Note 16 – Segment, Customer and Geographical Reporting

Segment Financial Information

Operating segments are based upon Dynasil’s internal organizational structure, the manner in which the operations are managed, the criteria used by the Chief Operating Decision Makers (CODM) to evaluate segment performance and the availability of separate 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. Dynasil’s Contract Research segment is one of the largest small business participants in U.S. government-funded research. 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 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 the Company’s stock of the Xcede joint venture which is developing a tissue sealant technology and currently has no other operations.

The Company’s segment information is summarized below:

Results of Operations for the Fiscal Year Ended September 30,
2017
				Contract
	Optics			Research			Biomedical		Total
Revenue	$	19,282,000		$	18,002,000		$	-	$	37,284,000
Gross profit		6,562,000			7,336,000			-		13,898,000
GM %		34	%		41	%		-		37	%
Operating expenses		6,183,000			6,856,000			1,381,000		14,420,000
(Gain) loss on sale of assets		-			-			60,000		60,000
Operating income (loss)		379,000			480,000			(1,441,000)		(582,000)

Depreciation and amortization		970,000			257,000			11,000		1,238,000
Capital expenditures		575,000			338,000			69,000		982,000

Intangibles, net		467,000			196,000			324,000		987,000
Goodwill		1,001,000			4,939,000			-		5,940,000
Total assets	$	20,445,000		$	8,078,000		$	574,000	$	29,097,000

Results of Operations for the Fiscal Year Ended September 30,
2016
				Contract			Optics
	Optics			Research			Biomedical		Total
Revenue	$	23,686,000		$	19,756,000		$	-	$	43,442,000
Gross profit		8,010,000			7,593,000			-		15,603,000
GM %		34	%		38	%		-		36	%
Operating expenses		6,239,000			6,619,000			2,070,000		14,928,000
(Gain) loss on sale of assets		(4,000)			-			-		(4,000)
Operating income (loss)		1,775,000			974,000			(2,070,000)		679,000

Depreciation and amortization		949,000			249,000			69,000		1,267,000
Capital expenditures		1,503,000			432,000			109,000		2,044,000

Intangibles, net		517,000			230,000			320,000		1,067,000
Goodwill		959,000			4,939,000			-		5,898,000
Total assets	$	17,397,000		$	8,325,000		$	647,000	$	26,369,000

Customer Financial Information

For the years ended September 30, 2017 and 2016, the top three customers for the Contract Research segment were each various agencies of the U.S. Government. For the years ended September 30, 2017 and 2016, these customers made up 55% and 56%, respectively, of Contract Research revenue.

For the year ended September 30, 2017, there was no customer that represented more than 10% of the total Optics segment revenue. For the year ended September 30, 2016, there was one customer whose revenue represented 22% of the total Optics segment revenue.

The Biomedical segment did not have any revenue in the years ending September 30, 2017 and 2016.

Geographic Financial Information

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

	2017					2016
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	29,154,000		78	%	$	32,622,000		75	%
Europe		4,397,000		12	%		7,888,000		18	%
Other		3,733,000		10	%		2,932,000		7	%
	$	37,284,000		100	%	$	43,442,000		100	%