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 February 28, 2018

☐ 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 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 ☐

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 April 13, 2018, there were 4,537,408 shares of common stock of the registrant outstanding.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

February 28, 2018

TABLE OF CONTENTS

Description		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of February 28, 2018 (unaudited) and August 31, 2017	1
	Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended February 28, 2018 and 2017	2
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended February 28, 2018 and 2017	3
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended February 28, 2018 and 2017	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	31
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	32
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURE PAGE		35

_________________

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.”

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_________________

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 seven entities that operate in the Association of Southeast Asian Nations (ASEAN) region, including the following countries: 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 FEBRUARY 28, 2018 (UNAUDITED)

AND AUGUST 31, 2017 (AUDITED)

	February 28, 2018			August 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,067,087		$	6,360,201
Available for sale securities		3,268,426			3,766,984
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $50,000 at February 28, 2018 and $40,000 at August 31, 2017		8,310,043			5,912,631
Trade joint ventures		447,380			691,752
Fees for services provided to joint ventures		1,365,325			1,302,944
Income taxes		309,379			137,256
Inventories		9,126,171			7,456,552
Prepaid expenses		1,024,652			439,298
Total current assets		28,918,463			26,067,618
PROPERTY AND EQUIPMENT, NET		7,155,946			7,359,662
OTHER ASSETS:
Investments in joint ventures		22,259,526			20,035,074
Deferred income taxes		1,056,565			1,756,565
Patents and trademarks, net		1,241,618			1,322,089
Other		—			71,685
Total other assets		24,557,709			23,185,413
Total assets	$	60,632,118		$	56,612,693
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,266,257		$	2,676,610
Income taxes payable		342,853			—
Accrued liabilities:
Payroll and related benefits		1,437,921			1,540,386
Other		677,126			677,621
Total current liabilities		6,724,157			4,894,617
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 February 28, 2018 and 10,000,000 shares as of August 31, 2017; issued and outstanding 4,537,408 and 4,535,018, respectively		90,748			90,700
Additional paid-in capital		14,397,851			14,163,509
Retained earnings		38,586,704			37,077,483
Accumulated other comprehensive loss		(2,070,752	)		(2,471,064	)
Stockholders’ equity		51,004,551			48,860,628
Non-controlling interest		2,903,410			2,857,448
Total equity		53,907,961			51,718,076
Total liabilities and equity	$	60,632,118		$	56,612,693

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 SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017

	Three Months Ended						Six Months Ended
	February 28, 2018			February 28, 2017			February 28, 2018			February 28, 2017
NET SALES:
Net sales, excluding joint ventures	$	11,399,853		$	8,309,586		$	22,435,260		$	17,191,551
Net sales, to joint ventures		814,122			433,317			1,321,753			1,253,375
Total net sales		12,213,975			8,742,903			23,757,013			18,444,926
Cost of goods sold		8,012,836			5,870,186			15,901,306			12,482,952
Gross profit		4,201,139			2,872,717			7,855,707			5,961,974
JOINT VENTURE OPERATIONS:
Equity in income from joint ventures		1,805,997			1,383,139			3,547,325			2,657,143
Fees for services provided to joint ventures		1,608,890			1,184,028			3,116,032			2,499,619
Total joint venture operations		3,414,887			2,567,167			6,663,357			5,156,762
OPERATING EXPENSES:
Selling expenses		2,643,636			2,246,482			5,243,585			4,285,566
General and administrative expenses		1,805,216			1,842,528			4,024,961			4,314,308
Research and development expenses		922,746			742,037			1,721,477			1,384,559
Total operating expenses		5,371,598			4,831,047			10,990,023			9,984,433
OPERATING INCOME		2,244,428			608,837			3,529,041			1,134,303
INTEREST INCOME		24,883			4,516			48,939			8,079
INTEREST EXPENSE		(5,779	)		(3,470	)		(10,868	)		(8,093	)
INCOME BEFORE INCOME TAX EXPENSE		2,263,532			609,883			3,567,112			1,134,289
INCOME TAX EXPENSE		841,909			124,909			946,900			242,622
NET INCOME		1,421,623			484,974			2,620,212			891,667
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		88,776			98,008			203,739			207,062
NET INCOME ATTRIBUTABLE TO NTIC	$	1,332,847		$	386,966		$	2,416,473		$	684,605
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	0.29		$	0.09		$	0.53		$	0.15
Diluted	$	0.29		$	0.09		$	0.52		$	0.15
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic		4,537,408			4,525,091			4,537,368			4,527,555
Diluted		4,673,338			4,562,024			4,641,042			4,559,485
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.10		$	0.00		$	0.20		$	0.00

See notes to consolidated financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017

	Three Months Ended				Six Months Ended
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
NET INCOME	$	1,421,623	$	484,974	$	2,620,212	$	891,667
Other comprehensive income (LOSS) – foreign currency translation adjustment		467,761		230,991		442,535		(1,019,821	)
COMPREHENSIVE INCOME (LOSS)		1,889,384		715,965		3,062,747		(128,154	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		109,046		132,829		245,962		193,200
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	1,780,338	$	583,136	$	2,816,785	$	(321,354	)

See notes to consolidated financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2018 AND FEBRUARY 28, 2017

	Six Months Ended
	February 28, 2018			February 28, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,620,212		$	891,667
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		206,534			195,832
Depreciation expense		418,562			385,583
Amortization expense		125,092			59,517
Equity in income from joint ventures		(3,547,325	)		(2,657,143	)
Deferred income taxes		700,000			24,987
Dividends received from joint ventures		1,770,116			564,934
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(2,292,004	)		(1,177,496	)
Trade, joint ventures		244,372			329,321
Fees for services provided to joint ventures		(62,381	)		164,018
Income taxes		(178,998	)		(16,484	)
Inventories		(1,631,734	)		(349,600	)
Prepaid expenses and other		(504,848	)		(103,671	)
Accounts payable		1,669,859			915,538
Income tax payable		139,991			(91,282	)
Accrued liabilities		(193,647	)		40,854
Net cash used in operating activities		(516,199	)		(823,425	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available for sale securities		498,558			1,495,610
Additions to property and equipment		(207,350	)		(599,063	)
Additions to patents		(44,621	)		(85,959	)
Net cash provided by investing activities		246,587			810,588
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(200,000	)		(200,000	)
Repurchase of common stock		—			(148,162	)
Dividends paid on NTIC common stock		(907,252	)		—
Proceeds from option exercises		15,375			—
Proceeds from employee stock purchase plan		12,481			32,955
Net cash used in financing activities		(1,079,396	)		(315,207	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:		55,894			(18,282	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,293,114	)		(346,326	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		6,360,201			3,395,274
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,067,087		$	3,048,948

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 February 28, 2018 and August 31, 2017 and the results of their operations for the three and six months ended February 28, 2018 and 2017 and their cash flows for the six months ended February 28, 2018 and 2017, 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, 2017. 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 six months ended February 28, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2018.

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

2.        Accounting PronouncementS

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued Revenue from Contracts with Customers, Topic 606 (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 fiscal 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.

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 guidance will be effective for the Company’s first quarter of fiscal 2020. The Company is currently assessing the effect that ASU No. 2016-02 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 after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-15 on its consolidated financial statements.

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In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Cuts and Jobs Act (Tax Reform Act) that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. ASU 2018-2, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018-02 will be effective for the Company’s fiscal year 2020, with the option to early adopt at any time prior to the effective date. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements.

In December 2017, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 118 (as further clarified by FASB ASU 2018-05, Income Taxes (Topic 740): “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”) to provide guidance for companies that may not have completed their accounting for the income tax effects of the Tax Reform Act in the period of enactment, which is the period that includes December 22, 2017. SAB No. 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Reform Act. SAB No. 118 provides guidance where: (i) the accounting for the income tax effect of the Tax Reform Act is complete and reported in the Tax Reform Act’s enactment period, (ii) the accounting for the income tax effect of the Tax Reform Act is incomplete and reported as provisional amounts based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period until complete, and (iii) accounting for the income tax effect of the Tax Reform Act is not reasonably estimable (no related provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on tax law provisions in effect prior to the Tax Reform Act enactment until provisional amounts are reasonably estimable. SAB No. 118 requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among other relevant information (see Note 15 - Income Taxes).

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:

	February 28, 2018		August 31, 2017
Production materials	$	1,820,942	$	1,747,189
Finished goods		7,305,229		5,709,363
	$	9,126,171	$	7,456,552

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4.       PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	February 28, 2018			August 31, 2017
Land	$	310,365		$	310,365
Buildings and improvements		6,815,771			6,847,177
Machinery and equipment		4,414,136			4,171,387
		11,540,272			11,328,929
Less accumulated depreciation		(4,384,326	)		(3,969,267	)
	$	7,155,946		$	7,359,662

5.       PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	February 28, 2018			August 31, 2017
Patents and trademarks	$	2,782,580		$	2,737,959
Less accumulated amortization		(1,540,962	)		(1,415,870	)
	$	1,241,618		$	1,322,089

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 $240,000 in each of the next five 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 recorded that remain on the balance sheet 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 venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR) and all the Company’s other joint ventures, are summarized as follows:

	As of February 28, 2018
	Total		EXCOR		All Other
Current assets	$	57,427,392	$	25,206,550	$	32,220,842
Total assets		61,497,315		27,326,727		34,170,588
Current liabilities		16,468,617		4,148,371		12,320,246
Noncurrent liabilities		120,481		—		120,481
Joint ventures’ equity		44,908,217		23,178,356		21,729,861
Northern Technologies International Corporation’s share of joint ventures’ equity		22,259,526		11,589,180		10,670,346
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	20,230,286	$	11,558,275	$	8,672,011
Northern Technologies International Corporation’s dividends received from joint ventures	$	1,770,116	$	1,199,142	$	570,974

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	Three Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	30,220,550	$	12,204,736	$	18,015,814
Gross profit		13,531,276		6,557,964		6,973,312
Net income		3,712,684		2,674,777		1,037,907
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,805,997	$	1,338,671	$	467,326

	Six Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	58,719,261	$	23,231,250	$	35,488,011
Gross profit		26,319,398		12,491,490		13,827,908
Net income		7,212,499		5,158,577		2,053,922
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	3,547,325	$	2,580,571	$	966,754

	As of August 31, 2017
	Total		EXCOR		All Other
Current assets	$	51,518,210	$	22,142,514	$	29,375,696
Total assets		55,633,891		24,301,194		31,332,697
Current liabilities		15,118,074		4,469,567		10,648,507
Noncurrent liabilities		181,210		—		181,210
Joint ventures’ equity		40,334,607		19,831,627		20,502,980
Northern Technologies International Corporation’s share of joint ventures’ equity		20,035,074		9,915,816		10,119,258
Northern Technologies International Corporation’s share of joint ventures’   undistributed earnings		17,960,860		9,884,911		8,075,949
Northern Technologies International Corporation’s dividends received from joint ventures	$	6,377,054	$	5,379,062	$	997,992

	Three Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	22,962,599	$	9,076,908	$	13,885,691
Gross profit		10,161,509		4,867,517		5,293,992
Net income		2,774,943		2,161,408		613,535
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,383,139	$	1,078,272	$	304,867

	Six Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	47,163,046	$	18,285,432	$	28,877,614
Gross profit		20,858,536		9,761,696		11,096,840
Net income		5,182,951		4,017,746		1,165,205
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	2,657,143	$	2,006,441	$	650,702

The Company did not make any joint venture investments during the six months ended February 28, 2018 or 2017.

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 both February 28, 2018 and August 31, 2017. 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.

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The line of credit is governed under a loan agreement. The loan agreement contains standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, the Company is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of February 28, 2018, the Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to $1,200,000. The Company did not have any letters of credit reserved against the available letters of credit balance as of February 28, 2018 and August 31, 2017 with PNC Bank. The availability of advances under the line of credit will be reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under the revolving credit facility. 

As of February 28, 2018 and August 31, 2017, the Company had $88,831 and $89,543, respectively, of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2020 and 2022.

On January 5, 2018, the Company and PNC Bank extended the maturity date of the line of credit to January 7, 2019. All other terms of the line of credit and the loan agreement and other documents evidencing the line of credit remain the same.

8.       STOCKHOLDERS’ EQUITY

During the six months ended February 28, 2018, the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of the Company’s common stock:

Declaration Date	Amount	Record Date	Payable Date
November 20, 2017	$0.10	December 8, 2017	December 21, 2017
January 24, 2018	$0.10	February 8, 2018	February 21, 2018

During the six months ended February 28, 2018, the Company repurchased no shares of its common stock. During the six months ended February 28, 2018, stock options to purchase an aggregate of 1,500 shares of common stock were exercised at a weighted average exercise price of $10.25 per share.

The Company granted stock options under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (2007 Plan) to purchase an aggregate of 47,252 shares of its common stock to various employees and directors during the six months ended February 28, 2018. The weighted average per share exercise price of the stock options is $18.35, which was equal to the fair market value of the Company’s common stock on the date of grant.

The Company issued 891 and 3,029 shares of common stock on September 1, 2017 and 2016, respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP).

The Company held its 2018 Annual Meeting of Stockholders (2018 Annual Meeting) on January 12, 2018. At the 2018 Annual Meeting, a proposal to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the Company’s authorized shares of common stock from 10,000,000 to 15,000,000 (Share Increase Amendment) was approved by the Company’s stockholders by the required vote. The Share Increase Amendment was filed with the Office of the Secretary of State of the State of Delaware on January 16, 2018 and it became effective the same day. In determining that the Share Increase Amendment was approved by the required vote, votes cast by brokers, banks or other nominees without instruction from the beneficial owners of certain of our outstanding shares were counted in favor of the proposal in accordance with the rules of the New York Stock Exchange that govern how brokers may cast such votes. Because a disclosure in the definitive proxy statement for the 2018 Annual Meeting, which was filed on Schedule 14A with the Securities and Exchange Commission (SEC) on November 27, 2017 (2018 Proxy Statement), anticipated that brokers would not have discretion to vote for the proposal to approve the Share Increase Amendment, a question has been raised as to the validity of the vote taken on the proposal to approve the Share Increase Amendment. The Company believes that the Share Increase Amendment was properly approved and is effective. However, because the description of the authority of brokers to vote on proposals without instruction in the 2018 Proxy Statement may create some uncertainty as to the effect of the vote obtained at the 2018 Annual Meeting and out of an abundance of caution, the Company intends to ask its stockholders at either a special meeting or the next annual meeting of the Company’s stockholders to ratify the filing and effectiveness of the Share Increase Amendment pursuant to Delaware law in order to eliminate any uncertainty related to the effectiveness of the Share Increase Amendment. The Company has not issued, or reserved for issuance, and will not issue, or reserve for issuance, any of the additional 5,000,000 authorized shares as part of the Share Increase Amendment unless the vote at the special or annual meeting of the Company’s stockholders is in favor of the ratification of the Share Increase Amendment.

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During the six months ended February 28, 2017, the Company repurchased and retired 11,475 shares of its common stock at a price of $12.92 per share. No stock options to purchase shares of common stock were exercised during the six months ended February 28, 2017.

The Company granted stock options under the 2007 Plan to purchase an aggregate of 56,677 shares of its common stock to various employees and directors during the six months ended February 28, 2017. 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.

9.       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 earnings per share computation:

	Three Months Ended				Six Months Ended
Numerators:	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Net income attributable to NTIC	$	1,332,847	$	386,966	$	2,416,473	$	684,605
Denominators:
Basic – weighted shares outstanding		4,537,408		4,525,091		4,537,368		4,527,555
Weighted shares assumed upon exercise of stock options		135,930		36,933		103,674		31,930
Diluted – weighted shares outstanding		4,673,338		4,562,024		4,641,042		4,559,485
Basic income per share:	$	0.29	$	0.09	$	0.53	$	0.15
Diluted income per share:	$	0.29	$	0.09	$	0.52	$	0.15

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 no shares excluded from the computation of diluted income per share for the three and six months ended February 28, 2018. Excluded from the computation of diluted earnings per share for the three and six months ended February 28, 2017 were options outstanding to purchase 48,067 shares of common stock.

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10.       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 (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 February 28, 2018, 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 47,252 and 56,677 shares of its common stock during the six months ended February 28, 2018 and 2017, 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 $206,534 and $195,832 during the six months ended February 28, 2018 and 2017, respectively, related to the options that vested during such time period. As of February 28, 2018, the total compensation cost for nonvested options not yet recognized in the Company’s consolidated statements of operations was $425,669. Stock-based compensation expense of $206,534 is expected through the remainder of fiscal year 2018, and $153,901 and $65,234 is expected to be recognized during fiscal 2019 and fiscal 2020, respectively, based on outstanding options as of February 28, 2018. 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:

	Three and Six months ended
	February 28, 2018	February 28, 2017
Dividend yield	2.18%	0.00%
Expected volatility	45.9%	46.4%
Expected life of option (in years)	10	10
Average risk-free interest rate	1.87%	1.63%

The weighted average per share fair value of options granted during the six months ended February 28, 2018 and 2017 was $7.75 and $7.69, respectively. The weighted average remaining contractual life of the options outstanding as of February 28, 2018 and 2017 was 6.75 years and 6.91 years, respectively.

11.       SEGMENT AND GEOGRAPHICAL INFORMATION

Segment Information

The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company’s business is organized into two reportable segments: ZERUST® and Natur-Tec®. The Company has been selling its proprietary ZERUST® rust and corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over 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 six months ended February 28, 2018 and 2017 by segment:

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

The following table sets forth the Company’s cost of goods sold for the three and six months ended February 28, 2018 and 2017 by segment:

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

___________________________________

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

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

Geographic Information

Net sales by geographic location for the three and six months ended February 28, 2018 and 2017 were as follows:

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

Net sales by geographic location are based on the location of the customer.

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Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to joint ventures during the three and six months ended February 28, 2018 and 2017 were as follows:

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

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

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

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

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

Total property and equipment are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets.

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

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

12.       COMMITMENTS AND CONTINGENCIES

On August 31, 2017, 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, 2018. For fiscal 2018 as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the Company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal 2018 compared to a pre-established target EBITOI for fiscal 2018 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 2018. There was $880,000 accrued for management bonuses for the six months ended February 28, 2018 compared to $185,000 accrued for management bonuses for the six months ended February 28, 2017.

Three joint ventures (consisting of the Company’s joint ventures in South Korea, India and United States) accounted for 69.8% of the Company’s trade joint venture receivables at February 28, 2018 and three joint ventures (consisting of the Company’s joint ventures in South Korea, Thailand and India) accounted for 60.7% of the Company’s trade joint venture receivables at August 31, 2017.

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may have been incurred. In the opinion of management, as of February 28, 2018, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s consolidated results of operations, financial position or cash flows.

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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. 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 February 28, 2018		Level 1		Level 2		Level 3
Available for sale securities	$	3,268,426	$	3,268,426	$	—	$	—

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	3,766,984	$	3,766,984	$	—	$	—

There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended February 28, 2018 and 2017.

14.       SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information consisted of:

	Three Months Ended
	February 28, 2018		February 28, 2017
Cash paid for interest	$	5,779	$	3,470
Cash paid for income taxes	$	45,000		—

	Six Months Ended
	February 28, 2018		February 28, 2017
Cash paid for interest	$	10,868	$	8,093
Cash paid for income taxes	$	45,000		—

15.       INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or Tax Reform Act. The Tax Reform Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending August 31 2018, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, generally eliminating U.S. federal income taxes on dividends received from foreign subsidiaries and joint ventures after December 31, 2017, and imposing a one-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries and joint ventures. The Company will be subject to a blended U.S. federal tax rate of 25.7% for the fiscal year ending August 31, 2018 as a result of the reduction of the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018.

The Company recognized the income tax effects of the Tax Reform Act in its 2018 interim consolidated financial statements in accordance with SAB No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Reform Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined.

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The Company recorded income tax expense during the three and six months ended February 28, 2018 of $841,909 and $946,900, respectively, compared to $124,909 and $242,622 for the three and six months ended February 28, 2017. The Company’s effective tax rate for the three and six months ended February 28, 2018 was 37.2% and 26.5%, respectively, compared to 20.5% and 21.3% for the three and six months ended February 28, 2017, respectively.

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, resulting in an increase of $700,000 in income tax expense for the three months ended February 28, 2018 and a corresponding decrease of $700,000 in net deferred tax assets as of February 28, 2018. The $700,000 income tax expense and corresponding decrease in net deferred tax assets represents a provisional estimate based on the Company’s current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.

The one-time deemed repatriation tax is applicable to the unremitted earnings of the Company’s foreign subsidiaries and joint ventures. The Company calculated deemed repatriation tax of $489,000, which the Company expects to fully offset with foreign tax credit carryforwards for which the Company has not previously recognized a tax benefit. As a result, the transition tax resulted in zero increase in income tax expense and income taxes payable for the three months ended February 28, 2018. The $489,000 transition tax on deemed repatriation of unremitted foreign earnings represents a provisional estimate and is subject to adjustment during the measurement period of up to one year following the December 2017 enactment date of the Tax Reform Act, as provided by recent SEC guidance.

The Company continues to analyze the impact of other provisions of the Tax Reform Act on its financial statements and operations, including the impact of the global intangible low-taxed income (GILTI) rules, and the impact of the Tax Reform Act on the Company’s indefinite reinvestment assertion with respect to the undistributed earnings of certain foreign subsidiaries and joint ventures. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB No. 118.

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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, 2017. 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, coatings, rust removers, cleaners, and diffusers as well as 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 performance 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 technologies. 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 long sales cycles, often including multi-year trial periods 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 distributors and certain joint ventures.

NTIC’s Subsidiaries and Joint Venture Network

NTIC has ownership interests in six subsidiaries in North America, South America, Europe and Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of February 28, 2018, 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 each joint venture based on the overall profitability of the joint venture. 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 each joint venture are shared by the respective joint venture owners in accordance with their respective ownership percentages. NTIC typically directly or indirectly owns 50% or less of each of its joint venture entities and thus does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much they should be in a given year. The payment of a dividend by an entity is determined by a joint vote of the owners and is not at the sole discretion of NTIC.

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

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

Financial Overview

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

NTIC’s consolidated net sales increased 39.7% and 28.8% during the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February 28, 2017. 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 six months ended February 28, 2018, 83.4% and 83.0% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 41.0% and 28.8% to $10,191,459 and $19,719,196, respectively, compared to $7,228,027 and $15,312,705 during the three and six months ended February 28, 2017, respectively. These increases were due to higher sales from existing customers for new and existing products as a result of increased demand. NTIC has focused its sales efforts of ZERUST® products and services by strategically targeting customers with specific corrosion issues in new market areas, including the oil and gas industry and other industrial sectors that offer sizable growth opportunities. NTIC’s consolidated net sales for the six months ended February 28, 2018 included $862,860 of sales made to customers in the oil and gas industry compared to $952,240 for the six months ended February 28, 2017. 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.

During the three and six months ended February 28, 2018, 16.6% and 17.0% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products compared to 17.3% and 17.0% during the three and six months ended February 28, 2017, respectively. Net sales of Natur-Tec® products increased 33.5% and 28.9% during the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February 28, 2017 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 65.6% during the three months ended February 28, 2018 compared to 67.1% during the three months ended February 28, 2017 and decreased to 66.9% during the six months ended February 28, 2018 compared to 67.7% during the prior fiscal year period primarily as a result of increased net sales and cost reductions realized on the raw materials associated with NTIC’s ZERUST® industrial products.

NTIC’s equity in income from joint ventures increased 30.6% and 33.5% to $1,805,997 and $3,547,325 during the three and six months ended February 28, 2018, respectively, compared to $1,383,139 and $2,657,143 during the three and six months ended February 28, 2017, respectively. These increases were primarily due to corresponding increases in net sales at the joint ventures, which increased 31.6% and 24.5% to $30,220,550 and $58,719,261 during the three and six months ended February 28, 2018, respectively, compared to 14.1% and 12.3% to $22,962,599 and $47,163,046 during the three and six months ended February 28, 2017, respectively, as well as a strengthened Euro and other currencies compared to the U.S. Dollar. These increases in net sales of NTIC’s joint ventures were due primarily to higher sales from existing customers for new and existing products as a result of increased demand. The increases in net sales of NTIC’s joint ventures resulted in corresponding increases in fees for services provided to joint ventures as such fees are a function of net sales of NTIC’s joint ventures.

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NTIC’s total operating expenses increased 11.2% and 10.1% to $5,371,598 and $10,990,023 during the three and six months ended February 28, 2018, respectively, compared to $4,831,047 and $9,984,433 for the three and six months ended February 28, 2017. This increase was primarily due to an increase in NTIC’s personnel expenses, including an increase in the management bonus accrual of $695,000. Operating expenses, as a percent of net sales, for the three months ended February 28, 2018 were 44.0%, compared to 55.3% for the same period last fiscal year and for the six months ended February 28, 2018 were 46.1%, compared to 54.1% for the same period last fiscal year. This reduction was primarily due to higher net sales and lower general and administrative expenses, partially offset by higher selling and research and development expenses.

NTIC spent $922,746 and $1,721,477 during the three and six months ended February 28, 2018 compared to $742,037 and $1,384,559 during the three and six months ended February 28, 2017, respectively, in connection with its research and development activities. NTIC anticipates that it will spend a total of between $3,000,000 and $3,400,000 in fiscal 2018 on research and development activities.

Net income attributable to NTIC increased to $1,332,847, or $0.29, per diluted common share, for the three months ended February 28, 2018 compared to $386,966, or $0.09, per diluted common share, for the three months ended February 28, 2017, an increase of $945,881 or $0.20 per diluted share. Net income attributable to NTIC increased to $2,416,473, or $0.52 per diluted common share, for the six months ended February 28, 2018 compared to $684,605, or $0.15 per diluted common share, for the six months ended February 28, 2017, an increase of $1,731,868 or $0.37 per diluted share. These increases were primarily the result of the increases in net sales and corresponding gross profit, as well as the increases in income from joint venture operations. These increases were partially offset by the significant impact of the $700,000 one-time provisional adjustment related to the Tax Reform Act, as described in more detail below, and the increase in operating expenses, as previously described.

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 remain volatile primarily as a result of the changes in its Chinese operations.

NTIC’s working capital, as defined as current assets less current liabilities, was $22,194,306 at February 28, 2018, including $5,067,087 in cash and cash equivalents and $3,268,426 in available for sale securities, compared to $21,173,001 at August 31, 2017, including $6,360,201 in cash and cash equivalents and $3,766,984 in available for sale securities.

On January 24, 2018, NTIC’s Board of Directors declared a quarterly cash dividend of $0.10 per share of NTIC’s common stock, paid on February 21, 2018 to stockholders of record on February 8, 2018. On November 24, 2017, NTIC’s Board of Directors declared a quarterly cash dividend of $0.10 per share of NTIC’s common stock, payable on December 21, 2017 to stockholders of record on December 8, 2017. No cash dividends were declared by NTIC’s Board of Directors during the fiscal year ended August 31, 2017. Although NTIC’s Board of Directors intends to continue to declare regular quarterly cash dividends, the declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions and other factors.

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Results of Operations

The following table sets forth NTIC’s results of operations for the three and six months ended February 28, 2017 and 2017.

	Three Months Ended
	February 28, 2018		% of Net Sales			February 28, 2017		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	11,399,853		93.3	%	$	8,309,586		95.0	%	$	3,090,267			37.2	%
Net sales, to joint ventures		814,122		6.7	%		433,317		5.0	%		380,805			87.9	%
Cost of goods sold		8,012,836		65.6	%		5,870,186		67.1	%		2,142,650			36.5	%
Equity in income from joint ventures		1,805,997		14.8	%		1,383,139		15.8	%		422,858			30.6	%
Fees for services provided to joint ventures		1,608,890		13.2	%		1,184,028		13.5	%		424,862			35.9	%
Selling expenses		2,643,636		21.6	%		2,246,482		25.7	%		397,154			17.7	%
General and administrative expenses		1,805,216		14.8	%		1,842,528		21.1	%		(37,312	)		(2.0	)%
Research and development expenses		922,746		7.6	%		742,037		8.5	%		180,709			24.4	%

	Six Months Ended
	February 28, 2018		% of Net Sales			February 28, 2017		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	22,435,260		94.4	%	$	17,191,551		93.2	%	$	5,243,709			30.5	%
Net sales, to joint ventures		1,321,753		5.6	%		1,253,375		6.8	%		68,378			5.5	%
Cost of goods sold		15,901,306		66.9	%		12,482,952		67.7	%		3,418,354			27.4	%
Equity in income from joint ventures		3,547,325		14.9	%		2,657,143		14.4	%		890,182			33.5	%
Fees for services provided to joint ventures		3,116,032		13.1	%		2,499,619		13.6	%		616,413			24.7	%
Selling expenses		5,243,585		22.1	%		4,285,566		23.2	%		958,019			22.4	%
General and administrative expenses		4,024,961		16.9	%		4,314,308		23.4	%		(289,347	)		(6.7	)%
Research and development expenses		1,721,477		7.2	%		1,384,559		7.5	%		336,918			24.3	%

Net Sales. NTIC’s consolidated net sales increased 39.7% and 28.8% to $12,213,975 and $23,757,013 during the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February 28, 2017. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased 37.2% and 30.5% to $11,399,853 and $22,435,260 during the three and six months ended February 28, 2018, respectively, compared to the same respective periods in fiscal 2017. These increases were primarily a result of increased demand from the addition of new customers in North America and China and an increase in sales of Natur-Tec® products. Net sales to joint ventures increased 87.9% and 5.5% to $814,122 and $1,321,753, respectively, during the three and six months ended February 28, 2018 compared to the same respective periods in fiscal 2017. These increases were primarily a result of increased demand.

The following table sets forth NTIC’s net sales by product segment for the six months ended February 28, 2018 and 2017 by segment:

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

During the three and six months ended February 28, 2018, 83.4% and 83.0% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST^® products and services, which increased 41.0% and 28.8% to $10,191,459 and $19,719,196 during the three and six months ended February 28, 2018, respectively, compared to $7,228,027 and $15,312,705 during the three and six months ended February 28, 2017, respectively. These increases were due to increased demand from existing customers and the addition of new customers primarily in the industrial market, partially offset by a decrease in ZERUST^® joint venture net sales and ZERUST^® oil and gas net sales. 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.

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The following table sets forth NTIC’s net sales of ZERUST^® products for the three and six months ended February 28, 2018 and 2017:

	Three Months Ended
	February 28, 2018		February 28, 2017		$ Change		% Change
ZERUST® industrial net sales	$	8,798,319	$	6,588,801	$	2,209,518		33.5	%
ZERUST® joint venture net sales		814,122		433,317		380,805		87.9	%
ZERUST® oil & gas net sales		579,018		205,909		373,109		181.2	%
Total ZERUST® net sales	$	10,191,459	$	7,228,027	$	2,963,432		41.0	%

	Six Months Ended
	February 28, 2018		February 28, 2017		$ Change			% Change
ZERUST® industrial net sales	$	17,534,583	$	13,107,090	$	4,427,493			33.8	%
ZERUST® joint venture net sales		1,321,753		1,253,375		68,378			5.5	%
ZERUST® oil & gas net sales		862,860		952,240		(89,380	)		(9.4	)%
Total ZERUST® net sales	$	19,719,196	$	15,312,705	$	4,406,491			28.8	%

NTIC’s net sales to the oil and gas industry sector during the three months and six months ended February 28, 2018 compared to the prior fiscal year periods continue to be very volatile due to the average order size and the timing of sales. 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. Demand for oil and gas 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 oil and gas products, the timing of one or more orders can materially affect NTIC’s quarterly sales compared to prior fiscal year quarters.

During the three and six months ended February 28, 2018, 16.6 % and 17.0% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, which increased 33.5% and 28.9% to $2,022,516 and $4,037,817 during the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February 28, 2017. 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. Cost of goods sold increased 36.5% and 27.4% for the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February 28, 2017. 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 65.6% during the three months ended February 28, 2018 compared to 67.1% the three months ended February 28, 2017 and decreased to 66.9% during the six months ended February 28, 2018 compared to 67.7% during the six months ended February 28, 2017. 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 from Joint Ventures. NTIC’s equity in income from joint ventures increased 30.6% and 33.5% to $1,805,997 and $3,547,325 during the three and six months ended February 28, 2018, respectively, compared to $1,383,139 and $2,657,143 during the three and six months ended February 28, 2017, respectively. These increases were primarily a result of improved profitability at the joint ventures. Of the total equity in income from joint ventures, NTIC had equity in income from joint ventures of $2,580,571 attributable to EXCOR during the six months ended February 28, 2018 compared to $2,006,441 during the six months ended February 28 2017. NTIC had equity in income of all other joint ventures of $966,754 during the six months ended February 28, 2018 compared to $650,702 during the six months ended February 28, 2017.

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Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,608,890 and $3,116,032 during the three and six months ended February 28, 2018, respectively, compared to $1,184,028 and $2,499,619 during the three and six months ended February 28, 2017, respectively, representing increases of 35.9% and 24.7%, respectively. Fee income for services provided to joint ventures is traditionally a function of the sales made by NTIC’s joint ventures. Total net sales of NTIC’s joint ventures increased to $30,220,550 and $58,719,261 during the three and six months ended February 28, 2018, respectively, compared to $22,962,599 and $47,163,046 during the three and six months ended February 28, 2017, respectively, representing increases of $7,257,951 and $11,556,215, respectively. Net sales of NTIC’s joint ventures are not included in NTIC’s consolidated financial statements. Of the total fee income for services provided to joint ventures, fees of $456,574 were attributable to EXCOR during the six months ended February 28, 2018 compared to $402,509 attributable to EXCOR during the six months ended February 28, 2017.

Selling Expenses. NTIC’s selling expenses increased 17.7% and 22.4% for the three and six months ended February 28, 2018, respectively, compared to the same respective periods in fiscal 2017 due primarily to increases in operating expenses associated with ZERUST® sales efforts, consisting primarily of selling and personnel expense. Selling expenses as a percentage of net sales decreased slightly to 21.6% and 22.1% for the three and six months ended February 28, 2018, respectively, from 25.7% and 23.2% for the three and six months ended February 28, 2017, respectively, primarily due to the increase in selling expenses offset by the increase in sales, as previously described.

General and Administrative Expenses. NTIC’s general and administrative expenses decreased 2.0% and 6.7% for the three and six months ended February 28, 2018, respectively, compared to the same respective periods in fiscal 2017 primarily due to cost savings initiatives related to personnel costs and decreased legal expenses. As a percentage of net sales, general and administrative expenses decreased to 14.8% and 16.9% for the three and six months ended February 28, 2018, respectively, from 21.1% and 23.4% for the same respective periods in fiscal 2017, respectively. The decreases in general and administrative expenses as a percentage of net sales for the three and six-month comparisons were due primarily to the increase in net sales and decreases in general and administrative expenses, as previously described.

Research and Development Expenses. NTIC’s research and development expenses increased 24.4% and 24.3% for the three and six months ended February 28, 2018, respectively, compared to the same respective periods in fiscal 2017 due primarily to increased research and development activities during the current fiscal year periods.

Interest Income. NTIC’s interest income increased to $24,883 and $48,939 during the three and six months ended February 28, 2018, respectively, compared to $4,516 and $8,079 during the three and six months ended February 28, 2017, respectively, due to increased levels of invested cash.

Interest Expense. NTIC’s interest expense increased to $5,779 and $10,868 during the three and six months ended February 28, 2018, respectively, compared to $3,470 and $8,093 during the three and six months ended February 28, 2017, respectively.

Income Before Income Tax Expense. NTIC incurred income before income tax expense equal to $2,263,532 and $3,567,112 for the three and six months ended February 28, 2018, respectively, compared to $609,883 and $1,134,289 for the three and six months ended February 28, 2017, respectively.

Income Tax Expense. Income tax expense was $841,909 and $946,900 for the three and six months ended February 28, 2018, respectively, compared to income tax expense of $124,909 and $242,622 during the three and six months ended February 28, 2017, respectively. Income tax expense is calculated based on management’s estimate of NTIC’s annual effective income tax rate. The effective tax rate for the three and six months ended February 28, 2018 was 37.2% and 26.5%, respectively, compared to 20.5% and 21.3% for the three and six months ended February 28, 2017, respectively. These increases were primarily due to one-time provisional adjustments related to the Tax Reform Act. The Tax Reform Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, generally eliminated U.S. federal income taxes on dividends received from foreign subsidiaries and joint ventures after December 31, 2017, and imposed a one-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries and joint ventures. As a result of the change in the tax law, a one-time non-cash tax provisional charge of $700,000 related to the re-measurement of deferred tax assets and liabilities was recorded in the three months ended February 28, 2018. The impact of this non-cash tax charge increased NTIC’s effective rate by approximately 30.3% for the three months ended February 28, 2018. The $700,000 income tax expense and corresponding decrease in net deferred tax assets represents a provisional estimate based on NTIC’s current interpretation of the Tax Reform Act and may change as NTIC receives additional clarification and implementation guidance. NTIC continues to analyze the impact of other provisions of the Tax Reform Act on its financial statements and operations, including the impact of the global intangible low-taxed income (GILTI) rules, and the impact of the Tax Reform Act on NTIC’s indefinite reinvestment assertion with respect to the undistributed earnings of certain foreign subsidiaries and joint ventures. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB No. 118.

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Net Income Attributable to NTIC. Net income attributable to NTIC increased to $1,332,847, or $0.29, per diluted common share, for the three months ended February 28, 2018 compared to $386,966, or $0.09, per diluted common share, for the three months ended February 28, 2017, an increase of $945,881 or $0.20 per diluted share. Net income attributable to NTIC increased to $2,416,473, or $0.52 per diluted common share, for the six months ended February 28, 2018 compared to $684,605, or $0.15 per diluted common share, for the six months ended February 28, 2017, an increase of $1,731,868 or $0.37 per diluted share. These increases were primarily the result of the increases in net sales and corresponding gross profit, as well as the increases in income from joint venture operations. These increases were partially offset by the significant impact of the $700,000 one-time provisional adjustment related to the Tax Reform Act and the increase in operating expenses. As previously mentioned, the impact from the enactment of the Tax Reform Act was driven by the provisional re-measurement of deferred tax assets and liabilities, which resulted in a non-cash discrete tax charge of $700,000. Excluding the impact of the Tax Reform Act, net income attributable to NTIC would have been $1,645,881 higher than the net income attributable to NTIC for the three months ended February 28, 2018 and would have been $2,431,868 higher than the net income attributable to NTIC for the six months ended February 28, 2018.

Other Comprehensive Income - Foreign Currency Translations Adjustment. The changes in the foreign currency translations adjustment was due to the fluctuations of the U.S. dollar compared to the Euro and other foreign currencies during the three and six months ended February 28, 2018 compared to the same period in fiscal 2017.

Liquidity and Capital Resources

Sources of Cash and Working Capital. NTIC’s working capital was $22,241,306 at February 28, 2018, including $5,067,087 in cash and cash equivalents and $3,268,426 in available for sale securities, compared to $21,173,001 at August 31, 2017, including $6,360,201 in cash and cash equivalents and $3,766,984 in available for sale securities.

As of February 28, 2018, NTIC had a revolving line of credit with PNC Bank of $3,000,000, with no amounts outstanding. The line of credit is evidenced by an amended and restated committed line of credit note in the principal amount of up to $3,000,000. The line of credit has a $1,200,000 standby letter of credit sub-facility, with any standby letters of credit issued thereunder being at the sole discretion of PNC Bank. Any lines of credit issued by PNC Bank would decrease the availability under the revolving line of credit.

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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 February 28, 2018, NTIC was in compliance with all debt covenants.

On January 5, 2018, NTIC and PNC Bank extended the maturity date of the line of credit from January 7, 2018 to January 7, 2019. 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.

NTIC believes that a combination of its existing cash and cash equivalents, available for sale securities, 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, cash dividends and any stock repurchases for at least the next 12 months. During the remainder of fiscal 2018, NTIC expects to continue to invest in NTIC China, research and development and in marketing efforts and resources for the application of its corrosion prevention technology in the oil and gas industry and its Natur-Tec® bio-plastics business, although the amounts of these various investments are not known at this time. In order to take advantage of such new product and market opportunities to expand its business and increase its revenues, NTIC may decide to finance such opportunities by borrowing under its revolving line of credit or raising additional financing through the issuance of debt or equity securities. There is no assurance that any financing transaction will be available on terms acceptable to NTIC or at all, or that any financing transaction will not be dilutive to NTIC’s current stockholders.

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

Uses of Cash and Cash Flows. Net cash used in operating activities during the six months ended February 28, 2018 was $516,199, which resulted principally from NTIC’s equity in income from joint ventures, increases in trade receivables excluding joint ventures, inventories, prepaid expenses and other, and accrued liabilities, partially offset by NTIC’s net income, dividends received from joint ventures, and increases in accounts payable, depreciation and amortization. Net cash used in operating activities during the six months ended February 28, 2017 was $823,425, which resulted principally from NTIC’s equity in income from joint ventures, increases in trade receivables, inventory, prepaid expenses and income tax payable, partially offset by NTIC’s net income, dividends received from joint ventures, depreciation and amortization.

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

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NTIC experienced an increase in trade receivables and inventory as of February 28, 2018 compared to August 31, 2017. Trade receivables excluding joint ventures as of February 28, 2018 increased $2,397,412 compared to August 31, 2017, primarily related to the timing of collections and the increase in sales.

Outstanding trade receivables excluding joint ventures balances as of February 28, 2017 increased 10 days to an average of 66 days from balances outstanding from these customers as of August 31, 2017.

Outstanding trade receivables from joint ventures as of February 28, 2018 decreased $244,372 compared to August 31, 2017 primarily due to the timing of payments. Outstanding balances from trade receivables from joint ventures decreased an average of 8 days from an average of 58 days from balances outstanding from these customers compared to August 31, 2017. The average days outstanding of trade receivables from joint ventures as of February 28, 2018 were primarily due to the receivables balances at NTIC’s joint ventures in South Korea and Thailand.

Outstanding receivables for services provided to joint ventures as of February 28, 2018 increased $62,381 compared to August 31, 2017, which resulted in an decrease of 3 days of fees receivable outstanding as of February 28, 2018 to an average of 76 days compared to August 31, 2017.

Net cash provided by investing activities for the six months ended February 28, 2018 was $246,587, which was primarily the result of proceeds from the sale of available for sale securities, partially offset by additions to property and equipment, and additions to patents. Net cash provided by investing activities for the six months ended February 28, 2017 was $810,588, which was primarily the result of proceeds from the sale of available for sale securities, partially offset by additions to property and equipment and additions to patents.

Net cash used in financing activities for the six months ended February 28, 2018 was $1,079,346, which resulted from dividends paid on NTIC common stock and a dividend paid to a non-controlling interest, partially offset by proceeds from stock option exercises and purchases under NTIC’s employee stock purchase plan. Net cash used in financing activities for the six months ended February 28, 2017 was $315,207, which resulted from a dividend paid to a non-controlling interest and stock repurchases, partially offset by proceeds from purchases under 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. No repurchases occurred during the six months ended February 28, 2018. As of February 28, 2018, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Cash Dividends. On January 24, 2018, NTIC’s Board of Directors declared a cash dividend of $0.10 per share of NTIC’s common stock, paid on February 21, 2018 to stockholders of record on February 8, 2018. Although NTIC’s Board of Directors intends to declare regular quarterly cash dividends going forward, the declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions and other factors.

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Capital Expenditures and Commitments. NTIC spent $207,350 on capital expenditures during the six months ended February 28, 2018, which related primarily to the purchase of new equipment. NTIC expects to spend an aggregate of approximately $300,000 to $600,000 on capital expenditures during fiscal 2018, 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, 2017.

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.

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 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 from joint ventures reflected in its consolidated statements of operations. 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 February 28, 2018, NTIC had no borrowings under the line of credit.

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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, 2017.

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.”

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:

· 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 from 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 United Kingdom’s process 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;

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

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

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

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

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

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

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

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

· NTIC’s reliance upon suppliers;

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

· 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 all these events on NTIC’s business and future operating results;

· 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, including from the recently enacted Tax Cuts and Jobs Act;

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· Effect of extreme weather conditions on NTIC’s operating results; 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, 2017 under the heading “Part I. Item 1A. Risk Factors.”

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

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 from joint ventures reflected in its consolidated statements of operations. 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 February 28, 2018, NTIC had no borrowings under the line of credit.

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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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to NTIC’s management, including NTIC’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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 February 28, 2018 that has materially affected, or is reasonably likely to materially affect NTIC’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 23, 2015, NTIC and NTI Asean LLC (NTI Asean), 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. (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. At this point it is too early in the lawsuit to reasonably estimate the amount of any recovery to NTI Asean, if any.

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 February 28, 2018, 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 second quarter of fiscal 2018 stock repurchase activity.

Period	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)	Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
December 1, 2017 through December 31, 2017	0	$0	0	(1)
January 1, 2018 through January 31, 2018	0	$0	0	(1)
February 1, 2018 through February 28, 2018	0	$0	0	(1)
Total	0	$0	0	(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 February 28, 2018, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

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

Exhibit No.	Item	Method of Filing
3.1	Certificate of Amendment to the Restated Certificate of Incorporation of Northern Technologies International Corporation dated January 16, 2018	Incorporated by reference to Exhibit 3.1 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 16, 2018 (File No. 001-11038)
10.1	Letter Agreement effective as of January 5, 2018 between PNC Bank, National Association and Northern Technologies International Corporation	Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2017 (File No. 001-11038)
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

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Exhibit No.	Item	Method of Filing
101	The following materials from NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2018, 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 (Loss), (iv) the unaudited Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements	Filed herewith

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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: April 16, 2018	Matthew C. Wolsfeld, CPA
	Chief Financial Officer
	(Principal Financial and Accounting Officer and
	Duly Authorized to Sign on Behalf of the Registrant)

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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: April 16, 2018	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: April 16, 2018	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 February 28, 2018 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

April 16, 2018

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 February 28, 2018 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)

Circle Pines, Minnesota

April 16, 2018

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Document And Entity Information - shares	6 Months Ended
	Feb. 28, 2018	Apr. 13, 2018
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)		4,537,408
Document Type	10-Q
Document Period End Date	Feb. 28, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
CURRENT ASSETS:
Cash and cash equivalents	$ 5,067,087	$ 6,360,201
Available for sale securities	3,268,426	3,766,984
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $50,000 at February 28, 2018 and $40,000 at August 31, 2017	8,310,043	5,912,631
Trade joint ventures	447,380	691,752
Fees for services provided to joint ventures	1,365,325	1,302,944
Income taxes	309,379	137,256
Inventories	9,126,171	7,456,552
Prepaid expenses	1,024,652	439,298
Total current assets	28,918,463	26,067,618
PROPERTY AND EQUIPMENT, NET	7,155,946	7,359,662
OTHER ASSETS:
Investments in joint ventures	22,259,526	20,035,074
Deferred income taxes	1,056,565	1,756,565
Patents and trademarks, net	1,241,618	1,322,089
Other		71,685
Total other assets	24,557,709	23,185,413
Total assets	60,632,118	56,612,693
CURRENT LIABILITIES:
Accounts payable	4,266,257	2,676,610
Income taxes payable	342,853
Accrued liabilities:
Payroll and related benefits	1,437,921	1,540,386
Other	677,126	677,621
Total current liabilities	6,724,157	4,894,617
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 February 28, 2018 and 10,000,000 shares as of August 31, 2017; issued and outstanding 4,537,408 and 4,535,018, respectively	90,748	90,700
Additional paid-in capital	14,397,851	14,163,509
Retained earnings	38,586,704	37,077,483
Accumulated other comprehensive loss	(2,070,752)	(2,471,064)
Stockholders’ equity	51,004,551	48,860,628
Non-controlling interest	2,903,410	2,857,448
Total equity	53,907,961	51,718,076
Total liabilities and equity	$ 60,632,118	$ 56,612,693

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
Trade allowance	$ 50,000	$ 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)	15,000,000	10,000,000
Common stock, shares issued (in shares)	4,537,408	4,535,018
Common stock, shares outstanding (in shares)	4,537,408	4,535,018

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Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
NET SALES:
Net sales, excluding joint ventures	$ 11,399,853	$ 8,309,586	$ 22,435,260	$ 17,191,551
Net sales, to joint ventures	814,122	433,317	1,321,753	1,253,375
Total net sales	12,213,975	8,742,903	23,757,013	18,444,926
Cost of goods sold	8,012,836	5,870,186	15,901,306	12,482,952
Gross profit	4,201,139	2,872,717	7,855,707	5,961,974
JOINT VENTURE OPERATIONS:
Equity in income from joint ventures	1,805,997	1,383,139	3,547,325	2,657,143
Fees for services provided to joint ventures	1,608,890	1,184,028	3,116,032	2,499,619
Total joint venture operations	3,414,887	2,567,167	6,663,357	5,156,762
OPERATING EXPENSES:
Selling expenses	2,643,636	2,246,482	5,243,585	4,285,566
General and administrative expenses	1,805,216	1,842,528	4,024,961	4,314,308
Research and development expenses	922,746	742,037	1,721,477	1,384,559
Total operating expenses	5,371,598	4,831,047	10,990,023	9,984,433
OPERATING INCOME	2,244,428	608,837	3,529,041	1,134,303
INTEREST INCOME	24,883	4,516	48,939	8,079
INTEREST EXPENSE	(5,779)	(3,470)	(10,868)	(8,093)
INCOME BEFORE INCOME TAX EXPENSE	2,263,532	609,883	3,567,112	1,134,289
INCOME TAX EXPENSE	841,909	124,909	946,900	242,622
NET INCOME	1,421,623	484,974	2,620,212	891,667
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	88,776	98,008	203,739	207,062
NET INCOME ATTRIBUTABLE TO NTIC	$ 1,332,847	$ 386,966	$ 2,416,473	$ 684,605
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic (in dollars per share)	$ 0.29	$ 0.09	$ 0.53	$ 0.15
Diluted (in dollars per share)	$ 0.29	$ 0.09	$ 0.52	$ 0.15
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic (in shares)	4,537,408	4,525,091	4,537,368	4,527,555
Diluted (in shares)	4,673,338	4,562,024	4,641,042	4,559,485
CASH DIVIDENDS DECLARED PER COMMON SHARE (in dollars per share)	$ 0.10	$ 0	$ 0.20	$ 0

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
NET INCOME	$ 1,421,623	$ 484,974	$ 2,620,212	$ 891,667
OTHER COMPREHENSIVE INCOME (LOSS) – FOREIGN CURRENCY TRANSLATION ADJUSTMENT	467,761	230,991	442,535	(1,019,821)
COMPREHENSIVE INCOME (LOSS)	1,889,384	715,965	3,062,747	(128,154)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	109,046	132,829	245,962	193,200
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC	$ 1,780,338	$ 583,136	$ 2,816,785	$ (321,354)

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,620,212	$ 891,667
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation	206,534	195,832
Depreciation expense	418,562	385,583
Amortization expense	125,092	59,517
Equity in income from joint ventures	(3,547,325)	(2,657,143)
Deferred income taxes	700,000	24,987
Dividends received from joint ventures	1,770,116	564,934
Changes in current assets and liabilities:
Trade, excluding joint ventures	(2,292,004)	(1,177,496)
Trade, joint ventures	244,372	329,321
Fees for services provided to joint ventures	(62,381)	164,018
Income taxes	(178,998)	(16,484)
Inventories	(1,631,734)	(349,600)
Prepaid expenses and other	(504,848)	(103,671)
Accounts payable	1,669,859	915,538
Income tax payable	139,991	(91,282)
Accrued liabilities	(193,647)	40,854
Net cash used in operating activities	(516,199)	(823,425)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available for sale securities	498,558	1,495,610
Additions to property and equipment	(207,350)	(599,063)
Additions to patents	(44,621)	(85,959)
Net cash provided by investing activities	246,587	810,588
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest	(200,000)	(200,000)
Repurchase of common stock		(148,162)
Dividends paid on NTIC common stock	(907,252)
Proceeds from option exercises	15,375
Proceeds from employee stock purchase plan	12,481	32,955
Net cash used in financing activities	(1,079,396)	(315,207)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:	55,894	(18,282)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(1,293,114)	(346,326)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	6,360,201	3,395,274
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 5,067,087	$ 3,048,948

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Note 1 - Interim Financial Information

6 Months Ended

Feb. 28, 2018

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

February 28, 2018

and

August 31, 2017

and the results of their operations for the

three

and

six

months ended

February 28, 2018

and

2017

and their cash flows for the

six

months ended

February 28, 2018

and

2017,

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, 2017.

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

six

months ended

February 28, 2018

are

not

necessarily indicative of the results that

may

be expected for the full fiscal year ending

August 31, 2018.

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

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Note 2 - Accounting Pronouncements

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

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

2.

       

Accounting PronouncementS

Recently Issued Accounting Pronouncements

In

May 2014,

the FASB issued

Revenue from Contracts with Customers, Topic

606

(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 fiscal

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.

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 guidance will be effective for the Company’s

first

quarter of fiscal

2020.

The Company is currently assessing the effect that ASU

No.

2016

-

02

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 after

December 15, 2017.

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

2016

-

15

on its consolidated financial statements.

In

February 2018,

the FASB issued ASU

No.

2018

-

02,

Income Statement – Reporting Comprehensive Income (Topic

220

) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Cuts and Jobs Act (Tax Reform Act) that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. ASU

2018

-

2,

however, does

not

change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU

2018

-

02

will be effective for the Company’s fiscal year

2020,

with the option to early adopt at any time prior to the effective date. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company is currently assessing the impact this new accounting guidance will have on its consolidated financial statements.

In

December 2017,

the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB)

No.

118

(as further clarified by FASB ASU

2018

-

05,

Income Taxes

(Topic

740

): “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin

No.

118”

) to provide guidance for companies that

may

not

have completed their accounting for the income tax effects of the Tax Reform Act in the period of enactment, which is the period that includes

December 22, 2017.

SAB

No.

118

provides for a provisional

one

year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Reform Act. SAB

No.

118

provides guidance where: (i) the accounting for the income tax effect of the Tax Reform Act is complete and reported in the Tax Reform Act’s enactment period, (ii) the accounting for the income tax effect of the Tax Reform Act is incomplete and reported as provisional amounts based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period until complete, and (iii) accounting for the income tax effect of the Tax Reform Act is

not

reasonably estimable (

no

related provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on tax law provisions in effect prior to the Tax Reform Act enactment until provisional amounts are reasonably estimable. SAB

No.

118

requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among other relevant information (see Note

15

- Income Taxes).

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

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Inventory Disclosure [Text Block]

3.

       INVENTORIES

Inventories consisted of the following:

	February 28, 2018		August 31, 2017
Production materials	$	1,820,942	$	1,747,189
Finished goods		7,305,229		5,709,363
	$	9,126,171	$	7,456,552

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Note 4 - Property and Equipment, Net

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.

       PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	February 28, 2018			August 31, 2017
Land	$	310,365		$	310,365
Buildings and improvements		6,815,771			6,847,177
Machinery and equipment		4,414,136			4,171,387
		11,540,272			11,328,929
Less accumulated depreciation		(4,384,326	)		(3,969,267	)
	$	7,155,946		$	7,359,662

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Note 5 - Patents and Trademarks, Net

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

5.

       PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	February 28, 2018			August 31, 2017
Patents and trademarks	$	2,782,580		$	2,737,959
Less accumulated amortization		(1,540,962	)		(1,415,870	)
	$	1,241,618		$	1,322,089

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

$240,000

in each of the next

five

fiscal years.

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Note 6 - Investments in Joint Ventures

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

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 recorded that remain on the balance sheet 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 venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR) and all the Company’s other joint ventures, are summarized as follows:

	As of February 28, 2018
	Total		EXCOR		All Other
Current assets	$	57,427,392	$	25,206,550	$	32,220,842
Total assets		61,497,315		27,326,727		34,170,588
Current liabilities		16,468,617		4,148,371		12,320,246
Noncurrent liabilities		120,481		—		120,481
Joint ventures’ equity		44,908,217		23,178,356		21,729,861
Northern Technologies International Corporation’s share of joint ventures’ equity		22,259,526		11,589,180		10,670,346
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	20,230,286	$	11,558,275	$	8,672,011
Northern Technologies International Corporation’s dividends received from joint ventures	$	1,770,116	$	1,199,142	$	570,974

	Three Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	30,220,550	$	12,204,736	$	18,015,814
Gross profit		13,531,276		6,557,964		6,973,312
Net income		3,712,684		2,674,777		1,037,907
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,805,997	$	1,338,671	$	467,326

	Six Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	58,719,261	$	23,231,250	$	35,488,011
Gross profit		26,319,398		12,491,490		13,827,908
Net income		7,212,499		5,158,577		2,053,922
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	3,547,325	$	2,580,571	$	966,754

	As of August 31, 2017
	Total		EXCOR		All Other
Current assets	$	51,518,210	$	22,142,514	$	29,375,696
Total assets		55,633,891		24,301,194		31,332,697
Current liabilities		15,118,074		4,469,567		10,648,507
Noncurrent liabilities		181,210		—		181,210
Joint ventures’ equity		40,334,607		19,831,627		20,502,980
Northern Technologies International Corporation’s share of joint ventures’ equity		20,035,074		9,915,816		10,119,258
Northern Technologies International Corporation’s share of joint ventures’   undistributed earnings		17,960,860		9,884,911		8,075,949
Northern Technologies International Corporation’s dividends received from joint ventures	$	6,377,054	$	5,379,062	$	997,992

	Three Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	22,962,599	$	9,076,908	$	13,885,691
Gross profit		10,161,509		4,867,517		5,293,992
Net income		2,774,943		2,161,408		613,535
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,383,139	$	1,078,272	$	304,867

	Six Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	47,163,046	$	18,285,432	$	28,877,614
Gross profit		20,858,536		9,761,696		11,096,840
Net income		5,182,951		4,017,746		1,165,205
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	2,657,143	$	2,006,441	$	650,702

The Company did

not

make any joint venture investments during the

six

months ended

February 28, 2018

or

2017.

XML

Note 7 - Corporate Debt

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

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 both

February 28, 2018

and

August 31, 2017.

At the option of the Company, outstanding advances under the line of credit bear interest at either (a) an annual rate based on LIBOR plus

2.15%

for the applicable LIBOR interest period selected by the Company or (b) at the rate publicly announced by PNC Bank from time to time as its prime rate.

The line of credit is governed under a loan agreement. The loan agreement contains standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, the Company is subject to a minimum fixed charge coverage ratio of

1.10:1.00.

As of

February 28, 2018,

the Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to

$1,200,000.

The Company did

not

have any letters of credit reserved against the available letters of credit balance as of

February 28, 2018

and

August 31, 2017

with PNC Bank. The availability of advances under the line of credit will be reduced by the face amount of any letter of credit issued and outstanding (whether or

not

drawn) under the revolving credit facility. 

As of

February 28, 2018

and

August 31, 2017,

the Company had

$88,831

and

$89,543,

respectively, of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between

2020

and

2022.

On

January 5, 2018,

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

January 7, 2019.

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

XML

Note 8 - Stockholders' Equity

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

8.

       STOCKHOLDERS’ EQUITY

During the

six

months ended

February 28, 2018,

the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of the Company’s common stock:

Declaration Date	Amount	Record Date	Payable Date
November 20, 2017	$0.10	December 8, 2017	December 21, 2017
January 24, 2018	$0.10	February 8, 2018	February 21, 2018

During the

six

months ended

February 28, 2018,

the Company repurchased

no

shares of its common stock. During the

six

months ended

February 28, 2018,

stock options to purchase an aggregate of

1,500

shares of common stock were exercised at a weighted average exercise price of

$10.25

per share.

The Company granted stock options under the Northern Technologies International Corporation Amended and Restated

2007

Stock Incentive Plan (

2007

Plan) to purchase an aggregate of

47,252

shares of its common stock to various employees and directors during the

six

months ended

February 28, 2018.

The weighted average per share exercise price of the stock options is

$18.35,

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

The Company issued

891

and

3,029

shares of common stock on

September 1, 2017

and

2016,

respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP).

The Company held its

2018

Annual Meeting of Stockholders (

2018

Annual Meeting) on

January 12, 2018.

At the

2018

Annual Meeting, a proposal to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the Company’s authorized shares of common stock from

10,000,000

to

15,000,000

(Share Increase Amendment) was approved by the Company’s stockholders by the required vote. The Share Increase Amendment was filed with the Office of the Secretary of State of the State of Delaware on

January 16, 2018

and it became effective the same day. In determining that the Share Increase Amendment was approved by the required vote, votes cast by brokers, banks or other nominees without instruction from the beneficial owners of certain of our outstanding shares were counted in favor of the proposal in accordance with the rules of the New York Stock Exchange that govern how brokers

may

cast such votes. Because a disclosure in the definitive proxy statement for the

2018

Annual Meeting, which was filed on Schedule

14A

with the Securities and Exchange Commission (SEC) on

November 27, 2017 (

2018

Proxy Statement), anticipated that brokers would

not

have discretion to vote for the proposal to approve the Share Increase Amendment, a question has been raised as to the validity of the vote taken on the proposal to approve the Share Increase Amendment. The Company believes that the Share Increase Amendment was properly approved and is effective. However, because the description of the authority of brokers to vote on proposals without instruction in the

2018

Proxy Statement

may

create some uncertainty as to the effect of the vote obtained at the

2018

Annual Meeting and out of an abundance of caution, the Company intends to ask its stockholders at either a special meeting or the next annual meeting of the Company’s stockholders to ratify the filing and effectiveness of the Share Increase Amendment pursuant to Delaware law in order to eliminate any uncertainty related to the effectiveness of the Share Increase Amendment. The Company has

not

issued, or reserved for issuance, and will

not

issue, or reserve for issuance, any of the additional

5,000,000

authorized shares as part of the Share Increase Amendment unless the vote at the special or annual meeting of the Company’s stockholders is in favor of the ratification of the Share Increase Amendment.

During the

six

months ended

February 28, 2017,

the Company repurchased and retired

11,475

shares of its common stock at a price of

$12.92

per share.

No

stock options to purchase shares of common stock were exercised during the

six

months ended

February 28, 2017.

The Company granted stock options under the

2007

Plan to purchase an aggregate of

56,677

shares of its common stock to various employees and directors during the

six

months ended

February 28, 2017.

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.

XML

Note 9 - Net Income Per Common Share

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

9.

       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 earnings per share computation:

	Three Months Ended				Six Months Ended
Numerators:	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Net income attributable to NTIC	$	1,332,847	$	386,966	$	2,416,473	$	684,605
Denominators:
Basic – weighted shares outstanding		4,537,408		4,525,091		4,537,368		4,527,555
Weighted shares assumed upon exercise of stock options		135,930		36,933		103,674		31,930
Diluted – weighted shares outstanding		4,673,338		4,562,024		4,641,042		4,559,485
Basic income per share:	$	0.29	$	0.09	$	0.53	$	0.15
Diluted income per share:	$	0.29	$	0.09	$	0.52	$	0.15

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

no

shares excluded from the computation of diluted income per share for the

three

and

six

months ended

February 28, 2018.

Excluded from the computation of diluted earnings per share for the

three

and

six

months ended

February 28, 2017

were options outstanding to purchase

48,067

shares of common stock.

XML

Note 10 - Stock-based Compensation

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

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

10.

       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 (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

February 28, 2018,

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

47,252

and

56,677

shares of its common stock during the

six

months ended

February 28, 2018

and

2017,

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

$206,534

and

$195,832

during the

six

months ended

February 28, 2018

and

2017,

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

February 28, 2018,

the total compensation cost for nonvested options

not

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

$425,669.

Stock-based compensation expense of

$206,534

is expected through the remainder of fiscal year

2018,

and

$153,901

and

$65,234

is expected to be recognized during fiscal

2019

and fiscal

2020,

respectively, based on outstanding options as of

February 28, 2018.

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:

	Three and Six months ended
	February 28, 2018	February 28, 2017
Dividend yield	2.18%	0.00%
Expected volatility	45.9%	46.4%
Expected life of option (in years)	10	10
Average risk-free interest rate	1.87%	1.63%

The weighted average per share fair value of options granted during the

six

months ended

February 28, 2018

and

2017

was

$7.75

and

$7.69,

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

February 28, 2018

and

2017

was

6.75

years and

6.91

years, respectively.

XML

Note 11 - Segment and Geographical Information

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

11.

       SEGMENT AND GEOGRAPHICAL INFORMATION

Segment Information

The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company’s business is organized into

two

reportable segments: ZERUST® and Natur-Tec®. The Company has been selling its proprietary ZERUST® rust and corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over

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

six

months ended

February 28, 2018

and

2017

by segment:

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

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

three

and

six

months ended

February 28, 2018

and

2017

by segment:

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

___________________________________

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

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

not

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

Geographic Information

Net sales by geographic location for the

three

and

six

months ended

February 28, 2018

and

2017

were as follows:

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

Net sales by geographic location are based on the location of the customer.

Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to joint ventures during the

three

and

six

months ended

February 28, 2018

and

2017

were as follows:

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

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

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

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

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

Total property and equipment are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets.

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

not

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

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

®

products and services.

XML

Note 12 - Commitments and Contingencies

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

12.

       COMMITMENTS AND CONTINGENCIES

On

August 31, 2017,

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, 2018.

For fiscal

2018

as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the Company. In the case of each of the Company’s executive officer participants,

75%

of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal

2018

compared to a pre-established target EBITOI for fiscal

2018

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

2018.

There was

$880,000

accrued for management bonuses for the

six

months ended

February 28, 2018

compared to

$185,000

accrued for management bonuses for the

six

months ended

February 28, 2017.

Three joint ventures (consisting of the Company’s joint ventures in South Korea, India and United States) accounted for

69.8%

of the Company’s trade joint venture receivables at

February 28, 2018

and

three

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

60.7%

of the Company’s trade joint venture receivables at

August 31, 2017.

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when

no

amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is

not

probable or the amount is

not

estimable, or both, if there is a reasonable possibility that material loss

may

have been incurred. In the opinion of management, as of

February 28, 2018,

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 13 - Fair Value Measurements

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

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. 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 February 28, 2018		Level 1		Level 2		Level 3
Available for sale securities	$	3,268,426	$	3,268,426	$	—	$	—

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	3,766,984	$	3,766,984	$	—	$	—

There were

no

transfers between Level

1,

Level

2,

or Level

3

during the

three

and

six

months ended

February 28, 2018

and

2017.

XML

Note 14 - Supplemental Cash Flow Information

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

14.

       SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information consisted of:

	Three Months Ended
	February 28, 2018		February 28, 2017
Cash paid for interest	$	5,779	$	3,470
Cash paid for income taxes	$	45,000		—

	Six Months Ended
	February 28, 2018		February 28, 2017
Cash paid for interest	$	10,868	$	8,093
Cash paid for income taxes	$	45,000		—

XML

Note 15 - Income Taxes

6 Months Ended

Feb. 28, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15.

       INCOME TAXES

On

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or Tax Reform Act. The Tax Reform Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending

August 31 2018,

including, but

not

limited to, reducing the U.S. federal corporate tax rate from

35%

to

21%

effective

January 1, 2018,

generally eliminating U.S. federal income taxes on dividends received from foreign subsidiaries and joint ventures after

December 31, 2017,

and imposing a

one

-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries and joint ventures. The Company will be subject to a blended U.S. federal tax rate of

25.7%

for the fiscal year ending

August 31, 2018

as a result of the reduction of the U.S. federal corporate tax rate from

35%

to

21%

effective

January 1, 2018.

The Company recognized the income tax effects of the Tax Reform Act in its

2018

interim consolidated financial statements in accordance with SAB

No.

118,

which provides SEC staff guidance for the application of ASC Topic

740,

Income Taxes

, in the reporting period in which the Tax Reform Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the Tax Reform Act for which the accounting under ASC Topic

740

is complete and provisional amounts for those specific income tax effects of the Tax Reform Act for which the accounting under ASC Topic

740

is incomplete but a reasonable estimate could be determined.

The Company recorded income tax expense during the

three

and

six

months ended

February 28, 2018

of

$841,909

and

$946,900,

respectively, compared to

$124,909

and

$242,622

for the

three

and

six

months ended

February 28, 2017.

The Company’s effective tax rate for the

three

and

six

months ended

February 28, 2018

was

37.2%

and

26.5%,

respectively, compared to

20.5%

and

21.3%

for the

three

and

six

months ended

February 28, 2017,

respectively.

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax rate from

35%

to

21%

effective

January 1, 2018,

resulting in an increase of

$700,000

in income tax expense for the

three

months ended

February 28, 2018

and a corresponding decrease of

$700,000

in net deferred tax assets as of

February 28, 2018.

The

$700,000

income tax expense and corresponding decrease in net deferred tax assets represents a provisional estimate based on the Company’s current interpretation of the Tax Reform Act and

may

change as the Company receives additional clarification and implementation guidance.

The

one

-time deemed repatriation tax is applicable to the unremitted earnings of the Company’s foreign subsidiaries and joint ventures. The Company calculated deemed repatriation tax of

$489,000,

which the Company expects to fully offset with foreign tax credit carryforwards for which the Company has

not

previously recognized a tax benefit. As a result, the transition tax resulted in

zero

increase in income tax expense and income taxes payable for the

three

months ended

February 28, 2018.

The

$489,000

transition tax on deemed repatriation of unremitted foreign earnings represents a provisional estimate and is subject to adjustment during the measurement period of up to

one

year following the

December 2017

enactment date of the Tax Reform Act, as provided by recent SEC guidance.

The Company continues to analyze the impact of other provisions of the Tax Reform Act on its financial statements and operations, including the impact of the global intangible low-taxed income (GILTI) rules, and the impact of the Tax Reform Act on the Company’s indefinite reinvestment assertion with respect to the undistributed earnings of certain foreign subsidiaries and joint ventures. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB

No.

118.

XML

Note 3 - Inventories (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	February 28, 2018		August 31, 2017
Production materials	$	1,820,942	$	1,747,189
Finished goods		7,305,229		5,709,363
	$	9,126,171	$	7,456,552

XML

Note 4 - Property and Equipment, Net (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	February 28, 2018			August 31, 2017
Land	$	310,365		$	310,365
Buildings and improvements		6,815,771			6,847,177
Machinery and equipment		4,414,136			4,171,387
		11,540,272			11,328,929
Less accumulated depreciation		(4,384,326	)		(3,969,267	)
	$	7,155,946		$	7,359,662

XML

Note 5 - Patents and Trademarks, Net (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

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

	February 28, 2018			August 31, 2017
Patents and trademarks	$	2,782,580		$	2,737,959
Less accumulated amortization		(1,540,962	)		(1,415,870	)
	$	1,241,618		$	1,322,089

XML

Note 6 - Investments in Joint Ventures (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

Condensed Balance Sheet [Table Text Block]

	As of February 28, 2018
	Total		EXCOR		All Other
Current assets	$	57,427,392	$	25,206,550	$	32,220,842
Total assets		61,497,315		27,326,727		34,170,588
Current liabilities		16,468,617		4,148,371		12,320,246
Noncurrent liabilities		120,481		—		120,481
Joint ventures’ equity		44,908,217		23,178,356		21,729,861
Northern Technologies International Corporation’s share of joint ventures’ equity		22,259,526		11,589,180		10,670,346
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	20,230,286	$	11,558,275	$	8,672,011
Northern Technologies International Corporation’s dividends received from joint ventures	$	1,770,116	$	1,199,142	$	570,974

	As of August 31, 2017
	Total		EXCOR		All Other
Current assets	$	51,518,210	$	22,142,514	$	29,375,696
Total assets		55,633,891		24,301,194		31,332,697
Current liabilities		15,118,074		4,469,567		10,648,507
Noncurrent liabilities		181,210		—		181,210
Joint ventures’ equity		40,334,607		19,831,627		20,502,980
Northern Technologies International Corporation’s share of joint ventures’ equity		20,035,074		9,915,816		10,119,258
Northern Technologies International Corporation’s share of joint ventures’   undistributed earnings		17,960,860		9,884,911		8,075,949
Northern Technologies International Corporation’s dividends received from joint ventures	$	6,377,054	$	5,379,062	$	997,992

Condensed Income Statement [Table Text Block]

	Three Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	30,220,550	$	12,204,736	$	18,015,814
Gross profit		13,531,276		6,557,964		6,973,312
Net income		3,712,684		2,674,777		1,037,907
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,805,997	$	1,338,671	$	467,326

	Six Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	58,719,261	$	23,231,250	$	35,488,011
Gross profit		26,319,398		12,491,490		13,827,908
Net income		7,212,499		5,158,577		2,053,922
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	3,547,325	$	2,580,571	$	966,754

	Three Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	22,962,599	$	9,076,908	$	13,885,691
Gross profit		10,161,509		4,867,517		5,293,992
Net income		2,774,943		2,161,408		613,535
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,383,139	$	1,078,272	$	304,867

	Six Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	47,163,046	$	18,285,432	$	28,877,614
Gross profit		20,858,536		9,761,696		11,096,840
Net income		5,182,951		4,017,746		1,165,205
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	2,657,143	$	2,006,441	$	650,702

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Note 8 - Stockholders' Equity (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

Dividends Declared [Table Text Block]

Declaration Date	Amount	Record Date	Payable Date
November 20, 2017	$0.10	December 8, 2017	December 21, 2017
January 24, 2018	$0.10	February 8, 2018	February 21, 2018

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Note 9 - Net Income Per Common Share (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

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

	Three Months Ended				Six Months Ended
Numerators:	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Net income attributable to NTIC	$	1,332,847	$	386,966	$	2,416,473	$	684,605
Denominators:
Basic – weighted shares outstanding		4,537,408		4,525,091		4,537,368		4,527,555
Weighted shares assumed upon exercise of stock options		135,930		36,933		103,674		31,930
Diluted – weighted shares outstanding		4,673,338		4,562,024		4,641,042		4,559,485
Basic income per share:	$	0.29	$	0.09	$	0.53	$	0.15
Diluted income per share:	$	0.29	$	0.09	$	0.52	$	0.15

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Note 10 - Stock-based Compensation (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

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

	Three and Six months ended
	February 28, 2018	February 28, 2017
Dividend yield	2.18%	0.00%
Expected volatility	45.9%	46.4%
Expected life of option (in years)	10	10
Average risk-free interest rate	1.87%	1.63%

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Note 11 - Segment and Geographical Information (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

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

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

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

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

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

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

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

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

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

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

Fees for Services Provided to Joint Ventures [Member]

Notes Tables

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

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

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

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Note 13 - Fair Value Measurements (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

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

			Fair Value Measurements Using Inputs Considered as
	Fair value as of February 28, 2018		Level 1		Level 2		Level 3
Available for sale securities	$	3,268,426	$	3,268,426	$	—	$	—

			Fair Value Measurements Using Inputs Considered as
	Fair value as of August 31, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	3,766,984	$	3,766,984	$	—	$	—

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Note 14 - Supplemental Cash Flow Information (Tables)

6 Months Ended

Feb. 28, 2018

Notes Tables

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

	Three Months Ended
	February 28, 2018		February 28, 2017
Cash paid for interest	$	5,779	$	3,470
Cash paid for income taxes	$	45,000		—

	Six Months Ended
	February 28, 2018		February 28, 2017
Cash paid for interest	$	10,868	$	8,093
Cash paid for income taxes	$	45,000		—

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Note 3 - Inventories - Inventories (Details) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
Production materials	$ 1,820,942	$ 1,747,189
Finished goods	7,305,229	5,709,363
Total inventory	$ 9,126,171	$ 7,456,552

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Note 4 - Property and Equipment, Net - Components of Property and Equipment, Net (Details) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
Land	$ 310,365	$ 310,365
Buildings and improvements	6,815,771	6,847,177
Machinery and equipment	4,414,136	4,171,387
Gross	11,540,272	11,328,929
Less accumulated depreciation	(4,384,326)	(3,969,267)
Net	$ 7,155,946	$ 7,359,662

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Note 5 - Patents and Trademarks, Net (Details Textual) - Patents and Trademarks [Member]	6 Months Ended
	Feb. 28, 2018 USD ($)
Finite-Lived Intangible Asset, Useful Life	7 years
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	$ 240,000
Finite-Lived Intangible Assets, Amortization Expense, Year Five	240,000
Finite-Lived Intangible Assets, Amortization Expense, Year Two	240,000
Finite-Lived Intangible Assets, Amortization Expense, Year Three	240,000
Finite-Lived Intangible Assets, Amortization Expense, Year Four	$ 240,000

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Note 5 - Patents and Trademarks, Net - Patents and Trademarks, Net (Details) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
Patents and trademarkes, net	$ 1,241,618	$ 1,322,089
Patents and Trademarks [Member]
Patents and trademarks	2,782,580	2,737,959
Less accumulated amortization	(1,540,962)	(1,415,870)
Patents and trademarkes, net	$ 1,241,618	$ 1,322,089

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Note 6 - Investments in Joint Ventures (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017
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 ($)	6 Months Ended	12 Months Ended
	Feb. 28, 2018	Aug. 31, 2017
Current assets	$ 57,427,392	$ 51,518,210
Total assets	61,497,315	55,633,891
Current liabilities	16,468,617	15,118,074
Noncurrent liabilities	120,481	181,210
Joint ventures’ equity	44,908,217	40,334,607
Northern Technologies International Corporation’s share of joint ventures’ equity	22,259,526	20,035,074
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	20,230,286	17,960,860
Northern Technologies International Corporation’s dividends received from joint ventures	1,770,116	6,377,054
EXCOR [Member]
Current assets	25,206,550	22,142,514
Total assets	27,326,727	24,301,194
Current liabilities	4,148,371	4,469,567
Noncurrent liabilities
Joint ventures’ equity	23,178,356	19,831,627
Northern Technologies International Corporation’s share of joint ventures’ equity	11,589,180	9,915,816
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	11,558,275	9,884,911
Northern Technologies International Corporation’s dividends received from joint ventures	1,199,142	5,379,062
All Other [Member]
Current assets	32,220,842	29,375,696
Total assets	34,170,588	31,332,697
Current liabilities	12,320,246	10,648,507
Noncurrent liabilities	120,481	181,210
Joint ventures’ equity	21,729,861	20,502,980
Northern Technologies International Corporation’s share of joint ventures’ equity	10,670,346	10,119,258
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	8,672,011	8,075,949
Northern Technologies International Corporation’s dividends received from joint ventures	$ 570,974	$ 997,992

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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		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Net sales	$ 30,220,550	$ 22,962,599	$ 58,719,261	$ 47,163,046
Gross profit	13,531,276	10,161,509	26,319,398	20,858,536
Net income	3,712,684	2,774,943	7,212,499	5,182,951
Northern Technologies International Corporation’s share of equity in income from joint ventures	1,805,997	1,383,139	3,547,325	2,657,143
EXCOR [Member]
Net sales	12,204,736	9,076,908	23,231,250	18,285,432
Gross profit	6,557,964	4,867,517	12,491,490	9,761,696
Net income	2,674,777	2,161,408	5,158,577	4,017,746
Northern Technologies International Corporation’s share of equity in income from joint ventures	1,338,671	1,078,272	2,580,571	2,006,441
All Other [Member]
Net sales	18,015,814	13,885,691	35,488,011	28,877,614
Gross profit	6,973,312	5,293,992	13,827,908	11,096,840
Net income	1,037,907	613,535	2,053,922	1,165,205
Northern Technologies International Corporation’s share of equity in income from joint ventures	$ 467,326	$ 304,867	$ 966,754	$ 650,702

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Note 7 - Corporate Debt (Details Textual)	6 Months Ended
	Feb. 28, 2018 USD ($)	Aug. 31, 2017 USD ($)
Term Loan and Line of Credit, Agreements, Loan Agreements [Member]
Debt Instrument, Covenants, Fixed Charge Coverage Ratio	1.1
PNC Bank [Member]
Letters of Credit Outstanding, Amount	$ 0	$ 0
PNC Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	3,000,000
Long-term Line of Credit	$ 0	0
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	$ 88,831	$ 89,543

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Note 8 - Stockholders' Equity (Details Textual) - $ / shares			2 Months Ended	6 Months Ended
	Sep. 01, 2017	Sep. 01, 2016	Feb. 28, 2018	Feb. 28, 2018	Feb. 28, 2017	Jan. 15, 2018	Aug. 31, 2017
Stock Repurchased and Retired During Period, Shares				0	11,475
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				1,500	0
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price				$ 10.25
Stock Issued During Period, Shares, Employee Stock Purchase Plans	891	3,029
Common Stock, Shares Authorized			15,000,000	15,000,000		10,000,000	10,000,000
Common Stock, Additional Shares Authorized			5,000,000
Treasury Stock Acquired, Average Cost Per Share					$ 12.92
The 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				47,252	56,677
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price				$ 18.35	$ 13.40

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Note 8 - Stockholders' Equity - Schedule of Dividends Payable (Details) - $ / shares			3 Months Ended		6 Months Ended
	Jan. 24, 2018	Nov. 20, 2017	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Declaration Date	Jan. 24, 2018	Nov. 20, 2017
Amount (in dollars per share)	$ 0.10	$ 0.10	$ 0.10	$ 0	$ 0.20	$ 0
Record Date	Feb. 08, 2018	Dec. 08, 2017
Payable Date	Feb. 21, 2018	Dec. 21, 2017

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Note 9 - Net Income Per Common Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	48,067	0	48,067

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Note 9 - Net Income Per Common Share - Reconciliation of the Earnings Per Share Computations (Details) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Net income attributable to NTIC	$ 1,332,847	$ 386,966	$ 2,416,473	$ 684,605
Basic – weighted shares outstanding (in shares)	4,537,408	4,525,091	4,537,368	4,527,555
Weighted shares assumed upon exercise of stock options (in shares)	135,930	36,933	103,674	31,930
Diluted – weighted shares outstanding (in shares)	4,673,338	4,562,024	4,641,042	4,559,485
Basic income per share: (in dollars per share)	$ 0.29	$ 0.09	$ 0.53	$ 0.15
Diluted income per share: (in dollars per share)	$ 0.29	$ 0.09	$ 0.52	$ 0.15

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Note 10 - Stock-based Compensation (Details Textual)	6 Months Ended
	Feb. 28, 2018 USD ($) $ / shares shares	Feb. 28, 2017 USD ($) $ / shares shares
Number of Stock-based Compensation Plans	2
Stock or Unit Option Plan Expense	$ 206,534	$ 195,832
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options	425,669
Allocated Share-based Compensation Expense, Estimate Remainder of Fiscal Year	206,534
Allocated Share-based Compensation Expense, Estimate, Next Fiscal Year	153,901
Allocated Share-based Compensation Expense, Estimate, Fiscal Year Two	$ 65,234
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares	$ 7.75	$ 7.69
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	6 years 273 days	6 years 332 days
The 2007 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | shares	800,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares	47,252	56,677
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 10 - Stock-based Compensation - Black-scholes Option-pricing Model Assumptions (Details)	6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017
Dividend yield	2.18%	0.00%
Expected volatility	45.90%	46.40%
Expected life of option (Year)	10 years	10 years
Average risk-free interest rate	1.87%	1.63%

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Note 11 - Segment and Geographical Information (Details Textual)	6 Months Ended
	Feb. 28, 2018
Number of Reportable Segments	2

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Note 11 - Segment and Geographical Information - Net Sales by Segment (Details) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Net sales by segment	$ 12,213,975	$ 8,742,903	$ 23,757,013	$ 18,444,926
ZERUST [Member]
Net sales by segment	10,191,459	7,228,027	19,719,196	15,312,705
NaturTec [Member]
Net sales by segment	$ 2,022,516	$ 1,514,876	$ 4,037,817	$ 3,132,221

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Note 11 - Segment and Geographical Information - Cost of Goods Sold by Segment (Details) - USD ($)		3 Months Ended		6 Months Ended
		Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
ZERUST®		$ 8,012,836	$ 5,870,186	$ 15,901,306	$ 12,482,952
ZERUST®	[1]
Direct Cost of Goods Sold [Member] | ZERUST [Member]
ZERUST®		$ 6,005,262	$ 4,254,524	$ 11,809,242	$ 8,954,061
ZERUST®	[1]	58.90%	58.90%	59.90%	58.50%
Direct Cost of Goods Sold [Member] | NaturTec [Member]
ZERUST®		$ 1,447,240	$ 1,068,231	$ 2,926,439	$ 2,281,399
ZERUST®	[1]	71.60%	70.50%	72.50%	72.80%
Indirect Cost of Goods Sold [Member]
ZERUST®		$ 560,334	$ 547,431	$ 1,165,625	$ 1,247,492
ZERUST®	[1]

[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 11 - Segment and Geographical Information - Net Sales by Geographic Location (Details) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Net sales by segment	$ 12,213,975	$ 8,742,903	$ 23,757,013	$ 18,444,926
Inside the USA to Unaffiliated Customers [Member]
Net sales by segment	6,079,835	5,245,092	12,336,040	10,395,832
Joint Ventures in Which the Company is a Shareholder Directly and Indirectly Outside the USA [Member]
Net sales by segment	814,122	433,317	1,321,753	1,253,375
Unaffiliated Customers Outside the USA [Member]
Net sales by segment	$ 5,320,018	$ 3,064,494	$ 10,099,220	$ 6,795,719

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Note 11 - Segment and Geographical Information - Fees for Services Provided to Joint Ventures by Geographic Location as a Percentage of Total Fees (Details) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Fees	$ 1,608,890	$ 1,184,028	$ 3,116,032	$ 2,499,619
Percentage of total fees	100.00%	100.00%	100.00%	100.00%
GERMANY
Fees	$ 236,700	$ 199,509	$ 456,574	$ 402,509
Percentage of total fees	14.70%	16.80%	14.70%	16.10%
POLAND
Fees	$ 207,038	$ 153,453	$ 413,114	$ 302,657
Percentage of total fees	12.90%	13.00%	13.30%	12.10%
JAPAN
Fees	$ 172,032	$ 145,722	$ 346,077	$ 291,759
Percentage of total fees	10.70%	12.30%	11.10%	11.70%
SWEDEN
Fees	$ 165,165	$ 77,464	$ 293,119	$ 164,525
Percentage of total fees	10.30%	6.50%	9.40%	6.60%
INDIA
Fees	$ 138,437	$ 74,196	$ 225,200	$ 138,731
Percentage of total fees	8.60%	6.30%	7.20%	5.60%
FRANCE
Fees	$ 130,323	$ 83,112	$ 269,964	$ 180,785
Percentage of total fees	8.10%	7.00%	8.70%	7.20%
THAILAND
Fees	$ 111,779	$ 87,627	$ 214,311	$ 235,081
Percentage of total fees	6.90%	7.40%	6.90%	9.40%
KOREA, REPUBLIC OF
Fees	$ 99,574	$ 86,103	$ 183,062	$ 191,481
Percentage of total fees	6.20%	7.30%	5.90%	7.60%
UNITED KINGDOM
Fees	$ 82,432	$ 53,241	$ 194,207	$ 139,372
Percentage of total fees	5.10%	4.50%	6.20%	5.60%
CZECH REPUBLIC
Fees	$ 98,726	$ 73,286	$ 182,951	$ 144,114
Percentage of total fees	6.10%	6.20%	5.80%	5.80%
FINLAND
Fees	$ 76,546	$ 66,946	$ 166,172	$ 143,282
Percentage of total fees	4.80%	5.70%	5.30%	5.70%
Other Countries [Member]
Fees	$ 90,138	$ 83,369	$ 171,281	$ 165,323
Percentage of total fees	5.60%	7.00%	5.50%	6.60%

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Note 11 - Segment and Geographical Information - Total Long-lived Assets by Geographic Distribution (Details) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
China	$ 7,155,946	$ 7,359,662
CHINA
China	222,089	228,458
BRAZIL
China	49,748	54,646
GERMANY
China	13,813	14,171
INDIA
China	13,186	14,712
UNITED STATES
China	$ 6,857,110	$ 7,047,675

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Note 11 - Segment and Geographical Information - Total Net Sales by Geographic Distribution (Details) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Net sales by segment	$ 12,213,975	$ 8,742,903	$ 23,757,013	$ 18,444,926
CHINA
Net sales by segment			6,106,942	3,296,299
BRAZIL
Net sales by segment			1,456,456	1,118,166
INDIA
Net sales by segment			1,078,294	733,581
GERMANY
Net sales by segment			244,802	217,496
Other Countries [Member]
Net sales by segment			1,363,151	1,531,759
UNITED STATES
Net sales by segment			$ 13,507,368	$ 11,547,625

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Note 12 - Commitments and Contingencies (Details Textual) - USD ($)	6 Months Ended
	Feb. 28, 2018	Aug. 31, 2017	Feb. 28, 2017
Accrued Bonuses	$ 880,000		$ 185,000
Entity Wide Trade Joint Venture Receivables, Three Joint Ventures,Percentage	69.80%	60.70%
Fiscal 2018 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 13 - Fair Value Measurements - Assets and Liabilities Measured at Fair Value Recurring Basis (Details) - USD ($)	Feb. 28, 2018	Aug. 31, 2017
Available for sale securities	$ 3,268,426	$ 3,766,984
Fair Value, Inputs, Level 1 [Member]
Available for sale securities	3,268,426	3,766,984
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 14 - Supplemental Cash Flow Information - Supplemental Disclosures of Cash Flow Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017
Cash paid for interest	$ 5,779	$ 3,470	$ 10,868	$ 8,093
Cash paid for income taxes	$ 45,000		$ 45,000

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Note 15 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 28, 2018	Feb. 28, 2017	Feb. 28, 2018	Feb. 28, 2017	Aug. 31, 2018
Income Tax Expense (Benefit)	$ 841,909	$ 124,909	$ 946,900	$ 242,622
Effective Income Tax Rate Reconciliation, Percent	37.20%	20.50%	26.50%	21.30%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability			$ 700,000
Provisional Adjustments Related to Transition of Tax on Deemed Repatriation of Accumulated Foreign Income			$ 489,000
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent					25.70%