11.

SEGMENT AND GEOGRAPHICAL 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

six

months ended

February 28, 2018

and

2017

by segment:

	Three Months Ended				Six Months Ended
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
ZERUST® net sales	$	10,191,459	$	7,228,027	$	19,719,196	$	15,312,705
Natur-Tec® net sales		2,022,516		1,514,876		4,037,817		3,132,221
Total net sales	$	12,213,975	$	8,742,903	$	23,757,013	$	18,444,926

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

three

and

six

months ended

February 28, 2018

and

2017

by segment:

	Three Months Ended										Six Months Ended
	February 28, 2018		% of Segment Sales*			February 28, 2017		% of Segment Sales*			February 28, 2018		% of Segment Sales*			February 28, 2017		% of Segment Sales*
Direct cost of goods sold
ZERUST®	$	6,005,262		58.9	%	$	4,254,524		58.9	%	$	11,809,242		59.9	%	$	8,954,061		58.5	%
Natur-Tec®		1,447,240		71.6	%		1,068,231		70.5	%		2,926,439		72.5	%		2,281,399		72.8	%
Indirect cost of goods sold		560,334		—			547,431		—			1,165,625		—			1,247,492		—
Total net cost of goods sold	$	8,012,836				$	5,870,186				$	15,901,306				$	12,482,952

___________________________________

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

six

months ended

February 28, 2018

and

2017

were as follows:

	Three Months Ended				Six Months Ended
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Inside the U.S.A. to unaffiliated customers	$	6,079,835	$	5,245,092	$	12,336,040	$	10,395,832
Outside the U.S.A to:
Joint ventures in which the Company is shareholder directly and indirectly		814,122		433,317		1,321,753		1,253,375
Unaffiliated customers		5,320,018		3,064,494		10,099,220		6,795,719
	$	12,213,975	$	8,742,903	$	23,757,013	$	18,444,926

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

six

months ended

February 28, 2018

and

2017

were as follows:

	Three Months Ended
	February 28, 2018		% of Total Fees for Services Provided to Joint Ventures			February 28, 2017		% of Total Fees for Services Provided to Joint Ventures
Germany	$	236,700		14.7	%	$	199,509		16.8	%
Poland		207,038		12.9	%		153,453		13.0	%
Japan		172,032		10.7	%		145,722		12.3	%
Sweden		165,165		10.3	%		77,464		6.5	%
India		138,437		8.6	%		74,196		6.3	%
France		130,323		8.1	%		83,112		7.0	%
Thailand		111,779		6.9	%		87,627		7.4	%
Korea		99,574		6.2	%		86,103		7.3	%
Czech Republic		98,726		6.1	%		73,286		6.2	%
United Kingdom		82,432		5.1	%		53,241		4.5	%
Finland		76,546		4.8	%		66,946		5.7	%
Other		90,138		5.6	%		83,369		7.0	%
	$	1,608,890		100.0	%	$	1,184,028		100.0	%

	Six Months Ended
	February 28, 2018		% of Total Fees for Services Provided to Joint Ventures			February 28, 2017		% of Total Fees for Services Provided to Joint Ventures
Germany	$	456,574		14.7	%	$	402,509		16.1	%
Poland		413,114		13.3	%		302,657		12.1	%
Japan		346,077		11.1	%		291,759		11.7	%
Sweden		293,119		9.4	%		164,525		6.6	%
France		269,964		8.7	%		180,785		7.2	%
India		225,200		7.2	%		138,731		5.6	%
Thailand		214,311		6.9	%		235,081		9.4	%
United Kingdom		194,207		6.2	%		139,372		5.6	%
Korea		183,062		5.9	%		191,481		7.6	%
Czech Republic		182,951		5.8	%		144,114		5.8	%
Finland		166,172		5.3	%		143,282		5.7	%
Other		171,281		5.5	%		165,323		6.6	%
	$	3,116,032		100.0	%	$	2,499,619		100.0	%

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

	At February 28, 2018		At August 31, 2017
China	$	222,089	$	228,458
Brazil		49,748		54,646
Germany		13,813		14,171
India		13,186		14,712
United States		6,857,110		7,047,675
Total property and equipment	$	7,155,946	$	7,359,662

	Six Months Ended
	February 28, 2018		February 28, 2017
China	$	6,106,942	$	3,296,299
Brazil		1,456,456		1,118,166
India		1,078,294		733,581
Germany		244,802		217,496
Other		1,363,151		1,531,759
United States		13,507,368		11,547,625
Total net sales	$	23,757,013	$	18,444,926

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.