12.

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, 2017

and

2016

by segment:

	Three Months Ended				Nine Months Ended
	May 31, 2017		May 31, 2016		May 31, 2017		May 31, 2016
ZERUST® net sales	$	8,368,487	$	7,185,955	$	23,681,192	$	19,548,974
Natur-Tec® net sales		1,854,532		1,500,620		4,986,753		3,866,972
Total net sales	$	10,223,019	$	8,686,575	$	28,667,945	$	23,415,946

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

three

and

nine

months ended

May

31,

2017

and

2016

by segment:

	Three Months Ended										Nine Months Ended
	May 31, 2017		% of Segment Sales*			May 31, 2016		% of Segment Sales*			May 31, 2017		% of Segment Sales*			May 31, 2016		% of Segment Sales*
Direct cost of goods sold
ZERUST®	$	4,834,355		57.8	%	$	4,028,114		56.1	%	$	13,788,416		58.2	%	$	10,968,742		56.1	%
Natur-Tec®		1,327,323		71.6	%		1,119,730		74.6	%		3,608,722		72.4	%		2,938,927		76.0	%
Indirect cost of goods sold		612,323		—			629,405		—			1,859,815		—			2,013,227		—
Total net cost of goods sold	$	6,774,001				$	5,777,249				$	19,256,953				$	15,920,896

____________________________

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, 2017

and

2016

were as follows:

	Three Months Ended				Nine Months Ended
	May 31, 2017		May 31, 2016		May 31, 2017		May 31, 2016
Inside the U.S.A. to unaffiliated customers	$	5,967,459	$	5,559,885	$	16,363,291	$	14,762,170
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		862,136		446,322		2,115,511		1,967,370
Unaffiliated customers		3,393,424		2,680,368		10,189,143		6,686,406
	$	10,223,019	$	8,686,575	$	28,667,945	$	23,415,946

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, 2017

and

2016

were as follows:

	Three Months Ended
	May 31, 2017		% of Total Fees for Services Provided to Joint Ventures			May 31, 2016		% of Total Fees for Services Provided to Joint Ventures
Germany	$	212,257		14.7	%	$	242,158		17.9	%
Poland		180,969		12.6	%		167,237		12.4	%
Japan		153,903		10.7	%		148,091		11.0	%
Sweden		150,139		10.4	%		66,239		4.9	%
France		112,455		7.8	%		87,588		6.5	%
Thailand		104,771		7.3	%		132,548		9.8	%
Korea		92,954		6.4	%		74,085		5.5	%
India		90,469		6.3	%		70,610		5.2	%
United Kingdom		87,768		6.1	%		135,068		10.0	%
Finland		78,012		5.4	%		55,876		4.1	%
Czech Republic		74,135		5.1	%		54,537		4.0	%
Other		104,216		7.2	%		117,876		8.7	%
	$	1,442,048		100.0	%	$	1,351,913		100.0	%

	Nine Months Ended
	May 31, 2017		% of Total Fees for Services Provided to Joint Ventures			May 31, 2016		% of Total Fees for Services Provided to Joint Ventures
Germany	$	614,766		15.6	%	$	664,812		17.4	%
Poland		483,626		12.3	%		452,260		11.8	%
Japan		445,662		11.3	%		416,241		10.9	%
Thailand		339,852		8.6	%		395,611		10.4	%
Sweden		314,664		8.0	%		189,556		5.0	%
France		293,240		7.4	%		250,373		6.6	%
Korea		284,435		7.2	%		247,730		6.5	%
India		229,200		5.8	%		223,137		5.9	%
United Kingdom		227,140		5.8	%		292,216		7.7	%
Finland		221,294		5.6	%		177,704		4.7	%
Czech Republic		218,249		5.5	%		176,470		4.6	%
Other		269,539		6.9	%		322,274		8.5	%
	$	3,941,667		100.0	%	$	3,808,384		100.0	%

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.

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

	At May 31, 2017		At August 31, 2016
Brazil	$	56,246	$	66,938
India		13,634		13,645
Germany		13,687		—
China		231,114		253,931
United States		7,137,218		6,941,358
Total long-lived assets	$	7,451,899	$	7,275,872

	Nine Months Ended
	May 31, 2017		May 31, 2016
Brazil	$	1,683,255	$	1,509,659
India		1,057,132		911,227
Germany		378,635		—
China		4,991,807		2,473,733
United States		20,557,116		18,521,327
Total net sales	$	28,667,945	$	23,415,946

Total long-lived assets located in Brazil, India, Germany and China primarily consist of property and equipment. These assets 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. Total assets located in the United States include the Company’s investments in joint ventures.

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 related to ZERUST® products and services.