10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

(Mark one)

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

For the quarterly period ended May 31, 2017

☐ 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 55014 (Address of principal executive offices) (Zip code)

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

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

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

As of July 13, 2017, there were 4,527,018 shares of common stock of the registrant outstanding.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

May 31, 2017

TABLE OF CONTENTS

Description		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of May 31, 2017 (unaudited) and August 31, 2016 (audited)	3
	Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended May 31, 2017 and 2016	4
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and  Nine Months Ended May 31, 2017 and 2016	5
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended May 31, 2017 and 2016	6
	Notes to Consolidated Financial Statements (unaudited)	7-18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
SIGNATURES		36
EXHIBIT INDEX		37

_________________

This quarterly report on Form 10-Q 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. Financial Information – Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements.”

1 

_________________

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.

As used in this report, references to: (1) “NTIC China” refer to NTIC’s wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd.; (2) “NTI Europe” refer to NTIC’s wholly-owned subsidiary in Germany, NTIC Europe GmbH; (3) “Zerust Mexico” refer to NTIC’s wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V; (4) “Zerust Brazil” refer to NTIC’s majority-owned Brazilian subsidiary, Zerust Prevenção de Corrosão S.A.; (5) “Natur-Tec India” refer to NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited; and (6) “NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean LLC, which is a holding company 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, South Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand.

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 any of NTIC’s wholly-owned or majority-owned subsidiaries.

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

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

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 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2017 (UNAUDITED)

AND AUGUST 31, 2016 (AUDITED)

	May 31, 2017			August 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,500,164		$	3,395,274
Available for sale securities		3,756,680			2,243,864
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at May 31, 2017 and August 31, 2016		6,190,096			4,755,320
Trade joint ventures		1,295,766			791,903
Fees for services provided to joint ventures		1,224,977			1,406,587
Income taxes		375,531			215,905
Inventories		7,879,656			7,711,287
Prepaid expenses		421,708			422,031
Total current assets		24,644,578			20,942,171
PROPERTY AND EQUIPMENT, NET		7,451,899			7,275,872
OTHER ASSETS:
Investments in joint ventures		18,903,473			19,840,774
Deferred income taxes		1,614,229			1,639,762
Patents and trademarks, net		1,314,103			1,278,597
Other		71,685			92,874
Total other assets		21,903,490			22,852,007
Total assets	$	53,999,967		$	51,070,050
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,558,280		$	2,753,903
Accrued liabilities:
Payroll and related benefits		984,789			938,363
Other		247,597			301,836
Total current liabilities		4,790,666			3,994,102
COMMITMENTS AND CONTINGENCIES (Note 13)
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 4,527,018 and 4,533,416, respectively		90,540			90,668
Additional paid-in capital		13,983,754			13,798,567
Retained earnings		35,692,376			33,655,357
Accumulated other comprehensive loss		(3,251,765	)		(3,009,617	)
Stockholders’ equity		46,514,905			44,534,975
Non-controlling interest		2,694,396			2,540,973
Total equity		49,209,301			47,075,948
Total liabilities and equity	$	53,999,967		$	51,070,050

See notes to consolidated financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2017 AND 2016

	Three Months Ended						Nine Months Ended
	May 31, 2017			May 31, 2016			May 31, 2017			May 31, 2016
NET SALES:
Net sales, excluding joint ventures	$	9,360,883		$	7,925,357		$	26,552,434		$	21,454,381
Net sales, to joint ventures		862,136			761,218			2,115,511			1,961,565
Total net sales		10,223,019			8,686,575			28,667,945			23,415,946
Cost of goods sold		6,774,001			5,777,249			19,256,953			15,920,896
Gross profit		3,449,018			2,909,326			9,410,992			7,495,050
JOINT VENTURE OPERATIONS:
Equity in income of joint ventures		1,686,016			1,664,464			4,343,159			3,600,884
Fees for services provided to joint ventures		1,442,048			1,351,913			3,941,667			3,808,384
Total joint venture operations		3,128,064			3,016,377			8,284,826			7,409,268
OPERATING EXPENSES:
Selling expenses		2,430,824			1,507,200			6,716,390			4,507,716
General and administrative expenses		1,682,669			1,957,868			5,996,977			5,939,032
Research and development expenses		733,651			1,231,950			2,118,210			3,349,572
Total operating expenses		4,847,144			4,697,018			14,831,577			13,796,320
OPERATING INCOME		1,729,938			1,228,685			2,864,241			1,107,998
INTEREST INCOME		10,996			29,868			19,075			58,425
INTEREST EXPENSE		(7,409	)		(15,465	)		(15,502	)		(30,987	)
OTHER INCOME		—			6,294			—			7,255
INCOME BEFORE INCOME TAX EXPENSE		1,733,525			1,249,382			2,867,814			1,142,691
INCOME TAX EXPENSE		237,801			225,395			480,423			262,359
NET INCOME		1,495,724			1,023,987			2,387,391			880,332
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		143,308			106,614			350,370			305,099
NET INCOME ATTRIBUTABLE TO NTIC	$	1,352,416		$	917,373		$	2,037,021		$	575,233
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	0.30		$	0.20		$	0.45		$	0.13
Diluted	$	0.30		$	0.20		$	0.45		$	0.13
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic		4,526,771			4,538,970			4,528,523			4,538,005
Diluted		4,591,527			4,563,801			4,571,395			4,587,064

See notes to consolidated financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2017 AND 2016

	Three Months Ended				Nine Months Ended
	May 31, 2017		May 31, 2016		May 31, 2017			May 31, 2016
NET INCOME	$	1,495,724	$	1,023,987	$	2,387,391		$	880,332
Other comprehensive income (LOSS) – foreign currency translation adjustment		780,726		432,360		(239,095	)		(52,370	)
COMPREHENSIVE INCOME		2,276,450		1,456,347		2,148,296			827,962
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		160,223		124,840		353,423			310,992
COMPREHENSIVE INCOME ATTRIBUTABLE TO NTIC	$	2,116,227	$	1,331,507	$	1,794,873		$	516,970

See notes to consolidated financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED MAY 31, 2017 AND 2016

	Nine Months Ended
	May 31, 2017			May 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,387,391		$	880,332
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		293,748			325,576
Depreciation expense		580,962			482,576
Amortization expense		89,274			89,275
Equity in income from joint ventures		(4,343,159	)		(3,600,884	)
Dividends received from joint ventures		5,179,786			5,449,543
Deferred income taxes		24,939			—
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(1,442,714	)		(570,647	)
Trade, joint ventures		(503,863	)		(73,522	)
Fees for services provided to joint ventures		181,610			97,569
Income taxes		(154,171	)		(314,038	)
Inventories		(155,011	)		17,185
Prepaid expenses and other		19,197			(58,518	)
Accounts payable		816,845			692,741
Income tax payable		(3,466	)		(377	)
Accrued liabilities		(145,203	)		(363,514	)
Net cash provided by operating activities		2,826,166			3,053,297
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available for sale securities		(1,512,816	)		(212,351	)
Additions to property and equipment		(760,847	)		(490,481	)
Additions to patents		(124,780	)		(91,836	)
Net cash used in investing activities		(2,398,443	)		(794,668	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(200,000	)		(200,000	)
Repurchase of common stock		(196,164	)		(97,450	)
Proceeds from employee stock purchase plan		46,475			68,633
Proceeds from exercise of stock options		41,000			—
Net cash used in financing activities		(308,689	)		(228,817	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH:		(14,144	)		(27,255	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		104,890			2,002,557
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		3,395,274			2,623,981
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	3,500,164		$	4,626,538

See notes to consolidated financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.       INTERIM FINANCIAL INFORMATION

In the opinion of management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of May 31, 2017 and August 31, 2016 and the results of their operations for the three and nine months ended May 31, 2017 and 2016 and their cash flows for the nine months ended May 31, 2017 and 2016, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2016. These consolidated financial statements also should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section appearing in this report.

Operating results for the three and nine months ended May 31, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2017.

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

Certain amounts reported in the consolidated financial statements for the previous reporting period have been reclassified to conform to the current period presentation. Expenses previously recorded as “Expenses incurred in support of joint ventures” have been reclassified as “General and administrative expenses” based on the reduction in direct costs associated with supporting the joint ventures.

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 currently believes that the timeline established for implementation is attainable.

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; and there was no material impact on its consolidated financial statements.

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During February 2016, the FASB issued 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.

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 currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments”  ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayments or extinguishment costs, the maturing of a zero coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The guidance is effective for fiscal years beginning December 15, 2017. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-15 on its consolidated financial statements, but the adoption is not expected to have a significant impact as of the filing of this report.

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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3.       INVENTORIES

Inventories consisted of the following:

	May 31, 2017		August 31, 2016
Production materials	$	1,454,328	$	1,452,396
Finished goods		6,425,328		6,258,891
	$	7,879,656	$	7,711,287

4.       PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	May 31, 2017			August 31, 2016
Land	$	310,365		$	310,365
Buildings and improvements		6,623,104			6,528,252
Machinery and equipment		4,170,638			3,590,063
		11,104,107			10,428,680
Less accumulated depreciation		(3,652,208	)		(3,152,808	)
	$	7,451,899		$	7,275,872

5.       PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	May 31, 2017			August 31, 2016
Patents and trademarks	$	2,700,215		$	2,575,435
Less accumulated amortization		(1,386,112	)		(1,296,838	)
	$	1,314,103		$	1,278,597

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 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 from the audited and unaudited financial statements of the Company’s joint ventures in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), Harita-NTI LTD (India), Zerust OY (Finland) and all the Company’s other joint ventures, are summarized as follows:

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	As of May 31, 2017
	Total		EXCOR		India		Finland		All Other
Current assets	$	48,064,624	$	19,820,904	$	4,322,253	$	1,929,781	$	21,991,686
Total assets		52,062,465		21,882,519		4,658,050		2,216,723		23,305,173
Current liabilities		13,773,839		3,028,386		1,412,054		547,007		8,786,392
Noncurrent liabilities		247,572		-		14,201		-		233,371
Joint ventures’ equity		38,041,054		18,854,133		3,231,795		1,669,716		14,285,410
Northern Technologies International Corporation’s share of joint ventures’ equity		18,903,473		9,427,068		1,615,898		834,856		7,025,651
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		16,829,258		9,396,163		751,076		814,856		5,867,163

	Nine Months Ended May 31, 2017
	Total		EXCOR		India		Finland		All Other
Net sales	$	73,098,215	$	28,169,978	$	5,299,600	$	2,619,843	$	37,008,794
Gross profit		32,376,247		15,032,724		2,463,138		1,569,152		13,311,233
Net income		8,562,834		6,184,181		611,143		413,044		1,354,466
Northern Technologies International Corporation’s share of equity in income of joint ventures		4,343,159		3,089,935		384,712		206,874		661,638
Northern Technologies International Corporation's dividends received from joint ventures	$	5,179,786	$	4,240,400	$	446,939	$	200,768	$	291,679

	As of August 31, 2016
	Total		EXCOR		India		Finland		All Other
Current assets	$	48,922,924	$	22,928,810	$	4,027,016	$	1,928,861	$	20,038,237
Total assets		52,407,026		24,733,340		4,352,573		2,211,392		21,109,721
Current liabilities		12,433,700		3,485,213		1,097,231		546,506		7,304,730
Noncurrent liabilities		100,783		—		6,382		—		94,401
Joint ventures’ equity		39,872,543		21,248,109		3,248,960		1,664,886		13,710,588
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		1,624,480		832,442		6,759,796
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		17,779,912		10,593,151		759,658		812,442		5,614,661

	Nine Months Ended May 31, 2016
	Total		EXCOR		India		Finland		All Other
Net sales	$	66,223,514	$	25,314,260	$	5,027,226	$	2,435,861	$	33,446,167
Gross profit		29,745,795		13,512,404		2,427,574		1,438,756		12,367,061
Net income		7,188,274		5,409,407		697,977		342,544		738,346
Northern Technologies International Corporation’s share of equity in income of joint ventures		3,600,884		2,714,905		327,846		171,662		386,471
Northern Technologies International Corporation's dividends received from joint ventures	$	5,449,543	$	4,364,700	$	326,023	$	206,516		552,304

The Company did not make any joint venture investments during the nine months ended May 31, 2017 and 2016.

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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 was 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. 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. 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 13). These circumstances resulted in the Company concluding an indication of impairment existed and that the fair value of the investment was $0 as of August 31, 2016 based on accounting principles generally accepted in the United States of America. See Note 13 regarding ongoing litigation involving Tianjin Zerust.

8.       CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank, National Association (PNC Bank) of $3,000,000. No amounts were outstanding under the line of credit as of both May 31, 2017 and August 31, 2016. 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. Interest is payable in arrears (a) for the portion of advances bearing interest under the prime rate on the last day of each month during the term thereof and (b) for the portion of advances bearing interest under the LIBOR option on the last day of the respective LIBOR interest period selected for such advance. Any unpaid interest is payable on the maturity date. The revolving line of credit is secured by cash, receivables and inventory.

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 May 31, 2017 and August 31, 2016 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. 

On January 11, 2017, the Company and PNC Bank extended the maturity date of the line of credit to January 7, 2018. All other terms of the line of credit and the loan agreement and other documents evidencing the line of credit remain the same.

As of May 31, 2017 and August 31, 2016, the Company had $75,201 and $71,599, respectively, of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2020 and 2022.

9.       STOCKHOLDERS’ EQUITY

During the nine months ended May 31, 2017, the Company repurchased and retired 14,525 shares of its common stock at a price of $13.51 per share.

During the nine months ended May 31, 2017, stock options to purchase an aggregate of 4,000 shares of common stock at an exercise price of $10.25 per share were exercised.

11 

During the nine months ended May 31, 2017, 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 56,677 shares of its common stock to various employees and directors. The weighted average per share exercise price of the stock options was $13.40, which was equal to the fair market value of the Company’s common stock on the date of grant.

During the nine months ended May 31, 2016, the Company repurchased and retired 7,511 shares of its common stock at a price of $12.98 per share.

During the nine months ended May 31, 2016, no stock options to purchase shares of common stock were exercised.

During the nine months ended May 31, 2016, the Company granted stock options under the 2007 Plan to purchase an aggregate of 53,447 shares of its common stock to various employees and directors. The weighted average per share exercise price of the stock options was $14.85, which is equal to the fair market value of the Company’s common stock on the date of grant.

10.       NET INCOME PER COMMON SHARE

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

The following is a reconciliation of the net income per share computation for the three and nine months ended May 31, 2017 and 2016:

	Three Months Ended				Nine Months Ended
Numerators:	May 31, 2017		May 31, 2016		May 31, 2017		May 31, 2016
Net income attributable to NTIC	$	1,352,416	$	917,373	$	2,037,021	$	575,233
Denominators:
Basic – weighted shares outstanding		4,526,771		4,538,970		4,528,523		4,538,005
Weighted shares assumed upon exercise of stock options		64,756		24,831		42,872		49,059
Diluted – weighted shares outstanding		4,591,527		4,563,801		4,571,395		4,587,064
Basic income per share:	$	0.30	$	0.20	$	0.45	$	0.13
Diluted income per share:	$	0.30	$	0.20	$	0.45	$	0.13

The dilutive impact summarized above relates to the periods when the average market price of the Company’s common 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. There were 271,791 options outstanding as of May 31, 2017, that were dilutive.

Excluded from the computation of diluted income per share for the three and nine months ended May 31, 2017 were options outstanding to purchase 48,067 shares of common stock. Excluded from the computation of diluted earnings per share for the three and nine months ended May 31, 2016 were options outstanding to purchase 170,887 shares of common stock.

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 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.

12 

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 May 31, 2017, 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 granted options to purchase an aggregate of 56,677 and 53,447 shares of its common stock during the nine months ended May 31, 2017 and 2016, respectively. 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 Company recognized compensation expense of $293,748 and $325,576 during the nine months ended May 31, 2017 and 2016, respectively, related to the options that vested during such time period. As of May 31, 2017, the total compensation cost for non-vested options not yet recognized in the Company’s consolidated statements of operations was $337,316, net of estimated forfeitures. Stock-based compensation expense of $97,916 is expected through the remainder of fiscal year 2017, and $159,600 and $79,800 is expected to be recognized during fiscal 2018 and fiscal 2019, respectively, based on outstanding options as of May 31, 2017. 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 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:

	Nine Months Ended
	May 31, 2017			May 31, 2016
Dividend yield		0.00	%		0.00	%
Expected volatility		46.4	%		46.0	%
Expected life of option (in years)		10			10
Average risk-free interest rate		1.63	%		1.63	%

The weighted average per share fair value of options granted during nine months ended May 31, 2017 and 2016 was $7.69 and $8.48, respectively. The weighted average remaining contractual life of the options outstanding as of May 31, 2017 and 2016 was 6.73 years and 6.71 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 resins and finished products under the Natur-Tec® brand.

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The following table sets forth the Company’s net sales for the three and nine months ended May 31, 2017 and 2016 by segment:

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

The following table sets forth the Company’s cost of goods sold for the three and nine months ended May 31, 2017 and 2016 by segment:

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

____________________________

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

The Company utilizes product net sales and direct and indirect cost of goods sold for each product in reviewing the financial performance of a product type. Further allocation of Company expenses or assets, aside from amounts presented in the tables above, is not utilized in evaluating product performance, nor does such allocation occur for internal financial reporting.

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Geographic Information

Net sales by geographic location for the three and nine months ended May 31, 2017 and 2016 were as follows:

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

Net sales by geographic location are based on the location of the customer. Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to joint ventures during the three and nine months ended May 31, 2017 and 2016 were as follows:

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

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

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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.

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

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

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

Total long-lived assets located in Brazil, India, Germany and China primarily consist of property and equipment. These assets are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets. Total assets located in the United States include the Company’s investments in joint ventures.

Sales to the Company’s joint ventures are included in the foregoing segment and geographic information; however, sales by the Company’s joint ventures to other parties are not included. The foregoing segment and geographic information represents only sales and cost of goods sold recognized directly by the Company.

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

13.       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 consider 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 Adjusted EBITOI for fiscal 2017 compared to a pre-established target Adjusted 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 the Company’s 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. There was $600,000 accrued for management bonuses for the nine months ended May 31, 2017 compared to an accrual of $215,000 for management bonuses for the nine months ended May 31, 2016.

16 

Two joint ventures (consisting of the Company’s joint ventures in Korea and India) accounted for 21.4% of the Company’s trade joint venture receivables at May 31, 2017, and 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 as of August 31, 2016.

On March 23, 2015, the Company and NTI Asean LLC (NTI Asean) filed a lawsuit in Tianjin No 1 Intermediate People’s Court against two individuals, Tao Meng and Xu Hui, 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. (Tianjin Zerust). The lawsuit alleges, among other things, that Mr. Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. As of May 31, 2017, 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 (Cortec) 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.  After fully litigating the case through discovery and dispositive motion practice, on February 16, 2017, the Minnesota court denied both sides’ motions for summary judgment and, sua sponte, dismissed without prejudice the Company’s and NTI Asean’s claims based on a non-exclusive forum-selection clause contained in a 2005 settlement agreement between the Company and Cortec Corporation.  While the Company had strong arguments to appeal the Minnesota court’s decision, an appeal would have meant a significant delay to the resolution of the dispute.  On April 21, 2017, the Company re-filed the lawsuit in the United States District Court for the Northern District of Ohio.  On May 15, 2017, Cortec filed an answer and counterclaim.  The counterclaim was promptly dismissed by the Court. Cortec has agreed that all the discovery and information learned in the Minnesota case may be used in the Ohio case.  The parties attended a Case Management Conference (CMC) on June 21, 2017.  The Court set a deadline of September 4, 2017 to complete discovery and set the case for a jury trial on a two-week standby period beginning on September 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 can 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 May 31, 2017, 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.

14.       Fair Value Measurements

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.

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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 May 31, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	3,756,680	$	3,756,680	$	—	$	—

			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	$	—	$	—

There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended May 31, 2017 and 2016.

15.       SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information consist of:

	Three Months Ended
	May 31, 2017		May 31, 2016
Cash paid for interest	$	7,409	$	15,465
Cash paid for income taxes		—		—

	Nine Months Ended
	May 31, 2017		May 31, 2016
Cash paid for interest	$	15,502	$	30,987
Cash paid for income taxes		—		—

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ITEM 2. 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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements” in this report and under “Part 1. Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended August 31, 2016. 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 the heading “Part I. Item 1. Financial Statements.”

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, NTI Asean LLC (NTI Asean), 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. NTIC also sells products directly to its joint venture partners through its wholly-owned subsidiary in Germany, NTIC Europe GmbH (NTI Europe).

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.

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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.

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 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.

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

NTIC’s Subsidiaries and Joint Venture Network

NTIC has ownership interests in six subsidiaries in North America, Europe and Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of May 31, 2017, the country in which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:

Subsidiary 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	%
NTIC Europe GmbH	Germany		100	%

The results of these subsidiaries are fully consolidated in NTIC’s consolidated financial statements.

NTIC participates in 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. 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.

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

NTIC considers EXCOR, India and Finland to be individually significant to NTIC’s consolidated assets and income, and therefore, provides certain additional information regarding EXCOR, India and Finland 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.

NTIC’s consolidated net sales increased 17.7% and 22.4% during the three and nine months ended May 31, 2017, respectively, compared to the three and nine months ended May 31, 2016. These increases were primarily a result of an increase in sales of ZERUST® rust and corrosion inhibiting packaging products, sales to joint ventures and sales of Natur-Tec® products.

During the three and nine months ended May 31, 2017, 81.9% and 82.6% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 16.5% and 21.1% to $8,368,487 and $23,681,192 during the three and nine months ended May 31, 2017, respectively, compared to $7,185,955 and $19,548,974 during the three and nine months ended May 31, 2016, respectively. These increases were due to higher sales from existing customers for new and existing products as a result of increased demand. NTIC has expanded 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 the nine months ended May 31, 2017 included $1,287,789 of sales made to customers in the oil and gas industry compared to $1,229,426 for the nine months ended May 31, 2016. 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, we believe demand for ZERUST® products and services in the oil and gas industry may be dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.

During the three and nine months ended May 31, 2017, 18.1% and 17.4%, of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products compared to 17.3% and 16.5% during the three and nine months ended May 31, 2016, respectively. Net sales of Natur-Tec® products increased 23.6% and 29.0% during the three and nine months ended May 31, 2017 compared to the three and nine months ended May 31, 2016, respectively. These increases were primarily due to an increase in 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 decreased to 66.3% during the three months ended May 31, 2017 compared to 66.5% during the three months ended May 31, 2016 and decreased to 67.2% during the nine months ended May 31, 2017 compared to 68.0% during the prior fiscal year period. These decreases were primarily as a result of increased net sales and cost reductions realized on the raw materials associated with NTIC’s ZERUST® industrial products.

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NTIC’s equity in income of joint ventures increased 1.3% and 20.6% to $1,686,016 and $4,343,159, respectively, during the three and nine months ended May 31, 2017 compared to $1,664,464 and $3,600,884 during the three and nine months ended May 31, 2016, respectively. These increases were primarily due to increases in profitability at the joint ventures. Total net sales of NTIC’s joint ventures increased 7.1% and 10.4% to $25,935,169 and $73,098,215 during the three and nine months ended May 31, 2017, respectively, compared to $24,223,090 and $66,223,514 for the three and nine months ended May 31, 2016, respectively. These increases were due primarily to higher sales from existing customers for new and existing products as a result of increased demand.

NTIC’s total operating expenses increased 7.5%, or $1,035,257, to $14,831,577 during the nine months ended May 31, 2017 compared to the nine months ended May 31, 2016. This increase was primarily due: (i) an increase in operating expenses at Zerust Brazil and NTIC China of $170,000 and $140,000, respectively, consisting primarily of selling and personnel expense associated with increased sales efforts in Brazil and China, respectively; (ii) an increase in legal expenses in North America related to the litigation against Cortec Corporation of $254,000; and (iii) an increase in NTIC’s management bonus accrual of $385,000.

NTIC spent $2,118,210 and $3,349,572 of expense during the nine months ended May 31, 2017 and May 31, 2016, respectively, in connection with its research and development activities. NTIC anticipates that it will spend between $2,700,000 and $2,900,000 in fiscal 2017 on research and development activities. This anticipated significant decrease from fiscal 2016 is due to the transition of efforts from research and development to selling, general and administrative areas, specifically as they relate to Natur-Tec^® products 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.

Net income attributable to NTIC was $1,352,416, or $0.30 per diluted common share, for the three months ended May 31, 2017 compared to $917,373, or $0.20 per diluted common share, for the three months ended May 31, 2016. Net income attributable to NTIC increased 254.1%, to $2,037,021, or $0.45 per diluted common share, for the nine months ended May 31, 2017 compared to $575,233 or $0.13 per diluted common share, for the nine months ended May 31, 2016. These increases were primarily the result of the increase in gross profit, partially offset by the increase in operating expenses.

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 during the next few quarters will be particularly volatile as a result of the changes in its Chinese operations.

NTIC’s working capital was $19,853,912 at May 31, 2017, including $3,500,164 in cash and cash equivalents and $3,756,680 in available for sale securities, compared to $16,948,069 at August 31, 2016, including $3,395,274 in cash and cash equivalents and $2,243,864 in available for sale securities.

Results of Operations

The following tables set forth NTIC’s results of operations for the three and nine months ended May 31, 2017 and 2016.

	Three Months Ended
	May 31, 2017		% of Net Sales			May 31, 2016		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	9,360,883		91.6	%	$	7,925,357		91.2	%	$	1,435,526			18.1	%
Net sales, to joint ventures		862,136		8.4	%		761,218		8.8	%		100,918			13.3	%
Cost of goods sold		6,774,001		66.3	%		5,777,249		66.5	%		996,752			17.3	%
Equity in income of joint ventures		1,686,016		16.5	%		1,664,464		19.2	%		21,552			1.3	%
Fees for services provided to joint ventures		1,442,048		14.1	%		1,351,913		15.6	%		90,135			6.7	%
Selling expenses		2,430,824		23.8	%		1,507,200		17.4	%		923,624			61.3	%
General and administrative expenses		1,682,669		16.5	%		1,957,868		22.5	%		(275,199	)		(14.1	%)
Research and development expenses		733,651		7.2	%		1,231,950		14.2	%		(498,299	)		(40.4	%)

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	Nine Months Ended
	May 31, 2017		% of Net Sales			May 31, 2016		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	26,552,434		92.6	%	$	21,454,381		91.6	%	$	5,098,053			23.8	%
Net sales, to joint ventures		2,115,511		7.4	%		1,961,565		8.4	%		153,946			7.8	%
Cost of goods sold		19,256,953		67.2	%		15,920,896		68.0	%		3,336,057			21.0	%
Equity in income of joint ventures		4,343,159		15.1	%		3,600,884		15.4	%		742,275			20.6	%
Fees for services provided to joint ventures		3,941,667		13.7	%		3,808,384		16.3	%		133,283			3.5	%
Selling expenses		6,716,390		23.4	%		4,507,716		19.3	%		2,208,674			49.0	%
General and administrative expenses		5,996,977		20.9	%		5,939,032		25.4	%		57,945			1.0	%
Research and development expenses		2,118,210		7.4	%		3,349,572		14.3	%		(1,231,362	)		(36.8	%)

Net Sales. NTIC’s consolidated net sales increased 17.7% and 22.4% to $10,223,019 and $28,667,945, respectively, during the three and nine months ended May 31, 2017 compared to the three and nine months ended May 31, 2016. NTIC’s consolidated net sales excluding NTIC’s joint ventures increased 18.1% and 23.8% to $9,360,883 and $26,552,434, respectively, during the three and nine months ended May 31, 2017 compared to the same respective prior fiscal year periods. These increases were primarily a result of increased demand from the addition of new customers in North America, at NTIC China and an increase in sales of our Natur-Tec® products. Net sales to joint ventures increased 13.3% and 7.8% to $862,136 and $2,115,511 during the three and nine months ended May 31, 2017, respectively, compared to the same respective prior fiscal year periods.

The following table sets forth NTIC’s net sales for the three and nine months ended May 31, 2017 and 2016 by segment:

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

During the three and nine months ended May 31, 2017, 81.9% and 82.6% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST^® products and services, which increased 16.5% and 21.1% to $8,368,487 and $23,681,192 during the three and nine months ended May 31, 2017, respectively, compared to $7,185,955 and $19,548,974 during the three and nine months ended May 31, 2016, respectively. These increases were due to increased demand from existing customers and the addition of new customers. 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, we believe demand for ZERUST® products and services in the oil and gas industry may be 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 the three and nine months ended May 31, 2017 and 2016:

	Three Months Ended
	May 31, 2017		May 31, 2016		$ Change			% Change
ZERUST® industrial net sales	$	7,170,802	$	5,912,881	$	1,257,921			21.3	%
ZERUST® joint venture net sales		862,136		761,218		100,918			13.3	%
ZERUST® oil & gas net sales		335,549		511,856		(176,307	)		(34.4	%)
Total ZERUST® net sales	$	8,368,487	$	7,185,955	$	1,182,532			16.5	%

	Nine Months Ended
	May 31, 2017		May 31, 2016		$ Change		% Change
ZERUST® industrial net sales	$	20,277,892	$	16,357,983	$	3,919,909		24.0	%
ZERUST® joint venture net sales		2,115,511		1,961,565		153,946		7.8	%
ZERUST® oil & gas net sales		1,287,789		1,229,426		58,363		4.7	%
Total ZERUST® net sales	$	23,681,192	$	19,548,974	$	4,132,218		21.1	%

NTIC’s net sales to the oil and gas industry sector decreased during the three months ended May 31, 2017 compared to the prior fiscal year period primarily as a result of volatility in that sector and the timing of projects. NTIC’s net sales to the oil and gas industry sector increased during the nine months ended May 31, 2017 compared to the prior fiscal year period primarily as a result of increased sales to India as a result of increased demand. 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, specifically due to the volatility of oil prices.

During the three and nine months ended May 31, 2017, 18.1% and 17.4% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, which increased 23.6% and 29.0% to $1,854,532 and $4,986,753 during the three and nine months ended May 31, 2017, respectively, compared to the three and nine months ended May 31, 2016. Such increases were due to the addition of new customers in North America and India as well as increased sales by existing distributors. 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 17.3% and 21.0% for the three and nine months ended May 31, 2017, respectively, compared to the three and nine months ended May 31, 2016. These increases were primarily as a result of the corresponding increased sales levels. Cost of goods sold as a percentage of net sales decreased to 66.3% during the three months ended May 31, 2017 compared to 66.5% during the three months ended May 31, 2016 and decreased to 67.2% during the nine months ended May 31, 2017 compared to 68.0% during the nine months ended May 31, 2016. These decreases were primarily as a result of increased net sales and cost reductions realized on the raw materials associated with NTIC’s ZERUST® industrial products.

Equity in Income of Joint Ventures. NTIC’s equity in income of joint ventures increased 1.3% and 20.6% to $1,686,016 and $4,343,159 during the three and nine months ended May 31, 2017, respectively, compared to equity in income of joint ventures of $1,664,464 and $3,600,884 during the three and nine months ended May 31, 2016, respectively. These increases were primarily a result of improved sales and profitability at the joint ventures. Of the total equity in income of joint ventures, NTIC had equity in income of joint ventures of $3,089,935 attributable to EXCOR during the nine months ended May 31, 2017 compared to $2,714,905 attributable to EXCOR during the nine months ended May 31, 2016. NTIC had equity in income of joint ventures of $384,712 attributable to India during the nine months ended May 31, 2017 compared to $347,846 attributable to India during the nine months ended May 31, 2016. NTIC had equity in income of joint ventures of $206,874 attributable to Finland during the nine months ended May 31, 2017 compared to $171,662 attributable to Finland during the nine months ended May 31, 2016. NTIC had equity in income of all other joint ventures of $661,638 during the nine months ended May 31, 2017 compared to $366,471 during the nine months ended May 31, 2016.

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Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,442,048 and $3,941,667 during the three and nine months ended May 31, 2017, respectively, compared to $1,351,913 and $3,808,384 during the three and nine months ended May 31, 2016, respectively, representing an increase of 6.7% and 3.5%, respectively. Fee income for services provided to joint ventures is traditionally a function of sales made by NTIC’s joint ventures. Total net sales of NTIC’s joint ventures increased to $25,935,169 and $73,098,215 during the three and nine months ended May 31, 2017, respectively, compared to $24,223,090 and $66,223,514 for the three and nine months ended May 31, 2016, respectively.

Net sales of NTIC’s joint ventures are not included in NTIC’s net sales in NTIC’s consolidated financial statements or in any description of NTIC’s net sales. Of the total fee income for services provided to joint ventures, fees of $614,766 were attributable to EXCOR during the nine months ended May 31, 2017 compared to $664,812 attributable to EXCOR during the nine months ended May 31, 2016. Fees of $229,200 were attributable to India during the nine months ended May 31, 2017 compared to $223,137 attributable to India during the nine months ended May 31, 2016. Fees of $221,294 were attributable to Finland during the nine months ended May 31, 2017 compared to $177,704 attributable to Finland during the nine months ended May 31, 2016.

Selling Expenses. NTIC’s selling expenses increased 61.3% and 49.0% for the three and nine months ended May 31, 2017, respectively, compared to the same respective periods in fiscal 2016. These increases were due primarily to increases in operating expenses at Zerust Brazil and NTIC China, consisting primarily of selling and personnel expense associated with increased sales efforts, and the transition of expenses that were previously focused on research and development efforts, but now relate to selling, specifically as they relate to Natur-Tec^® products 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. Selling expenses as a percentage of net sales increased to 23.8% and 23.4% for the three and nine months ended May 31, 2017, respectively, from 17.4% and 19.3% and during the three and nine months ended May 31, 2016, respectively. The increases in selling expenses as a percentage of net sales were due primarily to the transition of expenses as noted above.

General and Administrative Expenses. NTIC’s general and administrative expenses decreased 14.1% and increased 1.0% for the three and nine months ended May 31, 2017, respectively, compared to the same respective periods in fiscal 2016. The decrease for the three-month comparison was partially offset by and the increase for the nine-month comparison was primarily due to: (i) the transition of expenses that were previously focused on research and development efforts, but now relate to general and administrative focus, specifically as they relate to Natur-Tec® products 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; and (ii) an increase in legal expenses in North America related to the litigation against Cortec Corporation, which increased $254,000 for the nine-month comparison. As a percentage of net sales, general and administrative expenses decreased to 16.5% and 20.9% for the three and nine months ended May 31, 2017, respectively, from 22.5% and 25.4% for the three and nine months ended May 31, 2016, respectively. The decreases in general and administrative expenses as a percentage of net sales for the three- and nine-month comparisons were due primarily to the increase in net sales and for the three-month comparison, the decrease in general and administrative expenses as previously described.

Research and Development Expenses. NTIC’s research and development expenses decreased 40.4% for the three months ended May 31, 2017 compared to the same period in fiscal 2016 and decreased 36.8% for the nine months ended May 31, 2017 compared to the same period in fiscal 2016. These decreases were due primarily to the transition of resources that were previously devoted towards research and development to selling and general and administrative efforts, as previously described.

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Interest Income. NTIC’s interest income decreased to $10,996 and $19,075 during the three and nine months ended May 31, 2017, respectively, compared to $29,868 and $58,425 during the three and nine months ended May 31, 2016, respectively.

Interest Expense. NTIC’s interest expense decreased to $7,409 during the three months ended May 31, 2017 compared to $15,465 during the three months ended May 31, 2016 and decreased to $15,502 during the nine months ended May 31, 2017 compared to $30,987 during the nine months ended May 31, 2016.

Income Before Income Tax Expense. NTIC incurred income before income tax expense of $1,733,525 and $2,867,814 during the three and nine months ended May 31, 2017, respectively, compared to $1,249,382 and $1,142,691 during the three and nine months ended May 31, 2016, respectively.

Income Tax Expense. Income tax expense was $237,801 and $480,423 during the three and nine months ended May 31, 2017, respectively, compared to income tax expense of $225,395 and $262,359 during the three and nine months ended May 31, 2016, respectively. Income tax expense was calculated based on management’s estimate of NTIC’s annual effective income tax rate.

NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outside the United States based on estimates that NTIC’s future domestic cash generation will be sufficient to meet future domestic cash needs. Thus, U.S. income and foreign withholding taxes have not been recognized on the cumulative undistributed earnings of $16,829,258 and $17,779,912 at May 31, 2017 and August 31, 2016, 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 (Loss) - 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 the three and nine months ended May 31, 2017 compared to the same respective periods in fiscal 2016.

Liquidity and Capital Resources

Sources of Cash and Working Capital. As of May 31, 2017, NTIC’s working capital was $19,858,912, including $3,500,164 in cash and cash equivalents and $3,756,680 in available for sale securities, compared to $16,948,069 at August 31, 2016, including $3,395,274 in cash and cash equivalents and $2,243,864 in available for sale securities.

As of May 31, 2017, NTIC had a revolving line of credit with PNC Bank, National Association (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. 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 May 31, 2017, NTIC was in compliance with all debt covenants.

On January 11, 2017, NTIC and PNC Bank extended the maturity date of the line of credit retroactively from January 7, 2017 to January 7, 2018. All other terms of the line of credit and the loan agreement and other documents evidencing the line of credit remain the same. 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.

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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 the remainder of 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® bioplastics business. 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 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 it is not likely that there exists any exposure to debt by NTIC’s joint ventures that could materially impact their respective operations and/or liquidity.

Uses of Cash and Cash Flows. Net cash provided by operating activities during the nine months ended May 31, 2017 was $2,826,166, which resulted principally from dividends received from joint ventures, net income, an increase in accounts payable and depreciation and amortization, partially offset by NTIC’s equity in income from joint ventures and an increase in trade receivables. Net cash provided by operating activities during the nine months ended May 31, 2016 was $3,053,297, which resulted principally from dividends received from NTIC’s joint ventures, net income, the expensing of fair value of stock options vested, depreciation and amortization expense, and an increase in accounts payable, partially offset by equity income from NTIC’s joint ventures, and a decrease in trade receivables and accrued liabilities.

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 trade receivables and inventory as of May 31, 2017 compared to August 31, 2016. Trade receivables excluding joint ventures as of May 31, 2017 increased $1,434,776 compared to August 31, 2016, primarily related to the timing of collections and the increase in sales. Outstanding trade receivables excluding joint ventures balances as of May 31, 2017 increased 11 days to an average of 61 days from balances outstanding from these customers as of August 31, 2016. Outstanding trade receivables from joint ventures as of May 31, 2017 increased $503,863 compared to August 31, 2016 primarily due to the timing of payments. Outstanding balances from trade receivables from joint ventures increased as of May 31, 2017 by an average of 42 days from an average of 96 days from balances outstanding from these customers compared to August 31, 2016. The significant average days outstanding of trade receivables from joint ventures as of May 31, 2017 were primarily due to the receivables balances at NTIC’s joint venture in South Korea.

Outstanding receivables for services provided to joint ventures as of May 31, 2017 decreased $181,610 compared to August 31, 2016, which resulted in a decrease of 19 days of fees receivable outstanding as of May 31, 2017 to an average of 78 days compared to August 31, 2016.

Net cash used in investing activities for the nine months ended May 31, 2017 was $2,398,443, which was primarily the result of cash used in the purchase of available for sale securities, additions to property and equipment, and additions to patents. Net cash used in investing activities for the nine months ended May 31, 2016 was $794,668, which was primarily the result of additions to property and equipment, cash used in the purchase of available for sale securities, and additions to patents.

Net cash used in financing activities for the nine months ended May 31, 2017 was $308,689, which resulted from a dividend paid to a non-controlling interest and the repurchase of common stock, partially offset by proceeds from NTIC’s employee stock purchase plan and stock option exercises. Net cash used in financing activities for the nine months ended May 31, 2016 was $228,817, which resulted from a dividend paid to a non-controlling interest and the repurchase of common stock, partially offset by proceeds from 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 May 31, 2017, up to $2,640,603 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Capital Expenditures and Commitments. NTIC spent $760,847 on capital expenditures during the nine months ended May 31, 2017 and expects to spend an aggregate of approximately $800,000 to $900,000 on capital expenditures during fiscal 2017, which it expects will relate primarily to the purchase of new equipment.

Contractual Obligations

There has been no material change to NTIC’s contractual obligations as provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations,” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2016.

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.

28 

Inflation and Seasonality

Inflation in the United States and abroad historically has had little effect on NTIC. Although NTIC’s business historically has not been seasonal, NTIC believes there is now some seasonality in its business. NTIC believes that its net sales in second fiscal quarter were adversely affected by the long Chinese New Year, the North American holiday season and overall less corrosion taking place at lower winter temperatures worldwide.

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, South 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 May 31, 2017, NTIC had no borrowings under the line of credit.

Critical Accounting Policies and Estimates

There have been no material changes to NTIC’s critical accounting policies and estimates from the information provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2016.

Recent Accounting Pronouncements

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

Forward-Looking Statements

This quarterly report on Form 10-Q 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 operations of NTIC China. NTIC has identified some of these forward-looking statements in this report with words like “believe,” “can,” “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.”

29 

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, and the anticipated liquidation of Tianjin Zerust and the effect of these events on NTIC’s business and future operating results;

· NTIC’s ongoing litigation against Mr. Tao Meng, its former joint venture partner, and NTIC’s ongoing litigation against Cortec Corporation, and the effect of these legal matters and the expense associated therewith on NTIC’s business and future operating results;

· The effect of current worldwide economic conditions and any 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;

· The effect of the 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;

30 

· 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;

· 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 NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2016 under the heading “Part I. Item 1A. Risk Factors.”

31 

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.

ITEM 3. 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, South 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 May 31, 2017, NTIC had no borrowings under the line of credit.

ITEM 4. 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 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

32 

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 May 31, 2017 that has materially affected, or is reasonably likely to materially affect NTIC’s internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. 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, Tao Meng and Xu Hui, 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 Xu Hui 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 (Cortec) aided and abetted breaches of duties and contractual commitments owed to NTIC and NTI Asean related to NTIC’s joint venture in China, Tianjin Zerust.  After fully litigating the case through discovery and dispositive motion practice, on February 16, 2017, the Minnesota court denied both sides’ motions for summary judgment and, sua sponte, dismissed without prejudice NTIC’s and NTI Asean’s claims based on a non-exclusive forum-selection clause contained in a 2005 settlement agreement between NTIC and Cortec Corporation.  While NTIC had strong arguments to appeal the Minnesota court’s decision, an appeal would have meant a significant delay to the resolution of the dispute.  On April 21, 2017, NTIC re-filed the lawsuit in the United States District Court for the Northern District of Ohio.  On May 15, 2017, Cortec filed an answer and counterclaim.  The counterclaim was promptly dismissed by the Court. Cortec has agreed that all the discovery and information learned in the Minnesota case may be used in the Ohio case.  The parties attended a Case Management Conference (CMC) on June 21, 2017.  The Court set a deadline of September 4, 2017 to complete discovery and set the case for a jury trial on a two-week standby period beginning on September 18, 2017.

33 

ITEM 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Equity Securities

During the three months ended May 31, 2017, NTIC did not issue any shares of its common stock or other equity securities of NTIC that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table shows NTIC’s stock repurchase activity during the three months ended May 31, 2017.

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
March 1, 2017 through March 31, 2017	0	N/A	0	(1)
April 1, 2017 through April 30, 2017	800	$15.60	800	(1)(2)
May 1, 2017 through May 31, 2017	2,250	$15.90	2,250	(1)(2)
Total	3,050	$15.74	3,050	(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 May 31, 2017, up to $2,640,603 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

34 

ITEM 6. EXHIBITS

The following exhibits are being filed or furnished with this quarterly report on Form 10-Q:

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-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 Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1	Certification of Chief Executive Officer Pursuant to 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 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 NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Comprehensive Income, (iv) the unaudited Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements (filed herewith)

35 

SIGNATURES

Pursuant to the requirements 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
Date: July 14, 2017	Matthew C. Wolsfeld, CPA
	Chief Financial Officer
	(Principal Financial and Accounting Officer and
	Duly Authorized to Sign on Behalf of the Registrant)

36 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q

EXHIBIT INDEX

Exhibit No.	Description	Method of Filing
31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-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 Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of Chief Executive Officer Pursuant to 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 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 Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Comprehensive Income, (iv) the unaudited Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements	Filed herewith

37

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 quarterly report on Form 10-Q 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 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 officer(s) and I have disclosed, based on our most recent evaluation of internal control 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 control 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 control over financial reporting.

Date: July 14, 2017
	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 quarterly report on Form 10-Q 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 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 officer(s) and I have disclosed, based on our most recent evaluation of internal control 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 control 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 control over financial reporting.

Date: July 14, 2017
	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 Quarterly Report of Northern Technologies International Corporation (the “Company”) on Form 10-Q for the period ended May 31, 2017 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

July 14, 2017

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 Quarterly Report of Northern Technologies International Corporation (the “Company”) on Form 10-Q for the period ended May 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew C. Wolsfeld, Chief Financial Officer and Corporate Secretary 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)

XML

Document And Entity Information - shares	9 Months Ended
	May 31, 2017	Jul. 13, 2017
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)		4,527,018
Document Type	10-Q
Document Period End Date	May 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	May 31, 2017	Aug. 31, 2016
CURRENT ASSETS:
Cash and cash equivalents	$ 3,500,164	$ 3,395,274
Available for sale securities	3,756,680	2,243,864
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at May 31, 2017 and August 31, 2016	6,190,096	4,755,320
Trade joint ventures	1,295,766	791,903
Fees for services provided to joint ventures	1,224,977	1,406,587
Income taxes	375,531	215,905
Inventories	7,879,656	7,711,287
Prepaid expenses	421,708	422,031
Total current assets	24,644,578	20,942,171
PROPERTY AND EQUIPMENT, NET	7,451,899	7,275,872
OTHER ASSETS:
Investments in joint ventures	18,903,473	19,840,774
Deferred income taxes	1,614,229	1,639,762
Patents and trademarks, net	1,314,103	1,278,597
Other	71,685	92,874
Total other assets	21,903,490	22,852,007
Total assets	53,999,967	51,070,050
CURRENT LIABILITIES:
Accounts payable	3,558,280	2,753,903
Accrued liabilities:
Payroll and related benefits	984,789	938,363
Other	247,597	301,836
Total current liabilities	4,790,666	3,994,102
COMMITMENTS AND CONTINGENCIES (Note 13)
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 4,527,018 and 4,533,416, respectively	90,540	90,668
Additional paid-in capital	13,983,754	13,798,567
Retained earnings	35,692,376	33,655,357
Accumulated other comprehensive loss	(3,251,765)	(3,009,617)
Stockholders’ equity	46,514,905	44,534,975
Non-controlling interest	2,694,396	2,540,973
Total equity	49,209,301	47,075,948
Total liabilities and equity	$ 53,999,967	$ 51,070,050

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	May 31, 2017	Aug. 31, 2016
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)	4,527,018	4,533,416
Common stock, shares outstanding (in shares)	4,527,018	4,533,416

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Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
NET SALES:
Net sales, excluding joint ventures	$ 9,360,883	$ 7,925,357	$ 26,552,434	$ 21,454,381
Net sales, to joint ventures	862,136	761,218	2,115,511	1,961,565
Total net sales	10,223,019	8,686,575	28,667,945	23,415,946
Cost of goods sold	6,774,001	5,777,249	19,256,953	15,920,896
Gross profit	3,449,018	2,909,326	9,410,992	7,495,050
JOINT VENTURE OPERATIONS:
Equity in income of joint ventures	1,686,016	1,664,464	4,343,159	3,600,884
Fees for services provided to joint ventures	1,442,048	1,351,913	3,941,667	3,808,384
Total joint venture operations	3,128,064	3,016,377	8,284,826	7,409,268
OPERATING EXPENSES:
Selling expenses	2,430,824	1,507,200	6,716,390	4,507,716
General and administrative expenses	1,682,669	1,957,868	5,996,977	5,939,032
Research and development expenses	733,651	1,231,950	2,118,210	3,349,572
Total operating expenses	4,847,144	4,697,018	14,831,577	13,796,320
OPERATING INCOME	1,729,938	1,228,685	2,864,241	1,107,998
INTEREST INCOME	10,996	29,868	19,075	58,425
INTEREST EXPENSE	(7,409)	(15,465)	(15,502)	(30,987)
OTHER INCOME		6,294		7,255
INCOME BEFORE INCOME TAX EXPENSE	1,733,525	1,249,382	2,867,814	1,142,691
INCOME TAX EXPENSE	237,801	225,395	480,423	262,359
NET INCOME	1,495,724	1,023,987	2,387,391	880,332
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	143,308	106,614	350,370	305,099
NET INCOME ATTRIBUTABLE TO NTIC	$ 1,352,416	$ 917,373	$ 2,037,021	$ 575,233
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic (in dollars per share)	$ 0.30	$ 0.20	$ 0.45	$ 0.13
Diluted (in dollars per share)	$ 0.30	$ 0.20	$ 0.45	$ 0.13
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic (in shares)	4,526,771	4,538,970	4,528,523	4,538,005
Diluted (in shares)	4,591,527	4,563,801	4,571,395	4,587,064

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
NET INCOME	$ 1,495,724	$ 1,023,987	$ 2,387,391	$ 880,332
Other comprehensive income (LOSS) – foreign currency translation adjustment	780,726	432,360	(239,095)	(52,370)
COMPREHENSIVE INCOME	2,276,450	1,456,347	2,148,296	827,962
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	160,223	124,840	353,423	310,992
COMPREHENSIVE INCOME ATTRIBUTABLE TO NTIC	$ 2,116,227	$ 1,331,507	$ 1,794,873	$ 516,970

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	May 31, 2017	May 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,387,391	$ 880,332
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	293,748	325,576
Depreciation expense	580,962	482,576
Amortization expense	89,274	89,275
Equity in income from joint ventures	(4,343,159)	(3,600,884)
Dividends received from joint ventures	5,179,786	5,449,543
Deferred income taxes	24,939
Receivables:
Trade, excluding joint ventures	(1,442,714)	(570,647)
Trade, joint ventures	(503,863)	(73,522)
Fees for services provided to joint ventures	181,610	97,569
Income taxes	(154,171)	(314,038)
Inventories	(155,011)	17,185
Prepaid expenses and other	19,197	(58,518)
Accounts payable	816,845	692,741
Income tax payable	(3,466)	(377)
Accrued liabilities	(145,203)	(363,514)
Net cash provided by operating activities	2,826,166	3,053,297
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available for sale securities	(1,512,816)	(212,351)
Additions to property and equipment	(760,847)	(490,481)
Additions to patents	(124,780)	(91,836)
Net cash used in investing activities	(2,398,443)	(794,668)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest	(200,000)	(200,000)
Repurchase of common stock	(196,164)	(97,450)
Proceeds from employee stock purchase plan	46,475	68,633
Proceeds from exercise of stock options	41,000
Net cash used in financing activities	(308,689)	(228,817)
EFFECT OF EXCHANGE RATE CHANGES ON CASH:	(14,144)	(27,255)
NET INCREASE IN CASH AND CASH EQUIVALENTS	104,890	2,002,557
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	3,395,274	2,623,981
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 3,500,164	$ 4,626,538

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Note 1 - Interim Financial Information

9 Months Ended

May 31, 2017

Notes to Financial Statements

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

1.

       INTERIM FINANCIAL INFORMATION

In the opinion of management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of

May 31, 2017

and

August 31, 2016

and the results of their operations for the

three

and

nine

months ended

May 31, 2017

and

2016

and their cash flows for the

nine

months ended

May 31, 2017

and

2016,

in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form

10

-K for the fiscal year ended

August 31, 2016.

These consolidated financial statements also should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section appearing in this report.

Operating results for the

three

and

nine

months ended

May 31, 2017

are

not

necessarily indicative of the results that

may

be expected for the full fiscal year ending

August 31, 2017.

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

Certain amounts reported in the consolidated financial statements for the previous reporting period have been reclassified to conform to the current period presentation. Expenses previously recorded as “Expenses incurred in support of joint ventures” have been reclassified as “General and administrative expenses” based on the reduction in direct costs associated with supporting the joint ventures.

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Note 2 - Recently Issued Accounting Pronouncements

9 Months Ended

May 31, 2017

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 currently believes that the timeline established for implementation is attainable.

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;

and there was

no

material impact on its consolidated financial statements.

During

February 2016,

the FASB issued 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.

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 currently assessing the impact that ASU

2016

-

09

will have on its consolidated financial statements.

In

August 2016,

the FASB issued ASU

No.

2016

-

15,

“Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments

”  ASU

2016

-

15

eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayments or extinguishment costs, the maturing of a

zero

coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU

2016

-

15

designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The guidance is effective for fiscal years beginning

December 15, 2017.

Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU

2016

-

15

on its consolidated financial statements, but the adoption is

not

expected to have a significant impact as of the filing of this report.

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

9 Months Ended

May 31, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

3.

       INVENTORIES

Inventories consisted of the following:

	May 31, 2017		August 31, 2016
Production materials	$	1,454,328	$	1,452,396
Finished goods		6,425,328		6,258,891
	$	7,879,656	$	7,711,287

XML

Note 4 - Property and Equipment, Net

9 Months Ended

May 31, 2017

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.

       PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	May 31, 2017			August 31, 2016
Land	$	310,365		$	310,365
Buildings and improvements		6,623,104			6,528,252
Machinery and equipment		4,170,638			3,590,063
		11,104,107			10,428,680
Less accumulated depreciation		(3,652,208	)		(3,152,808	)
	$	7,451,899		$	7,275,872

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Note 5 - Patents and Trademarks, Net

9 Months Ended

May 31, 2017

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

5.

       PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	May 31, 2017			August 31, 2016
Patents and trademarks	$	2,700,215		$	2,575,435
Less accumulated amortization		(1,386,112	)		(1,296,838	)
	$	1,314,103		$	1,278,597

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 is estimated to approximate

$120,000

in each of the next

five

fiscal years.

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Note 6 - Investments in Joint Ventures

9 Months Ended

May 31, 2017

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 from the audited and unaudited financial statements of the Company’s joint ventures in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), Harita-NTI LTD (India), Zerust OY (Finland) and all the Company’s other joint ventures, are summarized as follows:

	As of May 31, 2017
	Total		EXCOR		India		Finland		All Other
Current assets	$	48,064,624	$	19,820,904	$	4,322,253	$	1,929,781	$	21,991,686
Total assets		52,062,465		21,882,519		4,658,050		2,216,723		23,305,173
Current liabilities		13,773,839		3,028,386		1,412,054		547,007		8,786,392
Noncurrent liabilities		247,572		-		14,201		-		233,371
Joint ventures’ equity		38,041,054		18,854,133		3,231,795		1,669,716		14,285,410
Northern Technologies International Corporation’s share of joint ventures’ equity		18,903,473		9,427,068		1,615,898		834,856		7,025,651
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		16,829,258		9,396,163		751,076		814,856		5,867,163

	Nine Months Ended May 31, 2017
	Total		EXCOR		India		Finland		All Other
Net sales	$	73,098,215	$	28,169,978	$	5,299,600	$	2,619,843	$	37,008,794
Gross profit		32,376,247		15,032,724		2,463,138		1,569,152		13,311,233
Net income		8,562,834		6,184,181		611,143		413,044		1,354,466
Northern Technologies International Corporation’s share of equity in income of joint ventures		4,343,159		3,089,935		384,712		206,874		661,638
Northern Technologies International Corporation's dividends received from joint ventures	$	5,179,786	$	4,240,400	$	446,939	$	200,768	$	291,679

	As of August 31, 2016
	Total		EXCOR		India		Finland		All Other
Current assets	$	48,922,924	$	22,928,810	$	4,027,016	$	1,928,861	$	20,038,237
Total assets		52,407,026		24,733,340		4,352,573		2,211,392		21,109,721
Current liabilities		12,433,700		3,485,213		1,097,231		546,506		7,304,730
Noncurrent liabilities		100,783		—		6,382		—		94,401
Joint ventures’ equity		39,872,543		21,248,109		3,248,960		1,664,886		13,710,588
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		1,624,480		832,442		6,759,796
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		17,779,912		10,593,151		759,658		812,442		5,614,661

	Nine Months Ended May 31, 2016
	Total		EXCOR		India		Finland		All Other
Net sales	$	66,223,514	$	25,314,260	$	5,027,226	$	2,435,861	$	33,446,167
Gross profit		29,745,795		13,512,404		2,427,574		1,438,756		12,367,061
Net income		7,188,274		5,409,407		697,977		342,544		738,346
Northern Technologies International Corporation’s share of equity in income of joint ventures		3,600,884		2,714,905		327,846		171,662		386,471
Northern Technologies International Corporation's dividends received from joint ventures	$	5,449,543	$	4,364,700	$	326,023	$	206,516		552,304

The Company did

not

make any joint venture investments during the

nine

months ended

May 31, 2017

and

2016.

XML

Note 7 - China Operations

9 Months Ended

May 31, 2017

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 was 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. 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. 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

13

). These circumstances resulted in the Company concluding an indication of impairment existed and that the fair value of the investment was

$0

as of

August 31, 2016

based on accounting principles generally accepted in the United States of America. See Note

13

regarding ongoing litigation involving Tianjin Zerust.

XML

Note 8 - Corporate Debt

9 Months Ended

May 31, 2017

Notes to Financial Statements

Debt Disclosure [Text Block]

8.

       CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank, National Association (PNC Bank) of

$3,000,000.

No

amounts were outstanding under the line of credit as of both

May 31, 2017

and

August 31, 2016.

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. Interest is payable in arrears (a) for the portion of advances bearing interest under the prime rate on the last day of each month during the term thereof and (b) for the portion of advances bearing interest under the LIBOR option on the last day of the respective LIBOR interest period selected for such advance. Any unpaid interest is payable on the maturity date. The revolving line of credit is secured by cash, receivables and inventory.

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

May 31, 2017

and

August 31, 2016

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. 

On

January 11, 2017,

the Company and PNC Bank extended the maturity date of the line of credit to

January 7, 2018.

All other terms of the line of credit and the loan agreement and other documents evidencing the line of credit remain the same.

As of

May 31, 2017

and

August 31, 2016,

the Company had

$75,201

and

$71,599,

respectively, 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

9 Months Ended

May 31, 2017

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

9.

       STOCKHOLDERS’ EQUITY

During the

nine

months ended

May 31, 2017,

the Company repurchased and retired

14,525

shares of its common stock at a price of

$13.51

per share.

During the

nine

months ended

May 31, 2017,

stock options to purchase an aggregate of

4,000

shares of common stock at an exercise price of

$10.25

per share were exercised.

During the

nine

months ended

May 31, 2017,

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

56,677

shares of its common stock to various employees and directors. The weighted average per share exercise price of the stock options was

$13.40,

which was equal to the fair market value of the Company’s common stock on the date of grant.

During the

nine

months ended

May 31, 2016,

the Company repurchased and retired

7,511

shares of its common stock at a price of

$12.98

per share.

During the

nine

months ended

May 31, 2016,

no

stock options to purchase shares of common stock were exercised.

During the

nine

months ended

May 31, 2016,

the Company granted stock options under the

2007

Plan to purchase an aggregate of

53,447

shares of its common stock to various employees and directors. The weighted average per share exercise price of the stock options was

$14.85,

which is 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 Per Common Share

9 Months Ended

May 31, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

10.

       NET INCOME PER COMMON SHARE

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

The following is a reconciliation of the net income per share computation for the

three

and

nine

months ended

May 31, 2017

and

2016:

	Three Months Ended				Nine Months Ended
Numerators:	May 31, 2017		May 31, 2016		May 31, 2017		May 31, 2016
Net income attributable to NTIC	$	1,352,416	$	917,373	$	2,037,021	$	575,233
Denominators:
Basic – weighted shares outstanding		4,526,771		4,538,970		4,528,523		4,538,005
Weighted shares assumed upon exercise of stock options		64,756		24,831		42,872		49,059
Diluted – weighted shares outstanding		4,591,527		4,563,801		4,571,395		4,587,064
Basic income per share:	$	0.30	$	0.20	$	0.45	$	0.13
Diluted income per share:	$	0.30	$	0.20	$	0.45	$	0.13

The dilutive impact summarized above relates to the periods when the average market price of the Company’s common 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. There were

271,791

options outstanding as of

May 31, 2017,

that were dilutive.

Excluded from the computation of diluted income per share for the

three

and

nine

months ended

May 31, 2017

were options outstanding to purchase

48,067

shares of common stock. Excluded from the computation of diluted earnings per share for the

three

and

nine

months ended

May 31, 2016

were options outstanding to purchase

170,887

shares of common stock.

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Note 11 - Stock-based Compensation

9 Months Ended

May 31, 2017

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 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

May 31, 2017,

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 granted options to purchase an aggregate of

56,677

and

53,447

shares of its common stock during the

nine

months ended

May 31, 2017

and

2016,

respectively. 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 Company recognized compensation expense of

$293,748

and

$325,576

during the

nine

months ended

May 31, 2017

and

2016,

respectively, related to the options that vested during such time period. As of

May 31, 2017,

the total compensation cost for non-vested options

not

yet recognized in the Company’s consolidated statements of operations was

$337,316,

net of estimated forfeitures. Stock-based compensation expense of

$97,916

is expected through the remainder of fiscal year

2017,

and

$159,600

and

$79,800

is expected to be recognized during fiscal

2018

and fiscal

2019,

respectively, based on outstanding options as of

May 31, 2017.

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 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:

	Nine Months Ended
	May 31, 2017			May 31, 2016
Dividend yield		0.00	%		0.00	%
Expected volatility		46.4	%		46.0	%
Expected life of option (in years)		10			10
Average risk-free interest rate		1.63	%		1.63	%

The weighted average per share fair value of options granted during

nine

months ended

May 31, 2017

and

2016

was

$7.69

and

$8.48,

respectively. The weighted average remaining contractual life of the options outstanding as of

May 31, 2017

and

2016

was

6.73

years and

6.71

years, respectively.

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Note 12 - Segment and Geographic Information

9 Months Ended

May 31, 2017

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 resins and finished products under the Natur-Tec® brand.

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

three

and

nine

months ended

May 31, 2017

and

2016

by segment:

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

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

three

and

nine

months ended

May 

31,

2017

and

2016

by segment:

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

____________________________

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

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

not

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

Geographic Information

Net sales by geographic location for the

three

and

nine

months ended

May 31, 2017

and

2016

were as follows:

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

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

three

and

nine

months ended

May 31, 2017

and

2016

were as follows:

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

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

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

not

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

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

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

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

Total long-lived assets located in Brazil, India, Germany and China primarily consist of property and equipment. These assets are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets. Total assets located in the United States include the Company’s investments in joint ventures.

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

not

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

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

XML

Note 13 - Commitments and Contingencies

9 Months Ended

May 31, 2017

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

13.

       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 consider 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 Adjusted EBITOI for fiscal

2017

compared to a pre-established target Adjusted 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 the Company’s 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.

There was

$600,000

accrued for management bonuses for the

nine

months ended

May 31, 2017

compared to an accrual of

$215,000

for management bonuses for the

nine

months ended

May 31, 2016.

Two joint ventures (consisting of the Company’s joint ventures in Korea and India) accounted for

21.4%

of the Company’s trade joint venture receivables at

May 31, 2017,

and

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 as of

August 31, 2016.

On

March 23, 2015,

the Company and NTI Asean LLC (NTI Asean) filed a lawsuit in Tianjin

No

1

Intermediate People’s Court against

two

individuals, Tao Meng and Xu Hui, 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. (Tianjin Zerust). The lawsuit alleges, among other things, that Mr. Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. As of

May 31, 2017,

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 (Cortec) 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.  After fully litigating the case through discovery and dispositive motion practice, on

February 16, 2017,

the Minnesota court denied both sides’ motions for summary judgment and,

sua sponte

, dismissed without prejudice the Company’s and NTI Asean’s claims based on a non-exclusive forum-selection clause contained in a

2005

settlement agreement between the Company and Cortec Corporation.  While the Company had strong arguments to appeal the Minnesota court’s decision, an appeal would have meant a significant delay to the resolution of the dispute.  On

April 21, 2017,

the Company re-filed the lawsuit in the United States District Court for the Northern District of Ohio.  On

May 15, 2017,

Cortec filed an answer and counterclaim.  The counterclaim was promptly dismissed by the Court. Cortec has agreed that all the discovery and information learned in the Minnesota case

may

be used in the Ohio case.  The parties attended a Case Management Conference (CMC) on

June 21, 2017. 

The Court set a deadline of

September 4, 2017

to complete discovery and set the case for a jury trial on a

two

-week standby period beginning on

September 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 can 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

May 31, 2017,

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.

XML

Note 14 - Fair Value Measurements

9 Months Ended

May 31, 2017

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

14.

       

Fair Value Measurements

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 May 31, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	3,756,680	$	3,756,680	$	—	$	—

			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	$	—	$	—

There were

no

transfers between Level

1,

Level

2,

or Level

3

during the

three

and

nine

months ended

May 

31,

2017

and

2016.

XML

Note 15 - Supplemental Cash Flow Information

9 Months Ended

May 31, 2017

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

15.

       SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information consist of:

	Three Months Ended
	May 31, 2017		May 31, 2016
Cash paid for interest	$	7,409	$	15,465
Cash paid for income taxes		—		—

	Nine Months Ended
	May 31, 2017		May 31, 2016
Cash paid for interest	$	15,502	$	30,987
Cash paid for income taxes		—		—

XML

Note 3 - Inventories (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	May 31, 2017		August 31, 2016
Production materials	$	1,454,328	$	1,452,396
Finished goods		6,425,328		6,258,891
	$	7,879,656	$	7,711,287

XML

Note 4 - Property and Equipment, Net (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Property, Plant and Equipment [Table Text Block]

	May 31, 2017			August 31, 2016
Land	$	310,365		$	310,365
Buildings and improvements		6,623,104			6,528,252
Machinery and equipment		4,170,638			3,590,063
		11,104,107			10,428,680
Less accumulated depreciation		(3,652,208	)		(3,152,808	)
	$	7,451,899		$	7,275,872

XML

Note 5 - Patents and Trademarks, Net (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	May 31, 2017			August 31, 2016
Patents and trademarks	$	2,700,215		$	2,575,435
Less accumulated amortization		(1,386,112	)		(1,296,838	)
	$	1,314,103		$	1,278,597

XML

Note 6 - Investments in Joint Ventures (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Condensed Balance Sheet [Table Text Block]

	As of May 31, 2017
	Total		EXCOR		India		Finland		All Other
Current assets	$	48,064,624	$	19,820,904	$	4,322,253	$	1,929,781	$	21,991,686
Total assets		52,062,465		21,882,519		4,658,050		2,216,723		23,305,173
Current liabilities		13,773,839		3,028,386		1,412,054		547,007		8,786,392
Noncurrent liabilities		247,572		-		14,201		-		233,371
Joint ventures’ equity		38,041,054		18,854,133		3,231,795		1,669,716		14,285,410
Northern Technologies International Corporation’s share of joint ventures’ equity		18,903,473		9,427,068		1,615,898		834,856		7,025,651
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		16,829,258		9,396,163		751,076		814,856		5,867,163

	As of August 31, 2016
	Total		EXCOR		India		Finland		All Other
Current assets	$	48,922,924	$	22,928,810	$	4,027,016	$	1,928,861	$	20,038,237
Total assets		52,407,026		24,733,340		4,352,573		2,211,392		21,109,721
Current liabilities		12,433,700		3,485,213		1,097,231		546,506		7,304,730
Noncurrent liabilities		100,783		—		6,382		—		94,401
Joint ventures’ equity		39,872,543		21,248,109		3,248,960		1,664,886		13,710,588
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		1,624,480		832,442		6,759,796
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		17,779,912		10,593,151		759,658		812,442		5,614,661

Condensed Income Statement [Table Text Block]

	Nine Months Ended May 31, 2017
	Total		EXCOR		India		Finland		All Other
Net sales	$	73,098,215	$	28,169,978	$	5,299,600	$	2,619,843	$	37,008,794
Gross profit		32,376,247		15,032,724		2,463,138		1,569,152		13,311,233
Net income		8,562,834		6,184,181		611,143		413,044		1,354,466
Northern Technologies International Corporation’s share of equity in income of joint ventures		4,343,159		3,089,935		384,712		206,874		661,638
Northern Technologies International Corporation's dividends received from joint ventures	$	5,179,786	$	4,240,400	$	446,939	$	200,768	$	291,679

	Nine Months Ended May 31, 2016
	Total		EXCOR		India		Finland		All Other
Net sales	$	66,223,514	$	25,314,260	$	5,027,226	$	2,435,861	$	33,446,167
Gross profit		29,745,795		13,512,404		2,427,574		1,438,756		12,367,061
Net income		7,188,274		5,409,407		697,977		342,544		738,346
Northern Technologies International Corporation’s share of equity in income of joint ventures		3,600,884		2,714,905		327,846		171,662		386,471
Northern Technologies International Corporation's dividends received from joint ventures	$	5,449,543	$	4,364,700	$	326,023	$	206,516		552,304

XML

Note 10 - Net Income Per Common Share (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended				Nine Months Ended
Numerators:	May 31, 2017		May 31, 2016		May 31, 2017		May 31, 2016
Net income attributable to NTIC	$	1,352,416	$	917,373	$	2,037,021	$	575,233
Denominators:
Basic – weighted shares outstanding		4,526,771		4,538,970		4,528,523		4,538,005
Weighted shares assumed upon exercise of stock options		64,756		24,831		42,872		49,059
Diluted – weighted shares outstanding		4,591,527		4,563,801		4,571,395		4,587,064
Basic income per share:	$	0.30	$	0.20	$	0.45	$	0.13
Diluted income per share:	$	0.30	$	0.20	$	0.45	$	0.13

XML

Note 11 - Stock-based Compensation (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Nine Months Ended
	May 31, 2017			May 31, 2016
Dividend yield		0.00	%		0.00	%
Expected volatility		46.4	%		46.0	%
Expected life of option (in years)		10			10
Average risk-free interest rate		1.63	%		1.63	%

XML

Note 12 - Segment and Geographic Information (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Reconciliation of Cost of Goods Sold from Segments to Consolidated [Table Text Block]

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

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

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

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

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

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

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

Revenue from External Customers by Geographic Areas [Table Text Block]

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

Fees for Services Provided to Joint Ventures [Member]

Notes Tables

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

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

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

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Note 14 - Fair Value Measurements (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

			Fair Value Measurements Using Inputs Considered as
	Fair Value as of May 31, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	3,756,680	$	3,756,680	$	—	$	—

			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	$	—	$	—

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Note 15 - Supplemental Cash Flow Information (Tables)

9 Months Ended

May 31, 2017

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Three Months Ended
	May 31, 2017		May 31, 2016
Cash paid for interest	$	7,409	$	15,465
Cash paid for income taxes		—		—

	Nine Months Ended
	May 31, 2017		May 31, 2016
Cash paid for interest	$	15,502	$	30,987
Cash paid for income taxes		—		—

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Note 3 - Inventories - Inventories (Details) - USD ($)	May 31, 2017	Aug. 31, 2016
Production materials	$ 1,454,328	$ 1,452,396
Finished goods	6,425,328	6,258,891
Inventories	$ 7,879,656	$ 7,711,287

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Note 4 - Property and Equipment, Net - Components of Property and Equipment, Net (Details) - USD ($)	May 31, 2017	Aug. 31, 2016
Land	$ 310,365	$ 310,365
Buildings and improvements	6,623,104	6,528,252
Machinery and equipment	4,170,638	3,590,063
Gross	11,104,107	10,428,680
Less accumulated depreciation	(3,652,208)	(3,152,808)
Net	$ 7,451,899	$ 7,275,872

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Note 5 - Patents and Trademarks, Net (Details Textual) - Patents and Trademarks [Member]	9 Months Ended
	May 31, 2017 USD ($)
Finite-Lived Intangible Asset, Useful Life	7 years
Finite-Lived Intangible Assets, Amortization Expense, Remainder of Fiscal Year	$ 120,000
Finite-Lived Intangible Assets, Amortization Expense, Year Five	120,000
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

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Note 5 - Patents and Trademarks, Net - Patents and Trademarks, Net (Details) - USD ($)	May 31, 2017	Aug. 31, 2016
Patents and trademarkes, net	$ 1,314,103	$ 1,278,597
Patents and Trademarks [Member]
Patents and trademarks	2,700,215	2,575,435
Less accumulated amortization	(1,386,112)	(1,296,838)
Patents and trademarkes, net	$ 1,314,103	$ 1,278,597

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Note 6 - Investments in Joint Ventures (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	May 31, 2017	May 31, 2016
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 ($)	May 31, 2017	Aug. 31, 2016
Total assets	$ 52,062,465	$ 52,407,026
Current liabilities	13,773,839	12,433,700
Noncurrent liabilities	247,572	100,783
Joint ventures’ equity	38,041,054	39,872,543
Northern Technologies International Corporation’s share of joint ventures’ equity	18,903,473	19,840,774
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	16,829,258	17,779,912
Current assets	48,064,624	48,922,924
EXCOR [Member]
Total assets	21,882,519	24,733,340
Current liabilities	3,028,386	3,485,213
Noncurrent liabilities
Joint ventures’ equity	18,854,133	21,248,109
Northern Technologies International Corporation’s share of joint ventures’ equity	9,427,068	10,624,056
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	9,396,163	10,593,151
Current assets	19,820,904	22,928,810
Joint Venture in India [Member]
Total assets	4,658,050	4,352,573
Current liabilities	1,412,054	1,097,231
Noncurrent liabilities	14,201	6,382
Joint ventures’ equity	3,231,795	3,248,960
Northern Technologies International Corporation’s share of joint ventures’ equity	1,615,898	1,624,480
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	751,076	759,658
Current assets	4,322,253	4,027,016
Joint Venture in Finland [Member]
Total assets	2,216,723	2,211,392
Current liabilities	547,007	546,506
Noncurrent liabilities
Joint ventures’ equity	1,669,716	1,664,886
Northern Technologies International Corporation’s share of joint ventures’ equity	834,856	832,442
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	814,856	812,442
Current assets	1,929,781	1,928,861
All Other [Member]
Total assets	23,305,173	21,109,721
Current liabilities	8,786,392	7,304,730
Noncurrent liabilities	233,371	94,401
Joint ventures’ equity	14,285,410	13,710,588
Northern Technologies International Corporation’s share of joint ventures’ equity	7,025,651	6,759,796
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	5,867,163	5,614,661
Current assets	$ 21,991,686	$ 20,038,237

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Note 6 - Investments in Joint Ventures - Condensed Income Statement of EXCOR and All Other Joint Ventures (Details) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Gross profit			$ 32,376,247	$ 29,745,795
Net income			8,562,834	7,188,274
Northern Technologies International Corporation’s share of equity in income of joint ventures	$ 1,686,016	$ 1,664,464	4,343,159	3,600,884
Northern Technologies International Corporation's dividends received from joint ventures			5,179,786	5,449,543
Net sales			73,098,215	66,223,514
EXCOR [Member]
Gross profit			15,032,724	13,512,404
Net income			6,184,181	5,409,407
Northern Technologies International Corporation’s share of equity in income of joint ventures			3,089,935	2,714,905
Northern Technologies International Corporation's dividends received from joint ventures			4,240,400	4,364,700
Net sales			28,169,978	25,314,260
Joint Venture in India [Member]
Gross profit			2,463,138	2,427,574
Net income			611,143	697,977
Northern Technologies International Corporation’s share of equity in income of joint ventures			384,712	327,846
Northern Technologies International Corporation's dividends received from joint ventures			446,939	326,023
Net sales			5,299,600	5,027,226
Joint Venture in Finland [Member]
Gross profit			1,569,152	1,438,756
Net income			413,044	342,544
Northern Technologies International Corporation’s share of equity in income of joint ventures			206,874	171,662
Northern Technologies International Corporation's dividends received from joint ventures			200,768	206,516
Net sales			2,619,843	2,435,861
All Other [Member]
Gross profit			13,311,233	12,367,061
Net income			1,354,466	738,346
Northern Technologies International Corporation’s share of equity in income of joint ventures			661,638	386,471
Northern Technologies International Corporation's dividends received from joint ventures			291,679	552,304
Net sales			$ 37,008,794	$ 33,446,167

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Note 7 - China Operations (Details Textual)	Aug. 31, 2016 USD ($)
Tianjin Zerust [Member]
Cost Method Investments	$ 0

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Note 8 - Corporate Debt (Details Textual) - USD ($)	9 Months Ended
	May 31, 2017	Aug. 31, 2016
PNC Bank [Member]
Letters of Credit Outstanding, Amount	$ 0	$ 0
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] | Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	2.15%
PNC Bank [Member] | Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 1,200,000
JP Morgan Chase Bank [Member]
Letters of Credit Outstanding, Amount	$ 75,201	$ 71,599

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Note 9 - Stockholders' Equity (Details Textual) - $ / shares	9 Months Ended
	May 31, 2017	May 31, 2016
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price	$ 10.25
Stock Repurchased and Retired During Period, Shares	14,525	7,511
Treasury Stock Acquired, Average Cost Per Share	$ 13.51	$ 12.98
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	4,000	0
The 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	56,677	53,447
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price	$ 13.40	$ 14.85

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Note 10 - Net Income Per Common Share (Details Textual) - shares	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	271,791		271,791
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	48,067	170,887	48,067	170,887

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Note 10 - Net Income Per Common Share - Reconciliation of the Earnings Per Share Computations (Details) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Net income attributable to NTIC	$ 1,352,416	$ 917,373	$ 2,037,021	$ 575,233
Basic – weighted shares outstanding (in shares)	4,526,771	4,538,970	4,528,523	4,538,005
Weighted shares assumed upon exercise of stock options (in shares)	64,756	24,831	42,872	49,059
Diluted – weighted shares outstanding (in shares)	4,591,527	4,563,801	4,571,395	4,587,064
Basic income per share: (in dollars per share)	$ 0.30	$ 0.20	$ 0.45	$ 0.13
Diluted income per share: (in dollars per share)	$ 0.30	$ 0.20	$ 0.45	$ 0.13

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Note 11 - Stock-based Compensation (Details Textual)	9 Months Ended
	May 31, 2017 USD ($) $ / shares shares	May 31, 2016 USD ($) $ / shares shares
Number of Stock-based Compensation Plans	2
Stock or Unit Option Plan Expense	$ 293,748	$ 325,576
Allocated Share-based Compensation Expense, Estimate Remainder of Fiscal Year	97,916
Allocated Share-based Compensation Expense, Estimate, Next Fiscal Year	159,600
Allocated Share-based Compensation Expense, Estimate, Fiscal Year Two	$ 79,800
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	$ 7.69	$ 8.48
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	6 years 266 days	6 years 259 days
Net of Estimated Forfeitures [Member]
Allocated Share-based Compensation Expense, Estimate Remainder of Fiscal Year	$ 337,316
The 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
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, Options, Grants in Period, Gross | shares	56,677	53,447
The 2007 Plan [Member] | One Year after Date of Grant [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
The 2007 Plan [Member] | One Year after Date of Grant [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 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%

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Note 11 - Stock-based Compensation - Black-Scholes Option-pricing Model Assumptions (Details)	9 Months Ended
	May 31, 2017	May 31, 2016
Dividend yield	0.00%	0.00%
Expected volatility	46.40%	46.00%
Expected life of option (Year)	10 years	10 years
Average risk-free interest rate	1.63%	1.63%

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Note 12 - Segment and Geographic Information (Details Textual)	9 Months Ended
	May 31, 2017
Number of Reportable Segments	2

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Note 12 - Segment and Geographic Information - Net Sales by Segment (Details) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Net sales by segment	$ 10,223,019	$ 8,686,575	$ 28,667,945	$ 23,415,946
ZERUST [Member]
Net sales by segment	8,368,487	7,185,955	23,681,192	19,548,974
NaturTec [Member]
Net sales by segment	$ 1,854,532	$ 1,500,620	$ 4,986,753	$ 3,866,972

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Note 12 - Segment and Geographic Information - Cost of Goods Sold by Segment (Details) - USD ($)		3 Months Ended		9 Months Ended
		May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Precentage of product sales	[1]
Cost of goods sold		$ 6,774,001	$ 5,777,249	$ 19,256,953	$ 15,920,896
Direct Cost of Goods Sold [Member] | ZERUST [Member]
Precentage of product sales	[1]	57.80%	56.10%	58.20%	56.10%
Cost of goods sold		$ 4,834,355	$ 4,028,114	$ 13,788,416	$ 10,968,742
Direct Cost of Goods Sold [Member] | NaturTec [Member]
Precentage of product sales	[1]	71.60%	74.60%	72.40%	76.00%
Cost of goods sold		$ 1,327,323	$ 1,119,730	$ 3,608,722	$ 2,938,927
Indirect Cost of Goods Sold [Member]
Precentage of product sales	[1]
Cost of goods sold		$ 612,323	$ 629,405	$ 1,859,815	$ 2,013,227

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

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Note 12 - Segment and Geographic Information - Net Sales by Geographic Location (Details) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Net sales by segment	$ 10,223,019	$ 8,686,575	$ 28,667,945	$ 23,415,946
Inside the USA to Unaffiliated Customers [Member]
Net sales by segment	5,967,459	5,559,885	16,363,291	14,762,170
Joint Ventures in Which the Company is a Shareholder Directly and Indirectly Outside the USA [Member]
Net sales by segment	862,136	446,322	2,115,511	1,967,370
Unaffiliated Customers Outside the USA [Member]
Net sales by segment	$ 3,393,424	$ 2,680,368	$ 10,189,143	$ 6,686,406

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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 ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Fees	$ 1,442,048	$ 1,351,913	$ 3,941,667	$ 3,808,384
Percentage of total fees	100.00%	100.00%	100.00%	100.00%
GERMANY
Fees	$ 212,257	$ 242,158	$ 614,766	$ 664,812
Percentage of total fees	14.70%	17.90%	15.60%	17.40%
POLAND
Fees	$ 180,969	$ 167,237	$ 483,626	$ 452,260
Percentage of total fees	12.60%	12.40%	12.30%	11.80%
JAPAN
Fees	$ 153,903	$ 148,091	$ 445,662	$ 416,241
Percentage of total fees	10.70%	11.00%	11.30%	10.90%
SWEDEN
Fees	$ 150,139	$ 66,239	$ 314,664	$ 189,556
Percentage of total fees	10.40%	4.90%	8.00%	5.00%
THAILAND
Fees	$ 104,771	$ 132,548	$ 339,852	$ 395,611
Percentage of total fees	7.30%	9.80%	8.60%	10.40%
FRANCE
Fees	$ 112,455	$ 87,588	$ 293,240	$ 250,373
Percentage of total fees	7.80%	6.50%	7.40%	6.60%
KOREA, REPUBLIC OF
Fees	$ 92,954	$ 74,085	$ 284,435	$ 247,730
Percentage of total fees	6.40%	5.50%	7.20%	6.50%
INDIA
Fees	$ 90,469	$ 70,610	$ 229,200	$ 223,137
Percentage of total fees	6.30%	5.20%	5.80%	5.90%
UNITED KINGDOM
Fees	$ 87,768	$ 135,068	$ 227,140	$ 292,216
Percentage of total fees	6.10%	10.00%	5.80%	7.70%
FINLAND
Fees	$ 78,012	$ 55,876	$ 221,294	$ 177,704
Percentage of total fees	5.40%	4.10%	5.60%	4.70%
CZECH REPUBLIC
Fees	$ 74,135	$ 54,537	$ 218,249	$ 176,470
Percentage of total fees	5.10%	4.00%	5.50%	4.60%
Other Countries [Member]
Fees	$ 104,216	$ 117,876	$ 269,539	$ 322,274
Percentage of total fees	7.20%	8.70%	6.90%	8.50%

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Note 12 - Segment and Geographic Information - Total Long-lived Assets by Geographic Distribution (Details) - USD ($)	May 31, 2017	Aug. 31, 2016
Total long-lived assets	$ 7,451,899	$ 7,275,872
BRAZIL
Total long-lived assets	56,246	66,938
INDIA
Total long-lived assets	13,634	13,645
GERMANY
Total long-lived assets	13,687
CHINA
Total long-lived assets	231,114	253,931
UNITED STATES
Total long-lived assets	$ 7,137,218	$ 6,941,358

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Note 12 - Segment and Geographical Information - Total Net Sales by Geographic Distribution (Details) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Net sales by segment	$ 10,223,019	$ 8,686,575	$ 28,667,945	$ 23,415,946
BRAZIL
Net sales by segment			1,683,255	1,509,659
INDIA
Net sales by segment			1,057,132	911,227
GERMANY
Net sales by segment			378,635
CHINA
Net sales by segment			4,991,807	2,473,733
UNITED STATES
Net sales by segment			$ 20,557,116	$ 18,521,327

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Note 13 - Commitments and Contingencies (Details Textual) - USD ($)	9 Months Ended
	May 31, 2017	Aug. 31, 2016	May 31, 2016
Accrued Bonuses	$ 600,000		$ 215,000
Entity Wide Trade Joint Venture Receivables, Four Joint Ventures,Percentage	21.40%	55.80%
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%

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Note 14 - Fair Value Measurements - Assets and Liabilities Measured at Fair Value Recurring Basis (Details) - USD ($)	May 31, 2017	Aug. 31, 2016
Available for sale securities	$ 3,756,680	$ 2,243,864
Fair Value, Inputs, Level 1 [Member]
Available for sale securities	3,756,680	2,243,864
Fair Value, Inputs, Level 2 [Member]
Available for sale securities
Fair Value, Inputs, Level 3 [Member]
Available for sale securities

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Note 15 - Supplemental Cash Flow Information - Supplemental Disclosures of Cash Flow Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	May 31, 2017	May 31, 2016	May 31, 2017	May 31, 2016
Cash paid for interest	$ 7,409	$ 15,465	$ 15,502	$ 30,987
Cash paid for income taxes