Note 10 – Segment, Customer and Geographical Reporting

Segment Financial Information

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

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

Results of Operations for the Three Months Ended June 30,

2017

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

Depreciation and amortization		248,000			52,000			1,000		301,000
Capital expenditures		179,000			54,000			26,000		259,000

Intangibles, net		468,000			205,000			394,000		1,067,000
Goodwill		955,000			4,939,000			-		5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000	$	28,182,000

Results of Operations for the Three Months Ended June 30,

2016

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

Depreciation and amortization		247,000			24,000			17,000		288,000
Capital expenditures		330,000			-			6,000		336,000

Intangibles, net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

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

Results of Operations for the Nine Months Ended June 30,

2017

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	14,524,000		$	13,541,000		$	-	$	28,065,000
Gross profit		5,144,000			5,535,000			-		10,679,000
GM %		35	%		41	%		-		38	%
Operating expenses		4,544,000			5,182,000			1,150,000		10,876,000
(Gain) loss on sale of assets		-			-			-		-
Operating income (loss)		600,000			353,000			(1,150,000)		(197,000)

Depreciation and amortization		719,000			200,000			7,000		926,000
Capital expenditures		373,000			88,000			72,000		533,000

Intangibles, net		468,000			205,000			394,000		1,067,000
Goodwill		955,000			4,939,000			-		5,894,000
Total assets	$	19,488,000		$	8,004,000		$	690,000	$	28,182,000

Results of Operations for the Nine Months Ended June 30,

2016

				Contract
	Optics			Research			Biomedical		Total
Revenue	$	18,415,000		$	14,484,000		$	-	$	32,899,000
Gross profit		6,330,000			5,639,000			-		11,969,000
GM %		34	%		39	%		-		36	%
Operating expenses		5,237,000			5,107,000			1,099,000		11,443,000
(Gain) loss on sale of assets		(4,000)			-			-		(4,000)
Operating income (loss)		1,097,000			532,000			(1,099,000)		530,000

Depreciation and amortization		700,000			187,000			52,000		939,000
Capital expenditures		1,224,000			37,000			81,000		1,342,000

Intangibles, net		549,000			239,000			308,000		1,096,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	16,752,000		$	8,546,000		$	424,000	$	25,722,000

Customer Financial Information

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

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

Geographic Financial Information

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

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

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

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