Note 11 - Stock-Based Compensation

12 Months Ended

Aug. 31, 2013

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

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

11.           STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which stock options and other stock-based awards have been granted, the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP).  The Compensation Committee of the Board of Directors and the Board of Directors administers 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 five 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.  As of August 31, 2013, 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 fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with the assumptions listed below.  The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations and the risk free interest rate is based on U.S. treasury rates appropriate for the expected term.  Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values.  Expected life of the option is based on the life of the option agreements.  Based on these valuations, the Company recognized compensation expense of $306,451 and $288,396 during fiscal 2013 and 2012, respectively, related to the options that vested during such time period.  As of August 31, 2013, the total compensation cost for nonvested options not yet recognized in the Company’s consolidated statements of operations was $305,771.  Stock-based compensation expense of $185,815 is expected to be recognized during fiscal 2014, based on outstanding options as of August 31, 2013.  Future option grants will impact the compensation expense recognized.

The Company currently estimates a ten percent forfeiture rate for stock options, but will continue to review this estimate in future periods.

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

	August 31, 2013				August 31, 2012
Dividend yield			0.00%			0.00	%
Expected volatility			48.0%			48.8	%
Expected life of option (years)		5	-	10		5
Weighted average risk-free interest rate			0.71%			1.31	%

Stock option activity during the periods indicated is as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2011		189,839		$	9.07
Options granted		26,000			16.45
Options exercised		(3,966	)		8.71
Options terminated		(8,000	)		9.23
Outstanding at August 31, 2012		203,873		$	10.01
Options granted		118,294			10.25
Options exercised		(37,040	)		9.96
Options terminated		(24,500	)		13.12
Outstanding at August 31, 2013		260,627		$	9.84	$	1,358,325
Exercisable at August 31, 2013		134,998		$	9.48	$	768,043

The weighted average per share fair value of options granted during fiscal 2013 and fiscal 2012 were $5.53 and $7.14, respectively.  The weighted average remaining contractual life of the options outstanding as of August 31, 2013 and 2012 was 4.52 years and 2.14 years, respectively.