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 March 31, 2018 and 2017 is summarized below:

Results of Operations for the Three Months Ended March 31,

2018

	Optics			Contract Research			Biomedical		Total
Revenue	$	5,910,000		$	4,345,000		$	-	$	10,255,000
Gross profit		2,050,000			1,895,000			-		3,945,000
GM %		35	%		44	%		-		38	%
Operating expenses		1,858,000			1,813,000			194,000		3,865,000
Operating income (loss)		192,000			82,000			(194,000)		80,000

Depreciation and amortization		247,000			61,000			3,000		311,000
Capital expenditures		339,000			58,000			29,000		426,000

Intangibles, net		455,000			179,000			363,000		997,000
Goodwill		1,070,000			4,939,000			-		6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000	$	29,517,000

Results of Operations for the Three Months Ended March 31,

2017

	Optics			Contract Research			Biomedical		Total
Revenue	$	5,281,000		$	4,804,000		$	-	$	10,085,000
Gross profit		1,913,000			1,875,000			-		3,788,000
GM %		36	%		39	%		-		38	%
Operating expenses		1,597,000			1,802,000			392,000		3,791,000
Operating income (loss)		316,000			73,000			(392,000)		(3,000)

Depreciation and amortization		237,000			73,000			3,000		313,000
Capital expenditures		103,000			34,000			44,000		181,000

Intangibles, net		465,000			213,000			379,000		1,057,000
Goodwill		899,000			4,939,000			-		5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000	$	27,976,000

The Company’s segment information for the six months ended March 31, 2018 and 2017 is summarized below:

Results of Operations for the Six Months Ended March 31,
2018
	Optics			Contract Research			Biomedical		Total
Revenue	$	10,853,000		$	8,590,000		$	-	$	19,443,000
Gross profit		3,740,000			3,745,000			-		7,485,000
GM %		34	%		44	%		-		38	%
Operating expenses		3,433,000			3,537,000			639,000		7,609,000
Operating income (loss)		307,000			208,000			(639,000)		(124,000)

Depreciation and amortization		477,000			126,000			7,000		610,000
Capital expenditures		928,000			77,000			45,000		1,050,000

Intangibles, net		455,000			179,000			363,000		997,000
Goodwill		1,070,000			4,939,000			-		6,009,000
Total assets	$	20,903,000		$	8,028,000		$	586,000	$	29,517,000

Results of Operations for the Six Months Ended March 31,
2017
	Optics			Contract Research			Biomedical		Total
Revenue	$	9,686,000		$	9,542,000		$	-	$	19,228,000
Gross profit		3,487,000			3,826,000			-		7,313,000
GM %		36	%		40	%		-		38	%
Operating expenses		2,924,000			3,542,000			773,000		7,239,000
Operating income (loss)		563,000			284,000			(773,000)		74,000

Depreciation and amortization		471,000			147,000			6,000		624,000
Capital expenditures		194,000			34,000			64,000		292,000

Intangibles, net		465,000			213,000			379,000		1,057,000
Goodwill		899,000			4,939,000			-		5,838,000
Total assets	$	19,705,000		$	7,477,000		$	794,000	$	27,976,000

Customer Financial Information

For both the three and six months ended March 31, 2018 and 2017, no customer in the Optics segment represented more than 10% of the total segment revenue.

For the three and six months ended March 31, 2018, four 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 six months ended March 31, 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 March 31, 2018 and 2017, these customers made up 72% and 59%, respectively, of Contract Research revenue. For the six months ended March 31, 2018 and 2017, these customers made up 70% and 60%, 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 March 31, 2018 and 2017 are as follows:

	Three Months Ended					Three Months Ended
	March 31, 2018					March 31, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	8,129,000		79	%	$	7,931,000		79	%
Europe		1,365,000		13	%		1,212,000		12	%
Other		761,000		8	%		942,000		9	%
	$	10,255,000		100	%	$	10,085,000		100	%

Revenue by geographic location in total and as a percentage of total revenue, for the six months ended March 31, 2018 and 2017 are as follows:

	Six Months Ended					Six Months Ended
	March 31, 2018					March 31, 2017
Geographic Location	Revenue		% of Total			Revenue		% of Total
United States	$	15,481,000		80	%	$	15,120,000		79	%
Europe		2,633,000		13	%		2,299,000		12	%
Other		1,329,000		7	%		1,809,000		9	%
	$	19,443,000		100	%	$	19,228,000		100	%