11.

SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company’s business is organized into

two

reportable segments: ZERUST® and Natur-Tec®. The Company has been selling its proprietary ZERUST® rust and corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over

years, and more recently, has targeted and expanded into the oil and gas industry. The Company also sells a portfolio of bio-based and compostable (fully biodegradable) polymer resins and finished products under the Natur-Tec® brand.

The following table sets forth the Company’s net sales for the

three

and

nine

months ended

May 31, 2018

and

2017

by segment:

	Three Months Ended				Nine Months Ended
	May 31, 2018		May 31, 2017		May 31, 2018		May 31, 2017
ZERUST® net sales	$	10,382,884	$	8,368,487	$	30,102,080	$	23,681,192
Natur-Tec® net sales		2,540,953		1,854,532		6,578,770		4,986,753
Total net sales	$	12,923,837	$	10,223,019	$	36,680,850	$	28,667,945

The following table sets forth the Company’s cost of goods sold for the

three

and

nine

months ended

May

31,

2018

and

2017

by segment:

	Three Months Ended										Nine Months Ended
	May 31, 2018		% of Segment Sales*			May 31, 2017		% of Segment Sales*			May 31, 2018		% of Segment Sales*			May 31, 2017		% of Segment Sales*
Direct cost of goods sold
ZERUST®	$	6,139,699		59.1	%	$	4,834,355		57.8	%	$	17,948,941		59.6	%	$	13,788,416		58.2	%
Natur-Tec®		1,812,084		71.3	%		1,327,323		71.6	%		4,738,523		72.0	%		3,608,722		72.4	%
Indirect cost of goods sold		640,583		—			612,323		—			1,806,208		—			1,859,815		—
Total net cost of goods sold	$	8,592,366				$	6,774,001				$	24,493,672				$	19,256,953

______________________________________

The percent of segment sales is calculated by dividing the direct cost of goods sold for each individual segment category by the net sales for each segment category.

The Company utilizes product net sales and direct and indirect cost of goods sold for each product in reviewing the financial performance of a product type. Further allocation of Company expenses or assets, aside from amounts presented in the tables above, is

not

utilized in evaluating product performance, nor does such allocation occur for internal financial reporting.

Geographic Information

Net sales by geographic location for the

three

and

nine

months ended

May 31, 2018

and

2017

were as follows:

	Three Months Ended				Nine Months Ended
	May 31, 2018		May 31, 2017		May 31, 2018		May 31, 2017
Inside the U.S.A. to unaffiliated customers	$	7,434,991	$	5,967,459	$	19,771,031	$	16,363,291
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		879,324		862,136		2,201,077		2,115,511
Unaffiliated customers		4,609,522		3,393,424		14,708,742		10,189,143
	$	12,923,837	$	10,223,019	$	36,680,850	$	28,667,945

Net sales by geographic location are based on the location of the customer. Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to joint ventures during the

three

and

nine

months ended

May 31, 2018

and

2017

were as follows:

	Three Months Ended
	May 31, 2018		% of Total Fees for Services Provided to Joint Ventures			May 31, 2017		% of Total Fees for Services Provided to Joint Ventures
Germany	$	224,366		14.9	%	$	212,257		14.7	%
Poland		185,107		12.3	%		180,969		12.6	%
Japan		183,335		12.2	%		153,903		10.7	%
Sweden		155,588		10.3	%		150,139		10.4	%
France		146,949		9.7	%		112,455		7.8	%
Thailand		110,894		7.4	%		104,771		7.3	%
Czech Republic		100,131		6.6	%		74,135		5.1	%
Korea		96,574		6.4	%		92,954		6.4	%
Finland		81,402		5.4	%		78,012		5.4	%
United Kingdom		80,931		5.4	%		87,768		6.1	%
India		49,778		3.3	%		90,469		6.3	%
Other		93,445		6.1	%		104,216		7.2	%
	$	1,508,500		100.0	%	$	1,442,048		100.0	%

	Nine Months Ended
	May 31, 2018		% of Total Fees for Services Provided to Joint Ventures			May 31, 2017		% of Total Fees for Services Provided to Joint Ventures
Germany	$	680,939		14.7	%	$	614,766		15.6	%
Poland		598,221		13.0	%		483,626		12.3	%
Japan		529,412		11.4	%		445,662		11.3	%
Sweden		448,707		9.7	%		314,664		8.0	%
France		416,913		9.0	%		293,240		7.4	%
Thailand		325,205		7.0	%		339,852		8.6	%
Czech Republic		283,193		6.1	%		218,249		5.5	%
Korea		279,524		6.0	%		284,435		7.2	%
United Kingdom		275,137		6.0	%		227,140		5.8	%
India		274,980		5.9	%		229,200		5.8	%
Finland		247,574		5.4	%		221,294		5.6	%
Other		264,727		5.8	%		269,539		6.9	%
	$	4,624,532		100.0	%	$	3,941,667		100.0	%

The geographical distribution of key financial statement data is as follows:

	At May 31, 2018		At August 31, 2017
China	$	251,848	$	228,458
Brazil		81,161		54,646
Germany		10,155		14,171
India		21,628		14,712
United States		6,868,515		7,047,675
Total property and equipment	$	7,233,307	$	7,359,662

	Three Months Ended				Nine Months Ended
	May 31, 2018		May 31, 2017		May 31, 2018		May 31, 2017
China	$	3,069,232	$	1,695,508	$	9,176,174	$	4,991,807
Brazil		853,675		565,089		2,310,131		1,683,255
India		564,339		323,551		1,642,633		1,057,132
Germany		312,057		161,139		556,859		378,635
Other		955,418		583,752		2,318,569		2,115,511
United States		7,169,116		6,893,980		20,676,484		18,441,605
Total net sales	$	12,923,837	$	10,223,019	$	36,680,850	$	28,667,945

Total property and equipment are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets.

Sales to the Company’s joint ventures are included in the foregoing segment and geographic information; however, sales by the Company’s joint ventures to other parties are

not

included. The foregoing segment and geographic information represents only sales and cost of goods sold recognized directly by the Company.

All joint venture operations, including equity in income, fees for services and related dividends, are primarily related to ZERUST® products and services.