a result of this development.

XML

Inventories

9 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

Note 4 - Inventories

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2018		2017
Raw Materials	$	2,362,000	$	2,540,000
Work-in-Process		1,066,000		798,000
Finished Goods		1,029,000		988,000
	$	4,457,000	$	4,326,000

XML

Intangible Assets

9 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

Note 5 – Intangible Assets

Intangible assets at June 30, 2018 and September 30, 2017 consist of the following:

	Useful	Gross		Accumulated
June 30, 2018	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	722,000	$	588,000	$	134,000
Know How	15		512,000		341,000		171,000
Trade Names	Indefinite		274,000		-		274,000
Patents	20		397,000		17,000		380,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,165,000	$	1,206,000	$	959,000
	Useful		Gross		Accumulated
September 30, 2017	Life (years)		Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	737,000	$	551,000	$	186,000
Know How	15		512,000		316,000		196,000
Trade Names	Indefinite		281,000		-		281,000
Patents	20		333,000		9,000		324,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,123,000	$	1,136,000	$	987,000

Amortization expense for the three months ended June 30, 2018 and 2017 was $28,000 and $24,000, respectively. Amortization expense for the nine months ended June 30, 2018 and 2017 was $84,000 and $75,000, respectively.

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

	2018 (3 months)		2019		2020		2021		2022		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	34,000	$	-	$	-	$	-	$	134,000
Know How		9,000		34,000		34,000		34,000		34,000		26,000		171,000
Patents		3,000		11,000		11,000		11,000		11,000		162,000		209,000
	$	32,000	$	125,000	$	79,000	$	45,000	$	45,000	$	188,000	$	514,000

As of June 30, 2018, Xcede had $171,000 in patents that have not yet been granted, therefore, the amortization related to these patents is not included in the five-year amortization table above.

The Company continually assesses whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of its long-lived assets or whether the remaining balances of those assets should be evaluated for possible impairment. There were no changes, aside from foreign exchange rate fluctuations, in the carrying value of long-lived assets, during the nine months ended June 30, 2018 and 2017.

XML

Goodwill

9 Months Ended

Jun. 30, 2018

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 nine months ended June 30, 2018 and 2017.

XML

Debt

9 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 7 – Debt

Senior Debt

On July 31, 2018, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%. Additionally, on August 9, 2018, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2019, at which time the outstanding balance will be converted into a five year term note. As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.

On both March 31, 2018 and June 30, 2018, the Company was in compliance with all but one of the financial covenants contained in the loan agreement with Middlesex that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total debt and senior debt. On August 9, 2018, Middlesex issued a waiver for these events, as this circumstance arose due to the timing of equipment purchases as the Company invests for the future. The current year forecast shows Dynasil quickly resolving this situation and coming back into compliance with this covenant for the end of the fiscal year.

Subordinated Debt

On January 3, 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, 2018. Such amendment also increased the interest rate of the note from six percent (6%) to seven percent (7%) per annum.

XML

Earnings (Loss) Per Common Share

9 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 8 – Earnings (Loss) Per Common Share

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

For purposes of computing diluted earnings per share for the three and nine months ended June 30, 2018 and 2017, no common stock options were included in the calculation of dilutive shares as all of the 160,537 and 196,769 common stock options outstanding, respectively, had exercise prices above the applicable period’s average market price per share and their inclusion would be anti-dilutive. For both the three and nine months ended June 30, 2017, 70,000 shares of unvested restricted common stock were excluded from the calculation of dilutive shares, as the effect of their inclusion would be anti-dilutive. Additionally, for the three months ended June 30, 2017, no common share equivalents related to stock options or unvested restricted stock were included in the calculation of dilutive shares, since there was a loss attributable to common shareholders and the inclusion of common share equivalents would be anti-dilutive.

The computation of the weighted shares outstanding for the three months ended June 30, 2018 and 2017 is as follows:

	June 30, 2018		June 30, 2017
Weighted average shares outstanding
Basic		17,203,965		16,945,744
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		17,234		-
Dilutive Average Shares Outstanding		17,221,199		16,945,744

The computation of the weighted shares outstanding for the nine months ended June 30, 2018 and 2017 is as follows:

	June 30, 2018		June 30, 2017
Weighted average shares outstanding
Basic		17,127,834		16,879,864
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		19,394		-
Dilutive Average Shares Outstanding		17,147,228		16,879,864

XML

Stock Based Compensation

9 Months Ended

Jun. 30, 2018

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 within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. The dividend yield is expected to be zero because historically the Company has not paid dividends on common stock.

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

Stock compensation expense for the three and nine months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended		Three Months Ended
	June 30, 2018		June 30, 2017
Stock Grants	$	78,000	$	60,000
Restricted Stock Grants		14,000		13,000
Option Grants		-		12,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		27,000		30,000
Total	$	120,000	$	116,000

	Nine Months Ended		Nine Months Ended
	June 30, 2018		June 30, 2017
Stock Grants	$	209,000	$	183,000
Restricted Stock Grants		40,000		39,000
Option Grants		17,000		37,000
Employee Stock Purchase Plan		2,000		2,000
Subsidiary Option Grants		83,000		82,000
Total	$	351,000	$	343,000

At June 30, 2018, there was approximately $71,000 in unrecognized stock compensation cost for Dynasil, which is expected to be recognized over a weighted average period of approximately twelve months.

Restricted Stock Grants

A summary of restricted stock activity for the nine months ended June 30, 2018 is presented below:

Restricted Stock Activity for the Nine Months ended ‎June 30, 2018	Shares			Weighted-Average ‎Grant-Date Fair Value
Nonvested at September 30, 2017		70,000		$	1.73
Granted		20,000			1.37
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at June 30, 2018		60,000		$	1.61

Stock Option Grants

During the nine months ended June 30, 2018, no Dynasil stock options were granted. A summary of stock option activity for the nine months ended June 30, 2018 is presented below:

	Options Outstanding			Weighted Average ‎Exercise Price per ‎Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2017		196,769		$	1.98		1.64
Outstanding and exercisable at September 30, 2017		196,769		$	1.98		1.64
Granted		-			-
Exercised		-			-
Cancelled		(36,232	)		1.82
Balance at June 30, 2018		160,537		$	2.01		1.18
Outstanding and exercisable at June 30, 2018		160,537		$	2.01		1.18

Subsidiary Stock Option Grants

During the three months ended June 30, 2018, no Xcede stock options were granted. A summary of Xcede stock option activity for the nine months ended June 30, 2018 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2016		123,147		$	2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147		$	2.30		1.69
Granted		95,602			1.80		2.59
Exercised		-			-
Cancelled		(21,980	)		3.03
Balance at June 30, 2017		196,769		$	1.98		1.89
Outstanding and exercisable at June 30, 2017		196,769		$	1.98		1.89

At June 30, 2018, the Company’s Xcede joint venture had approximately $70,000 of unrecognized stock compensation expense associated with stock options expected to be recognized over a weighted average period of seven months.

XML

Segment, Customer and Geographical Reporting

9 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

Dynasil reports three reportable segments: contract research (“Contract Research”), optics (“Optics”) and biomedical (“Biomedical”). Within these segments, there is a segregation of operating segments based upon the organizational structure used to evaluate performance and make decisions on resource allocation, as well as availability and materiality of separate financial results consistent with that structure. The Optics segment aggregates four operating segments – Dynasil Fused Silica, Optometrics, Hilger Crystals (“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 Contract Research segment is one of the largest small business participants in U.S. government-funded research. The Biomedical segment consists of a single operating segment, Dynasil Biomedical Corporation (“Dynasil Biomedical”), a medical technology incubator which owns rights to certain early stage medical technologies. Dynasil Biomedical holds common and preferred stock in the Xcede joint venture which is developing a tissue sealant technology and currently has no other operations.

The Company’s segment information for the three months ended June 30, 2018 and 2017 is summarized below:

Results of Operations for the Three Months Ended June 30,
2018
	Optics			Contract ‎Research			Biomedical			Total
Revenue	$	6,159,000		$	4,383,000		$	-		$	10,542,000
Gross profit		2,299,000			1,876,000			-			4,175,000
GM %		37	%		43	%		-			40	%
Operating expenses		1,721,000			1,760,000			84,000			3,565,000
Operating income (loss)		578,000			116,000			(84,000	)		610,000
Depreciation and amortization		261,000			53,000			3,000			317,000
Capital expenditures		707,000			76,000			20,000			803,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Three Months Ended June 30,
2017
		Optics			Contract ‎Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)		36,000			69,000			(377,000	)		(272,000	)
Depreciation and amortization		248,000			52,000			1,000			301,000
Capital expenditures		179,000			54,000			26,000			259,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

The Company’s segment information for the nine months ended June 30, 2018 and 2017 is summarized below:

Results of Operations for the Nine Months Ended June 30,
2018
	Optics			Contract ‎Research			Biomedical			Total
Revenue	$	17,011,000		$	12,974,000		$	-		$	29,985,000
Gross profit		6,038,000			5,621,000			-			11,659,000
GM %		35	%		43	%		-			39	%
Operating expenses		5,154,000			5,297,000			724,000			11,175,000
Operating income (loss)		884,000			324,000			(724,000	)		484,000
Depreciation and amortization		738,000			179,000			10,000			927,000
Capital expenditures		1,635,000			153,000			65,000			1,853,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Nine Months Ended June 30,
2017
		Optics			Contract ‎Research			Biomedical			Total
Revenue	$	14,524,000		$	13,541,000		$	-		$	28,065,000
Gross profit		5,144,000			5,535,000			-			10,679,000
GM %		35	%		41	%		-			38	%
Operating expenses		4,544,000			5,182,000			1,150,000			10,876,000
Operating income (loss)		600,000			353,000			(1,150,000	)		(197,000	)
Depreciation and amortization		719,000			200,000			7,000			926,000
Capital expenditures		373,000			88,000			72,000			533,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

Customer Financial Information

For both the three and nine months ended June 30, 2018 and 2017, no customer in the Optics segment represented more than 10% of the total segment revenue.

For the three months ended June 30, 2018, four customers of the Contract Research segment, three various agencies of the U.S. Government and one commercial customer, each represented more than 10% of the total segment revenue. For the nine months ended June 30, 2018, three customers of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three and nine months ended June 30, 2017, three customers of the Contract Research segment, all various agencies of the U.S. Government, each represented more than 10% of the total segment revenue. For the three months ended June 30, 2018 and 2017, these customers made up 72% and 52%, respectively, of Contract Research revenue. For the nine months ended June 30, 2018 and 2017, these customers made up 59% and 58%, respectively, of Contract Research revenue.

Geographic Financial Information

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2018 and 2017 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2018					June 30, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,512,000		71	%	$	6,928,000		78	%
Europe		2,029,000		19	%		962,000		11	%
Other		1,001,000		10	%		946,000		11	%
	$	10,542,000		100	%	$	8,836,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2018 and 2017 are as follows:

	Nine Months Ended					Nine Months Ended
	June 30, 2018					June 30, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	22,993,000		77	%	$	22,051,000		78	%
Europe		4,662,000		15	%		3,262,000		12	%
Other		2,330,000		8	%		2,752,000		10	%
	$	29,985,000		100	%	$	28,065,000		100	%

XML

Income Taxes

9 Months Ended

Jun. 30, 2018

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 will no longer be able to offset taxable income with Xcede’s current or cumulative net operating losses. Upon review of relevant criteria for the new Dynasil federal consolidated group, it was determined that it is more likely than not that the federal deferred tax assets of the new Dynasil federal consolidated group will be realized based upon positive earnings history and expected future profits of the group. As a result, the federal deferred tax asset valuation allowance associated with the Dynasil federal consolidated group 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.

The Company applies the authoritative provisions related to accounting for uncertainty in income taxes. As required by these provisions, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being reached upon ultimate settlement with the relevant tax authority. As of June 30, 2018 and September 30, 2017, the Company has no liabilities for uncertain tax positions. Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statement of operations. As of June 30, 2018 and September 30, 2017, 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.  At June 30, 2018, the Company has not completed its accounting for the tax effects of the 2017 Tax Act; however, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax.  The Company is reviewing and will continue to review its accounting of the tax effects of the 2017 Tax Act through the end of the fiscal year.

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 provisionally recorded an income tax expense of $0.5 million related to such re-measurement in the first quarter of fiscal 2018. It is still analyzing certain aspects of the Tax Act and refining its calculations during the measurement period.

The one-time transition tax is based on the total unremitted earnings of the Company’s foreign subsidiary, Hilger, which has previously been deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition liability of its foreign subsidiary resulting in additional income tax expense of $0.2 million in the first quarter of fiscal 2018. The Company has not yet completed its calculation of the total unremitted earnings of Hilger. The transition tax is based in part on the amount of those earnings held in cash and other specified assets. The amount may change when the Company finalizes the calculation of Hilger’s total unremitted earnings previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets.

There are Research and Experimentation tax credits available at both the federal and state levels resulting from the PATH Act of 2015 (“PATH 2015 R&E Tax Credit”). These credits are designed to encourage and reward companies for efforts in areas of research and experimentation. In June 2018, the Company completed a study encompassing all business activities and contracts in these areas for the years 2012 through 2016. As a result, the Company will have net tax credits of approximately $1.3 million on its federal income tax returns for the years ended September 30, 2012, 2013, 2014, 2015 and 2016 and approximately $0.8 million in state tax credits for the same time periods. 

During the quarter ended June 30, 2018, the Company completed its state PATH 2015 R&E Tax Credit analysis which resulted in an additional $800,000 of tax credits, largely against future state tax expenses. Due to the Company’s state tax filing status requiring Dynasil to continue to consolidate the Xcede losses for state tax purposes, this credit had a full tax valuation reserve applied to it and, accordingly, is not reflected in the statement of operations for the quarter. The PATH 2015 R&E Tax Credit totals approximately $2.1 million, of which the Federal component of $1.3 million is reflected in the Statement of Operations for the nine months ended June 30, 2018. This $800,000 of additional state PATH 2015 R&E Tax Credit is available as an offset to future state tax expenses.

The effective tax rates were 34% and 34% for the three months ended June 30, 2018 and 2017, respectively.  The effective tax rates were (115%) and 767% for the nine months ended June 30, 2018 and 2017, respectively. The results for both nine month periods ended June 30, 2018 and 2017 had significant events which resulted in an extreme variation in tax rates. The effective tax rate for the nine months ended, June 30, 2018 was primarily driven by the recently signed 2017 Tax Act, as well as the R&E tax credit study completed in the second quarter of fiscal year 2018. The effective tax rate for the nine months ended June 30, 2017 was primarily the result of the tax benefit of $2.7 million recorded for the release of the valuation allowance as a result of the tax deconsolidation of its Xcede subsidiary. The effective tax rate excluding the impact of the 2017 Tax Act was (308%) for the nine months ended June 30, 2018. The effective tax rates excluding the impact of the 2017 Tax Act, the PATH 2015 R&E Tax Credit, and the valuation allowance were 69% and (46%) for the nine months ended June 30, 2018 and 2017, respectively.

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 2014 are still subject to examination.

XML

Subsequent Events

9 Months Ended

Jun. 30, 2018

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 12 – Subsequent Events

On July 20, 2018, Xcede received a notice of termination from CBI, its collaboration partner with respect to the Xcede Patch currently under development. CBI asserted its termination rights under the Services Agreement dated November 16, 2016 and Development Agreement dated January 6, 2016 between Xcede and 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. Upon a valid termination, CBI has no obligation to conduct further developmental activities with respect to the Xcede Patch, including any further in-kind funding under the Loan Agreement dated November 16, 2016 between Xcede and CBI. In addition, CBI has asserted that these study results trigger an immediate repayment of the $500,000 promissory note owed by Xcede to CBI under the Loan Agreement, which otherwise has a stated maturity of December 31, 2025. The Xcede promissory note is collateralized by a security interest which CBI has in all of Xcede’s intellectual property. While Xcede vigorously contests this assertion, at this time it is unclear how this matter will be resolved between Xcede and CBI. See Note 3 for additional information.

On July 31, 2018, the Company converted the outstanding balance on the equipment line of credit with Middlesex Savings Bank (“Middlesex”) of approximately $750,000, of which $281,000 was outstanding on June 30, 2018, into a five year term note with an interest rate of 5.66%. Additionally, on August 9, 2018, the Company’s equipment line of credit was renewed for $750,000 through April 30, 2019, at which time the outstanding balance will be converted into a five year term note. As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x​​​​​​​.

On both March 31, 2018 and June 30, 2018, the Company was in compliance with all but one of the financial covenants contained in the loan agreement with Middlesex that require us to maintain certain ratios of earnings before interest, taxes, depreciation and amortization to fixed charges and to total debt and senior debt. On August 9, 2018, Middlesex issued a waiver for these events, as this circumstance arose due to the timing of equipment purchases as the Company invests for the future. The current year forecast shows Dynasil quickly resolving this situation and coming back into compliance with this covenant for the end of the fiscal year.

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

XML

Inventories (Tables)

9 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Inventories, net of reserves, consists of the following:

	June 30,		September 30,
	2018		2017
Raw Materials	$	2,362,000	$	2,540,000
Work-in-Process		1,066,000		798,000
Finished Goods		1,029,000		988,000
	$	4,457,000	$	4,326,000

XML

Intangible Assets (Tables)

9 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

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

Intangible assets at June 30, 2018 and September 30, 2017 consist of the following:

	Useful	Gross		Accumulated
June 30, 2018	Life (years)	Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	722,000	$	588,000	$	134,000
Know How	15		512,000		341,000		171,000
Trade Names	Indefinite		274,000		-		274,000
Patents	20		397,000		17,000		380,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,165,000	$	1,206,000	$	959,000
	Useful		Gross		Accumulated
September 30, 2017	Life (years)		Amount		Amortization		Net
Acquired Customer Base	5 to 15	$	737,000	$	551,000	$	186,000
Know How	15		512,000		316,000		196,000
Trade Names	Indefinite		281,000		-		281,000
Patents	20		333,000		9,000		324,000
Biomedical Technologies	5		260,000		260,000		-
		$	2,123,000	$	1,136,000	$	987,000

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:

	2018 (3 months)		2019		2020		2021		2022		Thereafter		Total
Acquired Customer Base	$	20,000	$	80,000	$	34,000	$	-	$	-	$	-	$	134,000
Know How		9,000		34,000		34,000		34,000		34,000		26,000		171,000
Patents		3,000		11,000		11,000		11,000		11,000		162,000		209,000
	$	32,000	$	125,000	$	79,000	$	45,000	$	45,000	$	188,000	$	514,000

XML

Earnings (Loss) Per Common Share (Tables)

9 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

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

The computation of the weighted shares outstanding for the three months ended June 30, 2018 and 2017 is as follows:

	June 30, 2018		June 30, 2017
Weighted average shares outstanding
Basic		17,203,965		16,945,744
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		17,234		-
Dilutive Average Shares Outstanding		17,221,199		16,945,744

The computation of the weighted shares outstanding for the nine months ended June 30, 2018 and 2017 is as follows:

	June 30, 2018		June 30, 2017
Weighted average shares outstanding
Basic		17,127,834		16,879,864
Effect of dilutive securities
Stock Options		-		-
Restricted Stock		19,394		-
Dilutive Average Shares Outstanding		17,147,228		16,879,864

XML

Stock Based Compensation (Tables)

9 Months Ended

Jun. 30, 2018

Schedule Of Stock Compensation Expense [Table Text Block]

Stock compensation expense for the three and nine months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended		Three Months Ended
	June 30, 2018		June 30, 2017
Stock Grants	$	78,000	$	60,000
Restricted Stock Grants		14,000		13,000
Option Grants		-		12,000
Employee Stock Purchase Plan		1,000		1,000
Subsidiary Option Grants		27,000		30,000
Total	$	120,000	$	116,000

	Nine Months Ended		Nine Months Ended
	June 30, 2018		June 30, 2017
Stock Grants	$	209,000	$	183,000
Restricted Stock Grants		40,000		39,000
Option Grants		17,000		37,000
Employee Stock Purchase Plan		2,000		2,000
Subsidiary Option Grants		83,000		82,000
Total	$	351,000	$	343,000

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

A summary of restricted stock activity for the nine months ended June 30, 2018 is presented below:

Restricted Stock Activity for the Nine Months ended ‎June 30, 2018	Shares			Weighted-Average ‎Grant-Date Fair Value
Nonvested at September 30, 2017		70,000		$	1.73
Granted		20,000			1.37
Vested		(30,000	)		1.73
Cancelled		-			-
Nonvested and expected to vest at June 30, 2018		60,000		$	1.61

Stock Option Grants [Member]

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

During the nine months ended June 30, 2018, no Dynasil stock options were granted. A summary of stock option activity for the nine months ended June 30, 2018 is presented below:

	Options Outstanding			Weighted Average ‎Exercise Price per ‎Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2017		196,769		$	1.98		1.64
Outstanding and exercisable at September 30, 2017		196,769		$	1.98		1.64
Granted		-			-
Exercised		-			-
Cancelled		(36,232	)		1.82
Balance at June 30, 2018		160,537		$	2.01		1.18
Outstanding and exercisable at June 30, 2018		160,537		$	2.01		1.18

Subsidiary Option Grants [Member]

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

During the three months ended June 30, 2018, no Xcede stock options were granted. A summary of Xcede stock option activity for the nine months ended June 30, 2018 is presented below:

	Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remain Contractual Term (in Years)
Balance at September 30, 2016		123,147		$	2.30		1.69
Outstanding and exercisable at September 30, 2016		123,147		$	2.30		1.69
Granted		95,602			1.80		2.59
Exercised		-			-
Cancelled		(21,980	)		3.03
Balance at June 30, 2017		196,769		$	1.98		1.89
Outstanding and exercisable at June 30, 2017		196,769		$	1.98		1.89

XML

Segment, Customer and Geographical Reporting (Tables)

9 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

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

The Company’s segment information for the three months ended June 30, 2018 and 2017 is summarized below:

Results of Operations for the Three Months Ended June 30,
2018
	Optics			Contract ‎Research			Biomedical			Total
Revenue	$	6,159,000		$	4,383,000		$	-		$	10,542,000
Gross profit		2,299,000			1,876,000			-			4,175,000
GM %		37	%		43	%		-			40	%
Operating expenses		1,721,000			1,760,000			84,000			3,565,000
Operating income (loss)		578,000			116,000			(84,000	)		610,000
Depreciation and amortization		261,000			53,000			3,000			317,000
Capital expenditures		707,000			76,000			20,000			803,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Three Months Ended June 30,
2017
		Optics			Contract ‎Research			Biomedical			Total
Revenue	$	4,837,000		$	3,999,000		$	-		$	8,836,000
Gross profit		1,655,000			1,709,000			-			3,364,000
GM %		34	%		43	%		-			38	%
Operating expenses		1,619,000			1,640,000			377,000			3,636,000
Operating income (loss)		36,000			69,000			(377,000	)		(272,000	)
Depreciation and amortization		248,000			52,000			1,000			301,000
Capital expenditures		179,000			54,000			26,000			259,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

The Company’s segment information for the nine months ended June 30, 2018 and 2017 is summarized below:

Results of Operations for the Nine Months Ended June 30,
2018
	Optics			Contract ‎Research			Biomedical			Total
Revenue	$	17,011,000		$	12,974,000		$	-		$	29,985,000
Gross profit		6,038,000			5,621,000			-			11,659,000
GM %		35	%		43	%		-			39	%
Operating expenses		5,154,000			5,297,000			724,000			11,175,000
Operating income (loss)		884,000			324,000			(724,000	)		484,000
Depreciation and amortization		738,000			179,000			10,000			927,000
Capital expenditures		1,635,000			153,000			65,000			1,853,000
Intangibles, net		408,000			171,000			380,000			959,000
Goodwill		968,000			4,939,000			-			5,907,000
Total assets	$	21,117,000		$	8,018,000		$	507,000		$	29,642,000

Results of Operations for the Nine Months Ended June 30,
2017
		Optics			Contract ‎Research			Biomedical			Total
Revenue	$	14,524,000		$	13,541,000		$	-		$	28,065,000
Gross profit		5,144,000			5,535,000			-			10,679,000
GM %		35	%		41	%		-			38	%
Operating expenses		4,544,000			5,182,000			1,150,000			10,876,000
Operating income (loss)		600,000			353,000			(1,150,000	)		(197,000	)
Depreciation and amortization		719,000			200,000			7,000			926,000
Capital expenditures		373,000			88,000			72,000			533,000
Intangibles, net		468,000			205,000			394,000			1,067,000
Goodwill		955,000			4,939,000			-			5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000		$	28,182,000

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

Revenue by geographic location in total and as a percentage of total revenue, for the three months ended June 30, 2018 and 2017 are as follows:

	Three Months Ended					Three Months Ended
	June 30, 2018					June 30, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	7,512,000		71	%	$	6,928,000		78	%
Europe		2,029,000		19	%		962,000		11	%
Other		1,001,000		10	%		946,000		11	%
	$	10,542,000		100	%	$	8,836,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the nine months ended June 30, 2018 and 2017 are as follows:

	Nine Months Ended					Nine Months Ended
	June 30, 2018					June 30, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	22,993,000		77	%	$	22,051,000		78	%
Europe		4,662,000		15	%		3,262,000		12	%
Other		2,330,000		8	%		2,752,000		10	%
	$	29,985,000		100	%	$	28,065,000		100	%

XML

Basis of Presentation (Details Textual) - Xcede Technologies inc [Member]	Jun. 30, 2018	Nov. 18, 2016
Noncontrolling Interest, Ownership Percentage by Parent	63.00%	59.00%
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	37.00%

XML

Recent Accounting Pronouncements (Details Textual) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Dec. 31, 2017	Sep. 30, 2018
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount	$ 0.5
Scenario, Plan [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		21.00%

XML

Xcede Technologies, Inc. Joint Venture (Details Textual) - USD ($)

1 Months Ended

3 Months Ended

9 Months Ended

Nov. 30, 2016

Nov. 18, 2016

Jun. 30, 2018

Jun. 30, 2017

Jun. 30, 2018

Jun. 30, 2017

Debt Conversion, Original Debt, Amount

$ 5,500,000

Gain (Loss) on Extinguishment of Debt

$ 1,900,000

Noncontrolling Interest [Member]

Debt Conversion, Original Debt, Amount

$ 3,100,000

Debt Conversion, Converted Instrument, Shares Issued

3,055,551

Gain (Loss) on Extinguishment of Debt

$ 300,000

Xcede Technologies inc [Member]

Debt Instrument, Interest Rate, Stated Percentage

5.00%

Committed Investment In Cash

$ 1,200,000

Debt Conversion, Converted Instrument, Shares Issued

5,394,120

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%

63.00%

Dynasil Biomedical [Member]

Debt Conversion, Original Debt, Amount

$ 2,400,000

Debt Conversion, Converted Instrument, Shares Issued

2,338,569

Gain (Loss) on Extinguishment of Debt

$ 1,600,000

External Funding [Member] | Convertible Debt [Member]

Debt Conversion, Original Debt, Amount

$ 5,200,000

Secured Promissory Note [Member] | Xcede Technologies inc [Member]

Debt Instrument, Interest Rate, Stated Percentage

2.00%

Expense Recognized In Long Term Contract

$ 8,000

$ 33,000

$ 209,000

$ 238,000

Imputed Interest Rate

5.40%

Secured Debt, Available Amount

$ 1,500,000

Secured Debt, Outstanding Amount

$ 500,000

Series B Preferred Stock [Member]

Preferred Stock, Liquidation Preference Per Share

$ 1.27

$ 1.27

Preferred Stock, Liquidation Preference, Value

$ 1,500,000

$ 1,500,000

Series A Preferred Stock [Member]

Debt Conversion, Converted Instrument, Amount

$ 3,600,000

Preferred Stock, Liquidation Preference Per Share

$ 1.016

$ 1.016

Preferred Stock, Liquidation Preference, Value

$ 5,500,000

$ 5,500,000

Series A Preferred Stock [Member] | Noncontrolling Shareholders [Member]

Preferred Stock, Liquidation Preference, Value

3,100,000

3,100,000

Series A Preferred Stock [Member] | Dynasil Biomedical [Member]

Preferred Stock, Liquidation Preference, Value

$ 2,400,000

$ 2,400,000

XML

Inventories (Details) - USD ($)	Jun. 30, 2018	Sep. 30, 2017
Inventory Current [Line Items]
Raw Materials	$ 2,362,000	$ 2,540,000
Work-in-Process	1,066,000	798,000
Finished Goods	1,029,000	988,000
Inventory, Net, Total	$ 4,457,000	$ 4,326,000

XML

Intangible Assets (Details) - USD ($)	9 Months Ended	12 Months Ended
	Jun. 30, 2018	Sep. 30, 2017	Jun. 30, 2017
Finite-Lived Intangible Assets [Line Items]
Gross Amount	$ 2,165,000	$ 2,123,000
Accumulated Amortization	1,206,000	1,136,000
Net	959,000	987,000	$ 1,067,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	722,000	737,000
Accumulated Amortization	588,000	551,000
Net	$ 134,000	$ 186,000
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	341,000	316,000
Net	171,000	196,000
Trade Name [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Amount	274,000	281,000
Accumulated Amortization	0	0
Net	$ 274,000	$ 281,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life (years)	20 years	20 years
Gross Amount	$ 397,000	$ 333,000
Accumulated Amortization	17,000	9,000
Net	$ 380,000	$ 324,000
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)	Jun. 30, 2018 USD ($)
Finite-Lived Intangible Assets [Line Items]
2018 (3 months)	$ 32,000
2019	125,000
2020	79,000
2021	45,000
2022	45,000
Thereafter	188,000
Total	514,000
Acquired Customer Base [Member]
Finite-Lived Intangible Assets [Line Items]
2018 (3 months)	20,000
2019	80,000
2020	34,000
2021	0
2022	0
Thereafter	0
Total	134,000
Know How [Member]
Finite-Lived Intangible Assets [Line Items]
2018 (3 months)	9,000
2019	34,000
2020	34,000
2021	34,000
2022	34,000
Thereafter	26,000
Total	171,000
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2018 (3 months)	3,000
2019	11,000
2020	11,000
2021	11,000
2022	11,000
Thereafter	162,000
Total	$ 209,000

XML

Intangible Assets (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Finite-Lived Intangible Assets [Line Items]
Amortization of Intangible Assets	$ 28,000	$ 24,000	$ 84,000	$ 75,000
Xcede Technologies inc [Member] | Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Pre-Grant Intangible Assets	$ 171,000		$ 171,000

XML

Debt (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Jul. 31, 2018	Jun. 30, 2018	Aug. 09, 2018	Jan. 03, 2018	Sep. 30, 2017
Debt [Line Items]
Line of Credit, Current		$ 281,000			$ 0
Middlesex Savings Bank [Member]
Debt [Line Items]
Line of Credit Facility, Covenant Compliance		As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.
Line of Credit, Current		$ 281,000
Subordinate [Member]
Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage				7.00%	6.00%
Subsequent Event [Member] | Middlesex Savings Bank [Member]
Debt [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	5.66%
Line of Credit, Current	$ 750,000
Debt Instrument, Term	5 years
Line of Credit Facility, Maximum Borrowing Capacity			$ 750,000

XML

Earnings (Loss) Per Common Share (Details) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Weighted average shares outstanding
Basic	17,203,965	16,945,744	17,127,834	16,879,864
Effect of dilutive securities
Dilutive Average Shares Outstanding	17,221,199	16,945,744	17,147,228	16,879,864
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	17,234	0	19,394	0

XML

Earnings (Loss) Per Common Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	160,537	196,769	160,537	196,769
Restricted Stock [Member]
Earnings Loss Per Common Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount		70,000		70,000

XML

Stock Based Compensation (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 120,000	$ 116,000	$ 351,000	$ 343,000
Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	78,000	60,000	209,000	183,000
Restricted Stock Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	14,000	13,000	40,000	39,000
Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	0	12,000	17,000	37,000
Employee Stock Purchase Plan [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	1,000	1,000	2,000	2,000
Subsidiary Option Grants [Member]
Stock Based Compensation [Line Items]
Stock Compensation Expense	$ 27,000	$ 30,000	$ 83,000	$ 82,000

XML

Stock Based Compensation (Details 1) - Restricted Stock [Member]	9 Months Ended
	Jun. 30, 2018 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Nonvested, Beginning Balance | shares	70,000
Shares, Granted | shares	20,000
Shares, Vested | shares	(30,000)
Shares, Cancelled | shares	0
Shares, Nonvested and expected to vest, Ending Balance | shares	60,000
Weighted-Average Grant-Date Fair Value, Nonvested, Beginning Balance | $ / shares	$ 1.73
Weighted-Average Grant-Date Fair Value, Granted | $ / shares	1.37
Weighted-Average Grant-Date Fair Value, Vested | $ / shares	1.73
Weighted-Average Grant-Date Fair Value, Cancelled | $ / shares	0
Weighted-Average Grant-Date Fair Value, Nonvested, Ending Balance | $ / shares	$ 1.61

XML

Stock Based Compensation (Details 2) - $ / shares	9 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2017	Sep. 30, 2016
Stock Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance, Options Outstanding	196,769
Outstanding and exercisable, Options Outstanding	196,769
Granted, Options Outstanding	0
Exercised, Options Outstanding	0
Cancelled, Options Outstanding	(36,232)
Balance, Options Outstanding	160,537		196,769
Outstanding and exercisable, Options Outstanding	160,537		196,769
Beginning Balance, Weighted Average Exercise Price per Share	$ 1.98
Outstanding and exercisable, Weighted Average Exercise Price per Share	1.98
Granted, Weighted Average Exercise Price per Share	0
Exercised, Weighted Average Exercise Price per Share	0
Cancelled, Weighted Average Exercise Price per Share	1.82
Ending Balance, Weighted Average Exercise Price per Share	2.01		$ 1.98
Outstanding and exercisable, Weighted Average Exercise Price per Share	$ 2.01		$ 1.98
Balance, Weighted Average Remain Contractual Term (in Years)	1 year 2 months 5 days		1 year 7 months 20 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)	1 year 2 months 5 days		1 year 7 months 20 days
Subsidiary Option Grants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Balance, Options Outstanding		123,147	123,147
Outstanding and exercisable, Options Outstanding		123,147	123,147
Granted, Options Outstanding		95,602
Exercised, Options Outstanding		0
Cancelled, Options Outstanding		(21,980)
Balance, Options Outstanding		196,769		123,147
Outstanding and exercisable, Options Outstanding		196,769		123,147
Beginning Balance, Weighted Average Exercise Price per Share		$ 2.30	$ 2.30
Outstanding and exercisable, Weighted Average Exercise Price per Share		2.30	$ 2.30
Granted, Weighted Average Exercise Price per Share		1.80
Exercised, Weighted Average Exercise Price per Share		0
Cancelled, Weighted Average Exercise Price per Share		3.03
Ending Balance, Weighted Average Exercise Price per Share		1.98		$ 2.30
Outstanding and exercisable, Weighted Average Exercise Price per Share		$ 1.98		$ 2.30
Balance, Weighted Average Remain Contractual Term (in Years)		1 year 10 months 20 days		1 year 8 months 8 days
Granted, Weighted Average Remaining Contractual Term (in Year)		2 years 7 months 2 days
Outstanding and exercisable, Weighted Average Remain Contractual Term (in Years)		1 year 10 months 20 days		1 year 8 months 8 days

XML

Stock Based Compensation (Details Textual)	Jun. 30, 2018 USD ($)
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	$ 70,000
Employee Stock Plan [Member]
Class of Stock [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	$ 71,000

XML

Segment, Customer and Geographical Reporting (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2017
Segment Reporting Information [Line Items]
Revenue	$ 10,542,000	$ 8,836,000	$ 29,985,000	$ 28,065,000
Gross profit	$ 4,175,000	$ 3,364,000	$ 11,659,000	$ 10,679,000
GM %	40.00%	38.00%	39.00%	38.00%
Operating expenses	$ 3,565,000	$ 3,636,000	$ 11,175,000	$ 10,876,000
Operating income (loss)	610,000	(272,000)	484,000	(197,000)
Depreciation and amortization	317,000	301,000	927,000	926,000
Capital expenditures	803,000	259,000	1,853,000	533,000
Intangibles, net	959,000	1,067,000	959,000	1,067,000	$ 987,000
Goodwill	5,907,000	5,894,000	5,907,000	5,894,000	5,940,000
Total assets	29,642,000	28,182,000	29,642,000	28,182,000	$ 29,097,000
Optics [Member]
Segment Reporting Information [Line Items]
Revenue	6,159,000	4,837,000	17,011,000	14,524,000
Gross profit	$ 2,299,000	$ 1,655,000	$ 6,038,000	$ 5,144,000
GM %	37.00%	34.00%	35.00%	35.00%
Operating expenses	$ 1,721,000	$ 1,619,000	$ 5,154,000	$ 4,544,000
Operating income (loss)	578,000	36,000	884,000	600,000
Depreciation and amortization	261,000	248,000	738,000	719,000
Capital expenditures	707,000	179,000	1,635,000	373,000
Intangibles, net	408,000	468,000	408,000	468,000
Goodwill	968,000	955,000	968,000	955,000
Total assets	21,117,000	19,488,000	21,117,000	19,488,000
Contract Research [Member]
Segment Reporting Information [Line Items]
Revenue	4,383,000	3,999,000	12,974,000	13,541,000
Gross profit	$ 1,876,000	$ 1,709,000	$ 5,621,000	$ 5,535,000
GM %	43.00%	43.00%	43.00%	41.00%
Operating expenses	$ 1,760,000	$ 1,640,000	$ 5,297,000	$ 5,182,000
Operating income (loss)	116,000	69,000	324,000	353,000
Depreciation and amortization	53,000	52,000	179,000	200,000
Capital expenditures	76,000	54,000	153,000	88,000
Intangibles, net	171,000	205,000	171,000	205,000
Goodwill	4,939,000	4,939,000	4,939,000	4,939,000
Total assets	8,018,000	8,004,000	8,018,000	8,004,000
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	$ 84,000	$ 377,000	$ 724,000	$ 1,150,000
Operating income (loss)	(84,000)	(377,000)	(724,000)	(1,150,000)
Depreciation and amortization	3,000	1,000	10,000	7,000
Capital expenditures	20,000	26,000	65,000	72,000
Intangibles, net	380,000	394,000	380,000	394,000
Goodwill	0	0	0	0
Total assets	$ 507,000	$ 690,000	$ 507,000	$ 690,000

XML

Segment, Customer and Geographical Reporting (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 10,542,000	$ 8,836,000	$ 29,985,000	$ 28,065,000
% of Total	100.00%	100.00%	100.00%	100.00%
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 7,512,000	$ 6,928,000	$ 22,993,000	$ 22,051,000
% of Total	71.00%	78.00%	77.00%	78.00%
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 2,029,000	$ 962,000	$ 4,662,000	$ 3,262,000
% of Total	19.00%	11.00%	15.00%	12.00%
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenue	$ 1,001,000	$ 946,000	$ 2,330,000	$ 2,752,000
% of Total	10.00%	11.00%	8.00%	10.00%

XML

Segment, Customer and Geographical Reporting (Details Textual)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Optics [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%	10.00%	10.00%
Contract Research segment [Member] | Customer Three [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%	10.00%	10.00%
Contract Research segment [Member] | Customer Four [Member] | Sales Revenue, Segment [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	10.00%	10.00%	10.00%	10.00%
Contract research revenue [Member]
Segment Reporting [Line Items]
Concentration Risk, Percentage	72.00%	52.00%	59.00%	58.00%

XML

Income Taxes (Details Textual) - USD ($)	3 Months Ended				9 Months Ended		12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2018	Nov. 18, 2016
Income Tax [Line Items]
Income Tax Expense (Benefit)	$ 190,000		$ (111,000)	$ 2,700,000	$ (404,000)	$ (2,769,000)
Provision for Income Tax Expense		$ 500,000
Additional Income Tax Expense		$ 200,000
Effective Income Tax Rate Reconciliation, Percent	34.00%		34.00%		(115.00%)	767.00%
Research Tax Credit Carryforward [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Tax Credit, Amount					$ 2,100,000
Effective Income Tax Rate Reconciliation at Federal Statutory Income Tax Rate, Amount					1,300,000
Deferred Tax Assets, Tax Credit Carryforwards, Research	$ 800,000				800,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	$ 800,000				$ 800,000
Scenario, Plan [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent							21.00%
Excluding The Impact Of Valuation Allowance [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Percent					69.00%	(46.00%)
Excluding The Impact Of The 2017 Tax Act [Member]
Income Tax [Line Items]
Effective Income Tax Rate Reconciliation, Percent					(308.00%)
Xcede Technologies inc [Member]
Income Tax [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	63.00%				63.00%			59.00%

XML

Subsequent Events (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Jul. 31, 2018	Jun. 30, 2018	Aug. 09, 2018	Jul. 20, 2018
Subsequent Event [Line Items]
Line of Credit Facility, Maximum Month-end Outstanding Amount		$ 281,000
Middlesex Savings Bank [Member]
Subsequent Event [Line Items]
Line of Credit Facility, Covenant Compliance		As part of the renewal process and due to the additional credit being extended to the Company, the Middlesex loan and security agreement was amended on August 9, 2018 to decrease the maximum debt leverage ratio covenant to 2.5x from 3.0x.
Subsequent Event [Member]
Subsequent Event [Line Items]
Line of Credit Facility, Maximum Amount Outstanding During Period	$ 750,000
Subsequent Event [Member] | Middlesex Savings Bank [Member]
Subsequent Event [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	5.66%
Line of Credit Facility, Maximum Borrowing Capacity			$ 750,000
Debt Instrument, Term	5 years
Xcede Technologies inc [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Notes Payable				$ 500,000