10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-K

(Mark one)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2016

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to __________________.

Commission file number 001-11038

____________________

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	41-0857886 (I.R.S. Employer Identification No.)
4201 Woodland Road P.O. Box 69 Circle Pines, Minnesota (Address of principal executive offices)	55014 (Zip Code)

(763) 225-6600
(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.02 per share	The NASDAQ Stock Market LLC (NASDAQ Global Market)

Securities registered under Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐  NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐  NO ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒  NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒  NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐  NO ☒

The aggregate market value of the registrant’s common stock, excluding shares beneficially owned by affiliates, computed by reference to the closing sales price at which the common stock was last sold as of February 29, 2016 (the last business day of the registrant’s second fiscal quarter) as reported by the NASDAQ Global Market on that date was $47.2 million.

As of November 22, 2016, 4,535,070 shares of common stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant’s Proxy Statement for its 2017 Annual Meeting of Stockholders to be held January 13, 2017.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED AUGUST 31, 2016

table of contents

		Page
PART I		1
Item 1.	BUSINESS	1
Item 1A.	RISK FACTORS	16
Item 1B.	UNRESOLVED STAFF COMMENTS	31
Item 2.	PROPERTIES	32
Item 3.	LEGAL PROCEEDINGS	32
Item 4.	MINE SAFETY DISCLOSURES	32
Item 4A.	EXECUTIVE OFFICERS OF THE REGISTRANT	33
PART II		35
Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	35
Item 6.	SELECTED FINANCIAL DATA	37
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	56
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	57
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	84
Item 9A.	CONTROLS AND PROCEDURES	84
Item 9B.	OTHER INFORMATION	84
PART III		85
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	85
Item 11.	EXECUTIVE COMPENSATION	85
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	86

 i

		Page
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	87
Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	87
PART IV		88
Item 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	88
SIGNATURES		89

_____________

This annual report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see “Part I. Item 1. Business – Forward-Looking Statements.”

As used in this report, references to “NTIC,” the “Company,” “we,” “our” or “us,” unless the context otherwise requires, refer to Northern Technologies International Corporation and its wholly-owned and majority-owned subsidiaries, all of which are consolidated on NTIC’s consolidated financial statements.

NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures. Except as otherwise indicated, references in this report to NTIC’s joint ventures do not include NTIC’s wholly-owned or majority-owned subsidiaries.

As used in this report, references to “NTIC China” refer to NTIC’s wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd.

As used in this report, references to “Tianjin Zerust” refer to NTIC’s former joint venture in China, Tianjin-Zerust Anticorrosion Co., Ltd.

As used in this report, references to “NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean LLC, that holds investments in eight entities that operate in the Association of Southeast Asian Nations (ASEAN) region, including the following countries: China (although the joint venture agreements for the Chinese joint venture were terminated as of December 31, 2014 and liquidation of this joint venture is anticipated), Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand.

As used in this report, references to “Natur-Tec India” refer to NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited.

As used in this report, references to “Zerust Brazil” refer to NTIC’s majority-owned Brazilian subsidiary, Zerust Prevenção de Corrosão S.A.

As used in this report, references to “Zerust Mexico” refer to NTIC’s wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V.

As used in this report, references to “EXCOR” refer to NTIC’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH.

All trademarks, trade names or service marks referred to in this report are the property of their respective owners.

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PART I

Item 1. BUSINESS

Overview

Northern Technologies International Corporation (NTIC) develops and markets proprietary environmentally beneficial products and services in over 60 countries either directly or via a network of subsidiaries, joint ventures, independent distributors and agents. NTIC’s primary business is corrosion prevention marketed mainly under the ZERUST^® and EXCOR^® brands (collectively “ZERUST^®”). NTIC has been selling corrosion prevention products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over 40 years, and in recent years, has targeted and expanded into the oil and gas industry. NTIC also markets and sells a portfolio of biobased and certified compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec^® brand. These products are intended to reduce the carbon footprint of NTIC’s customers and provide environmentally sound waste disposal options.

NTIC’s ZERUST^® rust and corrosion inhibiting products include plastic and paper packaging, liquids and coatings, rust removers and cleaners, diffusers and engineered solutions designed specifically for the oil and gas industry. NTIC also offers worldwide on-site technical consulting for rust and corrosion prevention issues. NTIC’s technical service consultants work directly with the end users of NTIC’s ZERUST^® rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet their technical requirements. In North America, NTIC sells its ZERUST^® corrosion prevention solutions through a network of independent distributors and agents supported by a direct sales force. Internationally, NTIC sells its ZERUST^® corrosion prevention solutions through its wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd. (NTIC China), its majority-owned joint venture holding company for NTIC’s joint venture investments in the Association of Southeast Asian Nations (ASEAN) region, its majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil), and its wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V (Zerust Mexico), and joint venture arrangements in North America, Europe and Asia.

One of NTIC’s strategic initiatives is to expand into and penetrate other markets for its corrosion prevention solutions. Consequently, for the past several years, NTIC has focused significant sales and marketing efforts on the oil and gas industry, as the infrastructure that supports that industry is typically constructed using metals that are highly susceptible to corrosion. NTIC believes that its ZERUST^® corrosion prevention solutions will minimize maintenance downtime on critical oil and gas industry infrastructure, extend the life of such infrastructure and reduce the risk of environmental pollution due to corrosion leaks.

NTIC markets and sells its ZERUST^® rust and corrosion prevention solutions to customers in the oil and gas industry across several countries either directly, through its subsidiaries or through its joint venture partners and other strategic partners. The sale of ZERUST^® corrosion prevention solutions to customers in the oil and gas industry typically involves a long sales cycle, often including a one- to multi-year trial period with each customer and a slow integration process thereafter.

Natur-Tec^® biobased and compostable plastic resin compounds are manufactured using NTIC’s patented and/or proprietary technologies and are intended to replace conventional petroleum-based plastics. The Natur-Tec^® biopolymer resin compound portfolio includes formulations that have been optimized for a variety of applications including blown-film extrusion, extrusion coating, injection molding, and engineered plastics. These resins are certified to be fully biodegradable in a composting environment and are currently being used to produce finished products including can liners, shopping and grocery bags, lawn and leaf bags, pet waste collection bags, cutlery and coated paper products. In North America, NTIC markets its Natur-Tec^® resins and finished products primarily through a network of regional and national distributors as well as independent agents. NTIC continues to see significant opportunities for finished bioplastic products and, therefore, continues to strengthen and expand its North American distribution network for finished Natur-Tec^® bioplastic products. Internationally, NTIC sells its Natur-Tec^® resins and finished products both directly and through its majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India), and through certain joint ventures, distributors and agents.

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NTIC’s Subsidiaries

NTIC has ownership interests in five (5) subsidiaries in North America, Europe and Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of November 15, 2016, the country in which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:

Joint Venture Name	Country		NTIC Percent (%) Ownership
NTIC (Shanghai) Co., Ltd		China		100	%
NTI Asean LLC		United States		60	%
Zerust Prevenção de Corrosão S.A.		Brazil		85	%
ZERUST-EXCOR MEXICO, S. de R.L. de C.V		Mexico		100	%
Natur-Tec India Private Limited		India		90	%

The results of NTIC China, Zerust Brazil, NTI Asean and Natur-Tec India, and as of August 31, 2016, Zerust Mexico, are fully consolidated in NTIC’s consolidated financial statements.

NTIC’s Joint Venture Network

NTIC participates in twenty (20) active joint venture arrangements in North America, Europe and Asia. Each of these joint ventures generally manufactures and markets products in the geographic territory to which it is assigned. NTIC has historically funded its investments in joint ventures with cash generated from operations.

The following table sets forth a list of NTIC’s operating joint ventures as of November 15, 2016, the country in which the joint venture is organized and NTIC’s ownership percentage in each joint venture:

Joint Venture Name	Country		NTIC Percent (%) Ownership
TAIYONIC LTD.		Japan		50	%
ACOBAL SAS		France		50	%
ZERUST-NIC (TAIWAN) CORP.		Taiwan (1)		30	%
EXCOR KORROSIONSSCHUTZ – TECHNOLOGIEN UND PRODUKTE GMBH		Germany		50	%
ZERUST SINGAPORE PTE. LTD		Singapore (1)		60	%
ZERUST AB		Sweden		50	%
MOSTNIC-ZERUST		Russia		50	%
KOREA ZERUST CO., LTD.		South Korea (1)		30	%
ZERUST OY		Finland		50	%
ZERUST (U.K.) LTD.		United Kingdom		50	%
HARITA NTI LIMITED		India		50	%
EXCOR-ZERUST S.R.O.		Czech Republic		50	%
EXCOR SP. Z.O.O.		Poland		50	%
ZERUST SPECIALTY TECH CO. LTD.		Thailand (1)		30	%
CHONG WAH-NTIA SDN. BHD.		Malaysia (1)		30	%
NTIA ZERUST PHILIPPINES, INC.		Philippines (1)		30	%
ZERUST A.Ş.		Turkey		50	%
ZERUST CONSUMER PRODUCTS, LLC		United States		50	%
ZERUST – DNEPR		Ukraine		50	%
PT. CHEMINDO – NTIA		Indonesia (1)		30	%

____________________

(1) Indirect ownership interest through NTI Asean.

2

NTIC’s receipt of funds from its joint ventures is dependent upon fees NTIC is paid for services that it provides to its joint ventures, based on the net sales of each individual joint venture, as well as NTIC’s receipt of dividend distributions from the joint ventures. The fees for services provided to joint ventures are determined based on either a flat fee or a percentage of sales depending on local laws and tax regulations. With respect to NTIC’s joint venture in Germany (EXCOR), NTIC recognizes an agreed upon quarterly fee for services. NTIC recognizes equity income from its joint ventures based on the overall profitability of its joint ventures. Such profitability is subject to variability from quarter to quarter and, consequently, subjects NTIC’s earnings to variability from quarter to quarter. The profits of NTIC’s joint ventures are shared in accordance with their respective ownership percentages. NTIC typically, directly or indirectly, owns 50% or less of each of its joint venture entities and thus does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much they should be in a given year. The payment of a dividend by an entity is determined by a joint vote of the owners and is not at the sole discretion of NTIC.

NTIC accounts for the investments and financial results of its joint ventures in its consolidated financial statements utilizing the equity method of accounting.

Sales by NTIC's joint ventures are not included in the net sales of NTIC. NTIC considers, EXCOR Korrosionsschutz – Technologien und Produkte GmbH (“EXCOR”), its joint venture in Germany, to be individually significant to NTIC’s consolidated assets and income; and therefore, provides certain additional information regarding EXCOR in the notes to NTIC’s consolidated financial statements and in certain sections of this report.

For more information regarding NTIC’s joint ventures and their effect on NTIC’s operating results, see NTIC’s consolidated financial statements in “Part II. Item 8. Financial Statements and Supplementary Data” and “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

Termination of Chinese Joint Venture

On January 2, 2015, NTIC announced that, effective as of December 31, 2014, it is selling its ZERUST^® products and services in China through a wholly-owned subsidiary, NTIC (Shanghai) Co., Ltd., and has terminated its joint venture agreements with Tianjin Zerust Anticorrosion Co., Ltd. (“Tianjin Zerust”). NTIC and NTI Asean LLC have filed a lawsuit in China against Mr. Tao Meng, the former joint venture entity’s other shareholder, and his spouse, seeking, among other things, an orderly liquidation of Tianjin Zerust.

NTIC indirectly has a 30% ownership interest in Tianjin Zerust through its 60% owned holding company subsidiary, NTI Asean LLC. Beginning with the second quarter of fiscal 2015, NTIC’s consolidated financial statements include the financial results of NTIC China,.

NTIC anticipates that it will take time to transition Tianjin Zerust customers over to NTIC China and no assurance can be provided that NTIC China will be able to achieve the net sales and income levels previously achieved by Tianjin Zerust. For fiscal 2014, Tianjin Zerust had net sales of $15.9 million and net income of $1.3 million. The operating income of the joint venture before paying royalties in an aggregate amount of $4.2 million to all shareholders was over $5.5 million.

3

During fiscal 2016, NTIC realized approximately $3,410,000 in expenses related either directly or indirectly to the establishment and initial business operations of NTIC China, the termination of the Tianjin Zerust joint venture agreements, NTIC’s ongoing litigation against Mr. Tao Meng and his spouse, NTIC’s ongoing litigation against Cortec Corporation, the creation of a reserve against the accounts receivable balance from Tianjin Zerust, the write-off of certain inventory and the asset impairment of NTIC’s interest in the Tianjin Zerust joint venture. These expenses are recorded as selling, general and administrative expenses, expenses incurred in support of joint ventures, and/or impairment on investment at carrying value on NTIC’s consolidated statements of operations. Specifically, as of August 31, 2016, NTIC believes that, for accounting purposes, its joint venture investment in Tianjin Zerust is fully impaired.  The carrying value of Tianjin Zerust, prior to impairment, was $1,883,668, of which the net impact to NTIC was $1,130,201 based on its 60% ownership of NTI Asean. As of August 31, 2016, the carrying value, for accounting purposes, is $0.  As of August 31, 2016, NTIC created a reserve against the accounts receivable balance owed from Tianjin Zerust of $114,636 that, for accounting purposes, NTIC determined it to be uncollectible. Despite these accounting positions, NTIC intends to continue to vigorously pursue its litigation against its former joint venture partner for the losses associated with Tianjin Zerust. NTIC also intends to continue to vigorously pursue its litigation against Cortec Corporation for lost profits, unjust enrichment and other damages related to its tortious interference and breach, among other claims.

NTIC expects that its operating results may continue to be volatile as a result of the ongoing transition of Chinese operations.

Products

NTIC derives revenues directly and/or indirectly through its subsidiaries and joint ventures from two reportable business segments based on products sold, customer base and distribution center: ZERUST^® corrosion prevention solutions and Natur-Tec^® resin compounds and finished products.

ZERUST^® Corrosion Prevention Solutions. In fiscal 2016, 83.7% of NTIC’s consolidated net sales were derived from developing, manufacturing and marketing ZERUST^® rust and corrosion inhibiting products and services.  NTIC’s consolidated net sales in fiscal 2016 included $27,577,566 in sales of ZERUST^® rust and corrosion inhibiting products and services, an increase of 5.9% over such sales in fiscal 2015. Corrosion not only damages the appearance of metal products and components but also negatively impacts their mechanical performance.  This applies to the rusting of ferrous metals (iron and steel) and the deterioration by oxidation of nonferrous metals (aluminum, copper, brass, etc.).  NTIC’s ZERUST^® corrosion prevention solutions include plastic and paper packaging, powders, liquids, coatings, rust removers, cleaners, diffusers and engineered solutions for the oil and gas industry, as well as technical corrosion management and consulting services.

Plastic and Paper Packaging.  NTIC’s ZERUST^® packaging products contain proprietary chemical formulations that continuously release an invisible and odorless, corrosion inhibiting vapor that passivates metal surfaces and thereby inhibits rust and corrosion.  The corrosion-inhibiting protection is maintained as long as the metal products to be protected remain enclosed within the ZERUST^® packaging.  Electron scanning shows that once the contents are removed from the ZERUST^® package, the ZERUST^® protection dissipates from the contents’ surfaces within two hours, leaving a clean, dry and corrosion-free metal component.  This mechanism of corrosion protection enables NTIC’s customers to easily package metal objects for rust-free shipment or long-term storage.  Furthermore, by eliminating costly greasing and degreasing processes and/or significantly reducing the use of certain coatings to inhibit corrosion, NTIC’s ZERUST^® corrosion prevention solutions provide customers significant savings in labor, material and capital expenditures for equipment to apply, remove and dispose of oils and greases, as well as the attendant environmental problems, as compared to traditional methods of corrosion prevention.

4

NTIC developed the first means of infusing volatile corrosion inhibiting chemical systems (VCIs) into polyethylene and polypropylene resins.  Combining ZERUST^® chemical systems with polyethylene and polypropylene resins permitted NTIC to introduce a line of plastic packaging products in the form of low and high density polyethylene bags and shroud film, including stretch, shrink, skin and bubble cushioning film, thereby giving packaging engineers an opportunity to ship and store ferrous, nonferrous and mixed-metal products in a clean, dry and corrosion-free condition, with an attendant overall savings in total process costs.  In addition to plastic packaging, NTIC has developed additives to imbue kraft paper, corrugated cardboard, solid fiber and chipboard packaging materials with corrosion protection properties.  NTIC’s ZERUST^® plastic and paper packaging products come in various thicknesses, strength enhancements, protection types, shapes and sizes. This product line also includes items such as ZERUST^® gun cases, car covers and tool-drawer liners, which are targeted at retail consumers.

Liquids and Coatings.  NTIC’s corrosion prevention solutions include a line of metal surface treatment liquids and coatings, which are oil, water and bio-solvent based, marketed under brand names including Axxatec^™, Axxanol^™ and Z-Maxx^™.  These liquids and coatings provide powerful corrosion protection in aggressive environments, such as salt air and humidity at high temperatures.  Products are formulated for most metal types and protection levels. Customers use a combination of NTIC’s liquids and coatings with ZERUST^® plastic and paper products to achieve robust corrosion protection during manufacturing, shipping and warehousing stages.

Rust Removers and Cleaners.  NTIC also sells rust removal and cleaning products designed to restore rusty parts to a usable condition by replacing labor-intensive, abrasive cleaners that damage surfaces and commonly fail to remove rust from complex metal surfaces like the teeth of small gears under the Axxaclean^™ brand name.

Diffusers.  NTIC’s corrosion prevention solutions include a line of corrosion inhibiting vapor diffusers, such as ZERUST^® ActivPak^®, ZERUST^® ICT^® Vapor Capsules, ZERUST^® ICT^® Plastabs^® and ZERUST^® ICT^® Cor-Tabs^®, ZERUST^® ICT^® Pipe Strip and ZERUST^® ICT^® Tube Strip.  These diffusers are designed to protect metals within enclosures, like switch gearboxes and electronic cabinets, or can be used as added protection to ZERUST^® packaging products.  Diffusers work by permeating the interior air of an enclosure with an invisible and odorless corrosion inhibiting vapor that protects nearby metal surfaces that are within a specific “radius of protection” for a period of one or two years depending on the model.  This invisible and dry protective layer revaporizes upon removal of the capsule from the enclosure, leaving all surfaces clean, dry, residue-free and corrosion-free. 

Z-CIS^® Technical Services.  As an on-going effort to help NTIC’s customers improve and control their processes in terms of corrosion management, NTIC markets and offers unique corrosion management and consulting services to target customers.  This ZERUST^® corrosion inhibition system (known as Z-CIS^®) utilizes NTIC’s global experience in successful corrosion management control.  Services and consulting are billed according to work done on the customer’s behalf to improve the customer’s internal and external corrosion control systems.  Several major automotive companies and their automotive parts suppliers have used NTIC’s Z-CIS^® system.

ZERUST^® Corrosion Prevention Solutions Designed Specifically for the Oil and Gas Industry.  NTIC has developed proprietary engineered corrosion inhibiting solutions specifically for the mitigation of corrosion of the types of capital assets used in the petroleum and chemical process industries and has targeted the sale of these ZERUST^® corrosion solutions to potential customers in the oil and gas industry.   NTIC’s consolidated net sales in fiscal 2016 included $1,739,607 in sales made to customers in the oil and gas industry, a decrease of 7.8% over such sales in fiscal 2015. This decrease is set against a backdrop of a 60% drop in crude oil prices in the past 18 months that has negatively affected client budgets. The infrastructure that supports the oil and gas industry is predominantly constructed using metals that are highly susceptible to corrosion.  The industrial environment at these facilities usually contains compounds, including sulfides and chlorides, which cause aggressive corrosion.  This problem affects pipelines, petroleum storage tanks, spare parts in long-term storage, processing and other critical equipment. In addition to the costs associated with the replacement of parts and structures, maintenance and repairs, and product loss, there are significant economic losses associated with critical infrastructure down for repair and maintenance.  Furthermore, there are also considerable health, safety and environmental risks caused by corrosion that can greatly increase economic losses.  NTIC believes that its ZERUST^® oil and gas corrosion prevention solutions minimize maintenance downtime on critical oil and gas industry infrastructure, extend the life of such infrastructure and reduce the risk of environmental pollution due to leaks caused by corrosion. 

5

NTIC’s rust and corrosion inhibiting products for the oil and gas industry include ZERUST^® Flange Savers^® ZERUST^® ReCAST-R VCI Dispensers, Zerust ReCAST-SSB solutions and ZERUST^® chemicals, including Zerion chemicals, in addition to many of the traditional ZERUST^® rust and corrosion inhibiting products previously described. 

ZERUST^® Flange Savers^® are specially designed covers that have been impregnated with a proprietary ZERUST^® inhibitor formulation to provide corrosion protection for flanges, valves and welded joints.  Oil and gas pipeline segments are connected by flanges and welded joints of varying sizes, designs and materials.  These connection points often corrode under aggressive industrial environments and harsh operating conditions, thereby causing costly maintenance, operational and safety problems.  ZERUST^® Flange Savers^® are available in various sizes to accommodate different pipe diameters, pressure ratings and international standards for pipeline valves and flanges. 

ZERUST^® ReCAST-R VCI Dispensers protect the interior surfaces of aboveground storage tank roofs by delivering proprietary inhibitor formulations into the vapor space between the surface of the product and the tank roof.  Certain grades of oil contain sulphur and emit corrosive acid gas vapors that destroy the internal surfaces of aboveground storage tank roofs and their support structures above the stored product.  Each system is tailored to a customer’s requirements, depending upon specific environmental conditions, product stored, tank diameter and type of metal and can be applied on both new and existing tank roofs.

ZERUST^® ReCAST-SSB solutions protect the Soil Side Bottoms (SSB) of aboveground storage tanks through a variety of unique and highly effective delivery systems designed by the Zerust Oil & Gas team to deliver proprietary Zerion FVS corrosion inhibitor to tank bottom spaces that are susceptible to significant corrosion. Tank bottoms are typically made of steel plates which are in direct contact with the foundation surface that could be concrete, sand/soil and asphalt/bitumen. It is typically not possible to protect this underside surface with traditional coatings. Cathodic protection (CP) systems can provide some protection, but these have significant limitations that cause failures well ahead of the expected service life of a tank. The ZERUST^® solutions provide effective protection even to areas that cannot be addressed with CP. This is an engineered solution where each system is tailored to a customer’s requirements depending on the tank foundation design, specific environmental conditions, tank diameter, etc.

ZERUST^® Zerion line of powder based inhibitor solutions include:

• Zerion FVS is a unique inhibitor blend that is used in the SSB Solutions. This “best-in-class” product has been successfully deployed at multiple client sites in the North and South American geographies.

• AutoFog is a revolutionary product that allows for the quick VCI saturation of large volume spaces without the need for mechanical “fogging” equipment. This rapid self-diffusing capability is good for sealed void spaces, protection of large/complex assets like heat exchangers and heater-treaters.

6

· Sol-V C-Series is designed to provide corrosion prevention in voids and enclosures especially when there is either stagnant water, or the potential for water seepages and/or accumulation of water over time.  ZERUST^® Sol-V™ C-Series packaging allows VCIs to release while conserving a Sol-V proprietary blend of soluble corrosion inhibitors (SCIs) until water enters the system. Typical applications of ZERUST^® Sol-V™ C-Series packaging include offshore platform leg voids, vessels and tanks mothballed in tropical environments, ship blocks being fabricated in areas of high humidity, piping systems and heat exchangers.

Natur-Tec^® Resin Compounds and Finished Products NTIC manufactures and sells a range of biobased and compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec^® brand. NTIC’s consolidated net sales in fiscal 2016 included $5,355,999 in sales of Natur-Tec^® resins and finished products, an increase of 25.1% over such sales in fiscal 2015.  Market drivers such as volatile petroleum prices, reduced dependence on foreign oil, reduced carbon footprints, and environmentally responsible end-of-life solutions increased interest in using sustainable, biobased and renewable plant-biomass resources for the manufacture of plastics and industrial products. Plastics that are fully biodegradable in composting or anaerobic digestor systems allow the safe and effective conversion of these plastics to carbon dioxide, water and fertilizer at the end of their service life.  Increased environmental and sustainability awareness at the corporate and consumer level, improved technical properties and product functionality, as well as recent foreign, state and local governmental regulations banning the use of traditional, petroleum-based plastics or mandating the use of certain biodegradable or compostable products, have also fueled this interest in biobased and biodegradable-compostable plastics.  The term “bio-plastics” encompasses a broad category of plastics that are either bio-based, which means derived from renewable resources such as corn or cellulosic/plant material or blends thereof, or are engineered to be fully compostable, or both. 

Resin Compounds.   Natur-Tec^® resin compounds are produced by blending commercially available base resins, such as Ecoflex^® from BASF, Ingeo^® PLA from NatureWorks LLC, with organic and inorganic fillers, and proprietary polymer modifiers and compatabilizers, using NTIC’s proprietary and patented ReX Process.  In this process, biodegradable polymers, natural polymers made from renewable, plant-biomass resources, and organic and inorganic materials are reactively blended in the presence of proprietary compatibilizers and polymer modifiers to produce biobased and/or compostable polymer resin formulations that exhibit unique and stable morphology.  Natur-Tec^® resin compounds are engineered for high performance, ease of processing and reduced cost compared to most other bio-plastic materials, and can be processed by converters using conventional plastic manufacturing processes and equipment. 

Natur-Tec^® resin compounds are available in several grades tailored for a variety of applications, such as blown-film extrusion, extrusion coating and injection molding. 

Natur-Tec^® flexible film resin compounds are fully compostable and meet requirements of international standards for compostable plastics such as ASTM (American Society for Testing and Materials) D6400 (U.S.), EN 13432 (European standards for products and services by European Committee for Standardization) and ISO (International Organization for Standardization) 17088, and are certified as 100% compostable by organizations including the BPI (Biodegradable Products Institute) in the United States and Vincotte in Europe.  Natur-Tec^® film resin compounds can be used to produce film for applications, such as bags, including compost bags, lawn and leaf bags, pet waste bags and carry-out bags, agricultural film and consumer and industrial packaging. 

The Natur-Tec^® compostable extrusion coating resin compounds are biobased and biodegradable and are designed to replace conventional plastic materials for extrusion coating applications.  Natur-Tec^® extrusion coating resin compounds are manufactured using sustainable and renewable resources, per the ASTM D6866 standard, which allows industry and consumers the opportunity to reduce or neutralize their carbon footprint, and are designed to meet the requirements of international standards for compostable plastics, such as ASTM D6400.  Natur-Tec^® extrusion coating resin compounds provide good adhesion to paper, an excellent print surface and good heat seal strength and the coating material is suitable for food contact applications including both hot and cold applications.  Natur-Tec^® extrusion coating resin compounds can be used for coating paper and paperboards for the manufacture of disposable cups, plates and other food service ware items.

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The Natur-Tec^® compostable injection molding resin compounds are biobased and compostable and are designed to replace conventional plastic materials for injection molded plastic applications.  Natur-Tec^® compostable injection molding resin compounds are manufactured using sustainable and renewable resources, per the ASTM D6866 standard and are designed to meet the requirements of international standards for compostable plastics, such as ASTM D6400 and EN 13432.  Natur-Tec^® compostable injection molding resin compounds can be used for injection molded plastic applications, such as cutlery, pens, hangers, containers and packaging.  Natur-Tec^® biobased injection molding resin compounds are made with at least 90% of biobased/renewable resource-based materials per the ASTM D6866 standard and are meant to enhance sustainability by replacing petroleum-based plastics.  Natur-Tec^® biobased injection molding resin compounds exhibit the same properties as conventional plastic materials and can be used in applications, such as automotive components, consumer goods, electronics, medical products, furniture and packaging.

Finished Products.  Natur-Tec^® finished products include totally biodegradable and compostable trash bags, agricultural film and other single-use disposable products, such as compostable cutlery and food and consumer goods packaging that are currently marketed under the Natur-Bag^® or Natur-Ware^® brands. 

The Natur-Bag^® product line offers 15 different compostable trash bag sizes, from 3-gallon to 96-gallon.  The bags are available in various SKU configurations from retail packs that are sold to the consumer either through retail outlets or through online stores, and industrial case packs that are sold to commercial and industrial customers primarily through wholesalers and distributors.  The Natur-Bag^® products are manufactured from the Natur-Tec^® flexible film resin compounds and thus are fully biodegradable and compostable.

The Natur-Ware^® product line consists of biobased and compostable cutlery made from the Natur-Tec^® compostable injection molding resin compounds.  Natur-Ware^® cutlery can be composted along with food scraps in zero-waste programs. 

Both Natur-Bag^® and Natur-Ware^® products are fully certified compostable, and carry the BPI Compostable logo in the United States and the Vincotte OK Compost in Europe. Furthermore, these products were also independently tested and approved for use in organic waste diversion systems by Cedar Grove, one of the largest compost operators in the United States.

Sales, Marketing and Distribution

ZERUST^® Corrosion Prevention Solutions. In the United States, NTIC markets its ZERUST^® rust and corrosion inhibiting products and services, including its products designed for the oil and gas industry, principally to industrial users in the automotive, electronics, electrical, mechanical, military, retail consumer and oil and gas markets by a direct sales force and through a network of independent distributors, manufacturer’s sales representatives and strategic partners. NTIC’s technical service consultants work directly with the end users of NTIC’s ZERUST^® products to analyze their specific corrosion prevention needs and develop systems to meet their technical requirements.

Internationally, NTIC has entered into a series of joint ventures with foreign partners (either directly or through a holding company). NTIC receives fees for providing technical support, marketing assistance and other services to its joint ventures based primarily on the net sales of the individual joint ventures in accordance with the terms of the joint venture arrangements. Such services include consulting, legal, insurance, technical and marketing services. In China, NTIC sells its products and services through NTIC China, which in turn uses several distributors with dedicated sales personnel. NTIC recently formed a wholly-owned subsidiary in Mexico to conduct its business there.

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With respect to the sales and marketing of ZERUST^® rust and corrosion inhibiting products and services to the oil and gas industry, NTIC uses a combination of direct sales personnel, independent sales agents and its joint venture network.  In addition, in an attempt to penetrate the oil and gas industry within certain markets more quickly, NTIC has entered into certain sales and marketing agency agreements with specific organizations that have existing long term relationships with key oil and gas industry clients.  NTIC also engages in certain direct marketing activities to build its brand within the oil and gas industry, such as traditional advertising and direct mail campaigns and presence and participation at selected key trade shows and technical forums.  NTIC continues to believe the sale of its ZERUST^® corrosion prevention solutions to customers in the oil and gas industry will involve a long sales cycle, likely including a one- to multi-year trial period with each customer and a slow integration process thereafter. 

Natur-Tec^® Resin Compounds and Finished Products.  In the United States, NTIC markets its Natur-Tec^® resin compounds and finished products through a network of national and regional distributors and independent manufacturer’s sales representatives and three NTIC direct sales employees as of August 31, 2016. Target customers for Natur-Tec^® finished products include individual consumers and commercial and institutional organizations such as corporations and government agencies, and educational organizations such as universities and school districts. NTIC is also targeting key national and regional retailers utilizing independent sales agents. Target customers for Natur-Tec^® resin compounds include film extruders and injection molders who would purchase Natur-Tec^® resin compounds to manufacture and sell their own finished biobased, and compostable end products, such as film, bags and cutlery.

Internationally, NTIC uses Natur-Tec India, and its joint ventures and a network of international distributors to market its Natur-Tec^® resin compounds and finished products. In November 2014, NTIC entered into an agreement with NatureWorks LLC for joint marketing and sales of Ingeo^® based packaging solutions to customers in India. With recent Indian government mandates banning use of non-biodegradable plastics in certain types of food and consumer packaging, NTIC expects the market in India for bioplastic packaging solutions to grow substantially.

Competition

ZERUST^® Corrosion Prevention Solutions. While NTIC is unaware of any third parties with which NTIC competes on a worldwide basis with respect to its corrosion prevention solutions, NTIC does compete with several third parties on a regional basis. NTIC evaluates competing rust and corrosion inhibiting products on an ongoing basis. Some of NTIC’s competitors are established companies that may have financial, marketing, distribution networks and other resources substantially greater than those of NTIC. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or devote greater resources to the promotion and sale of their products than NTIC. With respect to its rust and corrosion inhibiting products, NTIC competes on the basis of product innovation, quality and reliability, product support, customer service, reputation, as well as price. Some of NTIC’s competitors may have achieved significant market acceptance of their competing products and brand recognition. NTIC, however, believes it has an advantage over most of its competitors as a result of NTIC’s technical innovation and its value added service. NTIC attempts to provide its customers with the highest level of technical service and applications engineering in addition to ZERUST^® rust and corrosion inhibiting products. Nonetheless, the commoditization of certain of NTIC’s ZERUST^® rust and corrosion inhibiting products have led and may continue to lead to lower prices and lower margins on such products. In addition, because certain barriers to entry are low, additional competitors, including plastic extrusion companies, may emerge, which likely would lead to the further commoditization of NTIC’s rust and corrosion inhibiting products.

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With respect to NTIC’s corrosion prevention solutions for use in the oil and gas industry, NTIC’s primary barrier to entry is a combination of conservatism, complacency, confidence in old approaches, as well as the complexity of the buying organizations. Some of NTIC’s competitors with respect to its traditional ZERUST^® rust and corrosion inhibiting products also compete in the oil and gas industry. NTIC also faces competition from new suppliers who provide alternative approaches to corrosion prevention, some of which have a significant market presence and more years of experience and credibility in the oil and gas industry. Original equipment manufacturer (OEM) suppliers to the oil and gas industry present a new market vertical for NTIC’s traditional industrial ZERUST^® products.

Natur-Tec^® Resin Compounds and Finished Products. With respect to NTIC’s Natur-Tec^® resin compounds and finished products, NTIC competes with several established companies that have been producing and selling similar products for a significantly longer time period, and have significantly more sales, more extensive and effective distribution networks and better brand recognition than NTIC.  Most of these companies also have substantially more financial and other resources than NTIC.  NTIC competes on the basis of performance, brand awareness, distribution network, product availability, product offering, shelf life, place of manufacture and price.  Because of price competition, NTIC’s margins on its Natur-Tec^® resin compounds and finished products are lower than its margins on its ZERUST^® corrosion prevention solutions.  NTIC also could face supply constraints for the base resins used to manufacture NTIC’s Natur-Tec^® resin compounds and finished products since there are a limited number of suppliers of such base resins and limited capacity for their production. 

Research and Development

NTIC’s research and development activities are directed at improving existing products, developing new products, reducing costs and improving quality assurance through improved testing of NTIC’s products. NTIC’s internal research and development activities are conducted at its facilities located in Circle Pines, Minnesota; Beachwood, Ohio; and Dresden, Germany under the direction of internationally known scientists and research institutes under exclusive contract to NTIC with respect to the subject of their respective research efforts. EXCOR has established a wholly-owned subsidiary, Excor Korrosionsforschung GmbH, to conduct research into new fields of corrosion inhibiting packaging and the applications engineering of such products in conjunction with NTIC’s domestic research and development operations. With respect to NTIC’s Natur-Tec^® resin compounds and finished products, Ramani Narayan, Ph.D., a current director of NTIC and Distinguished Professor in the Department of Chemical Engineering & Materials Science at Michigan State University, provides his expertise and technical support to NTIC.

NTIC spent $4,724,596 in fiscal 2016 in connection with its research and development activities, compared to $4,047,279 in fiscal 2015. NTIC anticipates that it will spend between $2,000,000 and $3,000,000 in fiscal 2017 on research and development activities. This anticipated significant decrease is due to the transition of expenses that were previously treated as research and development expenses to selling, general and administrative expenses, specifically as they relate to Natur-Tec^® and the ZERUST^® oil and gas business since most of the expenses related to these business units are no longer in the research and development phase of product development.

Intellectual Property Rights

NTIC’s success depends and will continue to depend in part upon its ability to maintain patent and trademark protection for its products and processes, to preserve its proprietary information and trade secrets and to operate without infringing the proprietary rights of third parties.  NTIC’s policy is to attempt to protect its technology by, among other things, filing patent applications and trademark applications and vigorously preserving the trade secrets covering its technology and other intellectual property rights.

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In 1979, NTIC developed and patented the first polyolefin (plastic) based industrial corrosion inhibiting packing material in the world.  The U.S. patent granted under this patent application became the most important intellectual property right in NTIC’s history. This patent expired in 2000. NTIC has since filed for 12 letters of patents in the United States covering various corrosion inhibiting technologies, systems and applications, and now owns several patents in these areas. These patents as well as patent applications have been extended to the countries of strategic relevance to NTIC including, but not limited to, the Patent Cooperation Treaty. In addition, EXCOR owns several patents in the area covering various corrosion inhibiting technologies and also applied for new patents on proprietary new corrosion inhibiting technologies. NTIC is also seeking additional patent protection covering various host materials into which its corrosion inhibiting additives and other protective features can be incorporated, proprietary new process technologies, and chemical formulations outside the area of corrosion protection. NTIC owns several patents outside the area of corrosion protection both in the United States and in countries of strategic relevance to NTIC including, but not limited to, the Patent Cooperation Treaty.

In addition to seeking patent protection, NTIC maintains an extensive portfolio of trademarks in countries where NTIC has a presence directly or through its subsidiaries and joint ventures. NTIC continuously pursues new trademark applications of strategic interest worldwide.  NTIC owns the following U.S. registered trademarks: NTI^®, NTI & Globe Design, ZERUST^®, EXCOR^®, ICT^®, Z-CIS^®, COR TAB^®, PLASTABS^®, NATUR-TEC^®, NATUR-TEC & Design^®, NATUR-BAG^® and NATUR-WARE^®. NTIC also has a registered trademark on the use of the Color Yellow with respect to corrosion inhibiting packaging.  Furthermore, NTI^®, ZERUST^®, The ZERUST People^®, EXCOR^®, the Color Yellow^®, NTI ASEAN^® and COR/SCI^®, as well as other marks have been registered in the European Union with several new applications pending.

NTIC requires its employees, consultants and advisors having access to its confidential information, including trade secrets, to execute confidentiality agreements upon commencement of their employment or consulting relationships with NTIC. These agreements generally provide that all confidential information NTIC develops or makes known to the individual during the course of the individual’s employment or consulting relationship with NTIC must be kept confidential by the individual and not disclosed to any third parties. NTIC also requires all of its employees and consultants who perform research and development for NTIC to execute agreements that generally provide that all inventions developed by these individuals during their employment by or service arrangement with NTIC will fall under NTIC’s proprietary intellectual property rights.

Manufacturing

NTIC’s ZERUST^® rust and corrosion inhibiting products are manufactured according to NTIC’s specifications primarily by selected independent sub-contractors under trade secrecy agreements and/or license agreements.  In addition, during fiscal 2015, NTIC expanded its production capabilities and began to manufacture select ZERUST^® rust and corrosion inhibiting products, consisting primarily of liquids and powders, in-house at its corporate headquarters location in Circle Pines, Minnesota.   

NTIC’s Natur-Tec^® resin compounds and finished products are produced at facilities in China and Malaysia, and California, USA. NTIC’s Natur-Tec^® resin compounds can be shipped to any manufacturing facility around the world where they then can be converted into finished products, such as a bag or piece of cutlery. NTIC’s Natur-Tec^® finished products are manufactured using NTIC’s Natur-Tec^® resin compounds by selected sub-contractors.

NTIC is ISO 9001 certified with respect to the manufacturing of its products.  NTIC believes that the process of ISO 9001 certification serves as an excellent total quality management tool, enabling NTIC to ensure consistency in the performance of its products.  In addition, because potential customers may prefer or require manufacturers to have achieved ISO certification, such ISO certifications may provide NTIC with certain competitive advantages.

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Availability of Raw Materials

NTIC does not typically carry excess quantities of raw materials because of widespread availability for such materials from various suppliers. However, with respect to its Natur-Tec^® resin compounds and finished products, there are a limited number of suppliers of the base resins used to manufacture the resin compounds and finished products, and in the past NTIC has experienced some delay in obtaining such base resins. In addition, a few raw materials and purchased parts used in NTIC’s rust and corrosion inhibiting products and Natur-Tec^® finished products are sourced from suppliers who currently serve as NTIC’s sole source of supply for these materials and parts. Although NTIC believes it can obtain these raw materials and parts from other sources of supply, an unexpected loss of supply over a short period of time may not allow NTIC time to replace these sources in the ordinary course of business.

Backlog

NTIC had an order backlog of $1,106,000 as of August 31, 2016, compared to $667,000 as of August 31, 2015, which was generally across all business units and which these sales will be realized during first quarter of fiscal 2017. These are orders that are held by NTIC pending release instructions from the customers to be used in just-in-time production. Customers generally place orders on an “as needed” basis and expect delivery within a relatively short period of time.

Governmental Regulation

The U.S. Food and Drug Administration (FDA) has indicated to NTIC that it has no objection to the use of ZERUST^® ICT^® packaging products in protecting metal food containers and processing equipment. In addition, the manufacture, sale and use of NTIC’s Natur-Tec^® resin compounds and finished products are subject to regulation in the United States by the FDA. The FDA’s regulations are concerned with substances used in food packaging materials. Thus, food and beverage containers are in compliance with FDA regulations if the components used in the food and beverage containers are approved by the FDA as indirect food additives for their intended uses and comply with the applicable FDA indirect food additive regulations, or are generally recognized as safe for their intended uses and are of suitable purity for those intended uses. NTIC believes that its resin compounds are in compliance with all FDA requirements and do not require further FDA approval prior to the sale of its products.

Employees

As of August 31, 2016, NTIC had 65 full-time employees located in North America, consisting of 23 in sales and marketing, 23 in research and development and lab, 12 in administration and 7 in production.  As of August 31, 2016, NTIC’s wholly-owned subsidiary in China had 30 full-time employees, its majority-owned subsidiary in Brazil had 20 full-time employees, its majority-owned subsidiary in India had 6 full-time employees and its holding company, NTI Asean, had no full-time employees.  There are no unions representing NTIC’s employees and NTIC believes that its relations with its employees are good.

Available Information

NTIC is a Delaware corporation that was originally organized as a Minnesota corporation in 1970. NTIC’s principal executive office is located at 4201 Woodland Road, Circle Pines, Minnesota 55014, and its telephone number is (763) 225-6600. NTIC’s website is located at www.ntic.com. References to NTIC’s website addressed in this report are provided as a convenience and as an inactive textual reference only. The information on NTIC’s website or any other website is not incorporated by reference into, and not considered a part of, this report.

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NTIC makes available, free of charge and through its Internet web site, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after NTIC electronically files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). Reports filed with the SEC may be viewed at www.sec.gov or obtained at the SEC Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Forward-Looking Statements

This report on Form 10-K contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. In addition, NTIC or others on NTIC’s behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on NTIC’s Internet web site or otherwise. All statements other than statements of historical facts included in this report or expressed by NTIC orally from time to time that address activities, events or developments that NTIC expects, believes or anticipates will or may occur in the future are forward-looking statements including, in particular, the statements about NTIC’s plans, objectives, strategies and prospects regarding, among other things, NTIC’s financial condition, results of operations and business, the outcome of contingencies such as legal proceedings and the effect of the liquidation of Tianjin Zerust and the establishment of NTIC China. NTIC has identified some of these forward-looking statements in this report with words like “believe,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate” “outlook” or “continue” or the negative of these words or other words and terms of similar meaning. The use of future dates is also an indication of a forward-looking statement. Forward-looking statements may be contained in the notes to NTIC’s consolidated financial statements and elsewhere in this report, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on current expectations about future events affecting NTIC and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to NTIC. These uncertainties and factors are difficult to predict and many of them are beyond NTIC’s control. The following are some of the uncertainties and factors known to us that could cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements:

• NTIC’s operations in China, the termination of the joint venture agreements with Tianjin Zerust, the ongoing litigation against Mr. Tao Meng and Cortec Corporation and the anticipated liquidation of Tianjin Zerust and the effect of all these events on NTIC’s business and future operating results;

• The effect of current worldwide economic conditions and turmoil and disruption in the global credit and financial markets on NTIC’s business;

• The variability in NTIC’s sales of ZERUST^® products and services into oil and gas industry and Natur-Tec^® products and NTIC’s equity income of joint ventures, which variability in sales and equity in income of joint venture in turn, subject NTIC’s earnings to quarterly fluctuations;

• Risks associated with NTIC’s international operations and exposure to fluctuations in foreign currency exchange rates and import duties and taxes;

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• The effect of the recent referendum vote of the United Kingdom to exit the European Union on NTIC’s operating results, including in particular future net sales of NTIC’s European and other joint ventures;

• The health of the U.S. automotive industry on NTIC’s business;

• NTIC’s dependence on the success of its joint ventures and fees and dividend distributions that NTIC receives from them;

• NTIC’s relationships with its joint ventures and its ability to maintain those relationships, especially in light of anticipated succession planning issues;

• Fluctuations in the cost and availability of raw materials, including resins and other commodities;

• The success of and risks associated with NTIC’s emerging new businesses and products and services, including in particular NTIC’s ability and the ability of NTIC’s joint ventures to sell ZERUST^® products and services into oil and gas industry and Natur-Tec^® products and the often lengthy and extensive sales process involved in selling such products and services;

• NTIC’s ability to introduce new products and services that respond to changing market conditions and customer demand;

• Market acceptance of NTIC’s existing and new products, especially in light of existing and new competitive products;

• Maturation of certain existing markets for NTIC’s ZERUST^® products and services and NTIC’s ability to grow market share and succeed in penetrating other existing and new markets;

• Increased competition, especially with respect to NTIC’s ZERUST^® products and services, and the effect of such competition on NTIC’s and its joint ventures’ pricing, net sales and margins;

• NTIC’s reliance upon and its relationships with its distributors, independent sales representatives and joint ventures;

• NTIC’s reliance upon suppliers;

• Oil prices, which may affect sales of NTIC’s ZERUST^® products and services into the oil and gas industry;

• The costs and effects of complying with laws and regulations and changes in tax, fiscal, government and other regulatory policies, including rules relating to environmental, health and safety matters;

• Unforeseen product quality or other problems in the development, production and usage of new and existing products;

• Unforeseen production expenses incurred in connection with new customers and new products;

• Loss of or changes in executive management or key employees;

• Ability of management to manage around unplanned events;

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• Pending and future litigation;

• NTIC’s reliance on its intellectual property rights and the absence of infringement of the intellectual property rights of others;

• NTIC’s ability to maintain effective internal control over financial reporting, especially in light of its joint venture arrangements;

• Changes in applicable laws or regulations and NTIC’s failure to comply with applicable laws, rules and regulations;

• Changes in generally accepted accounting principles and the effect of new accounting pronouncements;

• Fluctuations in NTIC’s effective tax rate; and

• NTIC’s reliance upon its management information systems.

For more information regarding these and other uncertainties and factors that could cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements or otherwise could materially adversely affect its business, financial condition or operating results, see “Part I. Item 1A. Risk Factors.”

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. NTIC wishes to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above, as well as others that NTIC may consider immaterial or does not anticipate at this time. Although NTIC believes that the expectations reflected in its forward-looking statements are reasonable, NTIC does not know whether its expectations will prove correct. NTIC’s expectations reflected in its forward-looking statements can be affected by inaccurate assumptions NTIC might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive and further information concerning NTIC and its business, including factors that potentially could materially affect its financial results or condition, may emerge from time to time. NTIC assumes no obligation to update, amend or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. NTIC advises you, however, to consult any further disclosures NTIC makes on related subjects in its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K NTIC files with or furnishes to the Securities and Exchange Commission.

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Item 1A. RISK FACTORS

The following are the most significant factors known to NTIC that could materially adversely affect its business, operating results or financial condition.

The termination of NTIC’s joint venture agreements with Tianjin Zerust and the formation and establishment of NTIC China have had and could continue to have a material adverse effect on NTIC’s operating results.

Effective as of December 31, 2014, NTIC terminated its joint venture agreements with Tianjin Zerust, initiated the process to liquidate the joint venture entity and established a wholly-owned subsidiary to conduct business in China. NTIC’s consolidated financial statements include the financial results of NTIC China beginning with the second quarter of fiscal 2015. Tianjin Zerust was individually significant to NTIC’s consolidated assets and income. Accordingly, the termination of NTIC’s joint venture agreements with Tianjin Zerust adversely affected NTIC’s operating results, including in particular, its equity in income, fee income for services provided to joint ventures, and operating expenses during fiscal 2016 and fiscal 2015 since prior to December 31, 2014, NTIC accounted for its investment in Tianjin Zerust in NTIC’s consolidated financial statements utilizing the equity method of accounting. In addition, during fiscal 2016, NTIC incurred an impairment charge with respect to Tianjin Zerust, which adversely affected NTIC’s operating results for fiscal 2016.

NTIC anticipates that it will take time to transition Tianjin Zerust customers to NTIC China and no assurance can be provided that NTIC China will be able to achieve the net sales and income levels previously achieved by Tianjin Zerust. NTIC has incurred, and expects to continue to incur, significant operating expenses associated with NTIC China and the anticipated liquidation of Tianjin Zerust and expects that NTIC’s operating results may continue to be volatile as a result, especially since NTIC has commenced litigation against Mr. Tao Meng, Tianjin Zerust’s other shareholder, and his spouse in order to force the liquidation of Tianjin Zerust. NTIC also has commenced litigation against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to NTIC and NTI Asean related to Tianjin Zerust. During fiscal 2016, NTIC incurred approximately $3,410,000 in expenses related either directly or indirectly to the establishment and initial business operations of NTIC China, the termination of the joint venture agreements with Tianjin Zerust, NTIC’s ongoing litigation against Mr. Tao Meng and his spouse and NTIC’s ongoing litigation against Cortec Corporation, the creation of a reserve against the accounts receivable balance from Tianjin Zerust, the write-off of certain inventory and the asset impairment of NTIC’s joint venture interest in Tianjin Zerust. 

NTIC’s ongoing litigation is expensive and has had and may continue to have an adverse effect on NTIC’s business and operating results.

During fiscal 2015, NTIC commenced litigation against Mr. Tao Meng, Tianjin Zerust’s other shareholder, and his spouse in order to force the liquidation of Tianjin Zerust. NTIC also commenced litigation against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to NTIC and NTI Asean related to Tianjin Zerust. Litigation is expensive and often uncertain. There is no assurance that NTIC will be successful in these litigation matters. In the meantime, NTIC has incurred and expect to continue to incur significant expenses in connection with this ongoing litigation. In addition, the ongoing litigation expense has had and will continue to have an adverse effect on NTIC’s business and operating results so long as it is ongoing.

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Any weakness in the global economy, and in particular in the United States, Europe and China, and in the automotive industry, may negatively impact NTIC’s business, operating results and financial condition.

The U.S. and world economies continue to suffer from uncertainty, volatility, disruption and other adverse conditions, and those conditions continue to adversely impact the business community and the financial markets. There is no assurance when or the extent to which these economic and business conditions will improve in the future. These adverse economic and financial market conditions may negatively affect NTIC’s customers and its markets, and thus negatively impact its business and operating results. For example, weak market conditions could extend the length of NTIC’s sales cycle and cause potential customers to delay, defer or decline to make purchases of NTIC’s products and services due to uncertainties surrounding the future performance of their businesses, limitations on their capital expenditures due to internal budget constraints, the inability to obtain financing in the capital markets, and the adverse effects of the economy on their business and financial condition. As a result, if economic and financial market conditions continue to be weak or even deteriorate, then NTIC’s business, financial condition and operating results, including its ability to grow and expand its business and operations, could be materially and adversely affected.

NTIC’s operating results are especially dependent upon the economic health of the economies in the United States, Europe and China. Since a significant portion of NTIC’s ZERUST^® rust and corrosion inhibiting products and services are sold to customers in the automotive industry, adverse economic conditions affecting the automotive industry again in particular may result in another adverse effect on NTIC’s net sales and its other operating results. Accordingly, any weakness in the global economy, and in particular in the United States, Europe and China, and in the automotive industry, may negatively impact NTIC’s business, operating results and financial condition.

Global credit and financial markets in the past have experienced disruptions, including diminished liquidity and credit availability and rapid fluctuations in market valuations, which if they happen again, could negatively impact NTIC’s business, operating results and financial condition.

Any tightening of the credit and financial markets as a result of the European sovereign debt crisis or otherwise could negatively impact the ability of companies to borrow money from their existing lenders, obtain credit from other sources or raise financing to fund their operations. This could negatively impact the ability of NTIC’s customers and the customers of NTIC’s joint ventures to purchase NTIC’s products, suppliers’ ability to provide NTIC and its joint ventures with materials and components and the ability of NTIC and its joint ventures, distributors and sales representatives to finance operations, if needed, on commercially reasonable terms, or at all. Any or all of these events could negatively impact NTIC’s business, operating results and financial condition. Although NTIC maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers, distributors and joint ventures to make required payments and such losses historically have been within NTIC’s expectations and the provisions established, NTIC cannot guarantee that it will continue to experience the same loss rates that it has in the past, especially if there are weaknesses in the worldwide economy. A significant change in the liquidity or financial condition of NTIC’s customers, distributors or joint ventures could cause unfavorable trends in NTIC’s receivable collections and additional allowances may be required, which could adversely affect NTIC’s operating results. In addition, weaknesses in the worldwide economy may adversely impact the ability of suppliers to provide NTIC with materials and components, which could adversely affect NTIC’s business and operating results. NTIC is unable to predict the prospects for a global economic recovery, but the longer the duration of such adverse and uncertain economic conditions, the greater the risks NTIC faces in operating its business.

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NTIC’s liquidity and financial position rely on the receipt of fees for services provided to its joint ventures and dividend distributions from its joint ventures. No assurance can be provided that NTIC will continue to receive such fees and dividend distributions in amounts NTIC historically has received or anticipates to receive.

NTIC conducts business, either directly or indirectly through several joint venture arrangements that operate in North America, Europe and Asia. Each of these joint ventures manufactures, markets and sells finished products in the geographic territory that it is assigned. NTIC’s receipt of funds as a result of sales by its joint ventures is dependent upon NTIC’s receipt of fees for services that NTIC provides to its joint ventures based primarily on the net sales of the individual joint ventures and NTIC’s receipt of dividend distributions from its joint ventures based on the profitability of its joint ventures. NTIC’s liquidity and financial position rely on NTIC’s receipt of fees for services that NTIC provides to its joint ventures and dividend distributions from its joint ventures. During fiscal 2016, NTIC recognized $5,137,710 in fees and $5,503,314 in dividend distributions from its joint ventures. Because NTIC owns 50% or less of each of its joint venture entities, NTIC does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much they should be in any given year. Thus, NTIC cannot guarantee that any of its joint ventures will pay dividends in any given year. The failure of NTIC’s joint ventures to declare dividends or the failure of NTIC to receive fees for services provided to joint ventures in amounts typically expected by NTIC could adversely affect NTIC’s liquidity and financial position.

Since a significant portion of NTIC’s earnings results from NTIC’s equity income from joint ventures and since NTIC’s equity income from joint ventures varies from quarter to quarter, NTIC’s earnings are subject to quarterly fluctuations.

A significant portion of NTIC’s earnings results from NTIC’s equity income from its joint ventures. NTIC’s equity in income from joint ventures consists of NTIC’s share of equity in income from its joint ventures based on the overall profitability of the joint ventures. Such profitability varies from quarter to quarter. Since NTIC’s management typically receives quarterly joint venture financial information after the completion of each fiscal quarter, it is impossible for NTIC’s management to cut costs and expenses to make up for any unanticipated shortfall in NTIC’s equity income from joint ventures. Accordingly, the variability in NTIC’s equity income from joint ventures, in turn, subjects NTIC’s earnings to quarterly fluctuations.

Out of NTIC’s joint ventures, NTIC’s joint venture in Germany is the most significant in terms of assets and income to NTIC. If sales of NTIC’s products and services by this joint venture were to decline significantly or if NTIC’s relationships with this joint venture were to deteriorate significantly, NTIC’s operating results likely would be adversely affected.

NTIC considers its joint venture in Germany, EXCOR, to be individually significant to NTIC’s consolidated assets and income; and therefore, provides certain additional information regarding this joint venture entity in the notes to NTIC’s consolidated financial statements and in certain sections of this report. Of the total equity in income from joint ventures of $4,739,704 during fiscal 2016, NTIC had equity in income from joint ventures of $3,534,113 attributable to EXCOR. Of the total fee income for services provided to joint ventures of $5,137,710 during fiscal 2016, fees of $845,857 were attributable to EXCOR. Accordingly, if sales of NTIC’s products and services by this joint venture were to decline significantly or if NTIC’s relationships with this joint venture or joint venture partner were to deteriorate significantly such that the joint venture is terminated or not motivated to sell NTIC’s products and services, NTIC’s operating results likely would be adversely affected.

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NTIC’s international business, which is conducted primarily through its subsidiaries and joint ventures, requires management attention and financial resources and exposes NTIC to difficulties and risks presented by international economic, political, legal, accounting and business factors.

NTIC sells products and services directly, through its wholly-owned and majority-owned subsidiaries, and indirectly via a network of joint ventures, independent distributors, manufacturer’s sales representatives and agents in over 60 countries, including countries in North America, South America, Europe, Asia and the Middle East. One of NTIC’s strategic objectives is the continued expansion of its international operations. The expansion of NTIC’s existing international operations and entry into additional international markets require management attention and financial resources.

The sale and shipping of products and services across international borders subject NTIC to extensive U.S. and foreign governmental trade regulations. Compliance with such regulations is costly and exposes NTIC to penalties for non-compliance. Other laws and regulations that can significantly impact NTIC include various anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, laws restricting business with suspected terrorists and anti-boycott laws. Any failure to comply with applicable legal and regulatory obligations could impact NTIC in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of NTIC’s shipping and sales activities.

Many of the countries in which NTIC sells its products directly or indirectly through NTIC China, Zerust Brazil, Natur-Tec India, Zerust Mexico, NTI Asean, its joint ventures, distributors, representatives and agents are, to some degree, subject to political, economic and/or social instability. NTIC’s international operations expose NTIC and its joint venture partners, distributors, representatives and agents to risks inherent in operating in foreign jurisdictions. These risks include:

• difficulties in managing and staffing international operations and the required infrastructure costs including legal, tax, accounting and information technology;

• the imposition of additional U.S. and foreign governmental controls or regulations, new trade restrictions and restrictions on the activities of foreign agents, representatives and distributors, the imposition of costly and lengthy export licensing requirements and changes in duties and tariffs, license obligations and other non-tariff barriers to trade;

• the imposition of U.S. and/or international sanctions against a country, company, person or entity with whom NTIC does business that would restrict or prohibit continued business with the sanctioned country, company, person or entity;

• pricing pressure that NTIC or its joint ventures, distributors, representatives and agents may experience internationally;

• laws and business practices favoring local companies;

• currency exchange rate fluctuations;

• longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

• difficulties in enforcing or defending intellectual property rights;

• multiple, changing and often inconsistent enforcement of laws and regulations; and

• the potential payment of U.S. income taxes on certain earnings of joint ventures upon repatriation.

Furthermore, in June 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” As a result of the referendum, negotiations are expected to commence to determine the future terms of the United Kingdom’s relationship with the European Union, including the terms of trade between the United Kingdom and the European Union. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on the movement of goods and people between the United Kingdom and European Union countries and increased regulatory complexities, which could affect NTIC’s ability to sell its products in certain European Union countries. Brexit could adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the British pound and Euro. In addition, other European countries may seek to conduct referenda with respect to continuing membership with the European Union. NTIC does not know to what extent these changes will impact its business. Any of these effects of Brexit, and others that NTIC cannot anticipate, could adversely affect its business, operations and financial results.

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Failure to comply with the U.S. Foreign Corrupt Practices Act could subject NTIC to, among other things, penalties and legal expenses that could harm its reputation and have a material adverse effect on its business, financial condition and results of operations.

NTIC is subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business or other benefits. In addition, the FCPA imposes accounting standards and requirements on U.S. publicly traded corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. NTIC also is subject to similar anticorruption legislation implemented in Europe under the Organization for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. NTIC and its joint ventures, distributors, independent representatives and agents operate in a number of jurisdictions that pose a high risk of potential violations of the FCPA and other anticorruption laws, based on measurements such as Transparency International’s Corruption Perception Index, and NTIC utilizes a number of joint ventures, distributors, independent representatives and agents for whose actions NTIC could be held liable under the FCPA. NTIC informs its personnel, joint ventures, distributors, independent representatives and agents of the requirements of the FCPA and other anticorruption laws, including, but not limited to their reporting requirements. NTIC also has developed and will continue to develop and implement systems for formalizing contracting processes, performing due diligence on agents and improving its recordkeeping and auditing practices regarding these regulations. However, there is no guarantee that NTIC’s employees, joint ventures, distributors, independent representatives or other agents have not or will not engage in conduct undetected by NTIC’s processes and for which NTIC might be held responsible under the FCPA or other anticorruption laws.

If NTIC’s employees, joint ventures, distributors, third-party sales representatives or other agents are found to have engaged in such practices, NTIC could suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures, including further changes or enhancements to its procedures, policies and controls, as well as potential personnel changes and disciplinary actions.

Certain private and foreign companies, including some of NTIC’s competitors, are not subject to prohibitions as strict as those under the FCPA or, even if subjected to strict prohibitions, such prohibitions may be laxly enforced in practice. If NTIC’s competitors engage in corruption, extortion, bribery, pay-offs, theft or other fraudulent practices, they may receive preferential treatment from personnel of some companies or from government officials, giving NTIC’s competitors an advantage in securing business and which would put NTIC at a disadvantage.

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Fluctuations in foreign currency exchange rates could result in declines in NTIC’s earnings and changes in NTIC’s foreign currency translation adjustments.

Because the functional currency of NTIC’s foreign operations is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese yen, Indian Rupee, Chinese Renminbi, Korean won and the English pound against the U.S. dollar. NTIC’s fees for services provided to its joint ventures and dividend distributions from these foreign entities are paid in foreign currencies; and thus, fluctuations in foreign currency exchange rates could result in declines in NTIC’s earnings. Any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment and would not change NTIC’s equity in income from joint ventures reflected in its consolidated statements of operations. NTIC does not hedge against its foreign currency exchange rate risk.

Economic uncertainty in developing markets could adversely affect NTIC’s revenue and earnings.

NTIC conducts business, or is contemplating expansion, in developing markets with economies that tend to be more volatile than those in the United States and Western Europe. The risk of doing business in developing markets such as China, Brazil, India, Russia, the United Arab Emirates, Mexico and other economically volatile areas could adversely affect NTIC’s operations and earnings. Such risks include the financial instability among customers in these regions, political instability, fraud or corruption and other non-economic factors such as irregular trade flows that need to be managed successfully with the help of the local governments. In addition, commercial laws in some developing countries can be vague, inconsistently administered and retroactively applied. If NTIC is deemed not to be in compliance with applicable laws in developing countries where NTIC conducts business, its prospects and business in those countries could be harmed, which could then have a material adverse impact on NTIC’s operating results and financial position. NTIC’s failure to successfully manage economic, political and other risks relating to doing business in developing countries and economically and politically volatile areas could adversely affect its business.

NTIC faces intense competition in almost all of its product lines, including from competitors that have substantially greater resources than NTIC does. No assurance can be provided that NTIC will be able to compete effectively, which would harm its business and operating results.

NTIC’s products are sold in intense competitive markets throughout the world. This intense competition could result in pricing pressures, lower sales, reduced margins and lower market share. The principal competitive factors in NTIC’s corrosion prevention solutions markets are pricing, product innovation, quality and reliability, product support, customer service and reputation. Additional competitive factors present in NTIC’s bioplastics business are brand awareness, distribution network, product availability, product offering, shelf life and place of manufacture. NTIC often competes with numerous manufacturers, many of which have substantially greater financial, marketing, and other resources than NTIC. As a result, they may be able to adapt more quickly than NTIC to new or emerging technologies, industry trends, and changes in customer requirements, or to devote greater resources to the promotion and sale of their products than NTIC. In addition, competition could increase if new companies enter the markets in which NTIC competes, especially when the barriers to entry are low, which may be true with respect to NTIC’s rust and corrosion prevention business, or if existing competitors expand their product lines or intensify efforts within existing product lines. NTIC’s current products, products under development and its ability to develop new and improved products may be insufficient to enable NTIC to compete effectively with its competitors. No assurance can be provided that NTIC will be able to compete effectively, which would harm its business and operating results. In particular, NTIC has experienced more intense competition with respect to many of its traditional ZERUST^® rust and corrosion inhibiting products and services, which have led to decreased pricing and smaller margins for NTIC. NTIC anticipates that such intense competition likely will continue and that new competitors may emerge, including plastic extrusion companies, which would continue to adversely affect NTIC’s operating results.

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NTIC’s ZERUST^® rust and corrosion inhibiting products and services generate a significant portion of NTIC’s net sales and the net sales of NTIC’s joint ventures. Accordingly, if sales of these products and services were to decline, NTIC’s operating results would be adversely affected.

NTIC’s ZERUST^® rust and corrosion inhibiting products and services generate a significant portion of NTIC’s net sales and the net sales of NTIC’s joint ventures. During fiscal 2016, 83.7% of NTIC’s consolidated net sales were derived from sales of ZERUST^® rust and corrosion inhibiting products and services. While the net sales of NTIC’s joint ventures are not included in NTIC’s net sales on NTIC’s consolidated financial statements, NTIC’s receipt of fees for services that NTIC provides to its joint ventures and NTIC’s receipt of dividend distributions from its joint ventures is based primarily on the revenues and profitability of the joint ventures. Accordingly, if sales of these products and services were to decline due to increased competition, the introduction of a new disruptive technology or otherwise, NTIC’s operating results would be adversely affected.

If NTIC is unable to continue to enhance its existing products and develop and market new products that respond to customer needs and achieve market acceptance, NTIC may experience a decrease in demand for its products, and its business could suffer.

One of NTIC’s strategies is to enhance its existing products and develop and market new products that respond to customer needs. NTIC may not be able to compete effectively with its competitors unless NTIC can keep up with existing or new products or alternative technologies in the markets in which it competes. Product development requires significant research and development, financial and other resources. Although in the past NTIC has implemented lean manufacturing and other productivity improvement initiatives to provide investment funding for new products, no assurance can be provided that NTIC will be able to continue to do so in the future. Product improvements and new product introductions also require significant planning, design, development and testing at the technological, product, and manufacturing process levels and NTIC may not be able to timely develop product improvements or new products. NTIC’s competitors’ new products may beat NTIC’s products to market, may be more effective or less expensive than NTIC’s products or render NTIC’s products obsolete. Any new products that NTIC may develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for NTIC relative to its expectations, based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.

NTIC has invested and intends to continue to invest additional research and development and marketing efforts and resources into the application of its corrosion prevention solutions into the oil and gas industry and the continued launch of its Natur-Tec^® resin compounds and finished products. No assurance can be provided, however, that NTIC’s investments in these new markets and products will be successful and result in additional revenue to NTIC.

In an effort to increase net sales, NTIC has expanded the marketing of its corrosion prevention solutions into the oil and gas industry and its Natur-Tec^® resin compounds and finished products. The majority of NTIC’s research and development expense in fiscal 2016 was spent in connection with research and development activities related to these two strategic initiatives. NTIC expects to continue to invest additional research and development and marketing efforts and resources into these strategic initiatives. No assurance can be provided, however, that such strategic initiatives will be successful or that NTIC will be successful in obtaining additional revenue as a result of them. The introduction of new products into new markets takes significant resources and there can be no assurance that NTIC is dedicating a sufficient amount of resources to ensure the success of these strategic initiatives. The sale of NTIC’s ZERUST^® rust and corrosion inhibiting products and services into the oil and gas industry, in particular, typically involves a long sales cycle, often including a one- to multi-year trial period with each customer and a slow integration process thereafter. This long sales cycle may cause NTIC’s management, stockholders and investors to lose faith in the business opportunities for NTIC’s ZERUST^® rust and corrosion inhibiting products and services in the oil and gas industry.

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The expansion of NTIC’s corrosion prevention solutions into the oil and gas industry and the continued launch of NTIC’s Natur-Tec^® resin compounds and finished products may require additional capital in the future, which may not be available or may be available only on unfavorable terms. In addition, any equity financings may be dilutive to NTIC’s stockholders.

The expansion of NTIC’s corrosion prevention solutions into the oil and gas industry and the continued launch of NTIC’s Natur-Tec^® resin compounds and finished products will continue to require significant resources during fiscal 2017 and beyond. To the extent that NTIC’s existing capital, including amounts available under its revolving line of credit, is insufficient to meet these requirements, NTIC may raise additional capital through financings or additional borrowings. Any equity or debt financing, if available at all, may be on terms that are not favorable to NTIC and any equity financings could result in dilution to NTIC’s stockholders.

NTIC’s strategy of expanding its corrosion prevention solutions into the oil and gas industry and continuing its launch of its Natur-Tec^® bioplastics resin compounds and finished products is risky and may not prove to be successful, which could harm NTIC’s operating results and financial condition.

NTIC’s strategy of expanding its corrosion prevention solutions into the oil and gas industry and continuing its launch of its Natur-Tec^® bioplastics resin compounds and finished products, either directly or indirectly through joint ventures and independent distributors and agents, is risky and subject to all of the risks inherent in the establishment of a new business enterprise, including:

• the absence of a significant operating history;

• the lack of commercialized products;

• the lack of market acceptance of new products;

• expected substantial and continual losses for such businesses for the foreseeable future;

• the lack of manufacturing experience and limited marketing experience;

• an expected reliance on third parties for the manufacture and commercialization of some of the products;

• a competitive environment characterized by numerous, well-established and well-capitalized competitors;

• insufficient capital and other resources; and

• reliance on key personnel.

NTIC relies on others for its production and any interruptions of these arrangements could disrupt NTIC’s ability to fill its customers’ orders.

NTIC utilizes contract manufacturers for a significant portion of its production requirements. The majority of NTIC’s manufacturing is conducted in the United States by contract manufacturers that also perform services for numerous other companies. NTIC does not have a guaranteed level of production capacity with any of its contract manufacturers. Qualifying new contract manufacturers is time consuming and might result in unforeseen manufacturing and operations problems. The loss of NTIC’s relationships with its contract manufacturers or their inability to conduct their manufacturing and assembly services for NTIC as anticipated in terms of capacity, cost, quality and timeliness could adversely affect NTIC’s ability to fill customer orders in accordance with required delivery, quality, and performance requirements, and thus adversely affect NTIC’s net sales and other operating results.

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NTIC’s dependence on key suppliers puts NTIC at risk of interruptions in the availability of its products, which could reduce its net sales and adversely affect its operating results and harm its reputation.

NTIC relies on suppliers for certain raw materials and components used in its products. For reasons of quality assurance, cost effectiveness or availability, NTIC procures certain raw materials and components from sole or limited source suppliers. NTIC generally acquires such raw materials and components through purchase orders placed in the ordinary course of business, and as a result, NTIC does not have a significant inventory of these materials and components and does not have any guaranteed or contractual supply arrangements with many of these suppliers for these materials and components. NTIC’s dependence on third-party suppliers involves several risks, including limited control over pricing, availability, quality and delivery schedules, as well as manufacturing yields and costs. Suppliers of such raw materials and components may decide, or be required, for reasons beyond NTIC’s control to cease supplying such raw materials and components to NTIC or to raise their prices. Shortages of raw materials, quality control problems, production capacity constraints or delays by suppliers could negatively affect NTIC’s ability to meet its production obligations and result in increased prices for affected parts. Any such shortage, constraint or delay may result in delays in shipments of products or components, which could adversely affect NTIC’s net sales and other operating results, and its reputation. From time to time, materials and components used in NTIC’s products are subject to allocation because of shortages of these materials and components. With respect to NTIC’s Natur-Tec^® resin compounds and finished products, there are a limited number of suppliers of the base resins used to manufacture NTIC’s Natur-Tec^® resin compounds and finished products, and in the past, NTIC has experienced some delay in obtaining such base resins. In addition, a number of raw materials and purchased parts used in NTIC’s rust and corrosion inhibiting products and Natur-Tec^® finished products are sourced from suppliers who currently serve as NTIC’s sole source of supply for these components. Future shortages of materials and components could cause delayed shipments and customer dissatisfaction and adversely affect net sales.

Increases in prices for raw materials and components used in NTIC’s products could adversely affect NTIC’s operating results.

NTIC uses certain raw materials and components in its products, including in particular plastic resins, which are subject to price increases. Increases in prices for raw materials and components used in NTIC’s products could adversely affect NTIC’s gross margins and other operating results.

The commercial success of NTIC’s Natur-Tec^® resin compounds and finished products depends on the widespread market acceptance of products manufactured with biobased and biodegradable resins.

Although there is a developed market for petroleum-based plastics, the market for “bio-plastics” which are plastics produced with biobased resins, which are derived from renewable resources such as corn or cellulosic/plant material or blends thereof, or plastics that are engineered to be fully biodegradable or both, is still developing. The commercial success of NTIC’s Natur-Tec^® resin compounds and finished products depends on the widespread market acceptance of products manufactured with biobased and biodegradable resins. It is currently difficult to assess or predict with any assurance the potential size, timing and viability of market opportunities for NTIC’s Natur-Tec^® resin compounds and finished products. The traditional plastics market sector is well-established with entrenched competitors with whom NTIC competes. Pricing for traditional plastics has been highly volatile in recent years, which drive, to some extent, the commercial and other support for bioplastics. While NTIC expects to be able to command a premium price for its Natur-Tec^® resin compounds and finished products, a widening gap in the pricing for bioplastics versus petroleum-based plastics may reduce the size of the addressable market for NTIC’s Natur-Tec^® resin compounds and finished products. In addition, the growth of the market will create some pressure on price for applications today considered commodities, including in particular NTIC’s current Natur-Tec^® finished products.

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NTIC’s business, properties and products are subject to governmental regulation and taxes, compliance with which may require NTIC to incur expenses or modify its products or operations, and which may expose NTIC to penalties for non-compliance. Governmental regulation also may adversely affect the demand for some of NTIC’s products and its operating results.

NTIC’s business, properties and products are subject to a wide variety of international, federal, state and local laws, rules, taxes and regulations relating to the protection of the environment, natural resources, and worker health and safety and the use, management, storage, and disposal of hazardous substances, wastes and other regulated materials. These laws, rules and regulations may affect the way NTIC conducts its operations, and the failure to comply with these regulations could lead to fines and other penalties. Because NTIC owns and operates real property, various environmental laws also may impose liability on NTIC for the costs of cleaning up and responding to hazardous substances that may have been released on NTIC’s property, including releases unknown to NTIC. These environmental laws and regulations also could require NTIC to pay for environmental remediation and response costs at third-party locations where NTIC disposed of or recycled hazardous substances. NTIC’s future costs of complying with the various environmental requirements, as they now exist or may be altered in the future, could adversely affect NTIC’s financial condition and operating results. NTIC is also subject to other international, federal and state laws, rules and regulations, the future non-compliance with which may harm NTIC’s business or may adversely affect the demand for some of its products. Changes in laws and regulations, including changes in accounting standards and taxation changes, including tax rate changes, new tax laws, revised tax law interpretations, also may adversely affect NTIC’s operating results.

Fluctuations in NTIC’s effective tax rate could have a significant impact on NTIC’s financial position, results of operations or cash flows.

The mix of pre-tax income or loss among the tax jurisdictions in which NTIC operates that have varying tax rates could impact NTIC’s effective tax rate. NTIC is subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Judgment is required in determining the worldwide provision for income taxes, other tax liabilities, interest and penalties. Future events could change management’s assessment. NTIC operates within multiple taxing jurisdictions and is subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. NTIC also has made assumptions about the realization of deferred tax assets. Changes in these assumptions could result in a valuation allowance for these assets. Final determination of tax audits or tax disputes may be different from what is currently reflected by NTIC’s income tax provisions and accruals.

NTIC may grow its business through additional joint ventures, alliances and acquisitions, which could be risky and harm its business.

One of NTIC’s growth strategies may be to expand its business by entering into additional joint ventures and alliances and acquiring businesses, technologies and products that complement or augment NTIC’s existing products. The benefits of a joint venture, alliance or acquisition may take more time than expected to develop, and NTIC cannot guarantee that any future joint ventures, alliances or acquisitions will in fact produce the intended benefits. In addition, joint ventures, alliances and acquisitions involve a number of risks, including:

• diversion of management’s attention;

• difficulties in assimilating the operations and products of a new joint venture or acquired business or in realizing projected efficiencies, cost savings and revenue synergies;

• potential loss of key employees or customers of the new joint venture or acquired business or adverse effects on existing business relationships with suppliers and customers;

• adverse impact on overall profitability if the new joint venture or acquired business does not achieve the financial results projected in NTIC’s valuation models;

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• reallocation of amounts of capital from other operating initiatives and/or an increase in NTIC’s leverage and debt service requirements to pay the joint venture capital contribution or the acquisition purchase price, which could in turn restrict NTIC’s ability to access additional capital when needed or to pursue other important elements of NTIC’s business strategy;

• inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated costs associated with the new joint venture or acquisition; and

• incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges and write-off of significant amounts of goodwill that could adversely affect NTIC’s operating results.

NTIC’s ability to grow through joint ventures, alliances and acquisitions will depend, in part, on the availability of suitable opportunities at an acceptable cost, NTIC’s ability to compete effectively for these opportunities and the availability of capital to complete such transactions.

NTIC relies on its joint ventures, distributors, manufacturer’s sales representatives and other agents to market and sell its products.

In addition to its direct sales force, NTIC relies on its joint ventures, distributors, manufacturer’s sales representatives and other agents to market and sell its products in the United States and internationally. NTIC’s joint ventures, distributors, manufacturer’s sales representatives and other agents might terminate their relationship with NTIC, or devote insufficient sales efforts to NTIC’s products. NTIC does not control its joint ventures, distributors, manufacturer’s sales representatives and other agents and they may not be successful in implementing NTIC’s marketing plans. NTIC’s failure to maintain its existing relationships with these entities, or its failure to recruit and retain additional skilled joint venture partners, distributors, manufacturer’s sales representatives and other agents could have an adverse effect on NTIC’s operations. It is anticipated that several of NTIC’s joint venture partners will retire during the next several years which will require a transition on the part of the joint venture as well as NTIC and could harm NTIC’s relationship with the joint venture and NTIC’s business.

NTIC may be subject to product liability claims or other claims arising out of the activities of its joint ventures, which could adversely affect NTIC and its business.

While NTIC is not aware of any specific potential risk beyond its initial investment in and any undistributed earnings of each of its joint ventures, there can be no assurance that NTIC will not be subject to lawsuits based on product liability claims or other claims arising out of the activities of its joint ventures. To mitigate the ramifications of such an occurrence, NTIC maintains liability insurance specifically applicable to its ownership positions in its joint venture arrangements in excess of any insurance the joint ventures may maintain. No assurance can be provided, however, that such insurance will be available or adequate in the event of a claim.

The sale of ZERUST^® rust and corrosion inhibiting products into the oil and gas industry is especially risky in light of the hazards typically associated with such operations and the significant amount of potential liability involved, which could adversely affect NTIC’s business if ZERUST^® rust and corrosion inhibiting products are involved, even if the cause of such events was not related to NTIC’s products.

Because NTIC sells its ZERUST^® rust and corrosion inhibiting products into the oil and gas industry, NTIC is subject to some of the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, unplanned gas releases and spills, each of which could be claimed to be attributed to the failure of NTIC’s products to perform as anticipated. If such events occur and NTIC’s products are involved, NTIC’s business and operating results may suffer even if the cause of such events was not related to NTIC’s products.

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The sale of ZERUST^® rust and corrosion inhibiting products into the oil and gas industry is somewhat seasonal and dependent upon oil prices.

In the past, NTIC has experienced some seasonality with respect to the sale of its ZERUST^® rust and corrosion inhibiting products into the oil and gas industry, with sales during parts of the second and third fiscal quarters being adversely affected by winter in the United States. In addition, the sale of NTIC’s ZERUST^® rust and corrosion inhibiting products into the oil and gas industry have been and may continue to be hampered by low global crude oil prices, which NTIC believes constrains capital improvement budgets of its existing and prospective customers and may result in personnel turnover at its oil and gas customers or prospects.

NTIC has limited staffing and will continue to be dependent upon key employees.

NTIC’s success is dependent upon the efforts of a small management team and group of employees. NTIC’s future success will depend in large part on its ability to retain its key employees and identify, attract and retain other highly qualified managerial, technical, research and development, sales and marketing and customer service personnel when needed. Competition for these individuals may be intense, especially in the markets in which NTIC operates. NTIC may not succeed in identifying, attracting and retaining these personnel. NTIC’s current management, other than its President and Chief Executive Officer, does not have any material stock ownership in NTIC. In addition, none of NTIC’s employees has any contractual obligation to maintain his or her employment with NTIC. The loss or interruption of services of any of NTIC’s key personnel, including in particular its technical personnel, the inability to identify, attract or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee slowdowns, strikes or similar actions could make it difficult for NTIC to manage its business and meet key objectives, which could harm NTIC’s business, financial condition and operating results.

Given NTIC’s limited resources, it may not effectively manage its growth.

NTIC’s strategy to grow its business, including in particular its ZERUST^® rust and corrosion inhibiting products for the oil and gas industry and its Natur-Tec^® bio-plastic resin compounds and finished products, requires significant management time and operational and financial resources. There is no assurance that NTIC has the necessary operational and financial resources to manage its growth. This is especially true as it expands facilities and manufactures its products on a larger commercial scale. In addition, rapid growth in NTIC’s headcount and operations may place a significant strain on its management, administrative, operational and financial infrastructure. Failure to adequately manage its growth could have a material and adverse effect on NTIC’s business, financial condition and operating results. For example, NTIC’s soil side bottom solutions for tanks require implementation teams comprised of both internal NTIC personnel and outside consulting firms. NTIC’s failure to expand these implementation teams to service additional customers may limit NTIC’s ability to grow this business. In addition, NTIC may not be successful in its strategy to grow its business.

Certain of NTIC’s operations are subject to regulation by the U.S. Food and Drug Administration.

The manufacture, sale and use of NTIC’s Natur-Tec^® bio-plastic resin compounds are subject to regulation by the U.S. FDA. The FDA’s regulations are concerned with substances used indirectly in food packaging materials, not with specific finished food packaging products. Thus, food and beverage containers are in compliance with FDA regulations if the components used in the food and beverage containers: (i) are approved by the FDA as indirect food additives for their intended uses and comply with the applicable FDA indirect food additive regulations; or (ii) are generally recognized as safe for their intended uses and are of suitable purity for those intended uses. NTIC believes that its Natur-Tec^® resin compounds are in compliance with all FDA requirements. However, failure to comply with FDA regulations could subject NTIC to administrative, civil or criminal penalties.

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NTIC relies on its management information systems for inventory management, distribution and other functions. If these information systems fail to adequately perform these functions or if NTIC experiences an interruption in their operation, NTIC’s business and operating results could be adversely affected.

The efficient operation of NTIC’s business is dependent on its management information systems. NTIC relies on its management information systems to effectively manage accounting and financial functions; manage order entry, order fulfillment and inventory replenishment processes; and to maintain its research and development data. The failure of management information systems to perform as anticipated could disrupt NTIC’s business and product development and could result in decreased sales, causing NTIC’s business and operating results to suffer. In addition, NTIC’s management information systems are vulnerable to damage or interruption from natural or man-made disasters, terrorist attacks and attacks by computer viruses or hackers, or power loss or computer systems, Internet, telecommunications or data network failure. Any such interruption could adversely affect NTIC’s business and operating results.

NTIC’s reliance upon patents, trademark laws, trade secrets and contractual provisions to protect its proprietary rights may not be sufficient to protect its intellectual property from others who may sell similar products.

NTIC holds patents relating to various aspects of its products and believes that proprietary technical know-how is critical to many of its products. Proprietary rights relating to NTIC’s products are protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. NTIC cannot be certain that it will be issued any patents from any pending or future patent applications owned by or licensed to NTIC or that the claims allowed under any issued patents will be sufficiently broad to protect its technology. In the absence of patent protection, NTIC may be vulnerable to competitors who attempt to copy NTIC’s products or gain access to its trade secrets and know-how. NTIC’s competitors may initiate litigation to challenge the validity of NTIC’s patents, or they may use their resources to design comparable products that do not infringe NTIC’s patents. NTIC may incur substantial costs if its competitors initiate litigation to challenge the validity of its patents or if it initiates any proceedings to protect its proprietary rights and if the outcome of any such litigation is unfavorable to NTIC, its business and operating results could be materially adversely affected.

In addition, NTIC relies substantially on trade secrets and proprietary know-how that it seeks to protect, in part, by confidentiality agreements with its employees, and consultants. These agreements may be breached and NTIC may not have adequate remedies for any such breach. Even if these confidentiality agreements are not breached, NTIC’s trade secrets may otherwise become known or be independently developed by competitors.

NTIC may not achieve its annual financial guidance or projected goals and objectives in the time periods that NTIC anticipates or announces publicly, which could have an adverse effect on NTIC’s business and could cause its stock price to decline.

On a quarterly basis, NTIC typically provides projected annual financial information, including its anticipated annual net sales and net earnings. These financial projections are based on management’s then current expectations and typically do not contain any margin of error or cushion for any specific uncertainties, or for the uncertainties inherent in all financial forecasting. The failure to achieve such financial projections could have an adverse effect on NTIC’s business, disappoint investors and analysts and cause its stock price to decline.

NTIC also sets goals and objectives for, and makes public statements regarding, the timing of certain accomplishments and milestones regarding its business, such as its progress in selling its ZERUST^® rust and corrosion inhibiting products and services to customers in the oil and gas industry, the progress and timing of its various field trials with prospective customers in the oil and gas industry, its ability to increase sales of its Natur-Tec^® resin compounds and finished products, and other developments and milestones. The actual timing of these events can vary dramatically due to a number of factors including without limitation the timing of the receipt of purchase orders, delays or failures in current field trials, the amount of time, effort and resources committed to the sales and marketing of NTIC’s products and services by NTIC and its current and potential future distributors and agents and the uncertainties inherent in introducing new products and services. As a result, there can be no assurance that NTIC will succeed in achieving its projected goals and objectives in the time periods that NTIC anticipates or announces publicly. The failure to achieve such projected goals and objectives in the time periods that NTIC anticipates or announces publicly could have an adverse effect on NTIC’s business, disappoint investors and analysts and cause its stock price to decline.

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NTIC’s quarterly results are typically unpredictable and subject to variation.

NTIC’s quarterly operating results vary from quarter to quarter for a variety of reasons. For example, NTIC’s quarterly sales to joint ventures can be affected by individual orders to joint ventures. Because of the typical size of individual orders to joint ventures and overall size of NTIC’s net sales to joint ventures, the timing of one or more orders can affect materially NTIC’s quarterly sales to joint ventures and the comparisons to prior year quarters. In addition, because of the typical size of individual orders and overall size of NTIC’s net sales derived from sales of Natur-Tec^® products, the timing of one or more orders can affect materially NTIC’s quarterly sales of Natur-Tec^® products and the comparisons to prior year quarters. Furthermore, since ZERUST^® products for the oil and gas industry typically carry higher margins than other traditional ZERUST^® products, the amount of sales of ZERUST^® products for the oil and gas industry typically affects NTIC’s overall margins. Such variability in operating results makes the prediction of NTIC’s net sales, earnings and other operating results for each quarter difficult and increases the risk of unanticipated variations in quarterly operating results. NTIC’s quarterly results have been and in the future may be below the expectations of public market analysts and investors.

NTIC is exposed to risks relating to its evaluation of its internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002 and related and other regulations implemented by the SEC and the NASDAQ Stock Market, are challenging for small publicly-held companies, including NTIC. NTIC’s efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, significant general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, NTIC’s efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding NTIC’s assessment of its internal control over financial reporting have required and will continue to require the expenditure of significant financial and managerial resources. Although NTIC’s management has concluded that NTIC’s internal control over financial reporting was effective as of August 31, 2016, no assurance can be provided that NTIC’s management will reach a similar conclusion as of any later date. NTIC’s failure to maintain effective internal control over financial reporting may have an adverse effect on its stock price.

NTIC’s compliance with accounting principles generally accepted in the United States of America and any changes in such principles might adversely affect NTIC’s operating results and financial condition. Any requirement to consolidate NTIC’s joint ventures or subject them to compliance with the internal control provisions of the Sarbanes-Oxley Act of 2002 could adversely affect NTIC’s operating results and financial condition.

If there were a change in accounting rules and NTIC were required to fully consolidate its joint ventures or if NTIC’s joint ventures otherwise would be required to be consolidated with NTIC or be in compliance with the internal control provisions of the Sarbanes-Oxley Act of 2002, NTIC and the individual joint venture would incur significant additional costs. In addition, other accounting pronouncements issued in the future could have a material cost associated with NTIC’s implementation of such new accounting pronouncements.

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NTIC’s business is subject to a number of other miscellaneous risks that may adversely affect NTIC’s operating results, financial condition or business.

NTIC’s business is subject to a number of other miscellaneous risks that may adversely affect NTIC’s operating results, financial condition or business, such as natural or man-made disasters or global pandemics that may result in shortages of raw materials, higher commodity costs, an increase in insurance premiums and other adverse effects on NTIC’s business; the continued threat of terrorist acts and war that may result in heightened security and higher costs for import and export shipments of components or finished goods; and the ability of NTIC’s management to adapt to unplanned events.

Risks Related to NTIC’s Common Stock

The trading volume of NTIC’s common stock is typically very low, leaving NTIC’s common stock open to risk of high volatility.

The number of shares of NTIC’s common stock being traded on a daily basis is often very low and on some trading days, there is no trading volume at all. During fiscal 2016, the daily trading volume ranged from zero shares to 51,700 shares. Any NTIC stockholder wishing to sell his, her or its stock may cause a significant fluctuation in the trading price of NTIC’s common stock. In addition, low trading volume of a stock increases the possibility that, despite rules against such activity, the price of the stock may be manipulated by persons acting in their own self-interest. NTIC may not have adequate market makers and market making activity to prevent manipulation in its common stock.

The price and trading volume of NTIC’s common stock has been, and may continue to be, volatile.

The market price and trading volume of NTIC’s common stock price historically has fluctuated over a wide range. During fiscal 2016, the sale price of NTIC’s common stock ranged from a low of $9.60 per share to a high of $18.00 per share, and the daily trading volume ranged from zero shares to 51,700 shares. It is likely that the price and trading volume of NTIC’s common stock will continue to fluctuate in the future. The securities of small capitalization companies, including NTIC, from time to time experience significant price and volume fluctuations, often unrelated to the operating performance of these companies. Securities class action litigation is sometimes brought against a company following periods of volatility in the market price of its securities or for other reasons. NTIC may become the target of similar litigation, especially if NTIC fails to meet its annual projected financial guidance or lower its annual projected financial guidance. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm NTIC’s business, financial condition, and operating results, as well as the market price of its common stock.

A large percentage of NTIC’s outstanding common stock is held by insiders, and, as a result, the trading market for NTIC’s common stock is not as liquid as the stock of other public companies.

As of November 15, 2016, NTIC had 4,535,070 shares of common stock outstanding, of which 19.6% of these outstanding shares were beneficially owned by directors, executive officers, principal stockholders and their respective affiliates. The stock of companies with a substantial amount of stock held by insiders is usually not as liquid as the stock of other public companies where insider ownership is not as concentrated. Thus, the trading market for shares of NTIC’s common stock may not be as liquid as the stock of other public companies.

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If securities or industry analysts do not publish research or reports about NTIC’s business, or if they adversely change their recommendations regarding NTIC’s common stock, the market price for NTIC’s common stock and trading volume could decline.

The trading market for NTIC’s common stock has been influenced by research or reports that industry or securities analysts publish about NTIC or its business. If one or more analysts who cover NTIC downgrade NTIC’s common stock, the market price for NTIC’s common stock would likely decline. If one or more cease coverage of NTIC or fail to regularly publish reports on NTIC, NTIC could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for NTIC’s common stock to decline.

NTIC does not intend to pay dividends for the foreseeable future.

Although in the past NTIC has paid dividends on its common stock, NTIC has not done so since fiscal 2005. The payment of any future dividends will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings (if any), financial condition, cash requirements, restrictions in financing agreements, business conditions and other factors. NTIC’s Board of Directors currently does not anticipate paying a dividend on NTIC’s common stock in the near future, but rather intends to retain all of its earnings for the foreseeable future to finance the operation and expansion of its business. As a result, NTIC’s stockholders will only receive a return on their investment in NTIC’s common stock if the market price of NTIC’s common stock increases.

One of NTIC’s principal stockholders beneficially owns a significant percentage of NTIC’s outstanding common stock and is affiliated with NTIC’s President and Chief Executive Officer and thus may be able to influence matters requiring stockholder approval, including the election of directors, and could discourage or otherwise impede a transaction in which a third party wishes to purchase NTIC’s outstanding shares at a premium.

As of November 15, 2016, Inter Alia Holding Company, or Inter Alia, beneficially owned approximately 13.3% of NTIC’s outstanding common stock. Inter Alia is an entity partially owned by G. Patrick Lynch, NTIC’s President and Chief Executive Officer and a director, as well as three other members of the Lynch family. Mr. Lynch shares voting and dispositive power of shares of NTIC’s common stock held by Inter Alia with the other owners. As a result of his share ownership through Inter Alia and his position as President and Chief Executive Officer and a director of NTIC, Mr. Lynch may be able to influence the affairs and actions of NTIC, including matters requiring stockholder approval, such as the election of directors and approval of significant corporate transactions. The interests of Mr. Lynch and Inter Alia may differ from the interests of NTIC’s other stockholders. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of NTIC, could deprive NTIC’s stockholders of an opportunity to receive a premium for their common stock as part of a sale or merger of NTIC and may negatively affect the market price of NTIC’s common stock. Transactions that could be affected by this concentration of ownership include proxy contests, tender offers, mergers or other purchases of common stock that could give stockholders the opportunity to realize a premium over the then-prevailing market price for shares of NTIC’s common stock.

Item 1B. UNRESOLVED STAFF COMMENTS

This Item 1B is inapplicable to NTIC as a smaller reporting company.

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Item 2. PROPERTIES

NTIC’s principal executive offices, production facilities and domestic research and development operations are located at 4201 Woodland Road, Circle Pines, Minnesota 55014. NTIC owns this real estate and building. NTIC also owns real estate and a building in Beachwood, Ohio, which it uses for office, manufacturing, laboratory and warehouse space. Additionally, NTIC has contract warehousing agreements in place in California and Indiana to hold and release stock products to customers. NTIC’s management considers its current properties suitable and adequate for its current and foreseeable needs. NTIC’s subsidiaries in Brazil, India and China all lease office, warehouse and laboratory space.

Item 3. LEGAL PROCEEDINGS

On March 23, 2015, NTIC and NTI Asean LLC, a majority-owned subsidiary of NTIC, filed a lawsuit in Tianjin No 1 Intermediate People’s Court against two individuals, Mr. Tao Meng and his wife Hui Xu, related to breaches of duties and contractual commitments owed to NTI Asean under certain agreements related to NTIC’s former joint venture in China, Tianjin Zerust Anti-Corrosion Technologies Ltd. The lawsuit alleges, among other things, that Mr. Tao Meng and Ms. Hui Xu have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. At this point it is too early in the lawsuit to reasonably estimate the amount of any recovery to NTI Asean.

On April 21, 2015, NTIC and NTI Asean initiated a lawsuit in the District Court for the Second Judicial District, County of Ramsey, State of Minnesota against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to the Company and NTI Asean related to NTIC’s joint venture in China, Tianjin Zerust. On November 4, 2015, NTIC and NTI Asean were permitted to file an amended complaint adding new counts, including, but not limited to, one for breach of contract, arising out of Cortec’s breach of a 2005 Settlement Agreement and Consent Order. The case was subsequently assigned to the complex civil jury trial calendar, extending deadlines for discovery and trial. NTIC and NTI Asean intend to bring a further motion to amend in order to add a claim for punitive damages and to move the court for summary judgment.  The case has been set for a mandatory settlement conference with the court on May 30, 2017 and the case will be set for the trial block beginning July 31, 2017 and ending August 18, 2017.

From time to time, NTIC is subject to various ongoing or threatened legal actions and proceedings, including those that arise in the ordinary course of business, which may include employment matters and breach of contract disputes. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. In the opinion of management, the outcome of such routine ongoing litigation is not expected to have a material adverse effect on NTIC’s results of operations or financial condition.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The two individuals named below have been designated by NTIC’s Board of Directors as “executive officers” of NTIC. Their ages and the offices held, as of November 15, 2016, are as follows:

Name	Age	Position with NTIC
G. Patrick Lynch	49	President and Chief Executive Officer
Matthew C. Wolsfeld	42	Chief Financial Officer and Corporate Secretary

G. Patrick Lynch, an employee of NTIC since 1995, has been President since July 2005 and Chief Executive Officer since January 2006 and was appointed a director of NTIC in February 2004. From July 2005 to January 2006, Mr. Lynch served as Chief Operating Officer of NTIC.  Mr. Lynch served as President of North American Operations of NTIC from May 2004 to July 2005.  Prior to May 2004, Mr. Lynch held various positions with NTIC, including Vice President of Strategic Planning, Corporate Secretary and Project Manager. Mr. Lynch is also an officer and director of Inter Alia Holding Company, a holding company that is a significant stockholder of NTIC. Prior to joining NTIC, Mr. Lynch held positions in sales management for Fuji Electric Co., Ltd. in Tokyo, Japan and programming project management for BMW AG in Munich, Germany. Mr. Lynch received an M.B.A. degree from the University of Michigan Ross School of Business in Ann Arbor, Michigan.

Matthew C. Wolsfeld, an employee of NTIC since February 2001, has been NTIC’s Chief Financial Officer since November 2001 and Corporate Secretary since November 2004. Mr. Wolsfeld was Controller of NTIC from May 2001 through November 2001. Prior to joining NTIC, Mr. Wolsfeld held an auditing position with PricewaterhouseCoopers LLP in Minneapolis, Minnesota from 1997 to 2001. Mr. Wolsfeld received a B.A. degree in Accounting from the University of Notre Dame and received his M.B.A. degree at the University of Minnesota, Carlson School of Business. Mr. Wolsfeld is a Certified Public Accountant.

Other corporate officers of NTIC, their ages and the offices held, as of November 15, 2016, are as follows:

Name	Age	Position with NTIC
Vineet R. Dalal	46	Vice President and Director – Global Market Development – Natur-Tec®
Gautam Ramdas	43	Vice President and Director – Global Market Development – Oil & Gas

Vineet R. Dalal, an employee of NTIC since 2004, has served as Vice President and Director – Global Market Development – Natur-Tec^® since November 2005. Prior to joining NTIC, Mr. Dalal was a Principal in the Worldwide Product Development Practice of PRTM, a management consultancy to technology based companies (now part of PricewaterhouseCoopers Management Consulting). In this position, Mr. Dalal consulted to several Fortune 500 companies, in the areas of product strategy, Product Lifecycle Management (PLM) and technology management. Prior to that, Mr. Dalal held positions in program management and design engineering at National Semiconductor Corporation in Santa Clara, California. Mr. Dalal received an M.B.A. degree from the University of Michigan Ross School of Business in Ann Arbor, Michigan. He also holds an M.S. degree in Electrical and Computer Engineering from Oregon State University, and a B.Eng. degree in Electronics Engineering from Karnatak University, India.

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Gautam Ramdas, an employee of NTIC since 2005, has served as Vice President and Director – Global Market Development – Oil & Gas since 2005. Prior to joining NTIC, Mr. Ramdas was a Manager in the Strategic Change group of IBM Business Consulting Services. In this position, Mr. Ramdas led consulting engagements at several Fortune 500 companies, in the areas of service strategy, global supplier relationship management and supply chain streamlining. Mr. Ramdas held positions in the E-Commerce and Supply Chain strategy groups at PricewaterhouseCoopers Management Consulting, again providing consulting services for Fortune 500 clients. Prior to management consulting, Mr. Ramdas worked as a program manager and design engineer with Kinhill Engineers in Australia. He has also been involved in the start-up stage of successful small businesses in the United States and in India. Mr. Ramdas received an M.B.A. from the University of Michigan Ross School of Business in Ann Arbor, Michigan. He also holds a bachelor’s degree in Mechanical Engineering from the College of Engineering, Guindy (Chennai), India.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

NTIC’s common stock is listed for trading on the NASDAQ Global Market under the symbol “NTIC.” The following table sets forth the high and low daily sales prices for NTIC’s common stock, as reported by the NASDAQ Global Market, for the fiscal quarter indicated:

	High		Low
Fiscal 2016
Fourth Quarter	$	14.93	$	10.00
Third Quarter		14.95		11.16
Second Quarter		17.00		9.60
First Quarter		18.00		13.19
Fiscal 2015
Fourth Quarter	$	18.48	$	14.36
Third Quarter		21.40		16.45
Second Quarter		24.85		19.00
First Quarter		23.89		17.75

Dividends

Although NTIC’s Board of Directors has declared cash dividends to NTIC’s stockholders in the past, the payment of any future dividends will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions and other factors. The Board of Directors currently does not anticipate paying a dividend on NTIC’s common stock in the near future, but rather intends to retain all of its earnings for the foreseeable future to finance the operation and expansion of its business.

Number of Record Holders

As of August 31, 2016, there were 175 record holders of NTIC’s common stock. This does not include shares held in “street name” or beneficially owned.

Recent Sales of Unregistered Equity Securities

NTIC did not sell any shares of its common stock or any other equity securities of NTIC that were not registered under the Securities Act of 1933, as amended, during the fourth quarter of fiscal 2016.

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Issuer Purchases of Equity Securities

The following table shows NTIC’s fourth quarter of fiscal 2016 stock repurchase activity.

Period	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
June 1, 2016 through June 30, 2016	0	N/A	0	(1)
July 1, 2016 through July 31, 2016	3,700	$11.20	3,700	(1)(2)
August 1, 2016 through August 31, 2016	0	N/A	0	(1)(2)
Total	3,700	$11.20	3,700	(1)(2)

(1) On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors at any time.

(2) As of August 31, 2016, up to $2,836,656 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

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Item 6. SELECTED FINANCIAL DATA

The following tables set forth certain of NTIC’s selected consolidated financial data as of the dates and for the years indicated. The selected consolidated financial data was derived from NTIC’s consolidated financial statements. The audited consolidated financial statements as of August 31, 2016 and 2015 and for the fiscal years ended August 31, 2016 and 2015 are included elsewhere in this report. The audited consolidated financial statements as of August 31, 2014, 2013 and 2012 and for the fiscal years ended August 31, 2014, 2013 and 2012 are not included in this report. Historical results are not necessarily indicative of the results to be expected for any future period.

	Fiscal Year Ended August 31,
	2016			2015			2014			2013			2012
Statements of Operations Data:
Net sales, excluding joint ventures	$	30,211,660		$	27,491,392		$	23,601,514		$	19,724,205		$	20,227,719
Net sales, to joint ventures		2,721,905			2,831,301			3,224,594			2,777,659			2,553,934
Total net sales		32,933,565			30,322,693			26,826,108			22,501,864			22,781,653
Cost of goods sold		22,320,156			20,555,932			17,803,153			15,473,212			14,528,785
Gross profit		10,613,409			9,766,761			9,022,955			7,028,652			8,252,868
Equity in income from joint ventures		4,743,831			5,936,565			5,920,603			5,237,711			5,519,795
Fees for services provided to joint ventures		5,137,710			5,715,491			8,142,863			7,352,980			4,622,912
Total joint venture operations		9,881,541			11,652,056			14,063,466			12,590,691			10,142,707
Selling expenses		6,255,353			5,820,748			5,221,738			4,845,676			4,585,901
General and administrative expenses		7,230,557			6,531,576			5,393,531			4,605,979			4,309,410
Expenses incurred in support of joint ventures		1,001,812			1,867,570			1,408,014			1,387,197			1,054,914
Research and development expenses		4,724,596			4,047,279			4,368,752			3,815,515			3,875,581
Total operating expenses		19,212,318			18,267,173			16,392,035			14,654,367			13,825,806
Operating income		1,282,551			3,151,644			6,694,386			4,964,976			4,569,769
Interest income		42,115			34,835			11,617			34,614			54,652
Interest expense		(13,261	)		(20,960	)		(47,322	)		(52,215	)		(29,388	)
Impairment on investment at carrying value		(1,883,668	)		—			—			—			—
Other income		—			515			4,393			670,126			21,613
(Loss) income before income taxes		(572,182	)		3,166,034			6,663,074			5,617,501			4,616,646
Income tax expense		626,120			648,674			1,124,662			864,000			1,041,000
Net (loss) income		(1,198,302	)		2,517,360			5,538,412			4,753,501			3,575,646
Net (loss) income attributable to non-controlling interests		(330,788	)		727,789			1,432,040			1,386,607			127,450
Net (loss) income attributable to NTIC	$	(867,514	)	$	1,789,571		$	4,106,372		$	3,366,894		$	3,448,196
Net (loss) income attributable to NTIC per common share:
Basic	$	(0.19	)	$	0.40		$	0.92		$	0.76		$	0.79
Diluted	$	(0.19	)	$	0.38		$	0.90		$	0.75		$	0.78
Weighted-average common shares assumed outstanding:
Basic		4,537,504			4,521,788			4,454,836			4,421,636			4,391,424
Diluted		4,537,504			4,649,060			4,579,498			4,475,895			4,451,594
Balance Sheet Data:
Cash and cash equivalents	$	3,395,274		$	2,623,981		$	2,477,017		$	4,314,258		$	4,137,547
Available for sale securities		2,243,864			2,027,441			5,519,766			—			—
Total current assets		20,942,171			19,275,612			22,319,966			16,932,505			14,059,726
Total assets		51,070,050			51,565,648			54,057,775			49,053,949			41,877,627
Total current liabilities		3,994,106			3,671,841			4,466,655			3,662,053			3,999,645
Note payable, net of current portion		—			—			—			857,295			933,413
Non-controlling interests		2,540,974			3,019,702			3,837,257			3,800,929			187,913
Total stockholders’ equity		44,543,970			44,874,105			45,753,863			40,733,672			36,756,656
Total equity		47,075,944			47,893,807			49,591,120			44,534,601			36,944,569

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	Fiscal Year Ended August 31,
	2016			2015			2014			2013			2012
Other Financial Data:
Net cash provided by (used in) operating activities	$	2,055,607		$	(755,545	)	$	7,422,912		$	1,910,702		$	2,671,851
Net cash (used in) provided by investing activities		(955,240	)		1,901,224			7,457,380			1,752,842			(1,709,077	)
Net cash (used in) provided by financing activities		(270,247	)		(874,652	)		(1,814,418	)		(1,563,867	)		13,822
Effect of exchange rate changes on cash and cash equivalents		(18,826	)		(124,064	)		11,646			(39,574	)		(105,411	)

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess NTIC’s financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Part I. Item 1. Business—Forward-Looking Statements” and under the heading “Part I. Item 1A. Risk Factors.” The following discussion of the results of the operations and financial condition of NTIC should be read in conjunction with NTIC’s consolidated financial statements and the related notes thereto included under “Part II. Item 8. Financial Statements and Supplementary Data.”

This Management’s Discussion and Analysis is organized in the following major sections:

• Business Overview. This section provides a brief overview description of NTIC’s business, focusing in particular on developments during the most recent fiscal year.

• NTIC’s Subsidiaries and Joint Venture Network. This section provides a brief overview of NTIC’s subsidiaries and its joint venture network, the joint ventures which are considered individually significant to NTIC’s consolidated assets and income and how NTIC’s joint ventures are accounted for by NTIC.

• Termination of Chinese Joint Venture. This section provides a brief summary of the termination of NTIC’s joint venture in China and the financial impact on fiscal 2016.

• Financial Overview. This section provides a brief summary of NTIC’s financial results and financial condition for fiscal 2016 compared to 2015.

• Sales and Expense Components. This section provides a brief description of the significant line items in NTIC’s consolidated statements of operations.

• Results of Operations. This section provides an analysis of the significant line items in NTIC’s consolidated statements of operations.

• Liquidity and Capital Resources. This section provides an analysis of NTIC’s liquidity and cash flows and a discussion of NTIC’s financial condition and financial commitments.

• Off-Balance Sheet Arrangements. This section describes NTIC’s material off-balance sheet arrangements.

• Inflation and Seasonality. This section describes the effects of inflation and seasonality, if any, on NTIC’s business and operating results.

• Market Risk. This section describes material market risks to which NTIC is subject.

• Related Party Transactions. This section describes any material related party transactions to which NTIC is a party.

• Critical Accounting Policies and Estimates. This section discusses NTIC’s critical accounting policies and estimates which require NTIC to exercise subjective or complex judgments in their application. All of NTIC’s significant accounting policies, including its critical accounting estimates, are summarized in Note 1 to NTIC’s consolidated financial statements.

• Recent Accounting Pronouncements. This section discusses recently issued accounting pronouncements that have had or may affect NTIC’s results of operations and financial condition and references Note 2 to NTIC’s consolidated financial statements, which summarizes such pronouncements.

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Business Overview

NTIC develops and markets proprietary environmentally beneficial products and services in over 60 countries either directly or via a network of subsidiaries, joint ventures, independent distributors and agents. NTIC’s primary business is corrosion prevention marketed mainly under the ZERUST^® brand. NTIC has been selling its proprietary ZERUST^® products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over 40 years, and in recent years, has targeted and expanded into the oil and gas industry. NTIC also markets and sells a portfolio of biobased and certified compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec^® brand. These products are intended to reduce NTIC’s customers’ carbon footprint and provide environmentally sound waste disposal options.

NTIC’s ZERUST^® rust and corrosion inhibiting products include plastic and paper packaging, liquids and coatings, rust removers and cleaners, diffusers and engineered solutions designed specifically for the oil and gas industry. NTIC also offers worldwide on-site technical consulting for rust and corrosion prevention issues. NTIC’s technical service consultants work directly with the end users of NTIC’s ZERUST^® rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet their technical requirements. In North America, NTIC sells its ZERUST^® corrosion prevention solutions through a network of independent distributors and agents supported by a direct sales force. Internationally, NTIC sells its ZERUST^® corrosion prevention solutions through its wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd. (NTIC China), its majority-owned joint venture holding company for NTIC’s joint venture investments in the Association of Southeast Asian Nations (ASEAN) region, its majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil), and joint venture arrangements in North America, Europe and Asia.

One of NTIC’s strategic initiatives is to expand into and penetrate other markets for its ZERUST^® corrosion prevention solutions. Consequently, for the past several years, NTIC has focused significant sales and marketing efforts on the oil and gas industry, as the infrastructure that supports that industry is typically constructed using metals that are highly susceptible to corrosion. NTIC believes that its ZERUST^® corrosion prevention solutions will minimize maintenance downtime on critical oil and gas industry infrastructure, extend the life of such infrastructure and reduce the risk of environmental pollution due to corrosion leaks.

NTIC markets and sells its ZERUST^® rust and corrosion prevention solutions to customers in the oil and gas industry across several countries either directly, through its subsidiaries or through its joint venture partners and other strategic partners. The sale of ZERUST^® corrosion prevention solutions to customers in the oil and gas industry typically involves a long sales cycle, often including a one- to multi-year trial period with each customer and a slow integration process thereafter.

Natur-Tec^® biobased and compostable plastics are manufactured using NTIC’s patented and/or proprietary technologies and are intended to replace conventional petroleum-based plastics. The Natur-Tec^® biopolymer resin compound portfolio includes formulations that have been optimized for a variety of applications including blown-film extrusion, extrusion coating, injection molding, and engineered plastics. These resin compounds are certified to be fully biodegradable in a composting environment and are currently being used to produce finished products including can liners, shopping and grocery bags, lawn and leaf bags, pet waste collection bags, cutlery and coated paper products. In North America, NTIC markets its Natur-Tec^® resin compounds and finished products primarily through a network of regional and national distributors as well as independent agents. NTIC continues to see significant opportunities for finished bioplastic products and, therefore, continues to strengthen and expand its North American distribution network for finished Natur-Tec^® bioplastic products. Internationally, NTIC sells its Natur-Tec^® resin compounds and finished products both directly and through its majority- owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India), and through certain joint ventures.

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Termination of Chinese Joint Venture

On January 2, 2015, NTIC announced that, effective as of December 31, 2014, it is selling its ZERUST^® products and services in China through a wholly-owned subsidiary, NTIC (Shanghai) Co., Ltd., and has terminated its joint venture agreements with Tianjin-Zerust Anticorrosion Co., Ltd. (Tianjin Zerust). NTIC and NTI Asean LLC have filed a lawsuit in China against Mr. Tao Meng, the former joint venture entity’s other shareholder, and his spouse, seeking, among other things, an orderly liquidation of Tianjin Zerust.

NTIC indirectly has a 30% ownership interest in Tianjin Zerust through its 60% owned holding company subsidiary, NTI Asean LLC. NTIC’s consolidated financial statements include the financial results of NTIC China beginning with the second quarter of fiscal 2015.

NTIC anticipates that it will take time to transition Tianjin Zerust customers to NTIC China and no assurance can be provided that NTIC China will be able to achieve the net sales and income levels previously achieved by Tianjin Zerust. For fiscal 2014, Tianjin Zerust had net sales of $15.9 million and net income of $1.3 million. The operating income of the joint venture before paying royalties in an aggregate amount of $4.2 million to all shareholders was over $5.5 million.

During fiscal 2016, NTIC realized approximately $3,410,000 in expenses related either directly or indirectly to the establishment and initial business operations of NTIC China, the termination of the joint venture agreements with Tianjin Zerust, NTIC’s ongoing litigation against Mr. Tao Meng and his spouse, NTIC’s ongoing litigation against Cortec Corporation, the creation of a reserve against the accounts receivable balance from Tianjin Zerust, the write-off of certain inventory and the asset impairment of NTIC’s joint venture interest in Tianjin Zerust. These expenses are recorded as selling, general and administrative expenses, expenses incurred in support of joint ventures, and/or impairment on investment at carrying value on NTIC’s consolidated statements of operations.

Based on additional information regarding the financial position of the investment through the legal proceedings that have been ongoing and the lack of financial information and cooperation provided from the Tianjin Zerust partner, NTIC believes that, for accounting purposes, its joint venture investment in Tianjin Zerust is fully impaired as of August 31, 2016.  The carrying value of Tianjin Zerust prior to impairment was $1,883,668, of which the net impact to NTIC was $1,130,201 based on 60% ownership of NTI Asean. As of August 31, 2016, the carrying value, for accounting purposes, is $0.  As of August 31, 2016, NTIC created a reserve against the accounts receivable balance owed from Tianjin Zerust of $114,636 as NTIC determined that, for accounting purposes, it is uncollectible. Despite these accounting positions, NTIC intends to continue to vigorously pursue its litigation against its former joint venture partner for the losses associated with Tianjin Zerust. NTIC also intends to continue to vigorously pursue its litigation against Cortec Corporation for lost profits, unjust enrichment and other damages related to its tortious interference and breach, among other claims.

NTIC expects that its operating results may continue to be volatile as a result of its ongoing Chinese operations.

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NTIC’s Subsidiaries and Joint Venture Network

NTIC has ownership interests in five subsidiaries in North America, Europe and Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of November 15, 2016, the country in which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:

Joint Venture Name	Country		NTIC Percent (%) Ownership
NTIC (Shanghai) Co., Ltd		China		100	%
NTI Asean LLC		United States		60	%
Zerust Prevenção de Corrosão S.A.		Brazil		85	%
ZERUST-EXCOR MEXICO, S. de R.L. de C.V		Mexico		100	%
Natur-Tec India Private Limited		India		90	%

The results of NTIC China, Zerust Brazil, NTI Asean and Natur-Tec India, and as of August 31, 2016, Zerust Mexico, are fully consolidated in NTIC’s consolidated financial statements.

NTIC participates in 19 active joint venture arrangements in North America, Europe and Asia. Each of these joint ventures generally manufactures and markets products in the geographic territory to which it is assigned. While most of NTIC’s joint ventures exclusively sell rust and corrosion inhibiting products, some of the joint ventures also sell NTIC’s Natur-Tec^® resin compounds. NTIC has historically funded its investments in joint ventures with cash generated from operations.

NTIC’s receipt of funds from its joint ventures is dependent upon fees for services that NTIC provides to its joint ventures, based primarily on the net sales of the individual joint ventures, and NTIC’s receipt of dividend distributions from the joint ventures. The fees for services provided to joint ventures are determined based on either a flat fee or a percentage of sales depending on local laws and tax regulations. With respect to NTIC’s joint venture in Germany (EXCOR), NTIC recognizes an agreed upon quarterly fee for such services. NTIC recognizes equity income from its joint ventures based on the overall profitability of its joint ventures. Such profitability is subject to variability from quarter to quarter which, in turn, subjects NTIC’s earnings to variability from quarter to quarter. The profits of NTIC’s joint ventures are shared by the respective joint venture owners in accordance with their respective ownership percentages. NTIC typically directly or indirectly owns 50% or less of each of its joint venture entities and thus does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much they should be in a given year. The payment of a dividend by an entity is determined by a joint vote of the owners and is not at the sole discretion of NTIC.

NTIC accounts for the investments and financial results of its joint ventures in its consolidated financial statements utilizing the equity method of accounting.

NTIC considers EXCOR to be individually significant to NTIC’s consolidated assets and income; and therefore, provides certain additional information regarding EXCOR in the notes to NTIC’s consolidated financial statements and in this section of this report.

Financial Overview

NTIC’s management, including its chief executive officer who is NTIC’s chief operating decision maker, reports and manages NTIC’s operations in two reportable business segments based on products sold, customer base and distribution center: ZERUST^® products and services and Natur-Tec^® products.

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NTIC’s consolidated net sales increased 8.6% during fiscal 2016 compared to fiscal 2015. This increase was primarily a result of increased sales at NTIC China and increased sales of Natur-Tec^® products, partially offset by decreased sales of Zerust industrial products in North America. During fiscal 2016, 83.7% of NTIC’s consolidated net sales were derived from sales of ZERUST^® products and services, which increased 5.9% to $27,577,566 during fiscal 2016 compared to $26,042,909 during fiscal 2015. This increase was due to increased demand from new customers in China. NTIC has focused its sales efforts of ZERUST^® products and services by strategically targeting customers with specific corrosion issues in new market areas, including the oil and gas industry and other industrial sectors that offer sizable growth opportunities. NTIC’s consolidated net sales for fiscal 2016 included $1,739,607 of sales made to customers in the oil and gas industry compared to $1,886,814 for fiscal 2015. Overall demand for ZERUST^® products and services depends heavily on the overall health of the markets in which NTIC sells its products, including the automotive, oil and gas, agriculture, and mining markets in particular. In addition, NTIC believes demand for ZERUST^® products and services in the oil and gas industry is dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.

During fiscal 2016, 16.3% of NTIC’s consolidated net sales were derived from sales of Natur-Tec^® products compared to 14.1% during fiscal 2015. Net sales of Natur-Tec^® products increased 25.1% to $5,355,999 during fiscal 2016 compared to fiscal 2015 primarily due to finished product sales in North America and finished product sales at NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India).

Cost of goods sold as a percentage of net sales remained at 67.8% during fiscal 2016 and fiscal 2015.

NTIC’s equity in income from joint ventures decreased 20.1% to $4,743,831 during fiscal 2016 compared to $5,936,565 during fiscal 2015. This decrease was primarily a result of decreases in profitability at the joint ventures, including no equity in income provided by Tianjin Zerust during fiscal 2016 compared to $132,824 during fiscal 2015. NTIC recognized a 10.1%, or $577,781, decrease in fees for services provided to joint ventures during fiscal 2016 compared to fiscal 2015 primarily due to not receiving any fees for services from Tianjin Zerust and to a lesser extent, a decrease in sales of the joint ventures. Fees for services provided to Tianjin Zerust decreased to $0 during fiscal 2016 compared to $494,080 during fiscal 2015. Additionally, there was a decrease in sales at the joint ventures, which were $90,646,833 during fiscal 2016, compared to $99,026,251 during fiscal 2015. This decrease in the net sales of NTIC’s joint ventures was due primarily to weaker economic trends, especially in Europe. This decrease resulted in a corresponding decrease in fees for services provided to joint ventures as such fees are a function of net sales of NTIC’s joint ventures.

NTIC’s total operating expenses increased $775,226, or 4.2%, to $19,042,399 during fiscal 2016 compared to $18,267,173 in fiscal 2015. This increase was primarily due to the expenses related to the formation and establishment of NTIC China and the associated legal expense associated with anticipated liquidation of Tianjin Zerust and ongoing litigation in North America. Such expenses consisted primarily of legal and personnel expenses associated with the establishment of the subsidiary, the hiring of new personnel and operations.

NTIC spent $4,724,596 in fiscal 2016 in connection with its research and development activities, compared to $4,047,279 in fiscal 2015. NTIC anticipates that it will spend between $2,000,000 and $3,000,000 in fiscal 2017 on research and development activities. This anticipated significant decrease is due to the transition of expenses that were previously treated as research and development expenses to selling, general and administrative expenses, specifically as they relate to Natur-Tec^® and the ZERUST^® oil and gas business since most of the expenses related to these business units are no longer in the research and development phase of product development.

Based on additional information regarding the financial position of the investment through the legal proceedings that have been ongoing and the lack of financial information and cooperation provided from the Tianjin Zerust partner, NTIC recorded an impairment charge of $1,883,668 during fiscal 2016 related to NTIC’s joint venture investment in Tianjin Zerust, the net impact of which, net of the minority interest, was $1,130,201. NTIC’s investment in its Tianjin Zerust joint venture is now valued at $0 for accounting purposes.

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Net (loss) income attributable to NTIC decreased to a net loss of $(867,514), or $(0.19) per diluted common share, for fiscal 2016 compared to net income of $1,789,571, or $0.38 per diluted common share, for fiscal 2015. This decrease was primarily the result of the decrease in income from NTIC’s joint venture operations, the impairment of the fair value of NTIC’s joint venture investment in Tianjin Zerust of $1,883,668 ($1,130,201 net of minority interest) and the $1,266,087 of losses in fiscal 2016 associated with NTIC China’s operations, which was a $223,892 increase over fiscal 2015.

NTIC anticipates that its quarterly net income or loss will continue to remain subject to significant volatility primarily due to the financial performance of its subsidiaries and joint ventures and sales of its ZERUST^® products and services into the oil and gas industry and Natur-Tec^® bioplastics products, which sales fluctuate more on a quarterly basis than the traditional ZERUST^® business. NTIC also anticipates that its operating results will remain volatile primarily as a result of the changes in its Chinese operations.

NTIC’s working capital was $16,948,065 at August 31, 2016, including $3,395,274 in cash and cash equivalents and $2,243,864 in available for sale securities, compared to $15,603,771 at August 31, 2015, including $2,623,981 in cash and cash equivalents and $2,027,441 in available for sale securities.

Sales and Expense Components

The following is a description of the primary components of net sales and expenses:

Net Sales, Excluding Joint Ventures. NTIC derives net sales from the sale of its ZERUST^® products and services and its Natur-Tec^® products. NTIC sells its ZERUST^® products and services and its Natur-Tec^® products either directly, through its subsidiaries or via a network of joint ventures, independent distributors and agents. Net sales, excluding joint ventures represents net sales by NTIC either directly to end users or to distributors worldwide, but not sales to NTIC’s joint ventures and not sales by NTIC’s joint ventures. NTIC recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured, all of which criteria are generally met upon shipment when risk of loss and title passes to the customer or distributor. NTIC records all amounts billed to customers and distributors in a sales transaction related to shipping and handling as sales and records costs related to shipping and handling in cost of goods sold.

Net Sales, To Joint Ventures. Net sales, to joint ventures represents net sales by NTIC to NTIC’s joint ventures, but not sales by NTIC either directly to end users or to distributors or sales by NTIC’s joint ventures. NTIC’s revenue recognition policy for sales to its joint ventures is the same as NTIC’s policy for sales to unaffiliated customers. NTIC recognizes revenue from the sale of its products to joint ventures when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured, all of which criteria are generally met upon shipment when risk of loss and title passes to the joint venture.

Cost of Goods Sold. Most of NTIC’s products are manufactured by third parties and its cost of goods sold for those products consists primarily of the price invoiced by its third-party vendors. For the portion of products that NTIC manufactures, NTIC’s cost of goods sold for those products consists primarily of direct labor, allocated manufacturing overhead, raw materials and components. NTIC’s margins on its Natur-Tec^® resin compounds and finished products are generally smaller than its margins on its ZERUST^® products and services, and NTIC’s margins on its ZERUST^® products and services sold into the oil and gas industry are generally greater than its margins on its traditional ZERUST^® products and services.

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures consists of NTIC’s share of equity in income from its joint ventures based on the overall profitability of the joint ventures. Such profitability is subject to variability from quarter to quarter which, in turn, subjects NTIC’s earnings to variability from quarter to quarter. Traditionally, a portion of the equity income recorded in a given fiscal year is paid to the owners of the joint venture entity during the following fiscal year through a dividend. The payment of a dividend by a joint venture entity is determined by a vote of the joint venture owners and is not at the sole discretion of NTIC. NTIC typically owns only 50% or less of its joint venture entities and thus does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much they should be in a given year.

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Fees for Services Provided to Joint Ventures. NTIC provides certain services to its joint ventures including consulting, legal, travel, insurance, technical and marketing services. NTIC receives fees for these services it provides to its joint ventures based primarily on the net sales by NTIC’s joint ventures, the latter of which are not included in NTIC’s net sales reflected on NTIC’s consolidated statements of operations. The fees for services received by NTIC from its joint ventures are generally determined based on either a flat fee or a percentage of net sales by NTIC’s joint ventures depending on local laws and tax regulations. With respect to EXCOR, NTIC receives an agreed upon fixed quarterly fee for such services. NTIC records revenue related to fees for services provided to joint ventures when earned, amounts are determinable and collectability is reasonably assured. Under NTIC’s agreements with its joint ventures in which the fees for services is described, fees are earned when the joint venture recognizes the revenue.

NTIC sponsors a worldwide joint venture conference periodically in which all of NTIC’s joint ventures are invited to participate. It is anticipated that the next joint venture conference will be held next year or the year thereafter. NTIC defers a portion of its fees for services provided to joint ventures in each accounting period leading up to the next conference, reflecting that NTIC has not fully earned the payments received during that period. The amount deferred is based on the historical experience of NTIC, current conditions and the intentions of NTIC’s management. The costs associated with these joint venture conferences are offset against the deferral as incurred, generally in the period in which the conference is held and immediately before.

Selling Expenses. Selling expenses consist primarily of sales commissions and support costs for NTIC’s direct sale and distribution system, and marketing costs.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and benefits, and other costs for NTIC’s executives, accounting, stock-based compensation, finance, legal, information technology and human resources functions.

Expenses Incurred in Support of Joint Ventures. NTIC incurs direct expenses related to its joint ventures and in connection with NTIC’s provision of support and services to its joint ventures. Such expenses include items such as employee compensation and benefits, travel, consulting, legal and laboratory supplies and testing expenses.

Research and Development Expenses. Research and development expenses include costs associated with the design, development, market analysis, lab testing and field trials and enhancements of NTIC’s products and services. NTIC expenses all costs related to product research and development as incurred. Research and development expenses reflect the net amount after being reduced by reimbursements related to certain research and development contracts. With respect to such research and development contracts, NTIC accrues proceeds received under the contracts and offsets research and development expenses incurred in equal installments over the timelines associated with completion of the contracts’ specific objectives and milestones.

Interest Income. Interest income consists of interest earned on investments, which typically consist of investment-grade, interest-bearing securities and money market accounts.

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Interest Expense. Interest expense results primarily from interest associated with any borrowings under NTIC’s line of credit with PNC Bank.

Income Tax Expense. Income tax expense includes federal income taxes, foreign withholding taxes, income tax of consolidated entities in foreign jurisdictions, state income tax and changes to NTIC’s deferred tax valuation allowance. NTIC utilizes the liability method of accounting for income taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. NTIC records a tax valuation allowance when it is more likely than not that some portion or all of its deferred tax assets will not be realized. NTIC makes this determination based on all available evidence, including historical data and projections of future results. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Results of Operations

Fiscal Year 2016 Compared to Fiscal Year 2015

The following table sets forth NTIC’s results of operations for fiscal 2016 and fiscal 2015.

	Fiscal 2016		% of Net Sales			Fiscal 2015		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	30,211,660		91.7	%	$	27,491,392		90.7	%	$	2,720,268			9.9	%
Net sales, to joint ventures		2,721,905		8.3	%		2,831,301		9.3	%		(109,396	)		(3.9	%)
Cost of goods sold		22,320,156		67.8	%		20,555,932		67.8	%		1,764,224			8.6	%
Equity in income from joint ventures		4,743,831		14.4	%		5,936,565		19.6	%		(1,192,734	)		(20.1	%)
Fees for services provided to joint ventures		5,137,710		15.6	%		5,715,491		18.8	%		(577,781	)		(10.1	%)
Selling expenses		6,255,353		19.0	%		5,820,748		19.2	%		434,605			7.5	%
General and administrative expenses		7,230,557		22.0	%		6,531,576		21.5	%		698,981			10.7	%
Expenses incurred in support of joint ventures		1,001,812		3.0	%		1,867,570		6.2	%		(865,758	)		(46.4	%)
Research and development expenses		4,724,596		14.3	%		4,047,279		13.3	%		677,317			16.7	%
Impairment of investment at carrying value		1,883,668		5.7	%		—		—			1,883,668			n/a

Net Sales. NTIC’s consolidated net sales increased 8.6% to $32,933,565 during fiscal 2016 compared to $30,322,693 during fiscal 2015. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased 9.9% to $30,211,660 during fiscal 2016 compared to $27,491,392 during fiscal 2015. These increases were primarily a result of increased sales at NTIC China and increased sales of Natur-Tec^® products, partially offset by decreased sales of Zerust industrial products in North America. Net sales to joint ventures decreased 3.9% to $2,721,905 in fiscal 2016 compared to fiscal 2015. This decrease was due primarily to the decrease in sales of the joint ventures.

The following table sets forth NTIC’s net sales by product segment for fiscal 2016 and fiscal 2015:

	Fiscal 2016		Fiscal 2015		$ Change		% Change
ZERUST® net sales	$	27,577,566	$	26,042,909	$	1,534,657		5.9	%
Natur-Tec® net sales		5,355,999		4,279,784		1,076,215		25.1	%
Total net sales	$	32,933,565	$	30,322,693	$	2,610,872		8.6	%

During fiscal 2016, 83.7% of NTIC’s consolidated net sales were derived from sales of ZERUST^® products and services, which increased 5.9% to $27,577,566 compared to $26,042,909 during fiscal 2015. This increase was due to increased sales at NTIC China of $3,043,000 partially offset by decreases in sales in North America and Brazil of $900,000 and $452,000, respectively. NTIC has strategically focused its sales efforts for ZERUST^® products and services on customers with sizeable corrosion problems in industry sectors that offer sizable growth opportunities, including the oil and gas sector. Overall demand for ZERUST^® products and services depends heavily on the overall health of the market segments to which NTIC sells its products, including the automotive, oil and gas, agriculture, and mining markets in particular. In addition, NTIC believes demand for ZERUST^® products and services in the oil and gas industry is dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.

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The following table sets forth NTIC’s net sales of ZERUST^® products for fiscal 2016 and fiscal 2015:

	Fiscal 2016		Fiscal 2015		$ Change			% Change
ZERUST® industrial net sales	$	23,124,461	$	21,324,793	$	1,799,668			8.4	%
ZERUST® joint venture net sales		2,713,498		2,831,302		(117,804	)		(4.2	%)
ZERUST® oil & gas net sales		1,739,607		1,886,814		(147,207	)		(7.8	%)
Total ZERUST® net sales	$	27,577,566	$	26,042,909	$	1,534,657			5.9	%

NTIC anticipates that its sales of ZERUST^® products and services into the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized.

During fiscal 2016, 16.3% of NTIC’s consolidated net sales were derived from sales of Natur-Tec^® products, compared to 14.1% during fiscal 2015. Sales of Natur-Tec^® products increased 25.1% to $5,355,999 during fiscal 2016 compared to $4,279,784 during fiscal 2015. This increase was due primarily to finished product sales in North America and finished product sales through Natur-Tec India. Demand for Natur-Tec^® products around the world depends primarily on market acceptance and the reach of NTIC’s distribution network. Because of the typical size of individual orders and overall size of NTIC’s net sales derived from sales of Natur-Tec^® products, the timing of one or more orders can materially affect NTIC’s quarterly sales of Natur-Tec^® products and the comparisons to prior fiscal year quarters.

Cost of Goods Sold. Cost of goods sold increased 8.6% in fiscal 2016 compared to fiscal 2015 primarily as a result of the increase in net sales as described above. Cost of goods sold as a percentage of net sales remained at 67.8% during fiscal 2016 and fiscal 2015.

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures decreased 20.1% to $4,743,831 during fiscal 2016 compared to $5,936,565 during fiscal 2015. This decrease was primarily a result of decreases in profitability at the joint ventures and the lack of income from Tianjin Zerust. Specifically, of the total equity in income from joint ventures, NTIC had equity in income from joint ventures of $3,534,113 attributable to EXCOR during fiscal 2016 compared to $4,091,608 attributable to EXCOR during fiscal 2015, This decrease was due to lower profitability in the first half of fiscal 2016 and restructuring charges incurred by EXCOR in the fourth quarter of fiscal 2016. Of the total equity in income of joint ventures, NTIC had equity in income of joint ventures of $0 attributable to Tianjin Zerust during fiscal 2016 compared to $132,824 attributable to Tianjin Zerust during fiscal 2015. NTIC had equity in income of all other joint ventures of $1,209,718 during fiscal 2016 compared to $1,712,133 during fiscal 2015 due to an overall decrease in sales at the joint ventures which impacted profitability.

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $5,137,710 during fiscal 2016 compared to $5,715,491 during fiscal 2015, representing a decrease of 10.1% or $577,781. This decrease was primarily a result of the anticipated liquidation of Tianjin Zerust as fees for services provided from Tianjin Zerust decreased to $0 during fiscal 2016 compared to $494,080 during fiscal 2015. Additionally, the decrease in fees for services provided to joint ventures was a result of a decrease in total sales at all joint ventures, which were $90,646,833 during fiscal 2016 compared to $99,026,251 during fiscal 2015, a decrease of 8.5%. Net sales of NTIC’s joint ventures decreased due primarily to weaker economic trends, especially in Europe. Net sales of NTIC’s European joint ventures were adversely affected by a slight downturn in European manufacturing. Sales of NTIC’s joint ventures are not included in NTIC’s product sales and are not combined with NTIC’s sales in NTIC’s consolidated financial statements or in any description of NTIC’s sales.

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Of the total fee income for services provided to its joint ventures, fees of $845,857 were attributable to EXCOR during fiscal 2016 compared to $873,400 attributable to EXCOR during fiscal 2015. The decrease in fee income for services provided to joint ventures attributable to EXCOR was primarily the result of foreign currency exchange rate fluctuations. Of the total fee income for services provided to its joint ventures, fees of $0 were attributable to Tianjin Zerust during fiscal 2016 compared to $494,080 during fiscal 2015. NTIC received fee income for services provided to all of its other joint ventures of $4,291,853 during fiscal 2016 compared to $4,348,010 during fiscal 2015.

Selling Expenses. NTIC’s selling expenses increased 7.5% in fiscal 2016 compared to fiscal 2015 due to increases in compensation and employee benefits, lab testing related expenses, commission expenses, travel and related expenses, and consulting expenses. Selling expenses as a percentage of net sales decreased to 19.0% in fiscal 2016 compared to 19.2% in fiscal 2015 primarily due to the increase in selling expenses, as previously described, partially offset by the increase in net sales as previously described.

General and Administrative Expenses. NTIC’s general and administrative expenses increased by 10.7% in fiscal 2016 compared to fiscal 2015 due primarily to expenses incurred to establish and operate NTIC China, including North American legal expenses. NTIC implemented cost cutting measures companywide in the third and fourth quarter of fiscal 2016, which partially offset the expenses incurred in connection with NTIC’s NTIC China operations. As a percentage of net sales, general and administrative expenses increased to 22.0% for fiscal 2016 from 21.5% in fiscal 2015 due primarily to the increase in general and administrative expenses, as previously described, partially offset by the increase in net sales.

Expenses Incurred in Support of Joint Ventures. Expenses incurred in support of NTIC’s joint ventures were $1,001,812 during fiscal 2016 compared to $1,867,570 during fiscal 2015, representing a decrease of 46.4%. This decrease was primarily due to expenses incurred by NTIC’s China operations beginning in January 2015.

Research and Development Expenses. NTIC’s research and development expenses increased 16.7% in fiscal 2016 compared to fiscal 2015. This increase was due primarily to increases in personnel and consulting expenses.

Interest Income. NTIC’s interest income increased to $42,115 in fiscal 2016 compared to $34,835 in fiscal 2015. This was primarily due to higher levels of investments during fiscal 2016.

Interest Expense. NTIC’s interest expense decreased to $13,261 in fiscal 2016 compared to $20,960 in fiscal 2015. This decrease was primarily due to lower average outstanding debt levels during fiscal 2016.

Impairment on investment at carrying value. NTIC’s impairment on investment at carrying value for fiscal 2016 was attributable to its investment in Tianjin Zerust. Specifically, as of August 31, 2016, NTIC believes that, for accounting purposes, its joint venture investment in Tianjin Zerust is fully impaired, based on additional information regarding the financial position of the investment through the legal proceedings that have been ongoing. The carrying value of Tianjin Zerust prior to impairment was $1,883,668, of which the net impact to NTIC was $1,130,201 based on 60% ownership of NTI Asean. As of August 31, 2016, the carrying value, for accounting purposes, is $0. Despite this accounting position, NTIC intends to continue to vigorously pursue its litigation against its former joint venture partner for the losses associated with Tianjin Zerust. NTIC also intends to continue to vigorously pursue its litigation against Cortec Corporation for lost profits, unjust enrichment and other damages related to its tortious interference and breach, among other claims. NTIC will continue to evaluate the fair value of its investment in Tianjin Zerust for accounting purposes and, if necessary, will make any appropriate adjustments in future periods.

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(Loss) Income Before Income Tax Expense. NTIC incurred a loss before income tax expense of $(572,182) for fiscal 2016 compared to income before income tax expense of $3,166,034 for fiscal 2015.

Income Tax Expense. Income tax expense was $626,120 for fiscal 2016 compared to $648,674 during fiscal 2015 for an effective rate of -109.4% and 14.4%, respectively. NTIC’s annual effective income tax rate during fiscal 2016 and 2015 was lower than the statutory rate primarily due to foreign withholding taxes and NTIC’s equity in income of joint ventures being recognized based on after-tax earnings of these entities. To the extent undistributed earnings of NTIC’s joint ventures are distributed to NTIC, any material additional income tax liability after the application of foreign tax credits is not expected. NTIC records a tax valuation allowance when it is more likely than not that some portion or all of its deferred tax assets will not be realized to reduce deferred tax assets to the amount expected to be realized. NTIC determined based on all available evidence, including historical data and projections of future results, that it is more likely than not that all of its deferred tax assets, except for its foreign tax credit carryforwards and Minnesota state research and development credit carryforwards, will be fully realized. In addition, NTIC determined based upon all available evidence, including new IRS guidance, historical results, projected future taxable income and foreign tax credit utilization, that it was not more likely than not that the federal research and development credits would be utilized during the carryforward period and as a result, a valuation allowance was recorded against all of NTIC’s federal research and development credits. In addition, NTIC continues to believe that its deferred tax asset related to foreign tax credit carryforwards will not be realized due to insufficient federal taxable income within the carryforward period and the fact that for ordering purposes the foreign tax credit carryforwards are not allowed to be used until after any current year foreign tax credits are utilized.

NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet NTIC’s future domestic cash needs. As a result, U.S. income and foreign withholding taxes have not been recognized on the cumulative undistributed earnings of $17,779,912 and $18,483,377 at August 31, 2016 and August 31, 2015, respectively. To the extent undistributed earnings of NTIC’s joint ventures are distributed in the future, they are not expected to result in any material additional income tax liability after the application of foreign tax credits.

Other Comprehensive Income - Foreign Currency Translations Adjustment. The significant changes in the foreign currency translations adjustment was due to the strengthening of the U.S. dollar compared to the Euro and other foreign currencies during fiscal 2016 compared to fiscal 2015.

Liquidity and Capital Resources

Sources of Cash and Working Capital. As of August 31, 2016, NTIC’s working capital was $16,948,065, including $3,395,274 in cash and cash equivalents and $2,243,864 in available for sale securities, compared to working capital of $15,603,771, including $2,623,981 in cash and cash equivalents as of August 31, 2015 and $2,027,441 in available for sale securities.

As of August 31, 2016, NTIC had a revolving line of credit with PNC Bank of $3,000,000, with no amounts outstanding. The line of credit is evidenced by an amended and restated committed line of credit note in the principal amount of up to $3,000,000. The line of credit has a $1,200,000 standby letter of credit sub-facility, with any standby letters of credit issued thereunder being at the sole discretion of PNC Bank. Any line of credits issued by PNC Bank would decrease the availability under the revolving line of credit.

The line of credit is subject to standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, NTIC is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of August 31, 2016, NTIC was in compliance with all debt covenants.

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On January 6, 2016, PNC Bank extended the maturity date of the line of credit from January 7, 2016 to January 7, 2017 under substantially similar terms. It is anticipated that, as historically has been the practice, the line of credit will be renewed each year for one additional year for the immediate foreseeable future.

NTIC believes that a combination of its existing cash and cash equivalents, forecasted cash flows from future operations, anticipated distributions of earnings, anticipated fees to NTIC for services provided to its joint ventures, and funds available through existing or anticipated financing arrangements, will be adequate to fund its existing operations, investments in new or existing joint ventures or subsidiaries, capital expenditures, debt repayments and any stock repurchases for at least the next 12 months. During fiscal 2017, NTIC expects to continue to invest in NTIC China, research and development and in marketing efforts and resources into the application of its corrosion prevention technology into the oil and gas industry and its Natur-Tec^® bio-plastics business, the amount of these various investments is not known at this time. In order to take advantage of such new product and market opportunities to expand its business and increase its revenues, NTIC may decide to finance such opportunities by borrowing under its revolving line of credit or raising additional financing through the issuance of debt or equity securities. There is no assurance that any financing transaction will be available on terms acceptable to NTIC or at all, or that any financing transaction will not be dilutive to NTIC’s current stockholders.

NTIC traditionally has used the cash generated from its operations, distributions of earnings and fees for services provided to its joint ventures to fund NTIC’s new technology investments and capital contributions to new and existing subsidiaries and joint ventures. NTIC’s joint ventures traditionally have operated with little or no debt and have been self-financed with minimal initial capital investment and minimal additional capital investment from their respective owners. Therefore, NTIC believes there is limited exposure by NTIC’s joint ventures that could materially impact their respective operations and/or liquidity.

Uses of Cash and Cash Flow. Net cash provided by operating activities during fiscal 2016 was $2,055,606, which resulted principally from the impairment of investment at carrying value, dividends received from joint ventures, depreciation and amortization and an increase in accounts payable, partially offset by NTIC’s net loss, equity in income from joint ventures and increases in receivables, inventories and accrued liabilities. Net cash used in operating activities during fiscal 2015 was $755,544, which resulted principally from NTIC’s equity in income from joint ventures and increases in receivables, inventories and prepaid expenses and a decrease in accrued liabilities and income taxes payable, partially offset by NTIC’s net income, dividends received from joint ventures, expensing of fair value of stock options vested, depreciation and amortization.

NTIC’s cash flows from operations are impacted by significant changes in certain components of NTIC’s working capital, including inventory turnover and changes in receivables. NTIC considers internal and external factors when assessing the use of its available working capital, specifically when determining inventory levels and credit terms of customers. Key internal factors include existing inventory levels, stock reorder points, customer forecasts and customer requested payment terms, and key external factors include the availability of primary raw materials and sub-contractor production lead times. NTIC’s typical contractual terms for trade receivables excluding joint ventures are traditionally 30 days and for trade receivables from its joint ventures are 90 days. Before extending unsecured credit to customers, excluding NTIC’s joint ventures, NTIC reviews customers’ credit histories and will establish an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers and other information. Accounts receivable over 30 days are considered past due for most customers. NTIC does not accrue interest on past due accounts receivable. If accounts receivables in excess of the provided allowance are determined uncollectible, they are charged to selling expense in the period that determination is made. Accounts receivable are deemed uncollectible based on NTIC exhausting reasonable efforts to collect. NTIC’s typical contractual terms for receivables for services provided to its joint ventures are 90 days. NTIC records receivables for services provided to its joint ventures on an accrual basis, unless circumstances exist that make the collection of the balance uncertain in which case the fee income will be recorded on a cash basis until there is consistency in payments. This determination is handled on a case by case basis.

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NTIC experienced an increase in receivables and an increase in inventory as of August 31, 2016 compared to August 31, 2015 due to the increase in sales and a desire to stock more products to shorten lead times and anticipate customer demand. Trade receivables excluding joint ventures as of August 31, 2016 increased $723,798 compared to August 31, 2015, primarily related to miscellaneous differences in the timing of collections and the increase in sales.

Outstanding receivables for services provided to joint ventures as of August 31, 2016 decreased $42,575 compared to August 31, 2015, which resulted in a decrease of 36 days of fees receivable outstanding as of August 31, 2016 to an average of 57 days compared to August 31, 2015.

Net cash used in investing activities during fiscal 2016 was $995,240, which was primarily due to additions to property and equipment, purchase of available for sale securities and additions to patents. Net cash provided by investing activities for fiscal 2015 was $1,901,224, which was primarily the result of cash provided by the sale of available for sale securities, partially offset by additions to property and equipment and additions to patents.

Net cash used in financing activities for fiscal 2016 was $270,247, which resulted from a dividend paid to a non-controlling interest and repurchases of common stock, partially offset by proceeds from NTIC’s employee stock purchase plan. Net cash used in financing activities for fiscal 2015 was $874,652, which resulted from a dividend paid to a non-controlling interest, partially offset by proceeds from stock option exercises and NTIC’s employee stock purchase plan.

Share Repurchase Plan. On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors at any time. As of August 31, 2016, up to $2,836,656 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Capital Expenditures and Commitments. NTIC spent $643,407 on capital expenditures during fiscal 2016 which related primarily to the purchase of new equipment and the expansion of its lab capabilities. NTIC expects to spend an aggregate of approximately $200,000 to $400,000 on capital expenditures during fiscal 2017, which it expects will relate primarily to the purchase of new equipment.

Contractual Obligations

Set forth below is information concerning NTIC’s known contractual obligations as of August 31, 2016 that are fixed and determinable by year starting with the twelve months ending August 31, 2017.

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Rent obligations		597,944		191,631		236,691		81,159		88,463
Total	$	597,944	$	191,631	$	236,691	$	81,159	$	88,463

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Inflation and Seasonality

Inflation in the United States and abroad historically has had little effect on NTIC. NTIC’s business has not historically been seasonal.

Market Risk

NTIC is exposed to some market risk stemming from changes in foreign currency exchange rates, commodity prices and interest rates.

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese yen, Indian Rupee, Chinese Renminbi, Korean won and the English pound against the U.S. dollar. NTIC’s fees for services provided to joint ventures and dividend distributions from these foreign entities are paid in foreign currencies and thus fluctuations in foreign currency exchange rates could result in declines in NTIC’s reported net income. Since NTIC’s investments in its joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment and would not change NTIC’s equity in income of joint ventures reflected in its consolidated statements of income. NTIC does not hedge against its foreign currency exchange rate risk.

Some raw materials used in NTIC’s products are exposed to commodity price changes. The primary commodity price exposures are with a variety of plastic resins.

At the option of NTIC, outstanding advances under NTIC’s $3,000,000 revolving line of credit with PNC Bank bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable LIBOR interest period selected by NTIC or (b) at the rate publicly announced by PNC Bank from time to time as its prime rate, and thus may subject NTIC to some market risk on interest rates. As of August 31, 2016, NTIC had no borrowings under the line of credit.

Related Party Transactions

Since NTIC’s joint ventures are considered related parties, NTIC records sales to its joint ventures as a separate line item on the face of NTIC’s consolidated statements of operations and records fees for services provided to its joint ventures and expenses incurred in support of its joint ventures as separate line items on the face of NTIC’s consolidated statements of operations. NTIC also records as separate line items trade receivables from joint ventures, receivables for fees for services provided to joint ventures and NTIC’s investments in joint ventures on its consolidated balance sheets.

NTIC established its joint venture network approximately 25 years ago as a method to increase its worldwide distribution network for ZERUST^® rust and corrosion inhibiting products and services. NTIC participates, either directly or indirectly, in 19 active joint venture arrangements in North America, Europe and Asia. Each of these joint ventures generally manufactures and markets finished products in the geographic territory to which it is assigned. NTIC’s joint venture partners are knowledgeable in the applicable environmental, labor, tax and other requisite regulations and laws of the respective foreign countries in which they operate, as well as the local customs and business practices. NTIC’s revenue recognition policy for sales to its joint ventures is the same as its policy for sales to unaffiliated customers.

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The fees for services received by NTIC from its joint ventures are generally determined based on either a flat fee or a percentage of net sales by NTIC’s joint ventures depending on local laws and tax regulations. With respect to NTIC’s German joint venture, NTIC receives an agreed upon quarterly fee for such services. NTIC records revenue related to fees for services provided to joint ventures when earned, amounts are determinable and collectability is reasonably assured. Under NTIC’s agreements with its joint ventures, fee amounts are earned when product is shipped from joint venture facilities. NTIC reviews the financial situation of each joint venture to assist in the likelihood of collections on amounts earned. From time to time, NTIC elects to account for such fees on a cash basis for certain joint ventures when uncertainty exists surrounding the collections of such fees, there are no fees being accounted for in this manner at present. The expenses incurred in support of its joint ventures are direct expenses that NTIC incurs related to its joint ventures and include such items as employee compensation and benefit expenses, travel expense, insurance, consulting expense, legal expense and lab supplies and testing expense.

See Note 14 to NTIC’s consolidated financial statements for other related party transaction disclosures.

Off-Balance Sheet Arrangements

NTIC does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements. As such, NTIC is not materially exposed to any financing, liquidity, market or credit risk that could arise if NTIC had engaged in such arrangements.

Critical Accounting Policies and Estimates

The preparation of NTIC’s consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Securities and Exchange Commission has defined a company’s most critical accounting policies as those that are most important to the portrayal of its financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, NTIC has identified the following critical accounting policies. Although NTIC believes that its estimates and assumptions are reasonable, they are based upon information available when they are made. Actual results may differ significantly from these estimates under different assumptions or conditions.

Principles of Consolidation

NTIC evaluates its voting and variable interests in entities on a qualitative and quantitative basis. NTIC consolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits that could be significant to the entity. All such relationships are evaluated on an ongoing basis. The consolidated financial statements include the accounts of Northern Technologies International Corporation, its wholly-owned subsidiaries, Northern Technologies Holding Company, LLC, NTIC (Shanghai) Co., Ltd. and ZERUST-EXCOR MEXICO, S. de R.L. de C.V, and NTIC’s majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A., NTIC’s majority-owned holding company, NTI Asean LLC, and NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited. NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures.

Investments in Joint Ventures and Recoverability of Investments in Joint Ventures

NTIC’s investments in its joint ventures are accounted for using the equity method. NTIC assesses its joint ventures for impairment on an annual basis as of August 31 of each year as part of its fiscal year end analysis. In addition to the annual review for impairment, NTIC reviews the operating results of each joint venture on a quarterly basis in comparison to its historical operating results and its accrual for fees for services provided to joint ventures. If the operating results of a joint venture do not meet NTIC’s financial performance expectations, an additional evaluation is performed on the joint venture. In addition to the annual assessments for impairment, non-periodic assessments for impairment may occur if cash remittances are less than accrued balances, a joint venture’s management requests capital or other events occur suggesting an other than temporary decline in value. If an investment were determined to be impaired, then a reserve would be created to reflect the impairment on the financial results of NTIC. NTIC’s evaluation of its investments in joint ventures requires NTIC to make assumptions about future cash flows of its joint ventures. These assumptions require significant judgment and actual results may differ from assumed or estimated amounts.

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Investment at Carrying Value

NTIC is no longer able to exercise significant influence over operating and financial policy of a joint venture previously accounted for under the equity method, it maintains the investment at the carrying value as of the date that significant influence no longer exists and discontinues accruing the proportionate earnings or losses of the investment.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. NTIC employs a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds its fair value, NTIC evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, its intent and ability to hold, or plans to sell, the investment. NTIC also considers specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.

Revenue Recognition

NTIC recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. These criteria are met at the time of shipment when risk of loss and title pass to the customer, distributor or joint venture entity.

With respect to recording revenue related to fees earned for services provided to NTIC’s joint ventures, NTIC recognizes revenue related to support of joint ventures when earned, amounts are determinable and collectability is reasonably assured. The support and services NTIC provides its joint ventures include consulting, travel, insurance, technical and marketing services to existing joint ventures, legal fees incurred in the establishment of new joint ventures, registration and promotion and legal defense of worldwide trademarks, and legal fees incurred in connection with the filing of patent applications. NTIC receives fees for these services it provides to its joint ventures based primarily on the net sales by NTIC’s joint ventures. The fees for support services received by NTIC from its joint ventures are generally determined based on either a flat fee or a percentage of net sales by NTIC’s joint ventures depending on local laws and tax regulations. Under NTIC’s agreements with its joint ventures, amounts are earned when product is shipped from joint venture facilities. NTIC reviews the financial situation of each of its joint ventures to assist in the likelihood of collections on amounts earned. NTIC elects to account for these fees on a cash basis for certain joint ventures when uncertainty exists surrounding the collections of such fees.

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Accounts and Notes Receivable

Trade receivables arise from sales of NTIC’s products and services to NTIC’s joint ventures and to unaffiliated customers. Trade receivables from joint ventures arise from sales NTIC makes to its joint ventures of products and the essential additives required to make ZERUST^® industrial corrosion inhibiting products functional. Receivables for services to NTIC’s joint ventures are contractually based primarily on a percentage of the sales of the joint ventures and are intended to compensate NTIC for services NTIC provides to its joint ventures, including consulting, legal, travel, insurance, technical and marketing services.

Payment terms for NTIC’s unaffiliated customers are determined based on credit risk and vary by customer. NTIC typically offers standard payments terms to unaffiliated customers of net 30 days. Payment terms for NTIC’s joint ventures also are determined based on credit risk; however, additional consideration also is given to the individual joint venture due to the transportation time associated with ocean delivery of most products and certain other factors. NTIC typically offers payment terms to joint ventures of net 90 days. NTIC does not accrue interest on past due accounts receivable. NTIC reviews the credit histories of its customers, including its joint ventures, before extending unsecured credit. NTIC values accounts and notes receivable, net of an allowance for doubtful accounts. Each quarter, NTIC prepares an analysis of its ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In doing so, NTIC evaluates the age of its receivables, past collection history, current financial conditions of key customers and its joint ventures, and economic conditions. Based on this evaluation, NTIC establishes a reserve for specific accounts and notes receivable that it believes are uncollectible, as well as an estimate of uncollectible receivables not specifically known. Deterioration in the financial condition of any key customer or joint venture or a significant slowdown in the economy could have a material negative impact on NTIC’s ability to collect a portion or all of the accounts and notes receivable. NTIC believes that an analysis of historical trends and its current knowledge of potential collection problems provide NTIC with sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. However, since NTIC cannot predict with certainty future changes in the financial stability of its customers or joint ventures, NTIC’s actual future losses from uncollectible accounts may differ from its estimates. In the event NTIC determined that a smaller or larger uncollectible accounts reserve is appropriate, NTIC would record a credit or charge to selling expense in the period that it made such a determination. During fiscal 2016, NTIC created a reserve against the accounts receivable balance owed from Tianjin Zerust of $114,636 as, for accounting purposes, NTIC determined it to be uncollectible. Accounts receivable have been reduced by an allowance for uncollectible accounts of $40,000 as of August 31, 2016 and August 31, 2015.

Recoverability of Long-Lived Assets

NTIC reviews its long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable and determines potential impairment by comparing the carrying value of the assets with expected net cash flows expected to be provided by operating activities of the business or related products. If the sum of the expected undiscounted future net cash flows were less than the carrying value, NTIC would determine whether an impairment loss should be recognized. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the asset.

Foreign Currency Translation (Accumulated Other Comprehensive Income)

The functional currency of each international joint venture is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average monthly exchange rate. Translation gains or losses are reported as an element of accumulated other comprehensive income.

NTIC (excluding NTIC China, Zerust Brazil, Natur-Tec India, NTI Asean, Zerust Mexico and its joint ventures) conducts all foreign transactions based on the U.S. dollar. Since NTIC’s investments in its joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment and would not change the equity in income from joint ventures reflected in NTIC’s consolidated statements of operations.

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Stock-Based Compensation

NTIC recognizes compensation cost relating to share-based payment transactions, including grants of employee stock options and transactions under NTIC’s employee stock purchase plan in its consolidated financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. NTIC measures the cost of employee services received in exchange for stock options or other stock-based awards based on the grant-date fair value of the award, and recognizes the cost over the period the employee is required to provide services for the award.

Inventory Valuation

NTIC’s inventories consist primarily of production materials and finished goods. NTIC purchases production materials and finished goods based on forecasted demand and records inventory at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Management regularly assesses inventory valuation based on current and forecasted usage, demand and pricing, shelf life, customer inventory-related contractual obligations and other considerations. If actual results differ from management estimates with respect to the actual or projected selling of inventories at amounts less than their carrying amounts, NTIC would adjust its inventory balances accordingly. During fiscal 2016, NTIC China wrote off $198,887 of inventory that was prepared in anticipation for transitioning business from Tianjin Zerust to NTIC China during the initial formation of the entity, since not all of the business was converted and most of the inventory is customer specific. With respect to this inventory, it was determined that any remaining inventory as of August 31, 2016 that was made specific for untransitioned customers should be written down to $0.

Recent Accounting Pronouncements

See Note 2 to NTIC’s consolidated financial statements for a discussion of recent accounting pronouncements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NTIC is exposed to some market risk stemming from changes in foreign currency exchange rates, commodity prices and interest rates.

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese yen, Indian Rupee, Chinese Renminbi, Korean won and the English pound against the U.S. dollar. NTIC’s fees for services provided to joint ventures and dividend distributions from these foreign entities are paid in foreign currencies and thus fluctuations in foreign currency exchange rates could result in declines in NTIC’s reported net income. Since NTIC’s investments in its joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment and would not change NTIC’s equity in income of joint ventures reflected in its consolidated statements of income. NTIC does not hedge against its foreign currency exchange rate risk.

Some raw materials used in NTIC’s products are exposed to commodity price changes. The primary commodity price exposures are with a variety of plastic resins.

At the option of NTIC, outstanding advances under NTIC’s $3,000,000 revolving line of credit with PNC Bank bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable LIBOR interest period selected by NTIC or (b) at the rate publicly announced by PNC Bank from time to time as its prime rate, and thus may subject NTIC to some market risk on interest rates. As of August 31, 2016, NTIC had no borrowings under the line of credit.

56

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following items are included herein:

	Page
Report of Independent Registered Public Accounting Firm	58
Consolidated Balance Sheets as of August 31, 2016 and 2015	59
Consolidated Statements of Operations for the years ended August 31, 2016 and 2015	60
Consolidated Statements of Comprehensive (Loss) Income for the years ended August 31, 2016 and 2015	61
Consolidated Statements of Equity for the years ended August 31, 2016 and 2015	62
Consolidated Statements of Cash Flows for the years ended August 31, 2016 and 2015	63
Notes to Consolidated Financial Statements	64-83

57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders, Audit Committee and Board of Directors

Northern Technologies International Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Northern Technologies International Corporation and Subsidiaries as of August 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive (loss) income, equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northern Technologies International Corporation and Subsidiaries as of August 31, 2016 and 2015 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota

November 22, 2016

58

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - AUGUST 31, 2016 AND 2015

	August 31, 2016			August 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,395,274		$	2,623,981
Available for sale securities		2,243,864			2,027,441
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at both August 31, 2016 and 2015		4,755,320			4,027,167
Trade joint ventures		791,903			645,377
Fees for services provided to joint ventures		1,406,587			1,449,162
Income taxes		215,905			198,462
Inventories		7,711,287			7,468,441
Prepaid expenses		422,031			411,473
Deferred income taxes		—			424,108
Total current assets		20,942,171			19,275,612
PROPERTY AND EQUIPMENT, NET		7,275,872			7,293,163
OTHER ASSETS:
Investments in joint ventures		19,840,774			20,544,238
Investments at carrying value (Note 7)		—			1,883,668
Deferred income taxes		1,639,762			1,176,012
Patents and trademarks, net		1,278,597			1,262,219
Other		92,874			130,736
Total other assets		22,852,007			24,996,873
Total assets	$	51,070,050		$	51,565,648
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,753,903		$	2,101,175
Accrued liabilities:
Payroll and related benefits		938,363			1,056,257
Other		301,836			514,409
Total current liabilities		3,994,102			3,671,841
COMMITMENTS AND CONTINGENCIES (Note 16)
EQUITY:
Preferred stock, no par value; authorized 10,000 shares; none issued and outstanding		—			—
Common stock, $0.02 par value per share; authorized 10,000,000 shares; issued and outstanding 4,533,416 and 4,539,045, respectively		90,668			90,781
Additional paid-in capital		13,798,567			13,441,264
Retained earnings		33,655,357			34,522,871
Accumulated other comprehensive loss		(3,009,617	)		(3,180,811	)
Stockholders’ equity		44,534,975			44,874,105
Non-controlling interests		2,540,973			3,019,702
Total equity		47,075,948			47,893,807
Total liabilities and equity	$	51,070,050		$	51,565,648

See notes to consolidated financial statements.

59

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED AUGUST 31, 2016 AND 2015

	2016			2015
NET SALES:
Net sales, excluding joint ventures	$	30,211,660		$	27,491,392
Net sales, to joint ventures		2,721,905			2,831,301
Total net sales		32,933,565			30,322,693
Cost of goods sold		22,320,156			20,555,932
Gross profit		10,613,409			9,766,761
JOINT VENTURE OPERATIONS:
Equity in income from joint ventures		4,743,831			5,936,565
Fees for services provided to joint ventures		5,137,710			5,715,491
Total joint venture operations		9,881,541			11,652,056
OPERATING EXPENSES:
Selling expenses		6,255,353			5,820,748
General and administrative expenses		7,230,557			6,531,576
Expenses incurred in support of joint ventures		1,001,812			1,867,570
Research and development expenses		4,724,596			4,047,279
Total operating expenses		19,212,318			18,267,173
OPERATING INCOME		1,282,632			3,151,644
INTEREST INCOME		42,115			34,835
INTEREST EXPENSE		(13,261	)		(20,960	)
IMPAIRMENT ON INVESTMENT AT CARRYING VALUE (Note 7)		(1,883,668	)		—
OTHER INCOME		—			515
(LOSS) INCOME BEFORE INCOME TAX EXPENSE		(572,182	)		3,166,034
INCOME TAX EXPENSE		626,120			648,674
NET (LOSS) INCOME		(1,198,302	)		2,517,360
NET (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		(330,788	)		727,789
NET (LOSS) INCOME ATTRIBUTABLE TO NTIC	$	(867,514	)	$	1,789,571
NET (LOSS) INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	(0.19	)	$	0.40
Diluted	$	(0.19	)	$	0.38
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic		4,537,504			4,521,788
Diluted		4,537,504			4,649,060

See notes to consolidated financial statements.

60

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

YEARS ENDED AUGUST 31, 2016 AND 2015

	2016			2015
NET (LOSS) INCOME	$	(1,198,302	)	$	2,517,360
OTHER COMPREHENSIVE (LOSS) INCOME – FOREIGN CURRENCY TRANSLATION ADJUSTMENT		223,253			(3,835,705	)
COMPREHENSIVE LOSS		(975,049	)		(1,318,345	)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		(278,729	)		326,820
COMPREHENSIVE LOSS ATTRIBUTABLE TO NTIC	$	(696,320	)	$	(1,645,165	)

See notes to consolidated financial statements.

61

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY – YEARS ENDED AUGUST 31, 2016 AND 2015

	STOCKHOLDERS’ EQUITY
													Accumulated
							Additional						Other			Non-
	Common Stock						Paid-in			Retained			Comprehensive			Controlling			Total
	Shares			Amount			Capital			Earnings			Income (Loss)			Interests			Equity
BALANCE AT AUGUST 31, 2014		4,504,552		$	90,092		$	12,676,546		$	32,733,300		$	253,925		$	3,837,257		$	49,591,120
Repurchase of common stock		(1,587	)		(32	)		(24,314	)		-			-			-			(24,346	)
Exercise of stock options		32,874			657			235,432			-			-			-			236,089
Stock issued for employee stock purchase plan		3,206			64			57,917			-			-			-			57,981
Stock option expense		-			-			495,683			-			-			-			495,683
Dividend received by non-controlling interest		-			-			-			-			-			(1,160,000	)		(1,160,000	)
Investment by non-controlling interest		-			-			-			-			-			15,625			15,625
Comprehensive income (loss)		-			-			-			1,789,571			(3,434,736	)		326,820			(1,318,345	)
BALANCE AT AUGUST 31, 2015		4,539,045			90,781			13,441,264			34,522,871			(3,180,811	)		3,019,702			47,893,807
Repurchase of common stock		(11,211	)		(225	)		(138,656	)		-			-			-			(138,881	)
Stock issued for employee stock purchase plan		5,582			112			68,522			-			-			-			68,634
Stock option expense		-			-			427,437			-			-			-			427,437
Dividend received by non-controlling interest		-			-			-			-			-			(200,000	)		(200,000	)
Comprehensive income (loss)		-			-			-			(867,514	)		171,194			(278,729	)		(975,049	)
BALANCE AT AUGUST 31, 2016		4,533,416		$	90,668		$	13,798,567		$	33,655,357		$	(3,009,617	)	$	2,540,973		$	47,075,948

See notes to consolidated financial statements.

62

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED AUGUST 31, 2016 AND 2015

	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,198,302	)	$	2,517,360
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation		427,437			495,683
Depreciation expense		660,008			530,449
Amortization expense		119,032			87,663
Loss on disposal of assets		—			20,689
Equity in income from joint ventures		(4,743,831	)		(5,936,565	)
Dividends received from joint ventures		5,503,314			2,983,338
Impairment on investment at carrying value		1,883,668			—
Deferred income taxes		(47,000	)		131,777
Gain on sale of equipment		—			31,708
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(723,798	)		(699,088	)
Trade, joint ventures		(146,526	)		305,909
Fees for services provided to joint ventures		42,575			1,163,737
Income taxes		(40,859	)		(258,329	)
Inventories		(257,826	)		(1,679,654	)
Prepaid expenses and other		17,023			25,028
Accounts payable		641,631			127,907
Income tax payable		42,984			31,667
Accrued liabilities		(123,924	)		(634,823	)
Net cash provided by (used in) operating activities		2,055,606			(755,544	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(643,407	)		(1,438,919	)
Purchase of available for sale securities		(216,423	)		—
Proceeds from sale of available for sale securities		—			3,492,325
Additions to patents		(135,410	)		(152,182	)
Net cash (used in) provided by investing activities		(995,240	)		1,901,224
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(200,000	)		(1,160,000	)
Investment by non-controlling interest		—			15,625
Repurchase of common stock		(138,881	)		(24,346	)
Proceeds from employee stock purchase plan		68,634			57,981
Proceeds from exercise of stock options		—			236,089
Net cash used in financing activities		(270,247	)		(874,651	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH:		(18,826	)		(124,065	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		771,293			146,964
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		2,623,981			2,477,017
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	3,395,274		$	2,623,981

See notes to consolidated financial statements.

63

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED AUGUST 31, 2016 AND 2015

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business – Northern Technologies International Corporation and Subsidiaries (the Company) develop and market proprietary environmentally beneficial products and services in over 60 countries either directly or via a network of joint ventures, independent distributors and agents. The Company’s primary business is corrosion prevention marketed mainly under the ZERUST^® brand. 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 40 years, and more recently, has targeted and expanded into the oil and gas industry. The Company also sells a portfolio of biobased and certified compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec^® brand. These products are intended to reduce the Company’s customers’ carbon footprint and provide environmentally sound disposal options. The Company’s two operating segments are ZERUST and Nature-Tec.

The Company participates, either directly or indirectly, in 19 active joint venture arrangements in North America, Europe and Asia. Each of these joint ventures generally manufactures and markets products in the geographic territory to which it is assigned. While most of the Company’s joint ventures exclusively sell rust and corrosion inhibiting products, some of the joint ventures also sell the Company’s Natur-Tec^® resin compounds and finished products. The profits of joint ventures are shared by the respective joint venture owners in accordance with their respective ownership percentages. The Company typically owns 50% or less of its joint venture entities and does not control the decisions of these entities, including dividend declaration or amount in any given year.

The Company has evaluated events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the financial statements.

Principles of Consolidation - NTIC evaluates its voting and variable interests in entities on a qualitative and quantitative basis. NTIC consolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits that could be significant to the entity. The consolidated financial statements include the accounts of Northern Technologies International Corporation, its wholly-owned subsidiaries, Northern Technologies Holding Company, LLC, NTIC (Shanghai) Co., Ltd. (NTIC China), Natur-Tec India Private Limited (Natur-Tec India), and ZERUST-EXCOR MEXICO, S. de R.L. de C.V (Zerust Mexico), NTIC’s majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil) and NTIC’s majority-owned holding company, NTI Asean LLC (NTI Asean). NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures.

Non-Controlling Interests – The Company owns 85% of Zerust Brazil, 60% of NTI Asean, and 90% of Natur-Tec India.  The remaining ownership is accounted for as non-controlling interests and reported as part of equity in the consolidated financial statements. The Company allocates gains and losses to the non-controlling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest, changes in ownership interests are treated as equity transactions if the Company maintains control.

Net Sales –The Company includes net sales to its joint ventures and net sales to unaffiliated customers as separate line items on its consolidated statements of operations. There are no sales originating from the Company’s joint ventures included in the amount, as the Company’s investments in its joint ventures are accounted for using the equity method.

64

Revenue Recognition – The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. These criteria are met when risk of loss and title pass to the customer, distributor or joint venture entity. Sales and use taxes charged to customers are reported on a net basis.

Trade Receivable – Payment terms for the Company’s unaffiliated customers are determined based on credit risk and vary by customer. The Company typically offers standard payment terms to unaffiliated customers of net 30 days. The Company does not accrue interest on past due accounts receivable. The Company reviews the credit histories of its customers before extending unsecured credit. The Company presents accounts and notes receivable, net of an allowance for doubtful accounts. Each quarter, the Company prepares an analysis of its ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In doing so, the Company evaluates the age of its receivables, past collection history, current financial conditions of key customers and its joint ventures, and economic conditions. Based on this evaluation, the Company establishes a reserve for specific accounts and notes receivable that it believes are uncollectible, as well as an estimate of uncollectible receivables not specifically known. The Company believes that an analysis of historical trends and its current knowledge of potential collection problems provide the Company with sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. In the event the Company determines that a smaller or larger uncollectible accounts reserve is appropriate, the Company records a credit or charge to selling expense in the period that it made such determination. Accounts receivable have been reduced by an allowance for uncollectible accounts of $40,000 at August 31, 2016 and 2015. Accounts are considered past due based on terms agreed upon between the Company and the customer. Accounts receivable are written-off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer.

Trade Receivables from Joint Ventures – Trade receivables from joint ventures arise from sales of products the Company makes to its joint ventures. Payment terms for the Company’s joint ventures also are determined based on credit risk; however, additional consideration also is given to the individual joint venture due to the transportation time associated with ocean delivery of most products and certain other factors. Generally, accounts receivable from the Company’s joint ventures unpaid after 90 days are considered past due. The Company does not accrue interest on past due balances. The Company periodically reviews amounts due from its joint ventures for collectability, and based on past experience and continuous review of the balances due, determined an allowance for doubtful accounts related to its joint venture receivables is not necessary at August 31, 2016 or 2015.

Fees for Services Provided to Joint Ventures – The Company provides services to its joint ventures including consulting, legal, travel, insurance, technical and marketing services. The Company receives fees for the services it provides to its joint ventures. The fees for services received by the Company from its joint ventures are generally based on either a flat fee or a percentage of net sales by the Company’s joint ventures depending on local laws and tax regulations. The Company recognizes revenues related to fees for services provided to its joint ventures when earned, amounts are determinable and collectability is reasonably assured. Under the Company’s agreements with its joint ventures, amounts are earned when product is shipped from joint venture facilities. The Company reviews the financial situation of each of its joint ventures to assist in the likelihood of collections on amounts earned. The Company accounts for these fees on a cash basis if uncertainty exists surrounding the collection of such fees.

Cash and Cash Equivalents - The Company includes as cash and cash equivalents highly liquid, short-term investments with maturity of three months or less when purchased, which are readily convertible into known amounts of cash. The Company maintains its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits.

65

Available for Sale Securities – Available for sale securities are recorded at fair value. Unrealized holding gains and losses on available for sale securities are excluded from earnings.

Inventories - Inventories are recorded at the lower of cost (first-in, first-out basis) or market.

Property and Depreciation - Property and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated service lives of the various assets as follows:

Buildings and improvements (years)	5	-	30
Machinery and equipment (years)	3	-	10

Patents – Patents, including acquisition costs, are stated at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. Upon retirement, the cost of assets disposed and the related accumulated amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations.

Investments in Joint Ventures - Investments in the Company’s joint ventures are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends, distributed and undistributed earnings and losses, changes in foreign currency exchange rates and additional investments. In the event the Company’s share of joint venture’s cumulative losses exceeds the Company’s investment balance, the balance is reported at zero value until proportionate income exceeds the losses. The Company assesses its joint ventures for impairment on an annual basis as of August 31 of each year as part of its fiscal year end analysis. In addition to the annual review for impairment, the Company reviews the operating results of each joint venture on a quarterly basis in comparison to its historical operating results and its accrual of fees for services provided to joint ventures. If the operating results of a joint venture do not meet financial performance expectations, an additional evaluation is performed on the joint venture. The Company’s evaluation of its investments in joint ventures requires the Company to make assumptions about future cash flows of its joint ventures. These assumptions require significant judgment and actual results may differ from assumed or estimated amounts. All investments in joint ventures have positive equity as of August 31, 2016 and 2015.

Investment at Carrying Value – If the Company is no longer able to exercise significant influence over operating and financial policy of a joint venture previously accounted for under the equity method, it maintains the investment at the carrying value as of the date that significant influence no longer exists and discontinues accruing the proportionate earnings or losses of the investment.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. The Company employs a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, the Company’s intent and ability to hold, or plans to sell, the investment. The Company also considers specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.

66

Recoverability of Long-Lived Assets - The Company reviews its long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. The Company determines potential impairment by comparing the carrying value of the assets with expected net cash flows expected to be provided by operating activities of the business or related products. If the sum of the expected undiscounted future net cash flows is less than the carrying value, the Company evaluates if an impairment loss should be recognized. An impairment loss is measured by comparing the amount by which the carrying value exceeds the fair value of the asset.

Income Taxes - The Company utilizes the liability method of accounting for income taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Foreign Currency Translation (Accumulated Other Comprehensive Income (Loss)) - The functional currency of NTIC China, Zerust Brazil, Natur-Tec India, Zerust Mexico and each unconsolidated international joint venture is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average monthly exchange rate. Translation gains or losses are reported as an element of other comprehensive income (loss).

The Company (excluding NTIC China, Zerust Brazil, Natur-Tec India, NTI Asean, Zerust Mexico and its joint ventures) conducts all foreign transactions based on the U.S. dollar. Since investments in joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates are reflected as a foreign currency translation adjustment and does not change the equity in income from joint ventures reflected in the Company’s consolidated statements of operations.

Fair Value of Financial Instruments – The carrying value of cash and cash equivalents, available for sale securities, short-term accounts and notes receivable, notes payable, trade accounts payables, and other accrued expenses approximate fair value because of the short maturity of those instruments.

Shipping and Handling - The Company records all amounts billed to customers in a sales transaction related to shipping and handling as sales. The Company records costs related to shipping and handling in cost of goods sold.

67

Research and Development - The Company expenses all costs related to product research and development as incurred.   The costs related to product research and development are the net amount after being reduced by reimbursements related to certain research and development contracts. The Company accrues proceeds received under such contracts and offsets research and development expenses incurred in equal installments over the timelines associated with completion of the contracts’ specific objectives and milestones.

Common Stock – The Company issues authorized but unissued shares of common stock upon the exercise of stock options, as opposed to treasury shares.

Stock-Based Compensation – The Company recognizes compensation cost relating to share-based payment transactions, including grants of employee stock options and transactions under the Company’s employee stock purchase plan, in its consolidated financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. The Company measures the cost of employee services received in exchange for stock options and other stock-based awards based on the grant-date fair value of the award, and recognizes the cost over the period the employee is required to provide services for the award (generally the vesting term).

Use of Estimates - The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers, was originally to be effective for the Company beginning in fiscal year 2018. In July 2015, the FASB confirmed a one-year deferral of the effective date of the new revenue standard which also allows early adoption as of the original effective date. The updated guidance will be effective for the Company’s first quarter of 2019. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements, but believes there will be no material impact, if any.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory”, which modifies the subsequent measurement of inventories recorded under a first-in-first-out or average cost method. Under the new standard, such inventories are required to be measured at the lower of cost and net realizable value. The new standard is effective for the Company’s fiscal year 2018, with prospective application. The Company does not expect the adoption of the provisions of ASU 2015-11 to have a material impact on its consolidated financial statements.

In November 2015, FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes which requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The amendment takes effect for public entities for fiscal years beginning after December 15, 2017, with early adoption available. The Company adopted ASU 2015-17 as of August 31, 2016, however, there was no material impact on its consolidated financial statements. Prior periods were not retrospectively adjusted.

During February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases.” ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on its consolidated financial statements.

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In March 2016, the FASB issued ASU No. 2016-07, “Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” Among other things, the amendments in ASU 2016-07 eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company is currently assessing the impact that ASU 2016-07 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial position or operating results.

3. INVENTORIES

Inventories consisted of the following:

	August 31, 2016		August 31, 2015
Production materials	$	1,452,396	$	1,445,014
Finished goods		6,258,891		6,023,427
	$	7,711,287	$	7,468,441

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	August 31, 2016			August 31, 2015
Land	$	310,365		$	310,365
Buildings and improvements		6,528,252			6,180,089
Machinery and equipment		3,590,063			4,090,619
		10,428,680			10,581,073
Less accumulated depreciation		(3,152,808	)		(3,287,910	)
	$	7,275,872		$	7,293,163

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5. PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	August 31, 2016			August 31, 2015
Patents and trademarks	$	2,575,435		$	2,440,022
Less accumulated amortization		(1,296,838	)		(1,177,803	)
	$	1,278,597		$	1,262,219

Patent and trademark costs are amortized over seven years. Costs incurred related to patents and trademarks are capitalized until filed and approved, at which time the amounts capitalized to date are amortized and any further costs, including maintenance costs, are expensed as incurred. Amortization expense was $119,032 and $87,663 for the years ended August 31, 2016 and 2015, respectively. Amortization expense is estimated to approximate $120,000 in each of the next five fiscal years.

6. INVESTMENTS IN JOINT VENTURES

The financial statements of the Company’s foreign joint ventures are initially prepared using the accounting principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint ventures reported in the below tables and the accompanying consolidated financial statements have subsequently been adjusted to conform with accounting principles generally accepted in the United States of America in all material respects. All material profits recorded on sales from the Company to its joint ventures and from joint ventures to other joint ventures have been eliminated for financial reporting purposes.

Financial information of the Company’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), and all of the Company’s other joint ventures, are summarized as follows:

	As of August 31, 2016
	Total		EXCOR		All Other
Current assets	$	48,922,924	$	22,928,810	$	25,994,114
Total assets		52,407,026		24,733,340		27,673,686
Current liabilities		12,433,700		3,485,231		8,948,469
Noncurrent liabilities		100,783		—		100,783
Joint ventures’ equity		39,872,543		21,248,109		18,624,434
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		9,216,728
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings		17,779,912	$	10,593,151	$	7,186,761
Northern Technologies International Corporation's dividends received from joint ventures	$	5,503,314	$	4,364,700	$	1,165,614

	Fiscal Year Ended August 31, 2016
	Total		EXCOR		All Other
Net sales	$	90,646,833	$	35,138,214	$	55,508,619
Gross profit		40,440,726		18,635,421		21,805,305
Net income		9,534,771		7,049,462		2,485,309
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	4,743,831	$	3,534,113	$	1,209,718

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	As of August 31, 2015
	Total		EXCOR		All Other
Current assets	$	49,295,116	$	22,620,323	$	26,674,793
Total assets		52,853,938		24,606,880		28,247,058
Current liabilities		12,288,383		3,360,142		8,928,241
Noncurrent liabilities		1,215,139		—		1,215,139
Joint ventures’ equity		39,350,417		21,246,738		18,103,679
Northern Technologies International Corporation’s share of joint ventures’ equity		20,544,238		11,571,361		8,972,877
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings		18,483,377		11,540,456		6,942,921
Northern Technologies International Corporation's dividends received from joint ventures	$	2,983,338	$	2,440,200	$	543,138

	Fiscal Year Ended August 31, 2015
	Total		EXCOR		All Other
Net sales	$	99,026,251	$	36,872,664	$	62,153,587
Gross profit		48,397,318		19,993,763		28,403,555
Net income		11,849,107		8,201,659		3,647,448
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	5,936,565	$	4,091,608	$	1,844,957

On January 2, 2015, the Company announced that, effective as of December 31, 2014, the Company terminated its joint venture agreements with its previous joint venture in China, Tianjin Zerust, and began the process of liquidating the joint venture entity. Since December 31, 2014, the Company has conducted business in China through a wholly-owned subsidiary, NTIC (Shanghai) Co. Ltd. As of December 31, 2014, the Company started recognizing Tianjin Zerust based on its carrying value instead of the equity method since the Company no longer expects to significantly affect the joint venture’s operations or decision making. See Note 7.

The Company records expenses that are directly attributable to its joint ventures on its consolidated statements of operations in the line item “Expenses incurred in support of joint ventures.” The expenses include items such as employee compensation and benefit expenses, travel expense and consulting expense. See note 16 regarding ongoing litigation involving Tianjin Zerust.

The Company did not make any joint venture investments during fiscal 2016 or fiscal 2015.

On November 30, 2013, the Company agreed to sell its indirect ownership interest in Mütec GmbH (Mütec), the Company’s former joint venture in Germany which manufactures proprietary electronic sensing instruments. In connection with the transaction, the owner of Mütec borrowed $168,000 from the Company to be repaid over four years with no interest. As of August 31, 2016 and 2015, $92,874 and $125,891 was due to the Company related to this transaction, respectively.

7. CHINA OPERATIONS

Effective December 31, 2014, the Company terminated its joint venture agreements with its previous joint venture in China, Tianjin Zerust, began the process of liquidating the joint venture entity, and commenced operations in China through a wholly-owned subsidiary, NTIC (Shanghai) Co. Ltd. on January 1, 2015. Effective December 31, 2014, the Company’s investment in Tianjin Zerust is reported at carrying value based on the Company’s decreased level of influence over the entity, and the Company has reclassified previously unrecognized gains on foreign currency translation from accumulated other comprehensive income. Any declines in the fair value are reflected as adjustments to the carrying value.

Since it began the process of liquidating the joint venture entity on December 31, 2014, the Company has not received any proceeds from the assets of Tianjin Zerust. In addition, the Company has not received financial information or cooperation from its joint venture partner in determining the investment value for the year ended August 31, 2016. During the fourth quarter of fiscal 2016, the Company obtained additional information regarding the financial position of the investment through the legal proceedings that have been ongoing (See Note 16). These circumstances have resulted in the Company concluding an indication of impairment exists and that the fair value of the investment is $0 based on accounting principles generally accepted in the United States of America.

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The investment in Tianjin Zerust is as follows:

	Investment
Equity method investment – August 31, 2015	$	2,243,524
Equity in earnings – fiscal year 2016		132,824
Reclassification of translation gains on foreign currency translation		(492,680	)
Recording the impairment of the cost basis investment		(1,883,668	)
Investment at carrying value – August 31, 2016	$	-

See Note 16 regarding ongoing litigation involving Tianjin Zerust.

8. CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank of $3,000,000. No amounts were outstanding under the line of credit as of both August 31, 2016 and 2015. At the option of the Company, outstanding advances under the line of credit bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable LIBOR interest period selected by the Company or (b) at the rate publicly announced by PNC Bank from time to time as its prime rate. The line of credit matures on January 7, 2017.

The line of credit is subject to standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, the Company is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of August 31, 2016, the Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to $1,200,000. The Company did not have any letters of credit reserved against the available letters of credit balance as of August 31, 2016 and 2015 with PNC Bank. The availability of advances under the line of credit will be reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under the revolving credit facility. 

As of August 31, 2016, the Company had $71,599 of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2020 and 2022.

9. STOCKHOLDERS’ EQUITY

On January 15, 2015, the Company’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by the Company’s Board of Directors at any time. As of August 31, 2016, up to $2,836,656 in shares of common stock remained available for repurchase under the stock repurchase program. During fiscal 2016, the Company repurchased and retired 11,211 shares of its common stock at an average price of $12.40 per share. No stock options to purchase shares of common stock were exercised during fiscal 2016.

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The Company granted stock options under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) to purchase an aggregate of 53,447 shares of its common stock to various employees and directors during fiscal 2016. The weighted average per share exercise price of the stock options is $14.85, which was equal to the fair market value of the Company’s common stock on the date of grant.

No stock options to purchase shares of common stock were exercised during fiscal 2016.

The following stock options to purchase shares of common stock were exercised during fiscal 2015:

Options Exercised	Exercise Price
18,000	$	9.76
18,000		7.65
2,333		10.20

The total intrinsic value of the options exercised during fiscal 2015 was $297,696.

The Company granted stock options under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) to purchase an aggregate of 45,067 shares of its common stock to various employees and directors during fiscal 2015. The weighted average per share exercise price of the stock options is $20.10, which was equal to the fair market value of the Company’s common stock on the date of grant.

10. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share assumes the exercise of stock options using the treasury stock method, if dilutive.

Options to purchase shares of common stock of 45,067 were excluded from the computation of common share equivalents for fiscal 2015, as the exercise prices of such options were greater than market price of a share of common stock.

The following is a reconciliation of the earnings per share computation:

Numerator:	August 31, 2016			August 31, 2015
Net (loss) income attributable to NTIC	$	(867,514	)	$	1,789,571
Denominator:
Basic-weighted shares outstanding		4,537,504			4,521,788
Weighted shares assumed upon exercise of stock options		0			127,272
Diluted – weighted shares outstanding		4,537,504			4,649,060
Basic income (loss) earnings per share:	$	(0.19	)	$	0.40
Diluted income (loss) earnings per share:	$	(0.19	)	$	0.38

The dilutive impact summarized above relates to the periods when the average market price of Company stock exceeded the exercise price of the potentially dilutive option securities granted. Earnings per common share were based on the weighted average number of common shares outstanding during the periods when computing the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock market method when computing the diluted earnings per share. 170,887 of shares of common stock were excluded because the effect was anti-dilutive due to the Company’s net loss for fiscal 2016.

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11. STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which stock options and other stock-based awards have been granted, the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, stock unit awards, performance awards and stock bonuses to eligible recipients to enable the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the achievement of the Company’s economic objectives. Subject to adjustment as provided in the 2007 Plan, up to a maximum of 800,000 shares of the Company’s common stock are issuable under the 2007 Plan. Options granted under the 2007 Plan generally have a term of ten years and become exercisable over a three- or four-year period beginning on the one-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the market value of the Company’s common stock on the date of grant. The Company issues new shares upon the exercise of options. As of August 31, 2016, only stock options and stock bonuses had been granted under the 2007 Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is 100,000 shares, subject to adjustment as provided in the ESPP. The ESPP provides for six-month offering periods beginning on September 1 and March 1 of each year. The purchase price of the shares is 90% of the lower of the fair market value of common stock at the beginning or end of the offering period. This discount may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes. The Company issued 2,438 and 3,206 shares of common stock on September 1, 2015 and 2014, respectively, under the ESPP. The Company issued 3,144 shares on March 1, 2016 under the ESPP.

The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with the assumptions listed below.  The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations and the risk-free interest rate is based on U.S. treasury rates appropriate for the expected term. Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of the option is based on the life of the option agreements. Based on these valuations, the Company recognized compensation expense of $427,437 and $495,683 during fiscal 2016 and fiscal 2015, respectively, related to the options that vested during such time period. As of August 31, 2016, the total compensation cost for non-vested options not yet recognized in the Company’s consolidated statements of operations was $239,400. Stock-based compensation expense of $159,600 and $79,800 is expected to be recognized during fiscal 2017 and 2018, based on outstanding options as of August 31, 2016. Future option grants will impact the compensation expense recognized. Stock-based compensation expense is included in general and administrative expense on the consolidated statements of operations.

The Company currently estimates a ten percent forfeiture rate for stock options, and continually reviews this estimate in future periods.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions and results for the grants:

	August 31, 2016			August 31, 2015
Dividend yield		0.00	%		0.00	%
Expected volatility		46.0	%		46.6	%
Expected life of option (years)		10			10
Weighted average risk-free interest rate		1.63	%		1.63	%

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Stock option activity during the periods indicated is as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2014		239,000		$	11.66
Options granted		45,067			20.10
Options exercised		(38,333	)		9.00
Options terminated		(4,000	)		10.20
Outstanding at August 31, 2015		241,734			13.72
Options granted		53,447			14.85
Options exercised		0			0.00
Options terminated		(12,000	)		13.38
Outstanding at August 31, 2016		283,181		$	13.95	$	392,370
Exercisable at August 31, 2016		188,600		$	13.45	$	336,683

The weighted average per share fair value of options granted during fiscal 2016 and fiscal 2015 was $8.48 and $11.58, respectively. The weighted average remaining contractual life of the total options and exercisable options outstanding as of August 31, 2016 was 6.46 years and 5.60 years, respectively.

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 40 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 resin compounds and finished products under the Natur-Tec^® brand.

The following tables present the Company’s business segment information in fiscal 2016 and fiscal 2015:

	Fiscal 2016		Fiscal 2015
ZERUST® net sales	$	27,577,566	$	26,042,909
Natur-Tec® net sales		5,355,999		4,279,784
Total net sales	$	32,933,565	$	30,322,693

The following table sets forth the Company’s cost of goods sold for fiscal 2016 and fiscal 2015 by segment:

	Fiscal 2016		Fiscal 2015
Direct cost of goods sold
ZERUST®	$	15,588,133	$	14,399,456
Natur-Tec®		4,076,249		3,232,353
Indirect cost of goods sold		2,655,774		2,924,124
Total net cost of goods sold	$	22,320,156	$	20,555,932

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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.

Sales to the Company’s joint ventures are included in the foregoing geographic and segment information, however, sales by the Company’s joint ventures to other parties are not included. The foregoing geographic and segment 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.

Geographic Information

Net sales by geographic location were as follows:

	Fiscal Year Ended August 31,
	2016		2015
Inside the U.S.A. to unaffiliated customers	$	20,304,480	$	19,329,979
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		2,721,905		2,831,301
Unaffiliated customers		9,907,180		8,161,413
	$	32,933,565	$	30,322,693

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 fiscal 2016 and fiscal 2015, respectively, were as follows:

	Fiscal 2016		Fiscal 2015
Germany	$	845,857	$	873,400
Japan		646,015		599,108
Poland		599,391		600,255
Thailand		537,212		554,881
United Kingdom		386,761		396,514
Korea		352,393		192,539
France		329,805		412,608
India		300,506		277,548
Sweden		265,745		323,610
Finland		252,578		281,620
Czech		237,062		229,185
China		0		494,080
Other		384,385		480,143
	$	5,137,710	$	5,715,491

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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.

See Note 6 for additional details on geographical information regarding equity in income from joint ventures.

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

	At August 31, 2016		At August 31, 2015
China	$	253,931	$	45,220
Brazil		66,938		46,918
India		13,645		16,402
United States		8,219,955		8,446,842
Total long-lived assets	$	8,554,469	$	8,555,382

	Fiscal Year Ended August 31, 2016		Fiscal Year Ended August 31, 2015
China	$	4,114,288	$	1,070,422
Brazil		2,172,297		2,623,938
India		1,104,947		967,241
Other		5,237,553		6,331,113
United States		20,304,480		19,329,979
Total net sales	$	32,933,565	$	30,322,693

Total long-lived assets located in China, Brazil and India primarily consist of property, plant 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.

13. RETIREMENT PLAN

The Company has a 401(k) employee savings plan. Employees who meet certain age and service requirements may elect to contribute up to 15% of their salaries. The Company typically contributes the lesser of 50% of the participant’s contributions or 3.5% of the employee’s salary. The Company recognized expense for the savings plan of $215,785 and $214,008 for fiscal 2016 and fiscal 2015, respectively.

14. RELATED PARTY TRANSACTIONS

During fiscal 2016 and fiscal 2015, the Company made consulting payments of $100,000 per year to Bioplastic Polymers LLC, an entity owned by Ramani Narayan, Ph.D., a director of the Company, and paid royalties of $31,463 and $21,327, respectively, based on net sales of the Company’s bioplastics products.

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15. INCOME TAXES

The provision for income taxes for the fiscal years ended August 31, 2016 and 2015 consists of the following:

	Fiscal Year Ended August 31,
	2016			2015
Current:
Federal	$	—		$	—
State		20,000			(37,000	)
Foreign		647,000			542,000
		667,000			505,000
Deferred:
Federal		6,000			87,000
State		—			5,000
Foreign		(47,000	)		52,000
		(41,000	)		144,000
	$	626,000		$	649,000

Reconciliations of the expected federal income tax at the statutory rate with the provisions for income taxes for the fiscal years ended August 31, 2016 and 2015 are as follows:

	Fiscal Year Ended August 31,
	2016			2015
Tax computed at statutory rates	$	(195,000	)	$	1,076,000
State income tax, net of federal benefit		20,000			(32,000	)
Tax effect on equity in (income) loss of international joint ventures		(956,000	)		(1,986,000	)
Tax effect on dividends received from joint ventures and investment at carrying value		2,681,000			1,470,000
Tax effect of foreign operations		997,000			996,000
Foreign tax credit		(3,178,000	)		(1,937,000	)
Research and development credit		(408,000	)		(314,000	)
Valuation allowance		1,620,000			1,379,000
Stock based compensation		90,000			99,000
Non-controlling interest		(148,000	)		(204,000	)
Other		103,000			102,000
	$	626,000		$	649,000

The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration. The Company’s portion of the cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration were $17,779,912 and $18,483,377 at August 31, 2016 and 2015, respectively.  During fiscal 2016, the Company recorded deferred income tax expense of $32,000 representing foreign withholding taxes to be paid with respect to the portion of the cumulative undistributed earnings of foreign joint ventures that it determined were not essentially permanent in duration. If some or all of the undistributed earnings of the joint ventures are remitted to the Company in the future, income taxes, if any, after the application of foreign tax credits will be provided at that time. To the extent undistributed earnings of the Company’s joint ventures are distributed in the future, it is not expected to result in any material additional U.S. income tax liability after the application of foreign tax credits.

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The tax effect of the temporary differences and tax carryforwards comprising the net deferred taxes shown on the consolidated balance sheets at August 31, 2016 and 2015 are as follows:

	August 31,
	2016			2015
Accrued compensation	$	150,600		$	237,700
Inventory costs		95,300			81,200
Accrued joint venture expenses		54,200			93,200
Other accrued expenses		87,000			53,800
Goodwill and other intangible assets		1,332,000			1,123,200
Stock-based compensation		210,600			308,900
Foreign tax credit carryforward		5,679,000			4,654,800
Other credit and loss carryforwards		3,214,300			2,262,000
Total deferred tax assets		10,823,000			8,814,800
Valuation allowance		(8,893,300	)		(6,889,900	)
Total deferred tax assets after valuation allowance		1,929,700			1,924,900
Property and equipment		(215,600	)		(204,000	)
Other		(74,300	)		(120,800	)
Total deferred tax liabilities		(289,900	)		(324,800	)
Net deferred tax assets	$	1,639,800		$	1,600,100

The Company has revised the presentation of net deferred tax assets to comply with the disclosure guidance in ASC 740 to reflect total deferred tax assets and total deferred tax liabilities, rather than current deferred taxes and non-current deferred taxes.

In November 2015, the FASB issued ASU 2015-17 which simplifies the presentation of deferred income taxes and requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in ASU 2015-17 are effective for annual periods beginning after December 15, 2016. The Company has elected to early adopt ASU 2015-17 prospectively as of August 31, 2016. Prior periods were not retroactively adjusted.

At August 31, 2016, the Company had foreign tax credit carryforwards of approximately $5,679,000, of which approximately $350,600 will expire if not utilized by August 31, 2017. In addition, the Company had federal and state tax credit carryforwards of $2,643,300 at August 31, 2016 which begin to expire in fiscal 2019.  These federal and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit carryforwards. The Company also has foreign net operating loss carryforwards of $571,000 at August 31, 2016 which begin to expire in fiscal 2020.

As of August 31, 2016, the Company recorded a valuation allowance of $5,679,000 with respect to the foreign tax credit carryforwards.  In addition, the Company has recorded a valuation allowance of $2,643,300 with respect to federal and state tax credit carryforwards, and had recorded a valuation allowance of $571,000 with respect to the foreign net operating loss carryforwards.

As of August 31, 2015, the Company had recorded a valuation allowance of $4,654,800 with respect to the foreign tax credit carryforwards.  In addition, the Company had recorded a valuation allowance of $2,335,200 with respect to federal and state tax credit carryforwards.

The Company records a tax valuation allowance to reduce deferred tax assets to the amount expected to be realized when it is more likely than not that some portion or all of its deferred tax assets will not be realized.  The Company determined based on all available evidence, including historical data and projections of future results, that it is more likely than not that all of its deferred tax assets, except for its foreign tax credit carryforward, federal and Minnesota research and development credit carryforwards, and capital loss carryforwards will be fully realized.  The Company determined that its deferred tax asset related to foreign tax credit carryforwards will not be realized due to insufficient federal taxable income within the carryforward period and the fact that for ordering purposes the foreign tax credit carryforwards are not allowed to be used until after any current year foreign tax credits are utilized.  In addition, based on historical data and future projections, the Company determined that it is more likely than not that its deferred tax asset related to federal and Minnesota research and development credit carryforwards will not be realized due to insufficient federal and Minnesota taxable income within the carryforward period after considering the foreign tax credit usage.

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The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

	Fiscal Year Ended August 31,
	2016		2015
Gross unrecognized tax benefits – beginning balance	$	203,000	$	180,000
Gross increases - prior period tax positions		15,000		15,000
Gross increases – current period tax positions		20,000		8,000
Gross unrecognized tax benefits – ending balance	$	238,000	$	203,000

The entire amount of unrecognized tax benefits would affect the effective tax rate.  It is not expected that the amount of unrecognized tax benefits will change significantly in the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the Company’s income tax provision. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. There was no liability for the payment of interest and penalties at both August 31, 2016 and August 31, 2015.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2016, the Company is no longer subject to federal, state, local, or foreign examinations by tax authorities for years prior to August 31, 2013.

16. COMMITMENTS AND CONTINGENCIES

On August 26, 2016, the Compensation Committee of the Board of Directors of the Company approved the material terms of an annual bonus plan for the Company’s executive officers as well as certain officers and employees for the fiscal year ending August 31, 2017. For fiscal 2017 as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal 2017 compared to a pre-established target EBITOI for fiscal 2017 and 25% of the payout will be determined based upon such executive officer’s achievement of certain pre-established individual performance objectives. The payment of bonuses under the plan are discretionary and may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact amount and percentages will be determined by the Company’s Board of Directors, upon recommendation of the Compensation Committee, after the completion of the Company’s consolidated financial statements for fiscal 2017.

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On August 18, 2015, the Compensation Committee of the Board of Directors of the Company approved the material terms of an annual bonus plan for the Company’s executive officers as well as certain officers and employees for the fiscal year ending August 31, 2016. For fiscal 2016 as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal 2016 compared to a pre-established target EBITOI for fiscal 2016 and 25% of the payout will be determined based upon such executive officer’s achievement of certain pre-established individual performance objectives. The payment of bonuses under the plan are discretionary and may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact amount and percentages will be determined by the Company’s Board of Directors, upon recommendation of the Compensation Committee, after the completion of the Company’s consolidated financial statements for fiscal 2016.

Accrued bonuses as of August 31, 2016 and 2015 were $450,000 and $620,000, respectively.

Three joint ventures (consisting of the Company’s joint ventures in Korea, India and Thailand) accounted for 55.8% of the Company’s trade joint venture receivables at August 31, 2016. Four joint ventures (consisting of the Company’s joint ventures in Korea, India, Thailand and Tianjin Zerust) accounted for 67.0% of the Company’s trade joint venture receivables at August 31, 2015.

On March 23, 2015, the Company and NTI Asean filed a lawsuit in Tianjin No 1 Intermediate People’s Court against two individuals, Mr. Tao Meng and his wife, Ms. Hui Xu, related to breaches of duties and contractual commitments owed to NTI Asean under certain agreements related to the Company’s former joint venture in China, Tianjin Zerust Anti-Corrosion Technologies Ltd. The lawsuit alleges, among other things, that Mr. Tao Meng and Ms. Hui Xu have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. As of August 31, 2016, the Company is not able to reasonably estimate the amount of any recovery to NTI Asean, if any.

On April 21, 2015, the Company and NTI Asean initiated a lawsuit in the District Court for the Second Judicial District, County of Ramsey, State of Minnesota against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to the Company and NTI Asean related to the Company’s joint venture in China, Tianjin Zerust. The case has been set for a mandatory settlement conference with the court on May 30, 2017 and the case will be set for the trial block beginning July 31, 2017 and ending August 18, 2017. 

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may be have been incurred. In the opinion of management, as of August 31, 2016, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s consolidated results of operations, financial position or cash flows.

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The Company has leases for office and warehouse space in the United States of America, China, India, Germany and Brazil with monthly rents ranging from $1,090 to $11,539, which expire through August 31, 2023. Future minimum rents due under these leases are as follows for each of the next five years ended August 31:

FY 2017		191,631
FY 2018		176,040
FY 2019		60,652
FY 2020		40,579
FY 2021		40,579
Thereafter		88,463
	$	597,944

17. STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information consist of:

	Fiscal Year Ended August 31,
	2016		2015
Cash paid during the year for income tax	$	610,000	$	542,000
Cash paid during the year for interest		13,261		20,960

18. Fair Value Measurements

The Company follows the authoritative guidance on fair value measurements and disclosures with respect to assets and liabilities that are measured at fair value on both a recurring and non-recurring basis. Under this guidance, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels defined as follows:

Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability.

See the section below titled Valuation Techniques for further discussion of how the Company determines fair value for investments.

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Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis primarily relate to marketable equity securities. These items are marked-to-market at each reporting period.

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2016		Level 1		Level 2		Level 3
Available for sale securities	$	2,243,864	$	2,243,864	$	—	$	—

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2015		Level 1		Level 2		Level 3
Available for sale securities	$	2,027,441	$	2,027,441	$	—	$	—

Valuation Techniques

Financial assets that are classified as Level 1 securities include cash equivalents and available for sale securities. These are valued using quoted market prices in an active market.

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the fiscal years ended August 31, 2016 or August 31, 2015. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

NTIC maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed by NTIC in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to NTIC’s management, including NTIC’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. NTIC’s management evaluated, with the participation of its Chief Executive Officer and its Chief Financial Officer, the effectiveness of the design and operation of NTIC’s disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, NTIC’s Chief Executive Officer and Chief Financial Officer concluded that NTIC’s disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in the reports that NTIC files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to NTIC’s management, including NTIC’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

NTIC’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of NTIC’s Chief Executive Officer and Chief Financial Officer, NTIC’s management conducted an evaluation of the effectiveness of NTIC’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, NTIC’s management concluded that NTIC’s internal control over financial reporting was effective as of August 31, 2016.

This report does not include an attestation report of NTIC’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by NTIC’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit NTIC to provide only management’s report in this report.

Changes in Internal Control over Financial Reporting

There was no change in NTIC’s internal control over financial reporting that occurred during the quarter ended August 31, 2016 that has materially affected, or is reasonably likely to materially affect NTIC’s internal control over financial reporting.

Item 9B. OTHER INFORMATION

Not applicable.

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PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

The information in the “Proposal One – Election of Directors” section of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

Executive Officers

Information concerning NTIC’s executive officers and officers is included in this annual report on Form 10-K under Item 4A of Part I under the heading “Executive Officers of the Registrant.”

Section 16(a) Beneficial Ownership Reporting Compliance

The information in the “Stock Ownership—Section 16(a) Beneficial Ownership Reporting Compliance” section of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

Code of Ethics

NTIC has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, as well as other employees and NTIC’s directors and meets the requirements of the SEC and the NASDAQ Global Market. A copy of NTIC’s Code of Ethics is filed as an exhibit to this report. NTIC intends to satisfy the disclosure requirements of Item 5.05 of Form 8-K regarding amendments to or waivers from any provision of its code of ethics by posting such information on its corporate website at www.ntic.com.

Changes to Nomination Procedures

During the fourth quarter of fiscal 2016, NTIC made no material changes to the procedures by which stockholders may recommend nominees to NTIC’s Board of Directors, as described in NTIC’s most recent proxy statement.

Audit Committee Matters

The information in the “Corporate Governance—Audit Committee” section of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

Item 11. EXECUTIVE COMPENSATION

The information in the “Director Compensation” and “Executive Compensation” sections of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Stock Ownership

The information in the “Stock Ownership—Beneficial Ownership of Significant Stockholders and Management” section of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes outstanding options and other awards under NTIC’s equity compensation plans as of August 31, 2016. NTIC’s equity compensation plans as of August 31, 2016 were the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan and the Northern Technologies International Corporation Employee Stock Purchase Plan. Except for automatic annual grants of options to purchase 4,000 shares of NTIC common stock to NTIC’s directors in consideration for their services as directors of NTIC, an automatic annual grant of an option to purchase 2,000 shares of NTIC common stock to NTIC’s Chairman of the Board in consideration for his services as Chairman on the first day of each fiscal year and automatic initial grants of options to purchase a pro rata portion of 4,000 shares of NTIC common stock to NTIC’s new directors in consideration for their services as directors of NTIC, options and other awards granted in the future under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan are within the discretion of the Board of Directors and the Compensation Committee of the Board of Directors and therefore cannot be ascertained at this time.

	(a)			(b)		(c)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		283,181	(1)(2)	$	13.95		277,976	(3)
Equity compensation plans not approved by security holders		—			—		—
Total		283,181	(1)(2)	$	13.95		277,976	(3)

_____________________

(1) Amount includes shares of NTIC common stock issuable upon the exercise of stock options outstanding as of August 31, 2016 under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan.

(2) Excludes employee stock purchase rights accruing under the Northern Technologies International Corporation Employee Stock Purchase Plan. Under such plan, each eligible employee may purchase up to 2,000 shares of NTIC common stock at semi-annual intervals on February 28^th or 29^th (as the case may be) and August 31st each year at a purchase price per share equal to 90% of the lower of (i) the closing sales price per share of NTIC common stock on the first day of the offering period or (ii) the closing sales price per share of NTIC common stock on the last day of the offering period.

(3) Amount includes 224,347 shares remaining available at August 31, 2016 for future issuance under Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan and 53,629 shares available at August 31, 2016 for future issuance under the Northern Technologies International Corporation Employee Stock Purchase Plan.

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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information in the “Related Person Relationships and Transactions” and “Corporate Governance—Director Independence” sections of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information in the “Proposal Three—Ratification of Selection of Independent Registered Public Accounting Firm—Audit, Audit-Related, Tax and Other Fees” and “Proposal Three—Ratification of Selection of Independent Registered Public Accounting Firm—Audit Committee Pre-Approval Policies and Procedures” sections of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by reference.

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PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements

NTIC’s consolidated financial statements are included in Item 8 of Part III of this report.

Financial Statement Schedules

All financial statement schedules are omitted because they are inapplicable since NTIC is a smaller reporting company.

Exhibits

The exhibits to this report are listed in the Exhibit Index to this report. A copy of any exhibits listed or referred to herein will be furnished at a reasonable cost to any person who is a stockholder upon receipt from any such person of a written request for any such exhibit. Such request should be sent to: Mr. Matthew Wolsfeld, Corporate Secretary, Northern Technologies International Corporation, 4201 Woodland Road, P.O. Box 69, Circle Pines, Minnesota 55014 Attn: Stockholder Information. The Exhibit Index indicates each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NORTHERN TECHNOLOGIES INTERNATIONAL
	CORPORATION
November 22, 2016	By:	/s/ G. Patrick Lynch
		G. Patrick Lynch
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant on the dates and in the capacities indicated.

Name	Title	Date
/s/ G. Patrick Lynch G. Patrick Lynch	President and Chief Executive Officer and Director (principal executive officer)	November 22, 2016
/s/ Matthew C. Wolsfeld, CPA Matthew C. Wolsfeld, CPA	Chief Financial Officer and Corporate Secretary (principal financial and accounting officer)	November 22, 2016
/s/ Richard J. Nigon Richard J. Nigon	Chairman of the Board	November 22, 2016
/s/ Barbara D. Colwell Barbara D. Colwell	Director	November 22, 2016
/s/ Soo Keong Koh Soo Keong Koh	Director	November 22, 2016
/s/ Sunggyu Lee, Ph.D. Sunggyu Lee, Ph.D.	Director	November 22, 2016
/s/ Ramani Narayan, Ph. D. Ramani Narayan, Ph.D.	Director	November 22, 2016
/s/ Konstantin von Falkenhausen Konstantin von Falkenhausen	Director	November 22, 2016

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 2016

Item No.	Item	Method of Filing
3.1	Restated Certificate of Incorporation of Northern Technologies International Corporation	Incorporated by reference to Exhibit 3.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2009 (File No. 001-11038)
3.2	Amended and Restated Bylaws of Northern Technologies International Corporation	Incorporated by reference to Exhibit 3.1 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 24, 2008 (File No. 001-11038)
4.1	Specimen Stock Certificate Representing Common Stock of Northern Technologies International Corporation	Incorporated by reference to Exhibit 4.1 to NTIC’s Registration Statement on Form 10 (File No. 001-19331)
10.1	Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan*	Incorporated by reference to Exhibit 10.1 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 24, 2011 (File No. 001-11038)
10.2	Form of Incentive Stock Option Agreement for Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan*	Incorporated by reference to Exhibit 10.2 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 24, 2011 (File No. 001-11038)
10.3	Form of Non-Statutory Stock Option Agreement for Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan*	Incorporated by reference to Exhibit 10.3 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 24, 2011 (File No. 001-11038)
10.4	Form of Restricted Stock Agreement for Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan*	Incorporated by reference to Exhibit 10.4 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 24, 2011 (File No. 001-11038)
10.5	Northern Technologies International Corporation Employee Stock Purchase Plan*	Incorporated by reference to Exhibit 10.11 to NTIC’s Annual Report on Form 10-KSB for the fiscal year ended August 31, 2006 (File No. 001-11038)

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Item No.	Item	Method of Filing
10.6	Material Terms of Northern Technologies International Corporation Annual Bonus Plan*	Incorporated by reference to Exhibit 10.6 to NTIC’s Annual Report on Form 10-K for the fiscal year ended August 31, 2015 (File No. 001-11038)
10.7	Form of Indemnification Agreement between Northern Technologies International Corporation and its Directors and Officers*	Incorporated by reference to Exhibit 10.1 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 24, 2008 (File No. 001-11038)
10.8	Agreement dated as of May 25, 2009 between Northern Technologies International Corporation and Sunggyu Lee, Ph.D.*	Incorporated by reference to Exhibit 10.2 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2009 (File No. 001-11038)
10.9	Description of Non-Employee Director Compensation Arrangements*	Filed herewith
10.10	Executive Employment Agreement dated as of November 18, 2011 between Northern Technologies International Corporation and G. Patrick Lynch*	Incorporated by reference to Exhibit 10.13 to NTIC’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011 (File No. 001-11038)
10.11	Confidential Information, Inventions Assignment, Noncompetition and Non-Solicitation Agreement dated as of November 18, 2011 between Northern Technologies International Corporation and G. Patrick Lynch*	Incorporated by reference to Exhibit 10.14 to NTIC’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011 (File No. 001-11038)
10.12	Executive Employment Agreement dated as of November 18, 2011 between Northern Technologies International Corporation and Matthew C. Wolsfeld*	Incorporated by reference to Exhibit 10.15 to NTIC’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011 (File No. 001-11038)
10.13	Confidential Information, Inventions Assignment, Noncompetition and Non-Solicitation Agreement dated as of November 18, 2011 between Northern Technologies International Corporation and Matthew C. Wolsfeld*	Incorporated by reference to Exhibit 10.16 to NTIC’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011 (File No. 001-11038)
10.14	Amended and Restated Committed Line of Credit Note dated as of January 10, 2011 issued by Northern Technologies International Corporation to PNC Bank, National Association	Incorporated by reference to Exhibit 10.2 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 12, 2011 (File No. 001-11038)

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Item No.	Item	Method of Filing
10.15	Loan Agreement dated as of January 10, 2011 between Northern Technologies International Corporation and PNC Bank, National Association	Incorporated by reference to Exhibit 10.6 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 12, 2011 (File No. 001-11038)
10.16	Waiver and First Amendment to Loan Documents dated as of January 10, 2012 between Northern Technologies International Corporation and PNC Bank, National Association	Incorporated by reference to Exhibit 10.6 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2011 (File No. 001-11038)
10.17	Waiver and Second Amendment to Loan Documents dated December 11, 2012 between Northern Technologies International Corporation and PNC Bank, National Association	Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2012 (File No. 001-11038)
10.18	Letter dated December 31, 2013 to Northern Technologies International Corporation from PNC Bank, National Association	Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2014 (File No. 001-11038)
10.19	Letter dated January 8, 2015 to Northern Technologies International Corporation from PNC Bank, National Association	Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2015 (File No. 001-11038)
10.20	Amendment to Loan Documents dated January 6, 2016 by and between Northern Technologies International Corporation from PNC Bank, National Association	Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 2016 (File No. 001-11038)
10.21	Purchase and Sale Agreement dated as of July 14, 2014 between Northern Technologies International Corporation and Glenwillow Holdings, LLC	Incorporated by reference to Exhibit 10.1 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 15, 2014 (File No. 001-11038)
14.1	Code of Ethics	Incorporated by reference to Exhibit 14.1 to NTIC’s Annual Report on Form 10-KSB for the fiscal year ended August 31, 2004 (File No. 001-11038)
21.1	Subsidiaries of the Registrant	Filed herewith
23.1	Consent of Baker Tilly Virchow Krause, LLP	Filed herewith

92

Item No.	Item	Method of Filing
31.1	Certification of President and Chief Executive Officer Pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of President and Chief Executive Officer Pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
32.2	Certification of Chief Financial Officer Pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
101	The following materials from Northern Technologies International Corporation’s Annual Report on Form 10-K for the fiscal year ended August 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements	Filed herewith

__________________________

* A management contract or compensatory plan or arrangement.

93

EX-10.9

Exhibit 10.9

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

DESCRIPTION OF NON-EMPLOYEE DIRECTOR
COMPENSATION ARRANGEMENTS

Overview

NTIC uses a combination of cash and long-term equity-based incentive compensation in the form of annual stock option grants to attract and retain qualified non-employee candidates to serve on the Board of Directors.

Annual Retainers; Meeting Fees

Each non-employee director receives an annual retainer of $15,000 for services rendered as a director of NTIC. The annual retainer is paid quarterly. NTIC’s Chairman of the Board receives an additional annual retainer of $15,000, the Chair of the Audit Committee receives an additional annual retainer of $5,000 and other members of the Audit Committee received an additional annual retainer of $4,000. Each non-employee director also receives $1,000 for each Board and strategy review meeting attended and $1,000 for each Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee meeting attended. No director, however, will earn more than $1,000 per day in Board, Board committee and strategy review meeting fees. Any director that is an employee of NTIC does not receive any retainer or Board or Committee meeting fees.

Stock Options

Each non-employee director is automatically granted a ten-year non-qualified option to purchase 4,000 shares of NTIC common stock in consideration for their services as directors of NTIC and the Chairman of the Board is automatically granted an additional ten-year non-qualified option to purchase 2,000 shares of NTIC common stock in consideration for his services as Chairman on the first day of each fiscal year. Each non-employee directors who is elected or appointed to the Board following the first day of the fiscal year receives an automatic grant of an option to purchase a pro rata portion of 4,000 shares of NTIC common stock calculated by dividing the number of months remaining in the fiscal year at the time of election or appointment divided by 12, which options are automatically granted at the time of the new director’s election or appointment. Each automatically granted option becomes exercisable, in full on the one-year anniversary of the date of its grant. The exercise price of such option is equal to the fair market value of a share of NTIC common stock on the date of grant. All such options are granted under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan.

Reimbursement of Expenses

All directors of NTIC are reimbursed for travel expenses for attending meetings and other miscellaneous out-of-pocket expenses incurred in performing their Board functions.

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

Name of Subsidiary	State or Other Jurisdiction of Incorporation or Organization	Ownership Interest	Names Under Which Subsidiary Does Business
NTI ASEAN LLC	Delaware	60%	Same
Northern Technologies Holding Company, LLC	Delaware	100%	Same
Natur-Tec India Prívate Limited	India	90%	Same
Zerust Prevenção de Corrosão S.A.	Brazil	85%	Same
NTIC (Shanghai) Co., Ltd.	China	100%	Same
ZERUST-EXCOR MEXICO, S. de R.L. de C.V	Mexico	100%	Same

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-140244, 333-140245 and 333-171828) of Northern Technologies International Corporation and Subsidiaries of our report dated November 22, 2016, relating to the consolidated financial statements, which appears on page 58 of this annual report on Form 10-K for the fiscal year ended August 31, 2016.

/s/ Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota

November 22, 2016

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, G. Patrick Lynch, certify that:

1.	I have reviewed this annual report on Form 10-K of Northern Technologies International Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

(c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and:

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)       All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 22, 2016
	G. Patrick Lynch
	President and Chief Executive Officer
	(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Matthew C. Wolsfeld, certify that:

1.	I have reviewed this annual report on Form 10-K of Northern Technologies International Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles;

(c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and:

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)       All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect

the registrant’s ability to record, process, summarize and report financial information; and

(b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 22, 2016
	Matthew C. Wolsfeld, CPA
	Chief Financial Officer and Corporate Secretary
	(principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Northern Technologies International Corporation (the “Company”) on Form 10-K for the period ending August 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, G. Patrick Lynch, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

G. Patrick. Lynch

President and Chief Executive Officer

(principal executive officer)

Circle Pines, Minnesota

November 22, 2016

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Northern Technologies International Corporation (the “Company”) on Form 10-K for the period ending August 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew C. Wolsfeld, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Matthew C. Wolsfeld, CPA

Chief Financial Officer and Corporate Secretary
(principal financial officer and principal accounting officer)

Circle Pines, Minnesota

November 22, 2016

XML

Document And Entity Information - USD ($) $ in Millions	12 Months Ended
	Aug. 31, 2016	Nov. 22, 2016	Feb. 29, 2016
Document Information [Line Items]
Entity Registrant Name	Northern Technologies International Corporation
Entity Central Index Key	0000875582
Trading Symbol	ntic
Current Fiscal Year End Date	--08-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		4,535,070
Entity Public Float			$ 47.2
Document Type	10-K
Document Period End Date	Aug. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Aug. 31, 2016	Aug. 31, 2015
CURRENT ASSETS:
Cash and cash equivalents	$ 3,395,274	$ 2,623,981
Available for sale securities	2,243,864	2,027,441
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at both August 31, 2016 and 2015	4,755,320	4,027,167
Trade joint ventures	791,903	645,377
Fees for services provided to joint ventures	1,406,587	1,449,162
Income taxes	215,905	198,462
Inventories	7,711,287	7,468,441
Prepaid expenses	422,031	411,473
Deferred income taxes		424,108
Total current assets	20,942,171	19,275,612
PROPERTY AND EQUIPMENT, NET	7,275,872	7,293,163
OTHER ASSETS:
Investments in joint ventures	19,840,774	20,544,238
Investments at carrying value (Note 7)		1,883,668
Deferred income taxes	1,639,762	1,176,012
Patents and trademarks, net	1,278,597	1,262,219
Other	92,874	130,736
Total other assets	22,852,007	24,996,873
Total assets	51,070,050	51,565,648
CURRENT LIABILITIES:
Accounts payable	2,753,903	2,101,175
Accrued liabilities:
Payroll and related benefits	938,363	1,056,257
Other	301,836	514,409
Total current liabilities	3,994,102	3,671,841
COMMITMENTS AND CONTINGENCIES (Note 18)
EQUITY:
Preferred stock, no par value; authorized 10,000 shares; none issued and outstanding	0	0
Common stock, $0.02 par value per share; authorized 10,000,000 shares; issued and outstanding 4,533,416 and 4,539,045, respectively	90,668	90,781
Additional paid-in capital	13,798,567	13,441,264
Retained earnings	33,655,357	34,522,871
Accumulated other comprehensive loss	(3,009,617)	(3,180,811)
Stockholders’ equity	44,534,975	44,874,105
Non-controlling interests	2,540,973	3,019,702
Total equity	47,075,948	47,893,807
Total liabilities and equity	$ 51,070,050	$ 51,565,648

XML

Consolidated Balance Sheets (Parentheticals) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Trade allowance	$ 40,000	$ 40,000
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized (in shares)	10,000	10,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock par value (in dollars per share)	$ 0.02	$ 0.02
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	4,533,416	4,539,045
Common stock, shares outstanding (in shares)	4,533,416	4,539,045

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
NET SALES:
Net sales, excluding joint ventures	$ 30,211,660	$ 27,491,392
Net sales, to joint ventures	2,721,905	2,831,301
Total net sales	32,933,565	30,322,693
Cost of goods sold	22,320,156	20,555,932
Gross profit	10,613,409	9,766,761
JOINT VENTURE OPERATIONS:
Equity in income from joint ventures	4,743,831	5,936,565
Fees for services provided to joint ventures	5,137,710	5,715,491
Total joint venture operations	9,881,541	11,652,056
OPERATING EXPENSES:
Selling expenses	6,255,353	5,820,748
General and administrative expenses	7,230,557	6,531,576
Expenses incurred in support of joint ventures	1,001,812	1,867,570
Research and development expenses	4,724,596	4,047,279
Total operating expenses	19,212,318	18,267,173
OPERATING INCOME	1,282,632	3,151,644
INTEREST INCOME	42,115	34,835
INTEREST EXPENSE	(13,261)	(20,960)
IMPAIRMENT ON INVESTMENT AT CARRYING VALUE (Note 7)	(1,883,668)
OTHER INCOME		515
(LOSS) INCOME BEFORE INCOME TAX EXPENSE	(572,182)	3,166,034
INCOME TAX EXPENSE	626,120	648,674
NET (LOSS) INCOME	(1,198,302)	2,517,360
NET (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	(330,788)	727,789
NET (LOSS) INCOME ATTRIBUTABLE TO NTIC	$ (867,514)	$ 1,789,571
NET (LOSS) INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic (in dollars per share)	$ (0.19)	$ 0.40
Diluted (in dollars per share)	$ (0.19)	$ 0.38
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic (in shares)	4,537,504	4,521,788
Diluted (in shares)	4,537,504	4,649,060

XML

Consolidated Statements of Comprehensive (Loss) Income - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
NET (LOSS) INCOME	$ (1,198,302)	$ 2,517,360
OTHER COMPREHENSIVE (LOSS) INCOME – FOREIGN CURRENCY TRANSLATION ADJUSTMENT	223,253	(3,835,705)
COMPREHENSIVE LOSS	(975,049)	(1,318,345)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	(278,729)	326,820
COMPREHENSIVE LOSS ATTRIBUTABLE TO NTIC	$ (696,320)	$ (1,645,165)

XML

Consolidated Statements of Equity - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Noncontrolling Interest [Member]	Total
BALANCE (in shares) at Aug. 31, 2014	4,504,552
BALANCE at Aug. 31, 2014	$ 90,092	$ 12,676,546	$ 32,733,300	$ 253,925	$ 3,837,257	$ 49,591,120
Repurchase of common stock (in shares)	(1,587)
Repurchase of common stock	$ (32)	(24,314)				$ (24,346)
Options Exercised (in shares)	32,874					38,333
Exercise of stock options	$ 657	235,432				$ 236,089
Stock issued for employee stock purchase plan (in shares)	3,206
Stock issued for employee stock purchase plan	$ 64	57,917				57,981
Stock option expense		495,683				495,683
Dividend received by non-controlling interest					(1,160,000)	(1,160,000)
Investment by non-controlling interest					15,625	15,625
Comprehensive income (loss)			1,789,571	(3,434,736)	326,820	(1,318,345)
BALANCE (in shares) at Aug. 31, 2015	4,539,045
BALANCE at Aug. 31, 2015	$ 90,781	13,441,264	34,522,871	(3,180,811)	3,019,702	$ 47,893,807
Repurchase of common stock (in shares)	(11,211)					(11,211)
Repurchase of common stock	$ (225)	(138,656)				$ (138,881)
Options Exercised (in shares)						0
Stock issued for employee stock purchase plan (in shares)	5,582
Stock issued for employee stock purchase plan	$ 112	68,522				$ 68,634
Stock option expense		427,437				427,437
Dividend received by non-controlling interest					(200,000)	(200,000)
Comprehensive income (loss)			(867,514)	171,194	(278,729)	(975,049)
BALANCE (in shares) at Aug. 31, 2016	4,533,416
BALANCE at Aug. 31, 2016	$ 90,668	$ 13,798,567	$ 33,655,357	$ (3,009,617)	$ 2,540,973	$ 47,075,948

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$ (1,198,302)	$ 2,517,360
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Stock-based compensation	427,437	495,683
Depreciation expense	660,008	530,449
Amortization	119,032	87,663
Loss on disposal of assets		20,689
Equity in income from joint ventures	(4,743,831)	(5,936,565)
Dividends received from joint ventures	5,503,314	2,983,338
Impairment on investment at carrying value	1,883,668
Deferred income taxes	(47,000)	131,777
Gain on sale of equipment		31,708
Receivables:
Trade, excluding joint ventures	(723,798)	(699,088)
Trade, joint ventures	(146,526)	305,909
Fees for services provided to joint ventures	42,575	1,163,737
Income taxes	(40,859)	(258,329)
Inventories	(257,826)	(1,679,654)
Prepaid expenses and other	17,023	25,028
Accounts payable	641,631	127,907
Income tax payable	42,984	31,667
Accrued liabilities	(123,924)	(634,823)
Net cash provided by (used in) operating activities	2,055,606	(755,544)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment	(643,407)	(1,438,919)
Purchase of available for sale securities	(216,423)
Proceeds from sale of available for sale securities		3,492,325
Additions to patents	(135,410)	(152,182)
Net cash (used in) provided by investing activities	(995,240)	1,901,224
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest	(200,000)	(1,160,000)
Investment by non-controlling interest		15,625
Repurchase of common stock	(138,881)	(24,346)
Proceeds from employee stock purchase plan	68,634	57,981
Proceeds from exercise of stock options		236,089
Net cash used in financing activities	(270,247)	(874,651)
EFFECT OF EXCHANGE RATE CHANGES ON CASH:	(18,826)	(124,065)
NET INCREASE IN CASH AND CASH EQUIVALENTS	771,293	146,964
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	2,623,981	2,477,017
CASH AND CASH EQUIVALENTS AT END OF YEAR	$ 3,395,274	$ 2,623,981

XML

Note 1 - Nature of Business and Significant Accounting Policies

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

– Northern Technologies International Corporation and Subsidiaries (the Company) develop and market proprietary environmentally beneficial products and services in over 60 countries either directly or via a network of joint ventures, independent distributors and agents. The Company’s primary business is corrosion prevention marketed mainly under the ZERUST

®

brand. 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 40 years, and more recently, has targeted and expanded into the oil and gas industry. The Company also sells a portfolio of biobased and certified compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec

®

brand. These products are intended to reduce the Company’s customers’ carbon footprint and provide environmentally sound disposal options. The Company’s two operating segments are ZERUST and Nature-Tec.

The Company participates, either directly or indirectly, in 19 active joint venture arrangements in North America, Europe and Asia. Each of these joint ventures generally manufactures and markets products in the geographic territory to which it is assigned. While most of the Company’s joint ventures exclusively sell rust and corrosion inhibiting products, some of the joint ventures also sell the Company’s Natur-Tec

®

resin compounds and finished products. The profits of joint ventures are shared by the respective joint venture owners in accordance with their respective ownership percentages. The Company typically owns 50% or less of its joint venture entities and does not control the decisions of these entities, including dividend declaration or amount in any given year.

The Company has evaluated events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the financial statements.

Principles of Consolidation

- NTIC evaluates its voting and variable interests in entities on a qualitative and quantitative basis. NTIC consolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits that could be significant to the entity. The consolidated financial statements include the accounts of Northern Technologies International Corporation, its wholly-owned subsidiaries, Northern Technologies Holding Company, LLC, NTIC (Shanghai) Co., Ltd. (NTIC China), Natur-Tec India Private Limited (Natur-Tec India), and ZERUST-EXCOR MEXICO, S. de R.L. de C.V (Zerust Mexico), NTIC’s majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil) and NTIC’s majority-owned holding company, NTI Asean LLC (NTI Asean). NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures.

Non-Controlling Interests

– The Company owns 85% of Zerust Brazil, 60% of NTI Asean, and 90% of Natur-Tec India.  The remaining ownership is accounted for as non-controlling interests and reported as part of equity in the consolidated financial statements. The Company allocates gains and losses to the non-controlling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest, changes in ownership interests are treated as equity transactions if the Company maintains control.

Net Sales

–The Company includes net sales to its joint ventures and net sales to unaffiliated customers as separate line items on its consolidated statements of operations. There are no sales originating from the Company’s joint ventures included in the amount, as the Company’s investments in its joint ventures are accounted for using the equity method.

64

Revenue Recognition

– The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. These criteria are met when risk of loss and title pass to the customer, distributor or joint venture entity. Sales and use taxes charged to customers are reported on a net basis.

Trade Receivable

– Payment terms for the Company’s unaffiliated customers are determined based on credit risk and vary by customer. The Company typically offers standard payment terms to unaffiliated customers of net 30 days. The Company does not accrue interest on past due accounts receivable. The Company reviews the credit histories of its customers before extending unsecured credit. The Company presents accounts and notes receivable, net of an allowance for doubtful accounts. Each quarter, the Company prepares an analysis of its ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In doing so, the Company evaluates the age of its receivables, past collection history, current financial conditions of key customers and its joint ventures, and economic conditions. Based on this evaluation, the Company establishes a reserve for specific accounts and notes receivable that it believes are uncollectible, as well as an estimate of uncollectible receivables not specifically known. The Company believes that an analysis of historical trends and its current knowledge of potential collection problems provide the Company with sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. In the event the Company determines that a smaller or larger uncollectible accounts reserve is appropriate, the Company records a credit or charge to selling expense in the period that it made such determination. Accounts receivable have been reduced by an allowance for uncollectible accounts of $40,000 at August 31, 2016 and 2015. Accounts are considered past due based on terms agreed upon between the Company and the customer. Accounts receivable are written-off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer.

Trade Receivables from Joint Ventures

– Trade receivables from joint ventures arise from sales of products the Company makes to its joint ventures. Payment terms for the Company’s joint ventures also are determined based on credit risk; however, additional consideration also is given to the individual joint venture due to the transportation time associated with ocean delivery of most products and certain other factors. Generally, accounts receivable from the Company’s joint ventures unpaid after 90 days are considered past due. The Company does not accrue interest on past due balances. The Company periodically reviews amounts due from its joint ventures for collectability, and based on past experience and continuous review of the balances due, determined an allowance for doubtful accounts related to its joint venture receivables is not necessary at August 31, 2016 or 2015.

Fees for Services Provided to Joint Ventures –

The Company provides services to its joint ventures including consulting, legal, travel, insurance, technical and marketing services. The Company receives fees for the services it provides to its joint ventures. The fees for services received by the Company from its joint ventures are generally based on either a flat fee or a percentage of net sales by the Company’s joint ventures depending on local laws and tax regulations. The Company recognizes revenues related to fees for services provided to its joint ventures when earned, amounts are determinable and collectability is reasonably assured. Under the Company’s agreements with its joint ventures, amounts are earned when product is shipped from joint venture facilities. The Company reviews the financial situation of each of its joint ventures to assist in the likelihood of collections on amounts earned. The Company accounts for these fees on a cash basis if uncertainty exists surrounding the collection of such fees.

Cash and Cash Equivalents

- The Company includes as cash and cash equivalents highly liquid, short-term investments with maturity of three months or less when purchased, which are readily convertible into known amounts of cash. The Company maintains its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits.

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Available for Sale Securities

– Available for sale securities are recorded at fair value. Unrealized holding gains and losses on available for sale securities are excluded from earnings.

Inventories

- Inventories are recorded at the lower of cost (first-in, first-out basis) or market.

Property and Depreciation

- Property and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated service lives of the various assets as follows:

Buildings and improvements (years)	5	-	30
Machinery and equipment (years)	3	-	10

Patents

– Patents, including acquisition costs, are stated at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. Upon retirement, the cost of assets disposed and the related accumulated amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations.

Investments in Joint Ventures

- Investments in the Company’s joint ventures are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends, distributed and undistributed earnings and losses, changes in foreign currency exchange rates and additional investments. In the event the Company’s share of joint venture’s cumulative losses exceeds the Company’s investment balance, the balance is reported at zero value until proportionate income exceeds the losses. The Company assesses its joint ventures for impairment on an annual basis as of August 31 of each year as part of its fiscal year end analysis. In addition to the annual review for impairment, the Company reviews the operating results of each joint venture on a quarterly basis in comparison to its historical operating results and its accrual of fees for services provided to joint ventures. If the operating results of a joint venture do not meet financial performance expectations, an additional evaluation is performed on the joint venture. The Company’s evaluation of its investments in joint ventures requires the Company to make assumptions about future cash flows of its joint ventures. These assumptions require significant judgment and actual results may differ from assumed or estimated amounts. All investments in joint ventures have positive equity as of August 31, 2016 and 2015.

Investment at Carrying Value

– If the Company is no longer able to exercise significant influence over operating and financial policy of a joint venture previously accounted for under the equity method, it maintains the investment at the carrying value as of the date that significant influence no longer exists and discontinues accruing the proportionate earnings or losses of the investment.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. The Company employs a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, the Company’s intent and ability to hold, or plans to sell, the investment. The Company also considers specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.

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Recoverability of Long-Lived Assets

- The Company reviews its long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. The Company determines potential impairment by comparing the carrying value of the assets with expected net cash flows expected to be provided by operating activities of the business or related products. If the sum of the expected undiscounted future net cash flows is less than the carrying value, the Company evaluates if an impairment loss should be recognized. An impairment loss is measured by comparing the amount by which the carrying value exceeds the fair value of the asset.

Income Taxes

- The Company utilizes the liability method of accounting for income taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Foreign Currency Translation (Accumulated Other Comprehensive Income (Loss))

- The functional currency of NTIC China, Zerust Brazil, Natur-Tec India, Zerust Mexico and each unconsolidated international joint venture is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average monthly exchange rate. Translation gains or losses are reported as an element of other comprehensive income (loss).

The Company (excluding NTIC China, Zerust Brazil, Natur-Tec India, NTI Asean, Zerust Mexico and its joint ventures) conducts all foreign transactions based on the U.S. dollar. Since investments in joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates are reflected as a foreign currency translation adjustment and does not change the equity in income from joint ventures reflected in the Company’s consolidated statements of operations.

Fair Value of Financial Instruments

– The carrying value of cash and cash equivalents, available for sale securities, short-term accounts and notes receivable, notes payable, trade accounts payables, and other accrued expenses approximate fair value because of the short maturity of those instruments.

Shipping and Handling

- The Company records all amounts billed to customers in a sales transaction related to shipping and handling as sales. The Company records costs related to shipping and handling in cost of goods sold.

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Research and Development

- The Company expenses all costs related to product research and development as incurred.   The costs related to product research and development are the net amount after being reduced by reimbursements related to certain research and development contracts. The Company accrues proceeds received under such contracts and offsets research and development expenses incurred in equal installments over the timelines associated with completion of the contracts’ specific objectives and milestones.

Common Stock

– The Company issues authorized but unissued shares of common stock upon the exercise of stock options, as opposed to treasury shares.

Stock-Based Compensation

– The Company recognizes compensation cost relating to share-based payment transactions, including grants of employee stock options and transactions under the Company’s employee stock purchase plan, in its consolidated financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. The Company measures the cost of employee services received in exchange for stock options and other stock-based awards based on the grant-date fair value of the award, and recognizes the cost over the period the employee is required to provide services for the award (generally the vesting term).

Use of Estimates

- The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Note 2 - Recently Issued Accounting Pronouncements

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Description of New Accounting Pronouncements Not yet Adopted [Text Block]

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued

Revenue from Contracts with Customers, Topic 606

(Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers, was originally to be effective for the Company beginning in fiscal year 2018. In July 2015, the FASB confirmed a one-year deferral of the effective date of the new revenue standard which also allows early adoption as of the original effective date. The updated guidance will be effective for the Company’s first quarter of 2019. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements, but believes there will be no material impact, if any.

In July 2015, the FASB issued ASU No. 2015-11, “

Inventory

”, which modifies the subsequent measurement of inventories recorded under a first-in-first-out or average cost method. Under the new standard, such inventories are required to be measured at the lower of cost and net realizable value. The new standard is effective for the Company’s fiscal year 2018, with prospective application. The Company does not expect the adoption of the provisions of ASU 2015-11 to have a material impact on its consolidated financial statements.

In November 2015, FASB issued ASU 2015-17, 

Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes

 which requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The amendment takes effect for public entities for fiscal years beginning after December 15, 2017, with early adoption available. The Company adopted ASU 2015-17 as of August 31, 2016, however, there was no material impact on its consolidated financial statements. Prior periods were not retrospectively adjusted.

During February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “

Leases

.” ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on its consolidated financial statements.

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In March 2016, the FASB issued ASU No. 2016-07, “

Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting

.” Among other things, the amendments in ASU 2016-07 eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company is currently assessing the impact that ASU 2016-07 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09,

Stock Compensation

, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial position or operating results.

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Note 3 - Inventories

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

3. INVENTORIES

Inventories consisted of the following:

	August 31, 2016		August 31, 2015
Production materials	$	1,452,396	$	1,445,014
Finished goods		6,258,891		6,023,427
	$	7,711,287	$	7,468,441

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Note 4 - Property and Equipment, Net

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	August 31, 2016			August 31, 2015
Land	$	310,365		$	310,365
Buildings and improvements		6,528,252			6,180,089
Machinery and equipment		3,590,063			4,090,619
		10,428,680			10,581,073
Less accumulated depreciation		(3,152,808	)		(3,287,910	)
	$	7,275,872		$	7,293,163

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Note 5 - Patents and Trademarks, Net

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

5. PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	August 31, 2016			August 31, 2015
Patents and trademarks	$	2,575,435		$	2,440,022
Less accumulated amortization		(1,296,838	)		(1,177,803	)
	$	1,278,597		$	1,262,219

Patent and trademark costs are amortized over seven years. Costs incurred related to patents and trademarks are capitalized until filed and approved, at which time the amounts capitalized to date are amortized and any further costs, including maintenance costs, are expensed as incurred. Amortization expense was $119,032 and $87,663 for the years ended August 31, 2016 and 2015, respectively. Amortization expense is estimated to approximate $120,000 in each of the next five fiscal years.

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Note 6 - Investments in Joint Ventures

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

6. INVESTMENTS IN JOINT VENTURES

The financial statements of the Company’s foreign joint ventures are initially prepared using the accounting principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint ventures reported in the below tables and the accompanying consolidated financial statements have subsequently been adjusted to conform with accounting principles generally accepted in the United States of America in all material respects. All material profits recorded on sales from the Company to its joint ventures and from joint ventures to other joint ventures have been eliminated for financial reporting purposes.

Financial information of the Company’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), and all of the Company’s other joint ventures, are summarized as follows:

	As of August 31, 2016
	Total		EXCOR		All Other
Current assets	$	48,922,924	$	22,928,810	$	25,994,114
Total assets		52,407,026		24,733,340		27,673,686
Current liabilities		12,433,700		3,485,231		8,948,469
Noncurrent liabilities		100,783		—		100,783
Joint ventures’ equity		39,872,543		21,248,109		18,624,434
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		9,216,728
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings		17,779,912	$	10,593,151	$	7,186,761
Northern Technologies International Corporation's dividends received from joint ventures	$	5,503,314	$	4,364,700	$	1,165,614

	Fiscal Year Ended August 31, 2016
	Total		EXCOR		All Other
Net sales	$	90,646,833	$	35,138,214	$	55,508,619
Gross profit		40,440,726		18,635,421		21,805,305
Net income		9,534,771		7,049,462		2,485,309
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	4,743,831	$	3,534,113	$	1,209,718

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	As of August 31, 2015
	Total		EXCOR		All Other
Current assets	$	49,295,116	$	22,620,323	$	26,674,793
Total assets		52,853,938		24,606,880		28,247,058
Current liabilities		12,288,383		3,360,142		8,928,241
Noncurrent liabilities		1,215,139		—		1,215,139
Joint ventures’ equity		39,350,417		21,246,738		18,103,679
Northern Technologies International Corporation’s share of joint ventures’ equity		20,544,238		11,571,361		8,972,877
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings		18,483,377		11,540,456		6,942,921
Northern Technologies International Corporation's dividends received from joint ventures	$	2,983,338	$	2,440,200	$	543,138

	Fiscal Year Ended August 31, 2015
	Total		EXCOR		All Other
Net sales	$	99,026,251	$	36,872,664	$	62,153,587
Gross profit		48,397,318		19,993,763		28,403,555
Net income		11,849,107		8,201,659		3,647,448
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	5,936,565	$	4,091,608	$	1,844,957

On January 2, 2015, the Company announced that, effective as of December 31, 2014, the Company terminated its joint venture agreements with its previous joint venture in China, Tianjin Zerust, and began the process of liquidating the joint venture entity. Since December 31, 2014, the Company has conducted business in China through a wholly-owned subsidiary, NTIC (Shanghai) Co. Ltd. As of December 31, 2014, the Company started recognizing Tianjin Zerust based on its carrying value instead of the equity method since the Company no longer expects to significantly affect the joint venture’s operations or decision making. See Note 7.

The Company records expenses that are directly attributable to its joint ventures on its consolidated statements of operations in the line item “Expenses incurred in support of joint ventures.” The expenses include items such as employee compensation and benefit expenses, travel expense and consulting expense. See note 16 regarding ongoing litigation involving Tianjin Zerust.

The Company did not make any joint venture investments during fiscal 2016 or fiscal 2015.

On November 30, 2013, the Company agreed to sell its indirect ownership interest in Mütec GmbH (Mütec), the Company’s former joint venture in Germany which manufactures proprietary electronic sensing instruments. In connection with the transaction, the owner of Mütec borrowed $168,000 from the Company to be repaid over four years with no interest. As of August 31, 2016 and 2015, $92,874 and $125,891 was due to the Company related to this transaction, respectively.

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Note 7 - China Operations

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

7. CHINA OPERATIONS

Effective December 31, 2014, the Company terminated its joint venture agreements with its previous joint venture in China, Tianjin Zerust, began the process of liquidating the joint venture entity, and commenced operations in China through a wholly-owned subsidiary, NTIC (Shanghai) Co. Ltd. on January 1, 2015. Effective December 31, 2014, the Company’s investment in Tianjin Zerust is reported at carrying value based on the Company’s decreased level of influence over the entity, and the Company has reclassified previously unrecognized gains on foreign currency translation from accumulated other comprehensive income. Any declines in the fair value are reflected as adjustments to the carrying value.

Since it began the process of liquidating the joint venture entity on December 31, 2014, the Company has not received any proceeds from the assets of Tianjin Zerust. In addition, the Company has not received financial information or cooperation from its joint venture partner in determining the investment value for the year ended August 31, 2016. During the fourth quarter of fiscal 2016, the Company obtained additional information regarding the financial position of the investment through the legal proceedings that have been ongoing (See Note 16). These circumstances have resulted in the Company concluding an indication of impairment exists and that the fair value of the investment is $0 based on accounting principles generally accepted in the United States of America.

The investment in Tianjin Zerust is as follows:

	Investment
Equity method investment – August 31, 2015	$	2,243,524
Equity in earnings – fiscal year 2016		132,824
Reclassification of translation gains on foreign currency translation		(492,680	)
Recording the impairment of the cost basis investment		(1,883,668	)
Investment at carrying value – August 31, 2016	$	-

See Note 16 regarding ongoing litigation involving Tianjin Zerust.

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Note 8 - Corporate Debt

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

8. CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank of $3,000,000. No amounts were outstanding under the line of credit as of both August 31, 2016 and 2015. At the option of the Company, outstanding advances under the line of credit bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable LIBOR interest period selected by the Company or (b) at the rate publicly announced by PNC Bank from time to time as its prime rate. The line of credit matures on January 7, 2017.

The line of credit is subject to standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, the Company is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of August 31, 2016, the Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to $1,200,000. The Company did not have any letters of credit reserved against the available letters of credit balance as of August 31, 2016 and 2015 with PNC Bank. The availability of advances under the line of credit will be reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under the revolving credit facility. 

As of August 31, 2016, the Company had $71,599 of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2020 and 2022.

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Note 9 - Stockholders' Equity

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

9. STOCKHOLDERS’ EQUITY

On January 15, 2015, the Company’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by the Company’s Board of Directors at any time. As of August 31, 2016, up to $2,836,656 in shares of common stock remained available for repurchase under the stock repurchase program. During fiscal 2016, the Company repurchased and retired 11,211 shares of its common stock at an average price of $12.40 per share. No stock options to purchase shares of common stock were exercised during fiscal 2016.

The Company granted stock options under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) to purchase an aggregate of 53,447 shares of its common stock to various employees and directors during fiscal 2016. The weighted average per share exercise price of the stock options is $14.85, which was equal to the fair market value of the Company’s common stock on the date of grant.

No stock options to purchase shares of common stock were exercised during fiscal 2016.

The following stock options to purchase shares of common stock were exercised during fiscal 2015:

Options Exercised	Exercise Price
18,000	$	9.76
18,000		7.65
2,333		10.20

The total intrinsic value of the options exercised during fiscal 2015 was $297,696.

The Company granted stock options under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) to purchase an aggregate of 45,067 shares of its common stock to various employees and directors during fiscal 2015. The weighted average per share exercise price of the stock options is $20.10, which was equal to the fair market value of the Company’s common stock on the date of grant.

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Note 10 - Net Income (Loss) Per Common Share

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

10. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income (loss) per share assumes the exercise of stock options using the treasury stock method, if dilutive.

Options to purchase shares of common stock of 45,067 were excluded from the computation of common share equivalents for fiscal 2015, as the exercise prices of such options were greater than market price of a share of common stock.

The following is a reconciliation of the earnings per share computation:

Numerator:	August 31, 2016			August 31, 2015
Net (loss) income attributable to NTIC	$	(867,514	)	$	1,789,571
Denominator:
Basic-weighted shares outstanding		4,537,504			4,521,788
Weighted shares assumed upon exercise of stock options		0			127,272
Diluted – weighted shares outstanding		4,537,504			4,649,060
Basic income (loss) earnings per share:	$	(0.19	)	$	0.40
Diluted income (loss) earnings per share:	$	(0.19	)	$	0.38

The dilutive impact summarized above relates to the periods when the average market price of Company stock exceeded the exercise price of the potentially dilutive option securities granted. Earnings per common share were based on the weighted average number of common shares outstanding during the periods when computing the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock market method when computing the diluted earnings per share. 170,887 of shares of common stock were excluded because the effect was anti-dilutive due to the Company’s net loss for fiscal 2016.

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Note 11 - Stock-based Compensation

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which stock options and other stock-based awards have been granted, the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, stock unit awards, performance awards and stock bonuses to eligible recipients to enable the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the achievement of the Company’s economic objectives. Subject to adjustment as provided in the 2007 Plan, up to a maximum of 800,000 shares of the Company’s common stock are issuable under the 2007 Plan. Options granted under the 2007 Plan generally have a term of ten years and become exercisable over a three- or four-year period beginning on the one-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the market value of the Company’s common stock on the date of grant. The Company issues new shares upon the exercise of options. As of August 31, 2016, only stock options and stock bonuses had been granted under the 2007 Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is 100,000 shares, subject to adjustment as provided in the ESPP. The ESPP provides for six-month offering periods beginning on September 1 and March 1 of each year. The purchase price of the shares is 90% of the lower of the fair market value of common stock at the beginning or end of the offering period. This discount may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes. The Company issued 2,438 and 3,206 shares of common stock on September 1, 2015 and 2014, respectively, under the ESPP. The Company issued 3,144 shares on March 1, 2016 under the ESPP.

The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with the assumptions listed below.  The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations and the risk-free interest rate is based on U.S. treasury rates appropriate for the expected term. Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of the option is based on the life of the option agreements. Based on these valuations, the Company recognized compensation expense of $427,437 and $495,683 during fiscal 2016 and fiscal 2015, respectively, related to the options that vested during such time period. As of August 31, 2016, the total compensation cost for non-vested options not yet recognized in the Company’s consolidated statements of operations was $239,400. Stock-based compensation expense of $159,600 and $79,800 is expected to be recognized during fiscal 2017 and 2018, based on outstanding options as of August 31, 2016. Future option grants will impact the compensation expense recognized. Stock-based compensation expense is included in general and administrative expense on the consolidated statements of operations.

The Company currently estimates a ten percent forfeiture rate for stock options, and continually reviews this estimate in future periods.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions and results for the grants:

	August 31, 2016			August 31, 2015
Dividend yield		0.00	%		0.00	%
Expected volatility		46.0	%		46.6	%
Expected life of option (years)		10			10
Weighted average risk-free interest rate		1.63	%		1.63	%

Stock option activity during the periods indicated is as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2014		239,000		$	11.66
Options granted		45,067			20.10
Options exercised		(38,333	)		9.00
Options terminated		(4,000	)		10.20
Outstanding at August 31, 2015		241,734			13.72
Options granted		53,447			14.85
Options exercised		0			0.00
Options terminated		(12,000	)		13.38
Outstanding at August 31, 2016		283,181		$	13.95	$	392,370
Exercisable at August 31, 2016		188,600		$	13.45	$	336,683

The weighted average per share fair value of options granted during fiscal 2016 and fiscal 2015 was $8.48 and $11.58, respectively. The weighted average remaining contractual life of the total options and exercisable options outstanding as of August 31, 2016 was 6.46 years and 5.60 years, respectively.

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Note 12 - Segment and Geographic Information

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

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 40 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 resin compounds and finished products under the Natur-Tec

®

brand.

The following tables present the Company’s business segment information in fiscal 2016 and fiscal 2015:

	Fiscal 2016		Fiscal 2015
ZERUST ® net sales	$	27,577,566	$	26,042,909
Natur-Tec ® net sales		5,355,999		4,279,784
Total net sales	$	32,933,565	$	30,322,693

The following table sets forth the Company’s cost of goods sold for fiscal 2016 and fiscal 2015 by segment:

	Fiscal 2016		Fiscal 2015
Direct cost of goods sold
ZERUST ®	$	15,588,133	$	14,399,456
Natur-Tec ®		4,076,249		3,232,353
Indirect cost of goods sold		2,655,774		2,924,124
Total net cost of goods sold	$	22,320,156	$	20,555,932

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.

Sales to the Company’s joint ventures are included in the foregoing geographic and segment information, however, sales by the Company’s joint ventures to other parties are not included. The foregoing geographic and segment 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.

Geographic Information

Net sales by geographic location were as follows:

	Fiscal Year Ended August 31,
	2016		2015
Inside the U.S.A. to unaffiliated customers	$	20,304,480	$	19,329,979
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		2,721,905		2,831,301
Unaffiliated customers		9,907,180		8,161,413
	$	32,933,565	$	30,322,693

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 fiscal 2016 and fiscal 2015, respectively, were as follows:

	Fiscal 2016		Fiscal 2015
Germany	$	845,857	$	873,400
Japan		646,015		599,108
Poland		599,391		600,255
Thailand		537,212		554,881
United Kingdom		386,761		396,514
Korea		352,393		192,539
France		329,805		412,608
India		300,506		277,548
Sweden		265,745		323,610
Finland		252,578		281,620
Czech		237,062		229,185
China		0		494,080
Other		384,385		480,143
	$	5,137,710	$	5,715,491

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.

See Note 6 for additional details on geographical information regarding equity in income from joint ventures.

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

	At August 31, 2016		At August 31, 2015
China	$	253,931	$	45,220
Brazil		66,938		46,918
India		13,645		16,402
United States		8,219,955		8,446,842
Total long-lived assets	$	8,554,469	$	8,555,382

	Fiscal Year Ended August 31, 2016		Fiscal Year Ended August 31, 2015
China	$	4,114,288	$	1,070,422
Brazil		2,172,297		2,623,938
India		1,104,947		967,241
Other		5,237,553		6,331,113
United States		20,304,480		19,329,979
Total net sales	$	32,933,565	$	30,322,693

Total long-lived assets located in China, Brazil and India primarily consist of property, plant 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.

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Note 13 - Retirement Plan

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

13. RETIREMENT PLAN

The Company has a 401(k) employee savings plan. Employees who meet certain age and service requirements may elect to contribute up to 15% of their salaries. The Company typically contributes the lesser of 50% of the participant’s contributions or 3.5% of the employee’s salary. The Company recognized expense for the savings plan of $215,785 and $214,008 for fiscal 2016 and fiscal 2015, respectively.

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Note 14 - Related Party Transactions

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

14. RELATED PARTY TRANSACTIONS

During fiscal 2016 and fiscal 2015, the Company made consulting payments of $100,000 per year to Bioplastic Polymers LLC, an entity owned by Ramani Narayan, Ph.D., a director of the Company, and paid royalties of $31,463 and $21,327, respectively, based on net sales of the Company’s bioplastics products.

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Note 15 - Income Taxes

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. INCOME TAXES

The provision for income taxes for the fiscal years ended August 31, 2016 and 2015 consists of the following:

	Fiscal Year Ended August 31,
	2016			2015
Current:
Federal	$	—		$	—
State		20,000			(37,000	)
Foreign		647,000			542,000
		667,000			505,000
Deferred:
Federal		6,000			87,000
State		—			5,000
Foreign		(47,000	)		52,000
		(41,000	)		144,000
	$	626,000		$	649,000

Reconciliations of the expected federal income tax at the statutory rate with the provisions for income taxes for the fiscal years ended August 31, 2016 and 2015 are as follows:

	Fiscal Year Ended August 31,
	2016			2015
Tax computed at statutory rates	$	(195,000	)	$	1,076,000
State income tax, net of federal benefit		20,000			(32,000	)
Tax effect on equity in (income) loss of international joint ventures		(956,000	)		(1,986,000	)
Tax effect on dividends received from joint ventures and investment at carrying value		2,681,000			1,470,000
Tax effect of foreign operations		997,000			996,000
Foreign tax credit		(3,178,000	)		(1,937,000	)
Research and development credit		(408,000	)		(314,000	)
Valuation allowance		1,620,000			1,379,000
Stock based compensation		90,000			99,000
Non-controlling interest		(148,000	)		(204,000	)
Other		103,000			102,000
	$	626,000		$	649,000

The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration. The Company’s portion of the cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration were $17,779,912 and $18,483,377 at August 31, 2016 and 2015, respectively.  During fiscal 2016, the Company recorded deferred income tax expense of $32,000 representing foreign withholding taxes to be paid with respect to the portion of the cumulative undistributed earnings of foreign joint ventures that it determined were not essentially permanent in duration. If some or all of the undistributed earnings of the joint ventures are remitted to the Company in the future, income taxes, if any, after the application of foreign tax credits will be provided at that time. To the extent undistributed earnings of the Company’s joint ventures are distributed in the future, it is not expected to result in any material additional U.S. income tax liability after the application of foreign tax credits.

The tax effect of the temporary differences and tax carryforwards comprising the net deferred taxes shown on the consolidated balance sheets at August 31, 2016 and 2015 are as follows:

	August 31,
	2016			2015
Accrued compensation	$	150,600		$	237,700
Inventory costs		95,300			81,200
Accrued joint venture expenses		54,200			93,200
Other accrued expenses		87,000			53,800
Goodwill and other intangible assets		1,332,000			1,123,200
Stock-based compensation		210,600			308,900
Foreign tax credit carryforward		5,679,000			4,654,800
Other credit and loss carryforwards		3,214,300			2,262,000
Total deferred tax assets		10,823,000			8,814,800
Valuation allowance		(8,893,300	)		(6,889,900	)
Total deferred tax assets after valuation allowance		1,929,700			1,924,900
Property and equipment		(215,600	)		(204,000	)
Other		(74,300	)		(120,800	)
Total deferred tax liabilities		(289,900	)		(324,800	)
Net deferred tax assets	$	1,639,800		$	1,600,100

The Company has revised the presentation of net deferred tax assets to comply with the disclosure guidance in ASC 740 to reflect total deferred tax assets and total deferred tax liabilities, rather than current deferred taxes and non-current deferred taxes.

In November 2015, the FASB issued ASU 2015-17 which simplifies the presentation of deferred income taxes and requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public business entities, the amendments in ASU 2015-17 are effective for annual periods beginning after December 15, 2016. The Company has elected to early adopt ASU 2015-17 prospectively as of August 31, 2016. Prior periods were not retroactively adjusted.

At August 31, 2016, the Company had foreign tax credit carryforwards of approximately $5,679,000, of which approximately $350,600 will expire if not utilized by August 31, 2017. In addition, the Company had federal and state tax credit carryforwards of $2,643,300 at August 31, 2016 which begin to expire in fiscal 2019.  These federal and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit carryforwards. The Company also has foreign net operating loss carryforwards of $571,000 at August 31, 2016 which begin to expire in fiscal 2020.

As of August 31, 2016, the Company recorded a valuation allowance of $5,679,000 with respect to the foreign tax credit carryforwards.  In addition, the Company has recorded a valuation allowance of $2,643,300 with respect to federal and state tax credit carryforwards, and had recorded a valuation allowance of $571,000 with respect to the foreign net operating loss carryforwards.

As of August 31, 2015, the Company had recorded a valuation allowance of $4,654,800 with respect to the foreign tax credit carryforwards.  In addition, the Company had recorded a valuation allowance of $2,335,200 with respect to federal and state tax credit carryforwards.

The Company records a tax valuation allowance to reduce deferred tax assets to the amount expected to be realized when it is more likely than not that some portion or all of its deferred tax assets will not be realized.  The Company determined based on all available evidence, including historical data and projections of future results, that it is more likely than not that all of its deferred tax assets, except for its foreign tax credit carryforward, federal and Minnesota research and development credit carryforwards, and capital loss carryforwards will be fully realized.  The Company determined that its deferred tax asset related to foreign tax credit carryforwards will not be realized due to insufficient federal taxable income within the carryforward period and the fact that for ordering purposes the foreign tax credit carryforwards are not allowed to be used until after any current year foreign tax credits are utilized.  In addition, based on historical data and future projections, the Company determined that it is more likely than not that its deferred tax asset related to federal and Minnesota research and development credit carryforwards will not be realized due to insufficient federal and Minnesota taxable income within the carryforward period after considering the foreign tax credit usage.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

	Fiscal Year Ended August 31,
	2016		2015
Gross unrecognized tax benefits – beginning balance	$	203,000	$	180,000
Gross increases - prior period tax positions		15,000		15,000
Gross increases – current period tax positions		20,000		8,000
Gross unrecognized tax benefits – ending balance	$	238,000	$	203,000

The entire amount of unrecognized tax benefits would affect the effective tax rate.  It is not expected that the amount of unrecognized tax benefits will change significantly in the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the Company’s income tax provision. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. There was no liability for the payment of interest and penalties at both August 31, 2016 and August 31, 2015.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2016, the Company is no longer subject to federal, state, local, or foreign examinations by tax authorities for years prior to August 31, 2013.

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Note 16 - Commitments and Contingencies

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

16. COMMITMENTS AND CONTINGENCIES

On August 26, 2016, the Compensation Committee of the Board of Directors of the Company approved the material terms of an annual bonus plan for the Company’s executive officers as well as certain officers and employees for the fiscal year ending August 31, 2017. For fiscal 2017 as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal 2017 compared to a pre-established target EBITOI for fiscal 2017 and 25% of the payout will be determined based upon such executive officer’s achievement of certain pre-established individual performance objectives. The payment of bonuses under the plan are discretionary and may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact amount and percentages will be determined by the Company’s Board of Directors, upon recommendation of the Compensation Committee, after the completion of the Company’s consolidated financial statements for fiscal 2017.

On August 18, 2015, the Compensation Committee of the Board of Directors of the Company approved the material terms of an annual bonus plan for the Company’s executive officers as well as certain officers and employees for the fiscal year ending August 31, 2016. For fiscal 2016 as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal 2016 compared to a pre-established target EBITOI for fiscal 2016 and 25% of the payout will be determined based upon such executive officer’s achievement of certain pre-established individual performance objectives. The payment of bonuses under the plan are discretionary and may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact amount and percentages will be determined by the Company’s Board of Directors, upon recommendation of the Compensation Committee, after the completion of the Company’s consolidated financial statements for fiscal 2016.

Accrued bonuses as of August 31, 2016 and 2015 were $450,000 and $620,000, respectively.

Three joint ventures (consisting of the Company’s joint ventures in Korea, India and Thailand) accounted for 55.8% of the Company’s trade joint venture receivables at August 31, 2016. Four joint ventures (consisting of the Company’s joint ventures in Korea, India, Thailand and Tianjin Zerust) accounted for 67.0% of the Company’s trade joint venture receivables at August 31, 2015.

On March 23, 2015, the Company and NTI Asean filed a lawsuit in Tianjin No 1 Intermediate People’s Court against two individuals, Mr. Tao Meng and his wife, Ms. Hui Xu, related to breaches of duties and contractual commitments owed to NTI Asean under certain agreements related to the Company’s former joint venture in China, Tianjin Zerust Anti-Corrosion Technologies Ltd. The lawsuit alleges, among other things, that Mr. Tao Meng and Ms. Hui Xu have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. As of August 31, 2016, the Company is not able to reasonably estimate the amount of any recovery to NTI Asean, if any.

On April 21, 2015, the Company and NTI Asean initiated a lawsuit in the District Court for the Second Judicial District, County of Ramsey, State of Minnesota against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to the Company and NTI Asean related to the Company’s joint venture in China, Tianjin Zerust. The case has been set for a mandatory settlement conference with the court on May 30, 2017 and the case will be set for the trial block beginning July 31, 2017 and ending August 18, 2017. 

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may be have been incurred. In the opinion of management, as of August 31, 2016, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s consolidated results of operations, financial position or cash flows.

The Company has leases for office and warehouse space in the United States of America, China, India, Germany and Brazil with monthly rents ranging from $1,090 to $11,539, which expire through August 31, 2023. Future minimum rents due under these leases are as follows for each of the next five years ended August 31:

FY 2017		191,631
FY 2018		176,040
FY 2019		60,652
FY 2020		40,579
FY 2021		40,579
Thereafter		88,463
	$	597,944

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Note 17 - Statements of Cash Flows

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

17. STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information consist of:

	Fiscal Year Ended August 31,
	2016		2015
Cash paid during the year for income tax	$	610,000	$	542,000
Cash paid during the year for interest		13,261		20,960

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Note 18 - Fair Value Measurements

12 Months Ended

Aug. 31, 2016

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

18.

Fair Value Measurements

The Company follows the authoritative guidance on fair value measurements and disclosures with respect to assets and liabilities that are measured at fair value on both a recurring and non-recurring basis. Under this guidance, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels defined as follows:

Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability.

See the section below titled Valuation Techniques for further discussion of how the Company determines fair value for investments.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis primarily relate to marketable equity securities. These items are marked-to-market at each reporting period.

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2016		Level 1		Level 2		Level 3
Available for sale securities	$	2,243,864	$	2,243,864	$	—	$	—

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2015		Level 1		Level 2		Level 3
Available for sale securities	$	2,027,441	$	2,027,441	$	—	$	—

Valuation Techniques

Financial assets that are classified as Level 1 securities include cash equivalents and available for sale securities. These are valued using quoted market prices in an active market.

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the fiscal years ended August 31, 2016 or August 31, 2015. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

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Significant Accounting Policies (Policies)

12 Months Ended

Aug. 31, 2016

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

- NTIC evaluates its voting and variable interests in entities on a qualitative and quantitative basis. NTIC consolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits that could be significant to the entity. The consolidated financial statements include the accounts of Northern Technologies International Corporation, its wholly-owned subsidiaries, Northern Technologies Holding Company, LLC, NTIC (Shanghai) Co., Ltd. (NTIC China), Natur-Tec India Private Limited (Natur-Tec India), and ZERUST-EXCOR MEXICO, S. de R.L. de C.V (Zerust Mexico), NTIC’s majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil) and NTIC’s majority-owned holding company, NTI Asean LLC (NTI Asean). NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures.

Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block]

Non-Controlling Interests

– The Company owns 85% of Zerust Brazil, 60% of NTI Asean, and 90% of Natur-Tec India.  The remaining ownership is accounted for as non-controlling interests and reported as part of equity in the consolidated financial statements. The Company allocates gains and losses to the non-controlling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest, changes in ownership interests are treated as equity transactions if the Company maintains control.

Revenue Recognition, Deferred Revenue [Policy Text Block]

Net Sales

–The Company includes net sales to its joint ventures and net sales to unaffiliated customers as separate line items on its consolidated statements of operations. There are no sales originating from the Company’s joint ventures included in the amount, as the Company’s investments in its joint ventures are accounted for using the equity method.

Revenue Recognition

– The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and collection of the resulting receivable is reasonably assured. These criteria are met when risk of loss and title pass to the customer, distributor or joint venture entity. Sales and use taxes charged to customers are reported on a net basis.

Receivables, Policy [Policy Text Block]

Trade Receivable

– Payment terms for the Company’s unaffiliated customers are determined based on credit risk and vary by customer. The Company typically offers standard payment terms to unaffiliated customers of net 30 days. The Company does not accrue interest on past due accounts receivable. The Company reviews the credit histories of its customers before extending unsecured credit. The Company presents accounts and notes receivable, net of an allowance for doubtful accounts. Each quarter, the Company prepares an analysis of its ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In doing so, the Company evaluates the age of its receivables, past collection history, current financial conditions of key customers and its joint ventures, and economic conditions. Based on this evaluation, the Company establishes a reserve for specific accounts and notes receivable that it believes are uncollectible, as well as an estimate of uncollectible receivables not specifically known. The Company believes that an analysis of historical trends and its current knowledge of potential collection problems provide the Company with sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. In the event the Company determines that a smaller or larger uncollectible accounts reserve is appropriate, the Company records a credit or charge to selling expense in the period that it made such determination. Accounts receivable have been reduced by an allowance for uncollectible accounts of $40,000 at August 31, 2016 and 2015. Accounts are considered past due based on terms agreed upon between the Company and the customer. Accounts receivable are written-off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer.

Receivables from Joint Ventures Policy [Policy Text Block ]

Trade Receivables from Joint Ventures

– Trade receivables from joint ventures arise from sales of products the Company makes to its joint ventures. Payment terms for the Company’s joint ventures also are determined based on credit risk; however, additional consideration also is given to the individual joint venture due to the transportation time associated with ocean delivery of most products and certain other factors. Generally, accounts receivable from the Company’s joint ventures unpaid after 90 days are considered past due. The Company does not accrue interest on past due balances. The Company periodically reviews amounts due from its joint ventures for collectability, and based on past experience and continuous review of the balances due, determined an allowance for doubtful accounts related to its joint venture receivables is not necessary at August 31, 2016 or 2015.

Fees for Services Provided to Joint Ventures –

The Company provides services to its joint ventures including consulting, legal, travel, insurance, technical and marketing services. The Company receives fees for the services it provides to its joint ventures. The fees for services received by the Company from its joint ventures are generally based on either a flat fee or a percentage of net sales by the Company’s joint ventures depending on local laws and tax regulations. The Company recognizes revenues related to fees for services provided to its joint ventures when earned, amounts are determinable and collectability is reasonably assured. Under the Company’s agreements with its joint ventures, amounts are earned when product is shipped from joint venture facilities. The Company reviews the financial situation of each of its joint ventures to assist in the likelihood of collections on amounts earned. The Company accounts for these fees on a cash basis if uncertainty exists surrounding the collection of such fees.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

- The Company includes as cash and cash equivalents highly liquid, short-term investments with maturity of three months or less when purchased, which are readily convertible into known amounts of cash. The Company maintains its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits.

Marketable Securities, Available-for-sale Securities, Policy [Policy Text Block]

Available for Sale Securities

– Available for sale securities are recorded at fair value. Unrealized holding gains and losses on available for sale securities are excluded from earnings.

Inventory, Policy [Policy Text Block]

Inventories

- Inventories are recorded at the lower of cost (first-in, first-out basis) or market.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Depreciation

- Property and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated service lives of the various assets as follows:

Buildings and improvements (years)	5	-	30
Machinery and equipment (years)	3	-	10

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Patents

– Patents, including acquisition costs, are stated at cost, less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. Upon retirement, the cost of assets disposed and the related accumulated amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations.

Equity Method Investments, Policy [Policy Text Block]

Investments in Joint Ventures

- Investments in the Company’s joint ventures are accounted for using the equity method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends, distributed and undistributed earnings and losses, changes in foreign currency exchange rates and additional investments. In the event the Company’s share of joint venture’s cumulative losses exceeds the Company’s investment balance, the balance is reported at zero value until proportionate income exceeds the losses. The Company assesses its joint ventures for impairment on an annual basis as of August 31 of each year as part of its fiscal year end analysis. In addition to the annual review for impairment, the Company reviews the operating results of each joint venture on a quarterly basis in comparison to its historical operating results and its accrual of fees for services provided to joint ventures. If the operating results of a joint venture do not meet financial performance expectations, an additional evaluation is performed on the joint venture. The Company’s evaluation of its investments in joint ventures requires the Company to make assumptions about future cash flows of its joint ventures. These assumptions require significant judgment and actual results may differ from assumed or estimated amounts. All investments in joint ventures have positive equity as of August 31, 2016 and 2015.

Investment at Carrying Value

– If the Company is no longer able to exercise significant influence over operating and financial policy of a joint venture previously accounted for under the equity method, it maintains the investment at the carrying value as of the date that significant influence no longer exists and discontinues accruing the proportionate earnings or losses of the investment.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. Fair value is calculated based on publicly available market information or other estimates determined by management. The Company employs a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in evaluating potential impairment of our investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for equity securities, the Company’s intent and ability to hold, or plans to sell, the investment. The Company also considers specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Recoverability of Long-Lived Assets

- The Company reviews its long-lived assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. The Company determines potential impairment by comparing the carrying value of the assets with expected net cash flows expected to be provided by operating activities of the business or related products. If the sum of the expected undiscounted future net cash flows is less than the carrying value, the Company evaluates if an impairment loss should be recognized. An impairment loss is measured by comparing the amount by which the carrying value exceeds the fair value of the asset.

Income Tax, Policy [Policy Text Block]

Income Taxes

- The Company utilizes the liability method of accounting for income taxes which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and those tax positions that meet the more-likely-than-not recognition threshold. The Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation (Accumulated Other Comprehensive Income (Loss))

- The functional currency of NTIC China, Zerust Brazil, Natur-Tec India, Zerust Mexico and each unconsolidated international joint venture is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average monthly exchange rate. Translation gains or losses are reported as an element of other comprehensive income (loss).

The Company (excluding NTIC China, Zerust Brazil, Natur-Tec India, NTI Asean, Zerust Mexico and its joint ventures) conducts all foreign transactions based on the U.S. dollar. Since investments in joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates are reflected as a foreign currency translation adjustment and does not change the equity in income from joint ventures reflected in the Company’s consolidated statements of operations.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

– The carrying value of cash and cash equivalents, available for sale securities, short-term accounts and notes receivable, notes payable, trade accounts payables, and other accrued expenses approximate fair value because of the short maturity of those instruments.

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and Handling

- The Company records all amounts billed to customers in a sales transaction related to shipping and handling as sales. The Company records costs related to shipping and handling in cost of goods sold.

Research, Development, and Computer Software, Policy [Policy Text Block]

Research and Development

- The Company expenses all costs related to product research and development as incurred.   The costs related to product research and development are the net amount after being reduced by reimbursements related to certain research and development contracts. The Company accrues proceeds received under such contracts and offsets research and development expenses incurred in equal installments over the timelines associated with completion of the contracts’ specific objectives and milestones.

Stockholders' Equity, Policy [Policy Text Block]

Common Stock

– The Company issues authorized but unissued shares of common stock upon the exercise of stock options, as opposed to treasury shares.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

– The Company recognizes compensation cost relating to share-based payment transactions, including grants of employee stock options and transactions under the Company’s employee stock purchase plan, in its consolidated financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. The Company measures the cost of employee services received in exchange for stock options and other stock-based awards based on the grant-date fair value of the award, and recognizes the cost over the period the employee is required to provide services for the award (generally the vesting term).

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

- The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Note 1 - Nature of Business and Significant Accounting Policies (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Property and Equipment Useful Life [Table Text Block]

Buildings and improvements (years)	5	-	30
Machinery and equipment (years)	3	-	10

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Note 3 - Inventories (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	August 31, 2016		August 31, 2015
Production materials	$	1,452,396	$	1,445,014
Finished goods		6,258,891		6,023,427
	$	7,711,287	$	7,468,441

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Note 4 - Property and Equipment, Net (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Property, Plant and Equipment [Table Text Block]

	August 31, 2016			August 31, 2015
Land	$	310,365		$	310,365
Buildings and improvements		6,528,252			6,180,089
Machinery and equipment		3,590,063			4,090,619
		10,428,680			10,581,073
Less accumulated depreciation		(3,152,808	)		(3,287,910	)
	$	7,275,872		$	7,293,163

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Note 5 - Patents and Trademarks, Net (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	August 31, 2016			August 31, 2015
Patents and trademarks	$	2,575,435		$	2,440,022
Less accumulated amortization		(1,296,838	)		(1,177,803	)
	$	1,278,597		$	1,262,219

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Note 6 - Investments in Joint Ventures (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Condensed Balance Sheet [Table Text Block]

	As of August 31, 2016
	Total		EXCOR		All Other
Current assets	$	48,922,924	$	22,928,810	$	25,994,114
Total assets		52,407,026		24,733,340		27,673,686
Current liabilities		12,433,700		3,485,231		8,948,469
Noncurrent liabilities		100,783		—		100,783
Joint ventures’ equity		39,872,543		21,248,109		18,624,434
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		9,216,728
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings		17,779,912	$	10,593,151	$	7,186,761
Northern Technologies International Corporation's dividends received from joint ventures	$	5,503,314	$	4,364,700	$	1,165,614

	As of August 31, 2015
	Total		EXCOR		All Other
Current assets	$	49,295,116	$	22,620,323	$	26,674,793
Total assets		52,853,938		24,606,880		28,247,058
Current liabilities		12,288,383		3,360,142		8,928,241
Noncurrent liabilities		1,215,139		—		1,215,139
Joint ventures’ equity		39,350,417		21,246,738		18,103,679
Northern Technologies International Corporation’s share of joint ventures’ equity		20,544,238		11,571,361		8,972,877
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings		18,483,377		11,540,456		6,942,921
Northern Technologies International Corporation's dividends received from joint ventures	$	2,983,338	$	2,440,200	$	543,138

Condensed Income Statement [Table Text Block]

	Fiscal Year Ended August 31, 2016
	Total		EXCOR		All Other
Net sales	$	90,646,833	$	35,138,214	$	55,508,619
Gross profit		40,440,726		18,635,421		21,805,305
Net income		9,534,771		7,049,462		2,485,309
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	4,743,831	$	3,534,113	$	1,209,718

	Fiscal Year Ended August 31, 2015
	Total		EXCOR		All Other
Net sales	$	99,026,251	$	36,872,664	$	62,153,587
Gross profit		48,397,318		19,993,763		28,403,555
Net income		11,849,107		8,201,659		3,647,448
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	5,936,565	$	4,091,608	$	1,844,957

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Note 7 - China Operations (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Equity Method Investments [Table Text Block]

	Investment
Equity method investment – August 31, 2015	$	2,243,524
Equity in earnings – fiscal year 2016		132,824
Reclassification of translation gains on foreign currency translation		(492,680	)
Recording the impairment of the cost basis investment		(1,883,668	)
Investment at carrying value – August 31, 2016	$	-

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Note 9 - Stockholders' Equity (Tables)

12 Months Ended

Aug. 31, 2016

Exercised [Member]

Notes Tables

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Options Exercised	Exercise Price
18,000	$	9.76
18,000		7.65
2,333		10.20

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2014		239,000		$	11.66
Options granted		45,067			20.10
Options exercised		(38,333	)		9.00
Options terminated		(4,000	)		10.20
Outstanding at August 31, 2015		241,734			13.72
Options granted		53,447			14.85
Options exercised		0			0.00
Options terminated		(12,000	)		13.38
Outstanding at August 31, 2016		283,181		$	13.95	$	392,370
Exercisable at August 31, 2016		188,600		$	13.45	$	336,683

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Note 10 - Net Income (Loss) Per Common Share (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

Numerator:	August 31, 2016			August 31, 2015
Net (loss) income attributable to NTIC	$	(867,514	)	$	1,789,571
Denominator:
Basic-weighted shares outstanding		4,537,504			4,521,788
Weighted shares assumed upon exercise of stock options		0			127,272
Diluted – weighted shares outstanding		4,537,504			4,649,060
Basic income (loss) earnings per share:	$	(0.19	)	$	0.40
Diluted income (loss) earnings per share:	$	(0.19	)	$	0.38

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Note 11 - Stock-based Compensation (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	August 31, 2016			August 31, 2015
Dividend yield		0.00	%		0.00	%
Expected volatility		46.0	%		46.6	%
Expected life of option (years)		10			10
Weighted average risk-free interest rate		1.63	%		1.63	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2014		239,000		$	11.66
Options granted		45,067			20.10
Options exercised		(38,333	)		9.00
Options terminated		(4,000	)		10.20
Outstanding at August 31, 2015		241,734			13.72
Options granted		53,447			14.85
Options exercised		0			0.00
Options terminated		(12,000	)		13.38
Outstanding at August 31, 2016		283,181		$	13.95	$	392,370
Exercisable at August 31, 2016		188,600		$	13.45	$	336,683

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Note 12 - Segment and Geographic Information (Tables)

12 Months Ended

Aug. 31, 2016

Fees for Services Provided to Joint Ventures [Member]

Notes Tables

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	Fiscal 2016		Fiscal 2015
Germany	$	845,857	$	873,400
Japan		646,015		599,108
Poland		599,391		600,255
Thailand		537,212		554,881
United Kingdom		386,761		396,514
Korea		352,393		192,539
France		329,805		412,608
India		300,506		277,548
Sweden		265,745		323,610
Finland		252,578		281,620
Czech		237,062		229,185
China		0		494,080
Other		384,385		480,143
	$	5,137,710	$	5,715,491

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	Fiscal 2016		Fiscal 2015
ZERUST ® net sales	$	27,577,566	$	26,042,909
Natur-Tec ® net sales		5,355,999		4,279,784
Total net sales	$	32,933,565	$	30,322,693

Reconciliation of Cost of Goods Sold from Segments to Consolidated [Table Text Block]

	Fiscal 2016		Fiscal 2015
Direct cost of goods sold
ZERUST ®	$	15,588,133	$	14,399,456
Natur-Tec ®		4,076,249		3,232,353
Indirect cost of goods sold		2,655,774		2,924,124
Total net cost of goods sold	$	22,320,156	$	20,555,932

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Fiscal Year Ended August 31,
	2016		2015
Inside the U.S.A. to unaffiliated customers	$	20,304,480	$	19,329,979
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		2,721,905		2,831,301
Unaffiliated customers		9,907,180		8,161,413
	$	32,933,565	$	30,322,693

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	At August 31, 2016		At August 31, 2015
China	$	253,931	$	45,220
Brazil		66,938		46,918
India		13,645		16,402
United States		8,219,955		8,446,842
Total long-lived assets	$	8,554,469	$	8,555,382

Revenue from External Customers by Geographic Areas [Table Text Block]

	Fiscal Year Ended August 31, 2016		Fiscal Year Ended August 31, 2015
China	$	4,114,288	$	1,070,422
Brazil		2,172,297		2,623,938
India		1,104,947		967,241
Other		5,237,553		6,331,113
United States		20,304,480		19,329,979
Total net sales	$	32,933,565	$	30,322,693

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Note 15 - Income Taxes (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Fiscal Year Ended August 31,
	2016			2015
Current:
Federal	$	—		$	—
State		20,000			(37,000	)
Foreign		647,000			542,000
		667,000			505,000
Deferred:
Federal		6,000			87,000
State		—			5,000
Foreign		(47,000	)		52,000
		(41,000	)		144,000
	$	626,000		$	649,000

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Fiscal Year Ended August 31,
	2016			2015
Tax computed at statutory rates	$	(195,000	)	$	1,076,000
State income tax, net of federal benefit		20,000			(32,000	)
Tax effect on equity in (income) loss of international joint ventures		(956,000	)		(1,986,000	)
Tax effect on dividends received from joint ventures and investment at carrying value		2,681,000			1,470,000
Tax effect of foreign operations		997,000			996,000
Foreign tax credit		(3,178,000	)		(1,937,000	)
Research and development credit		(408,000	)		(314,000	)
Valuation allowance		1,620,000			1,379,000
Stock based compensation		90,000			99,000
Non-controlling interest		(148,000	)		(204,000	)
Other		103,000			102,000
	$	626,000		$	649,000

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	August 31,
	2016			2015
Accrued compensation	$	150,600		$	237,700
Inventory costs		95,300			81,200
Accrued joint venture expenses		54,200			93,200
Other accrued expenses		87,000			53,800
Goodwill and other intangible assets		1,332,000			1,123,200
Stock-based compensation		210,600			308,900
Foreign tax credit carryforward		5,679,000			4,654,800
Other credit and loss carryforwards		3,214,300			2,262,000
Total deferred tax assets		10,823,000			8,814,800
Valuation allowance		(8,893,300	)		(6,889,900	)
Total deferred tax assets after valuation allowance		1,929,700			1,924,900
Property and equipment		(215,600	)		(204,000	)
Other		(74,300	)		(120,800	)
Total deferred tax liabilities		(289,900	)		(324,800	)
Net deferred tax assets	$	1,639,800		$	1,600,100

Summary of Income Tax Contingencies [Table Text Block]

	Fiscal Year Ended August 31,
	2016		2015
Gross unrecognized tax benefits – beginning balance	$	203,000	$	180,000
Gross increases - prior period tax positions		15,000		15,000
Gross increases – current period tax positions		20,000		8,000
Gross unrecognized tax benefits – ending balance	$	238,000	$	203,000

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Note 16 - Commitments and Contingencies (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

FY 2017		191,631
FY 2018		176,040
FY 2019		60,652
FY 2020		40,579
FY 2021		40,579
Thereafter		88,463
	$	597,944

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Note 17 - Statements of Cash Flows (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Fiscal Year Ended August 31,
	2016		2015
Cash paid during the year for income tax	$	610,000	$	542,000
Cash paid during the year for interest		13,261		20,960

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Note 18 - Fair Value Measurements (Tables)

12 Months Ended

Aug. 31, 2016

Notes Tables

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2016		Level 1		Level 2		Level 3
Available for sale securities	$	2,243,864	$	2,243,864	$	—	$	—

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2015		Level 1		Level 2		Level 3
Available for sale securities	$	2,027,441	$	2,027,441	$	—	$	—

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Note 1 - Nature of Business and Significant Accounting Policies (Details Textual)	12 Months Ended
	Aug. 31, 2016 USD ($)	Aug. 31, 2015 USD ($)
Maximum [Member]
Noncontrolling Interest, Ownership Percentage by Parent	50.00%
Zerust Brazil [Member]
Equity Method Investment, Ownership Percentage	85.00%
NTI Asean LLC [Member]
Equity Method Investment, Ownership Percentage	60.00%
NaturTec [Member]
Equity Method Investment, Ownership Percentage	90.00%
Allowance for Doubtful Accounts Receivable	$ 40,000	$ 40,000
Number of Countries in which Entity Operates	60
Number of Operating Segments	2
Number of Joint Venture Arrangements	19

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Note 1 - Nature of Business and Significant Accounting Policies - Property and Equipment, Useful Life (Details)	12 Months Ended
	Aug. 31, 2016
Building and Building Improvements [Member] | Minimum [Member]
Property and equipment	5 years
Building and Building Improvements [Member] | Maximum [Member]
Property and equipment	30 years
Machinery and Equipment [Member] | Minimum [Member]
Property and equipment	3 years
Machinery and Equipment [Member] | Maximum [Member]
Property and equipment	10 years

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Note 3 - Inventories - Inventories (Details) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Production materials	$ 1,452,396	$ 1,445,014
Finished goods	6,258,891	6,023,427
Inventories	$ 7,711,287	$ 7,468,441

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Note 4 - Property and Equipment, Net - Components of Property and Equipment, Net (Details) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Land	$ 310,365	$ 310,365
Buildings and improvements	6,528,252	6,180,089
Machinery and equipment	3,590,063	4,090,619
Gross	10,428,680	10,581,073
Less accumulated depreciation	(3,152,808)	(3,287,910)
Net	$ 7,275,872	$ 7,293,163

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Note 5 - Patents and Trademarks, Net (Details Textual) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Patents and Trademarks [Member]
Finite-Lived Intangible Assets, Amortization Expense, Year Two	$ 120,000
Finite-Lived Intangible Assets, Amortization Expense, Year Three	120,000
Finite-Lived Intangible Assets, Amortization Expense, Year Four	120,000
Finite-Lived Intangible Assets, Amortization Expense, Year Five	$ 120,000
Finite-Lived Intangible Asset, Useful Life	7 years
Amortization	$ 119,032	$ 87,663
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	120,000
Amortization	$ 119,032	$ 87,663

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Note 5 - Patents and Trademarks, Net - Patents and Trademarks, Net (Details) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Patents and Trademarks [Member]
Patents and trademarks	$ 2,575,435	$ 2,440,022
Less accumulated amortization	(1,296,838)	(1,177,803)
Patents and trademarkes, net	1,278,597	1,262,219
Patents and trademarkes, net	$ 1,278,597	$ 1,262,219

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Note 6 - Investments in Joint Ventures (Details Textual) - USD ($)		12 Months Ended
	Nov. 30, 2013	Aug. 31, 2016	Aug. 31, 2015
Mutec [Member]
Financing Receivable, Net	$ 168,000
Notes Receivable Term	4 years
Due from Joint Ventures		$ 92,874	$ 125,891
Payments to Acquire Interest in Joint Venture		$ 0	$ 0

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Note 6 - Investments in Joint Ventures - Condensed Balance Sheet of EXCOR and All Other Joint Ventures (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
EXCOR [Member]
Current assets	$ 22,928,810	$ 22,620,323
Total assets	24,733,340	24,606,880
Current liabilities	3,485,231	3,360,142
Noncurrent liabilities
Joint ventures’ equity	21,248,109	21,246,738
Northern Technologies International Corporation’s share of joint ventures’ equity	10,624,056	11,571,361
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings	10,593,151	11,540,456
Northern Technologies International Corporation's dividends received from joint ventures	4,364,700	2,440,200
All Other [Member]
Current assets	25,994,114	26,674,793
Total assets	27,673,686	28,247,058
Current liabilities	8,948,469	8,928,241
Noncurrent liabilities	100,783	1,215,139
Joint ventures’ equity	18,624,434	18,103,679
Northern Technologies International Corporation’s share of joint ventures’ equity	9,216,728	8,972,877
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings	7,186,761	6,942,921
Northern Technologies International Corporation's dividends received from joint ventures	1,165,614	543,138
Current assets	48,922,924	49,295,116
Total assets	52,407,026	52,853,938
Current liabilities	12,433,700	12,288,383
Noncurrent liabilities	100,783	1,215,139
Joint ventures’ equity	39,872,543	39,350,417
Northern Technologies International Corporation’s share of joint ventures’ equity	19,840,774	20,544,238
Northern Technologies International Corporation's share of joint ventures’ undistributed earnings	17,779,912	18,483,377
Northern Technologies International Corporation's dividends received from joint ventures	$ 5,503,314	$ 2,983,338

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Note 6 - Condensed Income Statement of EXCOR and All Other Joint Ventures (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
EXCOR [Member]
Net sales	$ 35,138,214	$ 36,872,664
Gross profit	18,635,421	19,993,763
Net income	7,049,462	8,201,659
Northern Technologies International Corporation’s share of equity in income from joint ventures	3,534,113	4,091,608
All Other [Member]
Net sales	55,508,619	62,153,587
Gross profit	21,805,305	28,403,555
Net income	2,485,309	3,647,448
Northern Technologies International Corporation’s share of equity in income from joint ventures	1,209,718	1,844,957
Net sales	90,646,833	99,026,251
Gross profit	40,440,726	48,397,318
Net income	9,534,771	11,849,107
Northern Technologies International Corporation’s share of equity in income from joint ventures	$ 4,743,831	$ 5,936,565

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Note 7 - China Operations (Details Textual) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Tianjin Zerust [Member]
Cost Method Investments	$ 0
Cost Method Investments		$ 1,883,668

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Note 7 - China Operations - Investment in Tianjin Zerust (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Tianjin Zerust [Member]
Equity method investment – August 31, 2015	$ 2,243,524
Equity in earnings – fiscal year 2016	132,824
Reclassification of translation gains on foreign currency translation	(492,680)
Recording the impairment of the cost basis investment	(1,883,668)
Investment at carrying value – August 31, 2016		$ 2,243,524
Equity method investment – August 31, 2015	20,544,238
Recording the impairment of the cost basis investment	(1,883,668)
Investment at carrying value – August 31, 2016	$ 19,840,774	$ 20,544,238

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Note 8 - Corporate Debt (Details Textual)	12 Months Ended
	Aug. 31, 2016 USD ($)	Aug. 31, 2015 USD ($)
PNC Bank [Member] | Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	2.15%
PNC Bank [Member] | Revolving Credit Facility [Member]
Long-term Line of Credit	$ 0	$ 0
Line of Credit Facility, Maximum Borrowing Capacity	3,000,000
PNC Bank [Member] | Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	1,200,000
PNC Bank [Member]
Letters of Credit Outstanding, Amount	0	$ 0
JP Morgan Chase Bank [Member]
Letters of Credit Outstanding, Amount	$ 71,599
Term Loan and Line of Credit, Agreements, Loan Agreements [Member]
Debt Instrument, Covenants, Fixed Charge Coverage Ratio	1.1

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Note 9 - Stockholders' Equity (Details Textual) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015	Jan. 15, 2015
The 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	53,447	45,067
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 14.85	$ 20.10
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0	38,333
Stock Repurchase Program, Authorized Amount			$ 3,000,000
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 2,836,656
Stock Repurchased and Retired During Period, Shares	11,211
Treasury Stock Acquired, Average Cost Per Share	$ 12.40
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	53,447	45,067
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 14.85	$ 20.10
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value		$ 297,696

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Note 9 - Exercised Stock Options (Details) - shares	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Exercise 1 [Member]
Options Exercised (in shares)		9.76
Exercise 2 [Member]
Options Exercised (in shares)		7.65
Exercise 3 [Member]
Options Exercised (in shares)		10.2
Options Exercised (in shares)	0	38,333

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Note 10 - Net Income (Loss) Per Common Share (Details Textual) - shares	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	170,887	45,067

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Note 10 - Net Income (Loss) Per Common Share - Reconciliation of the Earnings Per Share Computations (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Net (loss) income attributable to NTIC	$ (867,514)	$ 1,789,571
Basic-weighted shares outstanding (in shares)	4,537,504	4,521,788
Weighted shares assumed upon exercise of stock options (in shares)	0	127,272
Diluted – weighted shares outstanding (in shares)	4,537,504	4,649,060
Basic income (loss) earnings per share: (in dollars per share)	$ (0.19)	$ 0.40
Diluted income (loss) earnings per share: (in dollars per share)	$ (0.19)	$ 0.38

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Note 11 - Stock-based Compensation (Details Textual)				9 Months Ended	12 Months Ended
	Mar. 01, 2016 shares	Sep. 01, 2015 shares	Sep. 01, 2014 shares	May 31, 2016 shares	Aug. 31, 2016 USD ($) $ / shares	Aug. 31, 2015 USD ($) $ / shares
The 2007 Plan [Member] | Minimum [Member] | One Year after Date of Grant [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				3 years
The 2007 Plan [Member] | Maximum [Member] | One Year after Date of Grant [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period				4 years
The 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares				800,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period				10 years
ESPP [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares				100,000
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent				90.00%
Employee Stock Option [Member]
Stock or Unit Option Plan Expense					$ 427,437	$ 495,683
Number of Stock-based Compensation Plans				2
Stock Issued During Period, Shares, Employee Stock Purchase Plans | shares	3,144	2,438	3,206
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options					239,400
Allocated Share-based Compensation Expense, Estimate, Next Fiscal Year					159,600
Allocated Share-based Compensation Expense, Estimate, Fiscal Year Two					$ 79,800
Estimated Forfeiture Rate for Stock Options					10.00%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares					$ 8.48	$ 11.58
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term					6 years 167 days	5 years 219 days

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Note 11 - Stock-based Compensation - Black-Scholes Option-pricing Model Assumptions (Details)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Dividend yield	0.00%	0.00%
Expected volatility	46.00%	46.60%
Expected life of option (years)	10 years	10 years
Weighted average risk-free interest rate	1.63%	1.63%

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Note 11- Stock-based Compensation - Stock Option Activity (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Number of shares, Outstanding (in shares)	241,734	239,000
Weighted average exercise price, Outstanding (in dollars per share)	$ 13.72	$ 11.66
Number of shares, Options granted (in shares)	53,447	45,067
Weighted average exercise price, Options granted (in dollars per share)	$ 14.85	$ 20.10
Number of shares, Options exercised (in shares)	0	(38,333)
Weighted average exercise price, Options exercised (in dollars per share)	$ 0	$ 9
Number of shares, Options terminated (in shares)	(12,000)	(4,000)
Weighted average exercise price, Options terminated (in dollars per share)	$ 13.38	$ 10.20
Number of shares, Outstanding (in shares)	283,181	241,734
Weighted average exercise price, Outstanding (in dollars per share)	$ 13.95	$ 13.72
Aggregate intrinsic value, Outstanding	$ 392,370
Number of shares, Exercisable (in shares)	188,600
Weighted average exercise price, Exercisable (in dollars per share)	$ 13.45
Aggregate intrinsic value, Exercisable	$ 336,683

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Note 12 - Segment and Geographic Information (Details Textual)	12 Months Ended
	Aug. 31, 2016
Number of Reportable Segments	2

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Note 12 - Segment and Geographic Information - Net Sales by Segment (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
ZERUST [Member]
Net sales by segment	$ 27,577,566	$ 26,042,909
NaturTec [Member]
Net sales by segment	5,355,999	4,279,784
Net sales by segment	$ 32,933,565	$ 30,322,693

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Note 12 - Segment and Geographic Information - Cost of Goods Sold by Segment (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Direct Cost of Goods Sold [Member] | ZERUST [Member]
Cost of goods sold	$ 15,588,133	$ 14,399,456
Direct Cost of Goods Sold [Member] | NaturTec [Member]
Cost of goods sold	4,076,249	3,232,353
Indirect Cost of Goods Sold [Member]
Cost of goods sold	2,655,774	2,924,124
Cost of goods sold	$ 22,320,156	$ 20,555,932

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Note 12 - Segment and Geographic Location - Net Sales by Geographic Location (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Inside the USA to Unaffiliated Customers [Member]
Net sales by segment	$ 20,304,480	$ 19,329,979
Joint Ventures in Which the Company is a Shareholder Directly and Indirectly Outside the USA [Member]
Net sales by segment	2,721,905	2,831,301
Unaffiliated Customers Outside the USA [Member]
Net sales by segment	9,907,180	8,161,413
Net sales by segment	$ 32,933,565	$ 30,322,693

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Note 12 - Segment and Geographic Information - Fees for Services Provided to Joint Ventures by Geographic Location as a Percentage of Total Fees (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
GERMANY
Fees	$ 845,857	$ 873,400
JAPAN
Fees	646,015	599,108
POLAND
Fees	599,391	600,255
THAILAND
Fees	537,212	554,881
UNITED KINGDOM
Fees	386,761	396,514
KOREA, REPUBLIC OF
Fees	352,393	192,539
FRANCE
Fees	329,805	412,608
INDIA
Fees	300,506	277,548
SWEDEN
Fees	265,745	323,610
FINLAND
Fees	252,578	281,620
CZECH REPUBLIC
Fees	237,062	229,185
CHINA
Fees	0	494,080
Other Countries [Member]
Fees	384,385	480,143
Fees	$ 5,137,710	$ 5,715,491

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Note 12 - Segment and Geographic Information - Total Long-lived Assets by Geographic Distribution (Details) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
CHINA
Total long-lived assets	$ 253,931	$ 45,220
BRAZIL
Total long-lived assets	66,938	46,918
INDIA
Total long-lived assets	13,645	16,402
UNITED STATES
Total long-lived assets	8,219,955	8,446,842
Total long-lived assets	$ 7,275,872	$ 7,293,163

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Note 12 - Segment and Geographic Information - Total Net Sales by Geographic Distribution (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
CHINA
Total net sales	$ 4,114,288	$ 1,070,422
BRAZIL
Total net sales	2,172,297	2,623,938
INDIA
Total net sales	1,104,947	967,241
Other Countries [Member]
Total net sales	5,237,553	6,331,113
UNITED STATES
Total net sales	20,304,480	19,329,979
Total net sales	$ 32,933,565	$ 30,322,693

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Note 13 - Retirement Plan (Details Textual) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Defined Contribution Plan, Maximum Annual Contributions Per Employee, Percent	15.00%
Defined Contribution Plan Maximum Amount of Employees Contributions Percent	50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	3.50%
Defined Contribution Plan, Cost Recognized	$ 215,785	$ 214,008

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Note 14 - Related Party Transactions (Details Textual) - Bioplastic Polymers LLC [Member] - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Consulting Payment Expense [Member]
Related Party Transaction, Amounts of Transaction	$ 100,000
Royalty Payment Expense [Member]
Related Party Transaction, Amounts of Transaction	$ 31,463	$ 21,327

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Note 15 - Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Deferred Tax Expenses Related to Undistributed Earnings of Foreign Joint Ventures [Member]
Deferred Income Tax Expense (Benefit)	$ 32,000
Foreign Tax Authority [Member]
Deferred Tax Assets, Operating Loss Carryforwards, Subject to Expiration	350,600
Tax Credit Carryforward, Valuation Allowance	5,679,000	$ 4,654,800
Operating Loss Carryforwards, Valuation Allowance	571,000
Federal and State Tax [Member]
Operating Loss Carryforwards	2,643,300
Tax Credit Carryforward, Valuation Allowance	2,643,300	2,335,200
Capital Loss Carryforward [Member]
Deferred Tax Assets, Capital Loss Carryforwards	571,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	0	0
Undistributed Earnings of Foreign Subsidiaries	17,779,912	18,483,377
Deferred Income Tax Expense (Benefit)	(41,000)	144,000
Deferred Tax Assets, Tax Credit Carryforwards, Foreign	$ 5,679,000	$ 4,654,800

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Note 15 - Income Taxes - Provision for Income Taxes (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Current:
Federal
State	20,000	(37,000)
Foreign	647,000	542,000
Total current	667,000	505,000
Deferred:
Federal	6,000	87,000
State		5,000
Foreign	(47,000)	52,000
Total deferred	(41,000)	144,000
Total income tax expense	$ 626,120	$ 648,674

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Note 15 - Income Taxes - Reconciliations of the Expected Federal Income Tax at the Statutory Rate with the Provisions for Income Taxes (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Tax computed at statutory rates	$ (195,000)	$ 1,076,000
State income tax, net of federal benefit	20,000	(32,000)
Tax effect on equity in (income) loss of international joint ventures	(956,000)	(1,986,000)
Tax effect on dividends received from joint ventures and investment at carrying value	2,681,000	1,470,000
Tax effect of foreign operations	997,000	996,000
Foreign tax credit	(3,178,000)	(1,937,000)
Research and development credit	(408,000)	(314,000)
Valuation allowance	1,620,000	1,379,000
Stock based compensation	90,000	99,000
Non-controlling interest	(148,000)	(204,000)
Other	103,000	102,000
Total income tax expense	$ 626,120	$ 648,674

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Note 15 - Income Taxes - Tax Effect of the Temporary Differences and Tax Carry Forwards Comprising Net Deferred Taxes (Details) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Accrued compensation	$ 150,600	$ 237,700
Inventory costs	95,300	81,200
Accrued joint venture expenses	54,200	93,200
Other accrued expenses	87,000	53,800
Goodwill and other intangible assets	1,332,000	1,123,200
Stock-based compensation	210,600	308,900
Foreign tax credit carryforward	5,679,000	4,654,800
Other credit and loss carryforwards	3,214,300	2,262,000
Total deferred tax assets	10,823,000	8,814,800
Valuation allowance	(8,893,300)	(6,889,900)
Total deferred tax assets after valuation allowance	1,929,700	1,924,900
Property and equipment	(215,600)	(204,000)
Other	(74,300)	(120,800)
Total deferred tax liabilities	(289,900)	(324,800)
Net deferred tax assets	$ 1,639,800	$ 1,600,100

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Note 15 - Income Taxes - Reconciliation of the Total Amounts of Unrecognized Tax Benefits (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Gross unrecognized tax benefits – beginning balance	$ 203,000	$ 180,000
Gross increases - prior period tax positions	15,000	15,000
Gross increases – current period tax positions	20,000	8,000
Gross unrecognized tax benefits – ending balance	$ 238,000	$ 203,000

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Note 16 - Commitments and Contingencies (Details Textual)	12 Months Ended
	Aug. 31, 2016 USD ($)	Aug. 31, 2015 USD ($)
Fiscal 2017 Bonus Plan [Member] | Executive Officer [Member]
Percentage of Individual Bonus Payout Determined by Actual Versus Targeted EBITOI Results	75.00%
Percentage of Individuals Payout Determined Upon Achievement of Certain Pre-Established Individual Performance Objectives	25.00%
Fiscal 2016 Bonus Plan [Member] | Executive Officer [Member]
Percentage of Individual Bonus Payout Determined by Actual Versus Targeted EBITOI Results	75.00%
Percentage of Individuals Payout Determined Upon Achievement of Certain Pre-Established Individual Performance Objectives	25.00%
Office and Warehouse Space [Member] | United States, China, India, Germany, and Brazil [Member] | Minimum [Member]
Operating Leases, Monthly Rent Expense	$ 1,090
Office and Warehouse Space [Member] | United States, China, India, Germany, and Brazil [Member] | Maximum [Member]
Operating Leases, Monthly Rent Expense	11,539
Accrued Bonuses	$ 450,000	$ 620,000
Number of Joint Ventures Accounted For Certain Percentage of Company's Trade Joint Venture Receivables	3	4
Entity Wide Trade Joint Venture Receivables, Four Joint Ventures,Percentage	55.80%	67.00%

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Note 16 - Commitments and Contingencies - Future Minimum Rents Due (Details)	Aug. 31, 2016 USD ($)
FY 2017	$ 191,631
FY 2018	176,040
FY 2019	60,652
FY 2020	40,579
FY 2021	40,579
Thereafter	88,463
Total future minimum payments due	$ 597,944

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Note 17 - Statements of Cash Flows - Supplemental Disclosures of Cash Flow Information (Details) - USD ($)	12 Months Ended
	Aug. 31, 2016	Aug. 31, 2015
Cash paid during the year for income tax	$ 610,000	$ 542,000
Cash paid during the year for interest	$ 13,261	$ 20,960

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Note 18 - Fair Value Measurements - Assets and Liabilities Measured at Fair Value Recurring Basis (Details) - USD ($)	Aug. 31, 2016	Aug. 31, 2015
Fair Value, Inputs, Level 1 [Member]
Available for sale securities	$ 2,243,864	$ 2,027,441
Available for sale securities	$ 2,243,864	$ 2,027,441