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ntic20210531_10q.htm

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, 2021

☐ 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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.02 per share	NTIC	Nasdaq Global Market

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 9, 2021, there were 9,109,861 shares of common stock of the registrant outstanding.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

May 31, 2021

TABLE OF CONTENTS

Description		Page

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of May 31, 2021 (unaudited) and August 31, 2020	3

	Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended May 31, 2021 and 2020	4

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Nine Months Ended May 31, 2021 and 2020	5

	Consolidated Statements of Equity (unaudited) for the Three and Nine Months Ended May 31, 2021 and 2020	6

	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended May 31, 2021 and 2020	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

SIGNATURES		35

_________________

This quarterly report on Form 10-Q contains certain forward-looking statements that are 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.”

_________________

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; and (4)“NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean LLC, which holds investments in certain entities that operate in the Association of Southeast Asian Nations (ASEAN) region, including the following countries: Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam.

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.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2021 (UNAUDITED)

AND AUGUST 31, 2020 (AUDITED)

	May 31, 2021			August 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,880,923		$	6,403,032
Available for sale securities		5,125,052			5,544,722
Receivables:
Trade, excluding joint ventures, less allowance for doubtful accounts of $120,000 at May 31, 2021 and $90,000 at August 31, 2020		11,165,605			8,072,212
Trade, joint ventures		1,040,049			475,900
Fees for services provided to joint ventures		1,427,240			927,286
Income taxes		247,895			19,907
Inventories		11,306,598			10,961,796
Prepaid expenses		1,035,046			797,495
Total current assets		37,228,408			33,202,350

PROPERTY AND EQUIPMENT, NET		7,177,012			7,110,789

OTHER ASSETS:
Investments in joint ventures		26,937,857			24,090,826
Deferred income taxes		223,739			209,729
Patents and trademarks, net		746,305			802,006
Operating lease right of use asset		486,854			658,788
Total other assets		28,394,755			25,761,349
Total assets	$	72,800,175		$	66,074,488

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,103,932		$	3,205,241
Income taxes payable		166,574			310,922
Accrued liabilities:
Payroll and related benefits		2,295,421			1,314,978
Other		873,280			880,118
Current portion of operating lease		113,688			386,345
Total current liabilities		7,552,895			6,097,604
LONG-TERM LIABILITIES:
Operating lease, less current portion		373,166			272,443
Total long-term liabilities		373,166			272,443

COMMITMENTS AND CONTINGENCIES (Note 12)

EQUITY:
Preferred stock, no par value; authorized 10,000 shares; none issued and outstanding		—			—
Common stock, $0.02 par value per share; authorized 15,000,000 shares as of May 31, 2021 and August 31, 2020; issued and outstanding 9,109,861 and 9,099,990, respectively		182,197			182,000
Additional paid-in capital		17,992,518			17,415,043
Retained earnings		45,917,757			42,472,810
Accumulated other comprehensive loss		(2,717,935	)		(3,410,438	)
Stockholders’ equity		61,374,537			56,659,415
Non-controlling interests		3,499,577			3,045,026
Total equity		64,874,114			59,704,441
Total liabilities and equity	$	72,800,175		$	66,074,488

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2021 AND 2020

	Three Months Ended May 31,					Nine Months Ended May 31,
	2021		2020			2021		2020
NET SALES:
Net sales, excluding joint ventures	$	14,164,604	$	9,071,072		$	38,619,353	$	36,105,009
Net sales, to joint ventures		1,253,920		673,751			2,361,165		1,504,997
Total net sales		15,418,524		9,744,823			40,980,518		37,610,006
Cost of goods sold		10,152,582		6,499,102			26,997,582		24,991,487
Gross profit		5,265,942		3,245,721			13,982,936		12,618,519

JOINT VENTURE OPERATIONS:
Equity in income from joint ventures		2,033,536		811,787			5,779,260		3,466,581
Fees for services provided to joint ventures		1,589,621		876,706			4,388,866		3,491,244
Total joint venture operations		3,623,157		1,688,493			10,168,126		6,957,825

OPERATING EXPENSES:
Selling expenses		3,171,657		2,487,396			8,745,433		8,484,928
General and administrative expenses		2,072,195		2,213,552			6,125,151		6,608,352
Research and development expenses		1,066,493		950,127			3,217,410		2,918,163
Total operating expenses		6,310,345		5,651,075			18,087,994		18,011,443

OPERATING INCOME (LOSS)		2,578,754		(716,861	)		6,063,068		1,564,901

INTEREST INCOME (EXPENSE)		7,632		(73,378	)		85,191		15,881

INCOME (LOSS) BEFORE INCOME TAX EXPENSE		2,586,386		(790,239	)		6,148,259		1,580,782

INCOME TAX EXPENSE		276,338		142,285			929,588		869,945

NET INCOME (LOSS)		2,310,048		(932,524	)		5,218,671		710,837

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		256,132		32,697			589,781		283,674

NET INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	2,053,916	$	(965,221	)	$	4,628,890	$	427,163

NET INCOME (LOSS) ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	0.23	$	(0.11	)	$	0.51	$	0.05
Diluted	$	0.21	$	(0.11	)	$	0.47	$	0.05

WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic		9,109,861		9,099,990			9,107,243		9,096,981
Diluted		9,972,000		9,099,990			9,829,052		9,312,914
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.065	$	0.00		$	0.13	$	0.13

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2021 AND 2020

	Three Months Ended May 31,					Nine Months Ended May 31,
	2021		2020			2021		2020
NET INCOME (LOSS)	$	2,310,048	$	(932,524	)	$	5,218,671	$	710,837
OTHER COMPREHENSIVE INCOME (LOSS) –FOREIGN CURRENCY TRANSLATION ADJUSTMENT		262,267		(281,177	)		757,273		(313,844	)
COMPREHENSIVE INCOME (LOSS)		2,572,315		(1,213,701	)		5,975,944		396,993
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NON- CONTROLLING INTERESTS		266,771		(21,492	)		654,551		205,989
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	2,305,544	$	(1,192,209	)	$	5,321,393	$	191,004

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2021 AND 2020

	STOCKHOLDERS’ EQUITY – THREE MONTHS ENDED MAY 31, 2021 AND 2020
										Accumulated
					*Additional*					*Other*			*Non-*
	*Common Stock*				*Paid-in*		*Retained*			*Comprehensive*			*Controlling*			*Total*
	*Shares*		*Amount*		*Capital*		*Earnings*			*Income (Loss)*			*Interests*			*Equity*

BALANCE AT FEBRUARY 28, 2021		9,104,636	$	182,093	$	17,793,646	$	44,455,982		$	(2,969,563	)	$	3,232,806		$	62,694,964
Stock issued for employee stock purchase plan		5,225		104		38,038		—			—			—			38,142
Stock option expense		—		—		160,834		—			—			—			160,834
Dividends paid to shareholders		—		—		—		(592,141	)		—			—			(592,141	)
Net income		—		—		—		2,053,916			—			256,132			2,310,048
Other comprehensive gain		—		—		—		—			251,628			10,639			262,267
BALANCE AT MAY 31, 2021		9,109,861	$	182,197	$	17,992,518	$	45,917,757		$	(2,717,935	)	$	3,499,577		$	64,874,114

BALANCE AT FEBRUARY 28, 2020		9,097,236	$	181,945	$	16,707,207	$	45,202,903		$	(4,602,349	)	$	3,302,160		$	60,791,866
Stock issued for employee stock purchase plan		2,754		55		28,532		—			—			—			28,587
Stock option expense		—		—		339,652		—			—			—			339,652
Dividend received by non-controlling interest		—		—		—		—			—			(200,000	)		(200,000	)
Net (loss) income		—		—		—		(965,221	)		—			32,697			(932,524	)
Other comprehensive loss		—		—		—		—			(226,988	)		(54,189	)		(281,177	)
BALANCE AT MAY 31, 2020		9,099,990	$	182,000	$	17,075,391	$	44,237,682		$	(4,829,337	)	$	3,080,668		$	59,746,404

	STOCKHOLDERS’ EQUITY – NINE MONTHS ENDED MAY 31, 2021 AND 2020
											Accumulated
					*Additional*						*Other*			*Non-*
	*Common Stock*				*Paid-in*			*Retained*			*Comprehensive*			*Controlling*			*Total*
	*Shares*		*Amount*		*Capital*			*Earnings*			*Income (Loss)*			*Interests*			*Equity*

BALANCE AT AUGUST 31, 2020		9,099,990	$	182,000	$	17,415,043		$	42,472,810		$	(3,410,438	)	$	3,045,026		$	59,704,441
Stock issued for employee stock purchase plan		9,871		197		74,137			—			—			—			74,334
Stock option expense		—		—		503,338			—			—			—			503,338
Dividends paid to stockholders		—		—		—			(1,183,943	)		—			—			(1,183,943	)
Dividend received by non-controlling interest		—		—		—			—			—			(200,000	)		(200,000	)
Net income		—		—		—			4,628,890			—			589,781			5,218,671
Other comprehensive income		—		—		—			—			692,503			64,770			757,273
BALANCE AT MAY 31, 2021		9,109,861	$	182,197	$	17,992,518		$	45,917,757		$	(2,717,935	)	$	3,499,577		$	64,874,114

BALANCE AT AUGUST 31, 2019		9,086,816	$	181,736	$	16,013,338		$	44,992,719		$	(4,593,178	)	$	3,074,679		$	59,669,294
Stock options exercised		6,823		137		(137	)		—			—			—			—
Stock issued for employee stock purchase plan		6,351		127		64,068			—			—			—			64,195
Stock option expense		—		—		998,122			—			—			—			998,122
Dividends paid to stockholders		—		—		—			(1,182,200	)		—			—			(1,182,200	)
Dividend received by non-controlling interest		—		—		—			—			—			(200,000	)		(200,000	)
Net income		—		—		—			427,163			—			283,674			710,837
Other comprehensive loss		—		—		—			—			(236,159	)		(77,685	)		(313,844	)
BALANCE AT MAY 31, 2020		9,099,990	$	182,000	$	17,075,391		$	44,237,682		$	(4,829,337	)	$	3,080,668		$	59,746,404

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED MAY 31, 2021 AND 2020

	Nine Months Ended May 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,218,671		$	710,837
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		503,338			998,122
Allowance for doubtful accounts		30,000			—
Depreciation expense		681,484			637,030
Amortization expense		151,710			175,465
Loss on disposal of property and equipment and patents		—			173,809
Equity in income from joint ventures		(5,779,260	)		(3,466,581	)
Dividends received from joint ventures		3,505,455			5,648,153
Deferred income taxes		(8,526	)		109,646
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(2,904,707	)		2,065,641
Trade, joint ventures		(564,149	)		(32,904	)
Fees for services provided to joint ventures		(499,954	)		391,880
Income taxes		(223,024	)		174,623
Inventories		(177,927	)		(1,729,133	)
Prepaid expenses and other		(223,457	)		368,769
Accounts payable		703,100			(882,962	)
Income tax payable		(162,615	)		40,983
Accrued liabilities		803,555			(2,370,845	)
Net cash provided by operating activities		1,053,695			3,012,533

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property and equipment		—			2,190
Purchase of available for sale securities		(800,000	)		(4,000,000	)
Proceeds from the sale of available for sale securities		1,219,670			2,114,565
Purchases of property and equipment		(723,441	)		(375,087	)
Investments in patents		(96,009	)		(79,139	)
Net cash used in investing activities		(399,780	)		(2,337,471	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(200,000	)		(200,000	)
Dividends paid on NTIC common stock		(1,183,943	)		(1,182,200	)
Proceeds from employee stock purchase plan		74,334			64,195
Net cash used in financing activities		(1,309,609	)		(1,318,005	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		133,585			(163,093	)


NET DECREASE IN CASH AND CASH EQUIVALENTS		(522,109	)		(806,036	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		6,403,032			5,856,758

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,880,923		$	5,050,722

See notes to consolidated financial statements.

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, 2021 and August 31, 2020, the results of the Company’s operations for the three and nine months ended May 31, 2021 and 2020, the changes in stockholders’ equity for the three and nine months ended May 31, 2021 and 2020, and the Company’s cash flows for the nine months ended May 31, 2021 and 2020, 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, 2020. 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, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2021.

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

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. As a result of the COVID-19 pandemic and related government mandated restrictions on the Company’s business as well as the businesses of its joint ventures, customers and suppliers, disruption to the Company’s business and the manufacture and sale of its products and services has occurred in the first nine months of fiscal 2021 and is expected to continue during the remainder of fiscal 2021 and possibly beyond.

2. ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which amended the standard. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is still evaluating the impact of this ASU.

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

3. INVENTORIES

Inventories consisted of the following:

	May 31, 2021		August 31, 2020
Production materials	$	4,574,380	$	3,866,791
Finished goods		6,732,218		7,095,005
	$	11,306,598	$	10,961,796

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	May 31, 2021			August 31, 2020
Land	$	310,365		$	310,365
Buildings and improvements		8,516,604			8,167,783
Machinery and equipment		5,242,174			4,940,912
		14,069,143			13,419,060
Less accumulated depreciation		(6,892,131	)		(6,308,271	)
	$	7,177,012		$	7,110,789

5. PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	May 31, 2021			August 31, 2020
Patents and trademarks	$	3,003,862		$	2,907,852
Less accumulated amortization		(2,257,557	)		(2,105,846	)
	$	746,305		$	802,006

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 be $200,000 in each of the next four fiscal years.

6. INVESTMENTS IN JOINT VENTURES

The consolidated 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 U.S. GAAP in all material respects. All material profits on sales recorded that remain on the consolidated balance sheet 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 venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), and all the Company’s other joint ventures are summarized as follows:

	As of May 31, 2021
	Total		EXCOR		All Other
Current assets	$	68,123,606	$	30,658,702	$	37,464,904
Total assets		72,216,965		33,027,046		39,189,919
Current liabilities		16,369,403		3,570,261		12,799,142
Noncurrent liabilities		1,225,790		—		1,225,790
Joint ventures’ equity		54,621,772		29,456,785		25,164,987
Northern Technologies International Corporation’s share of joint ventures’ equity		26,937,857		14,728,395		12,209,462
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		24,702,778		14,697,490		10,005,288

	Three Months Ended May 31, 2021
	Total		EXCOR		All Other
Net sales	$	31,959,539	$	12,103,263	$	19,856,276
Gross profit		14,280,775		6,863,786		7,416,989
Net income		4,051,518		2,068,326		1,983,192
Northern Technologies International Corporation’s share of equity in income from joint ventures		2,033,536		1,039,576		993,960
Northern Technologies International Corporation’s dividends received from joint ventures		181,952		—		181,952

	Nine Months Ended May 31, 2021
	Total		EXCOR		All Other
Net sales	$	87,795,284	$	32,196,843	$	55,598,441
Gross profit		39,802,014		18,661,980		21,140,034
Net income		11,540,949		6,351,721		5,189,228
Northern Technologies International Corporation’s share of equity in income from joint ventures		5,779,260		3,182,691		2,596,569
Northern Technologies International Corporation’s dividends received from joint ventures		3,505,455		1,809,900		1,695,555

	As of August 31, 2020
	Total		EXCOR		All Other
Current assets	$	55,825,418	$	25,742,619	$	30,082,799
Total assets		60,295,587		28,449,772		31,845,815
Current liabilities		11,002,867		2,424,565		8,578,302
Noncurrent liabilities		365,274		—		365,274
Joint ventures’ equity		48,927,446		26,025,207		22,902,239
Northern Technologies International Corporation’s share of joint ventures’ equity		24,090,826		13,012,606		11,078,220
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		21,855,747		12,981,701		8,874,046

	Three Months Ended May 31, 2020
	Total		EXCOR		All Other
Net sales	$	18,782,233	$	7,753,631	$	11,028,602
Gross profit		8,647,784		4,478,739		4,169,045
Net income		1,610,524		1,071,899		538,625
Northern Technologies International Corporation’s share of equity in income from joint ventures		811,787		536,540		275,247
Northern Technologies International Corporation’s dividends received from joint ventures		89,227		—		89,227

	Nine Months Ended May 31, 2020
	Total		EXCOR		All Other
Net sales	$	68,531,897	$	26,102,046	$	42,429,851
Gross profit		31,107,491		15,066,309		16,041,182
Net income		6,920,047		4,492,254		2,427,793
Northern Technologies International Corporation’s share of equity in income from joint ventures		3,466,581		2,246,930		1,219,651
Northern Technologies International Corporation’s dividends received from joint ventures		5,648,153		4,675,850		972,303

7. 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 May 31, 2021 or the prior line of credit as of August 31, 2020. Outstanding advances under the line of credit bear interest at (i) (A) a per annum rate equal to the “London Interbank Offered Rate” for a one month period determined and applied each business day until the next business date, or if greater (B) 0.75%, plus (ii) 3.25%. The maturity date of the line of credit was extended to January 7, 2022.

As of May 31, 2021 and August 31, 2020, the Company did not have any letters of credit outstanding with respect to the letter of credit sub-facility available under the revolving line of credit with PNC Bank. As of May 31, 2021 and August 31, 2020, the Company had $104,363 of letters of credit with JP Morgan Chase Bank that are performance based and set to expire in 2021 and 2022.

8. STOCKHOLDERS’ EQUITY

On April 23, 2020, the Company announced the temporary suspension of its quarterly cash dividend pending clarity on the financial impact of COVID-19 on the Company. On January 15, 2021, the Company announced the reinstatement of its quarterly cash dividend. During the nine months ended May 31, 2021, the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to holders of record of the Company’s common stock as of the following record dates:

Declaration Date	Amount	Record Date	Payable Date
January 15, 2021	$0.065	February 3, 2021	February 17, 2021
April 23, 2021	$0.065	May 5, 2021	May 19, 2021

During the nine months ended May 31, 2020, the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to holders of record of the Company’s common stock as of the following record dates:

Declaration Date	Amount	Record Date	Payable Date
October 22, 2019	$0.065	November 6, 2019	November 20, 2019
January 22, 2020	$0.065	February 5, 2020	February 19, 2020

During the nine months ended May 31, 2021 and 2020, the Company repurchased no shares of its common stock.

The Company issued 4,646 and 3,597 shares of common stock on September 1, 2020 and 2019, respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The Company issued 5,225 and 2,754 shares of common stock on March 1, 2021 and 2020, respectively, under the ESPP. The ESPP is compensatory for financial reporting purposes. As of May 31, 2021, 74,822 shares of common stock remained available for sale under the ESPP.

9. NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) 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. There was no dilution for the three months ended May 31, 2020 due to the loss position of the Company. 71,273 shares were excluded from the computation for the three months ended May 31, 2020.

The following is a reconciliation of the net income (loss) per share computation for the three and nine months ended May 31, 2021 and 2020:

	Three Months Ended May 31,					Nine Months Ended May 31,
Numerator:	2021		2020			2021		2020
Net income (loss) attributable to NTIC	$	2,053,916	$	(965,221	)	$	4,628,890	$	427,163
Denominator:
Basic – weighted shares outstanding		9,109,861		9,099,990			9,107,243		9,096,981
Weighted shares assumed upon exercise of stock options		862,139		—			721,809		215,933
Diluted – weighted shares outstanding		9,972,000		9,099,990			9,829,052		9,312,914
Basic net income (loss) per share:	$	0.23	$	(0.11	)	$	0.51	$	0.05
Diluted net income (loss) per share:	$	0.21	$	(0.11	)	$	0.47	$	0.05

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. Net income per common share was based on the weighted average number of common shares outstanding during the periods when computing basic net income per share. When dilutive, stock options are included as equivalents using the treasury stock market method when computing the diluted net income per share. Excluded from the computation of diluted net income per share for the three and nine months ended May 31, 2021 were options outstanding to purchase 136,221 shares of common stock. Excluded from the computation of diluted net income per share for the nine months ended May 31, 2020 were options outstanding to purchase 633,176 shares of common stock.

10. STOCK-BASED COMPENSATION

The Company has three stock-based compensation plans under which stock options or other stock-based awards have been granted: the Northern Technologies International Corporation Amended and Restated 2019 Stock Incentive Plan, the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan. The 2019 Plan replaced the 2007 Plan with respect to future grants; and, therefore, no further awards may be made under the 2007 Plan. The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The 2019 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. On January 15, 2021, the Company’s stockholders approved certain amendments to the 2019 Plan, including an increase in the number of shares of common stock available for issuance under the plan by an additional 800,000 shares. Subject to adjustment as provided in the 2019 Plan, up to a maximum of 1,600,000 shares of the Company’s common stock are issuable under the 2019 Plan. Options granted generally have a term of ten years and become exercisable over a one- or three-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, 2021, options to purchase an aggregate of 720,644 shares of the Company’s common stock were outstanding under the 2019 Plan and 879,356 shares of the Company’s common stock remain available for grant under the 2019 Plan. As of May 31, 2021, options to purchase an aggregate of 783,652 shares of the Company’s common stock were outstanding under the 2007 Plan.

The Company granted options to purchase an aggregate of 419,874 and 300,770 shares of its common stock during the nine months ended May 31, 2021 and 2020, respectively. The fair value of option grants is determined at the date of grant using the Black-Scholes option pricing model with the assumptions listed below. The Company recognized compensation expense of $503,339 and $998,122 during the nine months ended May 31, 2021 and 2020, respectively, related to the options that vested during such time period. As of May 31, 2021, the total compensation cost for non-vested options not yet recognized in the Company’s consolidated statements of operations was $827,502. Stock-based compensation expense of $160,835 is expected through the remainder of fiscal year 2021, and $333,333 and $333,334 is expected to be recognized during fiscal 2022 and 2023, respectively, based on outstanding options as of May 31, 2021. 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,
	2021			2020
Dividend yield		2.37	%		2.15	%
Expected volatility		45.6	%		45.1	%
Expected life of option (in years)		10			10
Average risk-free interest rate		0.28	%		1.57	%

The weighted average per share fair value of options granted during the nine months ended May 31, 2021 and 2020 was $3.12 and $4.30, respectively. The weighted average remaining contractual life of the options outstanding as of May 31, 2021 and 2020 was 6.40 years and 6.27 years, respectively.

11. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company’s chief operating decision maker 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, 2021 and 2020 by segment:

	Three Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2021		2020
ZERUST® net sales	$	12,378,215	$	7,356,781	$	32,882,882	$	26,322,515
Natur-Tec® net sales		3,040,309		2,388,042		8,097,636		11,287,491
Total net sales	$	15,418,524	$	9,744,823	$	40,980,518	$	37,610,006

The following table sets forth the Company’s cost of goods sold for the three and nine months ended May 31, 2021 and 2020 by segment:

	Three Months Ended May 31,										Nine Months Ended May 31,
	2021		% of Segment Sales*			2020		% of Segment Sales*			2021		% of Segment Sales*			2020		% of Segment Sales*
Direct cost of goods sold
ZERUST®	$	7,091,220		57.3	%	$	4,011,244		54.5	%	$	18,928,272		57.6	%	$	14,193,113		53.9	%
Natur-Tec®		2,251,996		74.1	%		1,842,539		77.2	%		5,703,807		70.4	%		8,733,016		77.4	%
Indirect cost of goods sold		809,366		—			645,319		—			2,365,503		—			2,065,358		—
Total net cost of goods sold	$	10,152,582				$	6,499,102				$	26,997,582				$	24,991,487

______________________________

*	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, 2021 and 2020 were as follows:

	Three Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2021		2020
Inside the U.S.A. to unaffiliated customers	$	6,717,886	$	4,051,709	$	16,198,372	$	16,558,301
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		1,253,919		673,751		2,361,165		1,504,997
Unaffiliated customers		7,446,719		5,019,363		22,420,981		19,546,708
	$	15,418,524	$	9,744,823	$	40,980,518	$	37,610,006

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, 2021 and 2020 were as follows:

	Three Months Ended May 31,
	2021		% of Total Fees for Services Provided to Joint Ventures			2020		% of Total Fees for Services Provided to Joint Ventures
Germany	$	232,026		14.6	%	$	199,877		22.8	%
Poland		226,174		14.2	%		75,118		8.6	%
Japan		200,270		12.6	%		139,268		15.9	%
Sweden		127,710		8.0	%		51,767		5.9	%
France		119,172		7.5	%		61,716		7.0	%
Thailand		108,842		6.9	%		67,919		7.7	%
India		107,021		6.7	%		24,842		2.8	%
Czech Republic		109,680		6.9	%		46,709		5.3	%
United Kingdom		113,886		7.2	%		52,484		6.0	%
South Korea		78,507		4.9	%		54,951		6.3	%
Finland		75,577		4.8	%		52,870		6.0	%
Other		90,756		5.7	%		49,185		5.6	%
	$	1,589,621		100.0	%	$	876,706		100.0	%

	Nine Months Ended May 31,
	2021		% of Total Fees for Services Provided to Joint Ventures			2020		% of Total Fees for Services Provided to Joint Ventures
Germany	$	692,770		15.8	%	$	620,106		17.8	%
Poland		626,527		14.3	%		441,011		12.6	%
Japan		561,725		12.8	%		453,347		13.0	%
Sweden		365,095		8.3	%		259,671		7.4	%
France		322,717		7.4	%		241,056		6.9	%
Thailand		306,151		7.0	%		261,132		7.5	%
India		290,713		6.6	%		187,826		5.4	%
Czech Republic		268,571		6.1	%		215,923		6.2	%
United Kingdom		247,560		5.6	%		202,241		5.8	%
South Korea		241,805		5.5	%		206,272		5.9	%
Finland		223,356		5.1	%		194,813		5.6	%
Other		241,876		5.5	%		207,846		6.0	%
	$	4,388,866		100.0	%	$	3,491,244		100.0	%

The geographical distribution of total property and equipment and net sales is as follows:

	At May 31, 2021		At August 31, 2020
China	$	384,523	$	376,088
Other		421,662		172,833
United States		6,370,827		6,561,868
Total property and equipment	$	7,177,012	$	7,110,789

	Three Months Ended May 31,				Nine Months Ended May 31,
	2021		2020		2021		2020
China	$	4,037,493	$	3,089,135		13,025,127	$	9,975,091
Brazil		1,237,586		365,222		2,756,008		2,080,418
India		1,540,734		631,551		4,036,208		4,727,325
Other		1,884,825		1,607,206		4,964,803		4,268,871
United States		6,717,886		4,051,709		16,198,372		16,558,301
Total net sales	$	15,418,524	$	9,744,823	$	40,980,518	$	37,610,006

Long-lived assets located in China and other locations outside of the United States 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.

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 recognized directly by the Company and sold in that geographic territory.

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

12. COMMITMENTS AND CONTINGENCIES

Annual Bonus Plan

On August 27, 2020, 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, 2021. For fiscal 2021, 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 (EBITOI), as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary, and the individual’s position and level of responsibility within the Company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal 2021 compared to a pre-established target EBITOI for fiscal 2021, 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 is discretionary, and bonuses may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact amount and percentages of which are 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 2021. There was $1,766,667 recognized for management bonuses for the nine months ended May 31, 2021, compared to $1,200,000 recognized for management bonuses for the nine months ended May 31, 2020.

Concentrations

Three joint ventures (consisting of the Company’s joint ventures in India, South Korea and Thailand) accounted for 73.7% of the Company’s trade joint venture receivables at May 31, 2021, and two joint ventures (consisting of the Company’s joint ventures in South Korea and Thailand) accounted for 56.2% of the Company’s trade joint venture receivables at May 31, 2020.

Legal Matters

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may have been incurred. In the opinion of management, as of May 31, 2021, 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.

13. 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, and the Company estimates that market value approximates costs.

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, 2021

Level 1

Level 2

Level 3

Available for sale securities

5,125,052

—

Fair Value Measurements

Using Inputs Considered as

Fair value as of

August 31, 2020

Level 1

Level 2

Level 3