Northern Technologies International Corporation Annual Report 2019

FY2019 Annual Report · Northern Technologies International Corporation

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Northern Technologies
International Corporation
Fiscal 2019 Annual Report

Northern Technologies International Corporation

• Notice of 2020 Annual Meeting
• Proxy Statement
• Annual Report on Form 10-K - August 31, 2019

Our Mission:

Our Environment:

Our business model of commercializing clean and green
technologies depends heavily on the talents, perseverance and
integrity of both our employees and our worldwide federation of
joint venture partners. We believe that our responsibilities are
first to our worldwide customers, then to our people, next to our
communities and finally to our shareholders. Therefore we must:

• Exercise honor, humanity and disciplined management

in our actions.

• See a unified world through the global perspectives

of our people.

• Ensure that the environment becomes a better place because

of what we do.

• Invest continuously in our future.

NTIC uses advanced technologies to care for the world we live in,
give back to society and strive to set an example for environmental
leadership and responsibility.

At NTIC, we believe that there is no alternative to doing
environmentally sustainable business while working to grow the
bottom line.

We encourage our employees, joint venture partners, distributors,
affiliates and suppliers
to carry out our environmental
commitments at the individual level through:

• Daily environmentally responsible business practices.
• Advanced R&D processes that promote the use of

environmentally responsible raw materials such as bio-based or
wind-powered sourced.

• Selecting components and manufacturing processes that reduce

waste and an impact on the environment.

• Education and programs to raise awareness about

our technologies and how they can help solve current
environmental challenges.

• Each NTIC employee is expected to practice an individual

commitment to sustainability and environmental responsibility
in the workplace.

Through our individual commitments to lessen our environmental
footprint and our advanced technologies which allow others to
practice sustainability, we have the power to benefit ourselves
as individuals, our federation of NTIC joint ventures and our
environment for many generations to come.

Our Technology Platforms:

ZERUST®/EXCOR® business unit manufactures and markets corrosion
inhibiting
technologies that provide customers with advanced solutions for corrosion across their
production facilities and supply chains. The technology uses proprietary chemical systems
to create invisible molecular corrosion shields on metal surfaces. The ZERUST®/EXCOR®
teams support clients globally in a broad range of industries including automotive,
electrical, electronic, medical, machine fabrications, steel production, military and
marine. ZERUST®/EXCOR® products and services allow customers to achieve substantial
cost savings as well as reduce the negative environmental impact caused by traditional
corrosion prevention methods and the waste caused by the corrosion of metal assets.

Zerust® Oil and Gas business unit provides advanced corrosion control technologies and
services to the petrochemical industry. Zerust® Oil and Gas products and services utilize
Zerust® proprietary corrosion inhibitors in combination with advanced cathodic protection
systems to dramatically enhance the corrosion protection of capital assets. These assets
include above-ground storage tanks, various pieces of process equipment, buried and
submerged pipelines, mothballed large capital equipment, pipeline flanges, valves, and
welded joints. Zerust® Oil & Gas technologies are currently implemented in refineries,
offshore oil rigs, tank farms and retail gas stations in several countries.

Natur-Tec® business unit engineers and manufactures biobased and biodegradable
plastic resins intended to replace conventional, petroleum-based plastics. Natur-Tec®
has a broad bioplastics portfolio which spans flexible film, foam, rigid injection molded
materials and engineered plastics. These applications allow for the production of 100%
certified compostable finished products, such as bags, food service products, and product
packaging. Natur-Tec® products are renewable resource based and do not contain
conventional plastic materials. Natur-Tec® products provide sustainable alternatives to
conventional plastics and enable industry and consumers to move closer to a carbon
neutral footprint.

To the Shareholders of Northern Technologies International Corporation (NTIC),

Letter from Patrick
By financial and operating metrics, fiscal 2019 was a strong year. We ended the year with record annual net sales
and one of the highest levels of profitability in our 50-year history. Fiscal 2019 also showed the benefits of our
product and geographic diversification strategy, as sales growth from Natur-Tec and NTIC China offset declines
in our core ZERUST® industrial business caused primarily by the current global manufacturing slowdown. While
uncertainty regarding global trade and industrial production remains, we are confident our strategic plan will
continue to create value for our stockholders for years to come.

Natur-Tec and NTIC China have expanded both our product lines, as well as our target markets. Looking back
to fiscal 2015, 85.9% of our consolidated net sales were from ZERUST® industrial products, and included
only $1,070,000 in sales at NTIC China. From fiscal 2015 to fiscal 2019, Natur-Tec’s sales have increased at a
42.4% compounded annual growth rate (CAGR), while NTIC China’s sales have increased at an 86.8% CAGR to
$13,030,000. As a result, for fiscal 2019, only 68.5% of NTIC’s consolidated net sales were from our ZERUST®
industrial products. In addition, while ZERUST® industrial sales declined 7.7% in fiscal 2019 compared to fiscal
2018, we were able to leverage our operating expenses during the year as a result of overall sales growth and
controlled spending.

NTIC’s consolidated net sales for fiscal 2019 were an annual record of $55,570,000. The 8.4% annual increase
was a result of a 74.9% increase in Natur-Tec sales to of $17,575,000. Partially offsetting Natur-Tec’s growth was
a 7.2% decrease in sales of ZERUST® industrial products and an 11.1% decline in sales of ZERUST® oil and gas
products.

Net income attributable to NTIC decreased 22.3% for fiscal 2019 to $5,210,000, compared to $6,701,000 last
fiscal year. On a per share basis, net income attributable to NTIC decreased 23.6% for fiscal 2019 to $0.55 per
diluted share, compared to $0.72 per diluted share last fiscal year.

NTIC generated $5,531,000 in cash from operating activities during fiscal 2019, up from $609,000 during fiscal
2018. At the end of fiscal 2019, NTIC had $9,422,000 of cash, cash equivalents, and available for sale securities,
compared to $7,463,000 at the end of fiscal 2018. In addition, NTIC has over $21,207,000 in investments in joint
ventures, of which $13,040,000 is cash. Maintaining a strong balance sheet and capital structure has enabled
us to self-finance our growth-generating initiatives and has provided us with significant flexibility to navigate
changes in market dynamics.

Our strong balance sheet, compelling operating cash flow, and asset light business model support NTIC’s cash
dividend policy. I am pleased by the decision of our Board of Directors to increase our quarterly dividend 20%
from $0.05 per share to $0.06 per share during fiscal 2019, and the Board’s recent decision to further increase
the quarterly cash dividend to $0.065 per share during fiscal 2020. For fiscal 2019, NTIC paid $2,180,000 in cash
dividends, compared to $1,816,000 last year. Our current quarterly cash dividend payment of $0.065, represents
an 8.3% increase over the fiscal 2019 quarterly dividend payment.

ZERUST® Industrial Corrosion Prevention
ZERUST® industrial sales were not immune to the on-going global manufacturing slowdown. The negative impact
was clearly visible in ZERUST® sales throughout fiscal 2019 both in North America and across the territories
served by our global joint ventures. Sales by our joint ventures decreased approximately 4.5% to $114,635,000
during fiscal 2019, compared to $120,061,000 last fiscal year. For fiscal 2019, we estimate 45-50% of ZERUST®
industrial sales worldwide are to the auto market, compared to over 60% in fiscal 2015. We believe this end
market diversification within our ZERUST® industrial business, combined with the growth we have experienced
in China, improves our ability to navigate any prolonged slowdown in both the auto industry and any of the other

industrial markets we serve. We believe we are well positioned to increase our market share as we leverage our
technical expertise and global footprint, continue to develop solutions for new markets, and further expand our
brand in the large, diverse and growing Chinese market.

ZERUST® in the Oil & Gas Industry
ZERUST® oil and gas sales remain volatile primarily due to the market’s long sales cycle and overall challenging
market conditions. As a result, ZERUST® oil and gas sales declined 11.1% to $2,727,000, compared to $3,067,000
for the previous fiscal year. While it continues to take longer than expected to scale ZERUST® oil and gas, our
funnel of sales opportunities remains robust and our applications continue to provide value to our current and
potential customers. In 2019, in addition to repeat orders from established customers, we closed sales in several
new countries with an expanded product line. We are committed to expanding our presence within the global
oil and gas market due to its size and profit potential, and believe we will be able to successfully grow ZERUST®
oil and gas sales over time.

Natur-Tec® Bioplastics
Sales of Natur-Tec® products grew to a record $17,575,000 during fiscal 2019, representing a 74.9% increase over
fiscal 2018. With this increase, Natur-Tec® represented 31.5% of NTIC’s consolidated net sales for fiscal 2019,
compared to 19.5% of fiscal 2018’s net sales. Favorable regulations, corporate green initiatives, and changing
consumer preferences continued to have a positive influence on global demand for Natur-Tec’s bioplastics. We
expect these trends will continue to benefit Natur-Tec® throughout fiscal 2020 and beyond.

Closing
In closing, I want to thank all the members of NTIC’s global family of employees, joint venture partners, friends
and colleagues for their hard work and dedication during fiscal 2019. In addition, I want to thank Barbara D.
Colwell for her six years of service to NTIC as a director, and welcome Nancy E. Calderon and Sarah E. Kemp to
NTIC’s Board of Directors. Nancy and Sarah are exceptional executives with profound experience in creating
value for complex global organizations and I look forward to the contributions they will make towards growing
our company.

As we start fiscal 2020, I am excited by the potential NTIC has to continue to create value for stockholders
with profitable sales growth throughout our ZERUST® industrial, ZERUST® oil and gas, and Natur-Tec® product
categories.

Sincerely,

G. Patrick Lynch
President & CEO, NTIC

G. Patrick Lynch

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

January 17, 2020

The Annual Meeting of Stockholders of Northern Technologies International Corporation, a Delaware
corporation, will be held at NTIC’s corporate executive offices located at 4201 Woodland Road, Circle
Pines, Minnesota 55014, beginning at 11:00 a.m., Central Standard Time, on Friday, January 17, 2020, for
the following purposes:

1. To elect eight persons to serve as directors until our next annual meeting of stockholders or until

their respective successors are elected and qualified.

2. To approve, on an advisory basis, the compensation of our named executive officers, as disclosed in

the accompanying proxy statement.

3. To indicate, on an advisory basis, whether future votes to approve executive compensation should

occur every one, two, or three years.

4. To ratify the selection of Baker Tilly Virchow Krause, LLP as our independent registered public

accounting firm for the fiscal year ending August 31, 2020.

5. To transact such other business as may properly come before the meeting or any adjournment of the

meeting.

Only those stockholders of record at the close of business on November 20, 2019 will be entitled to notice of,
and to vote at, the meeting and any adjournments thereof. A stockholder list will be available at our
corporate offices beginning January 7, 2020 during normal business hours for examination by any
stockholder registered on NTIC’s stock ledger as of the record date, November 20, 2019, for any purpose
germane to the Annual Meeting.

We are pleased again this year to use the “Notice and Access” method of providing proxy materials to our
stockholders via the Internet. We believe that this process expedites your receipt of our proxy materials,
lowers the costs of our Annual Meeting and reduces the environmental impact of our meeting.

By Order of the Board of Directors,

Matthew C. Wolsfeld
Corporate Secretary

December 2, 2019
Circle Pines, Minnesota

Important: Whether or not you expect to attend the meeting in person, please vote by the Internet or
telephone, or request a paper proxy card to sign, date and return by mail so that your shares may be
voted. A prompt response is helpful and your cooperation is appreciated.

TABLE OF CONTENTS

Page

INTERNET AVAILABILITY OF PROXY MATERIALS ........................................................................ i
PROXY STATEMENT SUMMARY ........................................................................................................... 1
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING ................................. 8
Date, Time, Place and Purposes of Meeting ............................................................................................. 8
Who Can Vote .......................................................................................................................................... 8
How You Can Vote .................................................................................................................................. 8
How Does the Board Recommend that You Vote .................................................................................. 10
How You May Change Your Vote or Revoke Your Proxy .................................................................... 10
Quorum Requirement ............................................................................................................................. 10
Vote Required ......................................................................................................................................... 11
Other Business ........................................................................................................................................ 12
Procedures at the Annual Meeting .......................................................................................................... 12
Householding of Annual Meeting Materials .......................................................................................... 12
Proxy Solicitation Costs ......................................................................................................................... 13
PROPOSAL ONE—ELECTION OF DIRECTORS .................................................................................. 14
Number of Directors ............................................................................................................................... 14
Nominees for Director ............................................................................................................................ 14
Information about Current Directors and Board Nominees .................................................................... 14
Additional Information about Current Directors and Board Nominees .................................................. 15
Board Recommendation ......................................................................................................................... 18
PROPOSAL TWO—ADVISORY VOTE ON EXECUTIVE COMPENSATION ................................... 19
Introduction ............................................................................................................................................ 19
Board Recommendation ......................................................................................................................... 20

PROPOSAL THREE—ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY

VOTES ON EXECUTIVE COMPENSATION ..................................................................................... 21
Background ............................................................................................................................................. 21
Reasons for an Annual Say-on-Pay Vote Recommendation .................................................................. 21
Board Recommendation ......................................................................................................................... 22

PROPOSAL FOUR—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM ............................................................................................................ 23
Selection of Independent Registered Public Accounting Firm ............................................................... 23
Audit, Audit-Related, Tax and Other Fees ............................................................................................. 23
Audit Committee Pre-Approval Policies and Procedures ....................................................................... 24
Board Recommendation ......................................................................................................................... 24
STOCK OWNERSHIP ............................................................................................................................... 25
Beneficial Ownership of Significant Stockholders and Management .................................................... 25
Securities Authorized for Issuance Under Equity Compensation Plans ................................................. 27
CORPORATE GOVERNANCE ................................................................................................................ 28
Corporate Governance Guidelines .......................................................................................................... 28
Board Leadership Structure .................................................................................................................... 28
Director Independence ............................................................................................................................ 29
Board Meetings and Attendance ............................................................................................................. 29
Board Committees .................................................................................................................................. 29
Audit Committee .................................................................................................................................... 29
Compensation Committee ...................................................................................................................... 31
Nominating and Corporate Governance Committee .............................................................................. 33
Director Nominations Process ................................................................................................................ 34

Board Oversight of Risk ......................................................................................................................... 35
Code of Ethics ........................................................................................................................................ 36
Policy Regarding Director Attendance at Annual Meetings of Stockholders ........................................ 36
Complaint Procedures ............................................................................................................................. 36
Process Regarding Stockholder Communications with Board of Directors ........................................... 37
DIRECTOR COMPENSATION ................................................................................................................ 38
Summary of Cash and Other Compensation .......................................................................................... 38
Non-Employee Director Compensation Program ................................................................................... 39
Consulting Agreement ............................................................................................................................ 40
EXECUTIVE COMPENSATION .............................................................................................................. 41
Compensation Review ............................................................................................................................ 41
Summary of Cash and Other Compensation .......................................................................................... 50
Outstanding Equity Awards at Fiscal Year End ..................................................................................... 51
Stock Incentive Plan ............................................................................................................................... 52
Post-Termination Severance and Change in Control Arrangements ...................................................... 54
Compensation Committee Interlocks and Insider Participation ............................................................. 56
RELATED PERSON RELATIONSHIPS AND TRANSACTIONS ......................................................... 57
Introduction ............................................................................................................................................ 57
Procedures Regarding Approval of Related Party Transactions ............................................................ 57
Description of Related Party Transactions ............................................................................................. 58

STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR 2021 ANNUAL

MEETING OF STOCKHOLDERS........................................................................................................ 59
Stockholder Proposals for 2021 Annual Meeting ................................................................................... 59
Director Nominations for 2021 Annual Meeting .................................................................................... 59
COPIES OF FISCAL 2019 ANNUAL REPORT ....................................................................................... 60
________________

INTERNET AVAILABILITY OF PROXY MATERIALS
________________

Instead of mailing a printed copy of our proxy materials, including our Annual Report to Stockholders, to
each stockholder of record, we have provided access to these materials in a fast and efficient manner via
the Internet. We believe that this process expedites your receipt of our proxy materials, lowers the costs
of our Annual Meeting and reduces the environmental impact of our meeting. On or about December 2,
2019, we expect to begin mailing a Notice of Internet Availability of Proxy Materials to stockholders of
record as of November 20, 2019 and post our proxy materials on the website referenced in the Notice of
Internet Availability of Proxy Materials (www.proxyvote.com). As more fully described in the Notice of
Internet Availability of Proxy Materials, stockholders may choose to access our proxy materials at
www.proxyvote.com or may request proxy materials in printed or electronic form. In addition, the Notice
of Internet Availability of Proxy Materials and website provide information regarding how you may
request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
For those who previously requested printed proxy materials or electronic materials on an ongoing basis,
you will receive those materials as you requested.

PROXY STATEMENT SUMMARY
________________

This executive summary provides an overview of the information included in this proxy statement. We
recommend that you review the entire proxy statement and our 2019 Annual Report to Stockholders
before voting.

2020 ANNUAL MEETING OF STOCKHOLDERS

DATE AND TIME

Friday, January 17, 2020
11:00 a.m. (Central Time)

LOCATION

4201 Woodland Road
Circle Pines, MN 55014

RECORD DATE

November 20, 2019

Proposal

Proposal No. 1: Election of
directors

Proposal No. 2: Advisory vote on
executive compensation

Proposal No. 3: Advisory vote on
frequency of advisory vote on
executive compensation

Proposal No. 4: Ratification of
appointment of independent
registered public accounting firm

Board’s Vote
Recommendation

Page

FOR

EVERY ONE
YEAR

FOR

Holders of record of our common stock at the close of business on
November 20, 2019 are entitled to notice of, to attend, and to vote at
the 2020 Annual Meeting of Stockholders or any continuation,
postponement, or adjournment thereof

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 17, 2020

This proxy statement and our 2019 Annual Report to Stockholders are available on the Internet, free of
charge, at www.proxyvote.com. On this website, you will be able to access this proxy statement, our 2019
Annual Report, and any amendments or supplements to these materials that are required to be furnished to
stockholders. We encourage you to access and review all of the important information contained in the
proxy materials before voting.

FISCAL 2019 BUSINESS HIGHLIGHTS

Below are highlights of our financial, operational and strategic achievements during fiscal 2019.

Financial

Net Sales

Natur-Tec® Sales

Quarterly Cash Dividends

Stock Split

Operational

21 Joint Ventures

Our total net sales increased 8.4% from $51.4 million in fiscal 2018
to $55.8 million in fiscal 2019.

Sales of Natur-Tec® products increased by 74.9%, marking another
year of double-digit growth.

We paid a quarterly cash dividend of $0.06 per share during fiscal
2019, an increase of 20% over last year’s dividend.

Our June 28, 2019, we effected a 2-for-1 stock split, intended to
make investing in our stock more accessible to potential investors.

Our 21 joint ventures provide us with access to global markets with
an annual global market potential estimated at $520 million.

7 Operating Subsidiaries

We maintain seven wholly or majority-owned operating subsidiaries
in North America, South America, Europe and Asia.

60 Countries

Strategic

Industrial Manufacturing
Industry

Oil and Gas Industry

Bioplastics Industry

Our network of joint ventures and subsidiaries allows us to operate
in 60 countries worldwide, allowing us reach customers globally.

ZERUST® rust and corrosion inhibiting packaging solutions resolve
corrosion problems while reducing operating costs, increasing
productivity and enhancing customer satisfaction. During fiscal
2019, ZERUST® industrial sales were negatively impacted as a
result of slowing global economic growth and the impacts of the
trade dispute between the U.S. and China.

Our global network of trained corrosion management professionals
and channel partners help us develop specialized corrosion
mitigation solutions for the oil and gas industry, provide local
support and conduct client training. During fiscal 2019, we
continued to add new customers, but the oil and gas industry is
characterized by long-sales cycles and market volatility, which
impacts our quarterly and annual trends within this market.

Our Natur-Tec® biobased and compostable plastics are
manufactured using NTIC’s patented and/or proprietary
technologies and are intended to replace conventional plastics and
thereby reduce our customers’ carbon footprint and provide
environmentally sound waste disposal options. During fiscal 2019,
we experienced significant global growth for our leading bioplastic
solutions as governments instituted organic diversion programs and
mandates and consumers pursued alternatives to single use plastics,
such as compostable bioplastics.

CORPORATE GOVERNANCE HIGHLIGHTS

 Annual election of directors
 Majority of independent directors
 Independent Board Chairman
 Three fully independent Board committees
 Corporate governance guidelines
 Annual review of governance documents

 Recent Board refreshment efforts
 100% Board meeting attendance by directors
 No poison pill
 Annual say-on-pay vote
 Robust clawback policy
 No guaranteed bonuses or significant perks

BOARD OF DIRECTORS COMPOSITION AND DIVERSITY

The Board of Directors understands the importance of adding diverse, experienced talent to the Board of
Directors in order to establish an array of experience and strategic views. The Nominating and Corporate
Governance Committee is committed to refreshment efforts to ensure that the composition of the Board of
Directors and each of its committees encompasses a wide range of perspectives and knowledge. In
October 2019, we added two new independent, female directors to the Board of Directors. The charts
below reflect the current composition of the Board and, therefore, include Barbara D. Colwell, who is not
standing for re-election at the Annual Meeting.

BOARD OF DIRECTORS NOMINEES

Below are the directors nominated for election by stockholders at the 2020 Annual Meeting of
Stockholders for a one-year term. With the exception of Ms. Calderon and Ms. Kemp who joined our
Board of Directors in October 2019, all director nominees listed below served during the fiscal year ended
August 31, 2019 and attended 100% of all Board meetings and nearly 100% of the sum of all meetings of
the Board of Directors and its committees, as applicable. Barbara D. Colwell, a current director, is not
standing for re-election at the Annual Meeting.

Director
Nancy E. Calderon
Sarah E. Kemp
Soo-Keong Koh
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen

Age
60
52
68
67
52
70
71
52

Serving Since
2019
2019
2008
2004
2004
2004
2010
2012

Independent
Yes
Yes
Yes
Yes
No
No
Yes
Yes

The Board of Directors recommends a vote “FOR” each of these nominees.

COMMITTEE COMPOSITION

The Board of Directors maintains a standing Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee. Below are our current directors and their Board
committee memberships.

Director

Nancy E. Calderon
Barbara D. Colwell
Sarah E. Kemp
Soo-Keong Koh
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen

KEY QUALIFICATIONS

Compensation
Committee

Nominating and Corporate
Governance Committee

Audit
Committee
●
●

●

●
●

●
●
●

●

The following are some key qualifications, skills, and experiences of our Board of Directors.

 Leadership/Management
 Prior Board Experience

 Financial Expertise
 Government Expertise


International Experience
 Bioplastics Industry Expertise

EXECUTIVE COMPENSATION PHILOSOPHY

Our guiding compensation philosophy is to maintain an executive compensation program that allows us
to attract, retain, motivate and reward qualified and talented executives who will enable us to grow our
business, achieve our annual, long-term and strategic goals and drive long-term stockholder value.

The following core principles provide a framework for our executive compensation program:

 Align interests of our executives with stockholder interests;



Integrate compensation with our business plans and strategic goals;

 Link amount of compensation to both company and individual performance; and

 Provide fair and competitive compensation opportunities that attract and retain executives.

EXECUTIVE COMPENSATION BEST PRACTICES

Our compensation practices include many best practices that support our executive compensation
objectives and principles and benefit our stockholders.

What we do:
 Emphasize pay for performance
 Structure our executive compensation so a

What we don’t do:
 No guaranteed salary increases or bonuses
 No repricing of stock options unless approved

significant portion of pay is at risk

by stockholders

 Structure our executive compensation so a

 No pledging of NTIC securities, unless certain

significant portion is paid in equity
 Maintain competitive pay packages
 Maintain robust clawback policy
 Hold an annual say-on-pay vote

criteria are met

 No hedging of NTIC securities
 No excessive perquisites
 No tax gross-ups

HOW WE PAY

Our executive compensation program consists of the following principal elements:

 Base salary – a fixed amount, paid in cash and reviewed annually and, if appropriate, adjusted.

 Annual incentive – a variable, short-term element that is typically payable in cash and is based on a

corporate profitability goal and individual performance goals.

 Long-term incentive – a variable, long-term element that is provided in stock options.

2019 EXECUTIVE COMPENSATION ACTIONS

2019 compensation actions and incentive plan outcomes based on performance are summarized below:

Element

Key Fiscal 2019 Actions

Base Salary

Our executives received 10% increases over their 2018 base salaries.

Annual Incentive

Long-Term Incentive

Our executive officers received annual bonuses based primarily on
Adjusted EBITOI (earnings before interest, taxes, and other income, as
adjusted to take into account amounts paid under bonus plan and other
adjustments), in amounts representing 43% of their base salaries. A
portion of the annual incentive earned for fiscal 2019 was paid in the form
of stock option grants made at the beginning of fiscal 2019.

Our executive officers received stock option grants on September 1, 2018,
which vested in full on September 1, 2019. A portion of the fiscal 2019
stock option grant was intended as partial payout of the fiscal 2019 annual
bonus program.

Health and Welfare Benefits No significant changes were made.

Retirement Plans

No significant changes were made.

Perquisites

No significant changes were made.

ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Board of Directors is providing our stockholders with an advisory vote on our executive
compensation, commonly known as a “say-on-pay” vote. We last submitted a say-on-pay proposal to our
shareholders at our 2018 Annual Meeting of Stockholders held on January 18, 2019. At that meeting,
99% of the votes cast by our stockholders were in favor of our say-on-pay vote.

The Board of Directors recommends a vote “FOR” the approval of our say-on-pay proposal.

FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION

Every six years, NTIC is required to hold an advisory vote on the frequency of future say-on-pay votes.
Since our last frequency of say-on-pay vote was held at our 2014 Annual Meeting of Stockholders, NTIC
is submitting a frequency of say-on-pay proposal at the 2020 Annual Meeting of Stockholders.
Stockholders may indicate whether they prefer that we hold a say-on-pay vote every one year, two years
or three years, or they may abstain from this vote.

The Board of Directors recommends that the shareholders vote for a frequency of every “ONE YEAR”
for future say-on-pay votes.

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Although stockholder ratification is not required, the appointment of Baker Tilly Virchow Krause, LLP as
NTIC’s independent registered public accounting firm for fiscal 2020 is being submitted for ratification at
the 2020 Annual Meeting of Stockholders as a matter of good corporate governance.

The Board of Directors recommends a vote “FOR” the ratification of Baker Tilly Virchow Krause, LLP
as NTIC’s independent registered public accounting firm.

2021 ANNUAL MEETING OF STOCKHOLDERS

We anticipate that our 2021 Annual Meeting of Stockholders will be held on or about Friday, January 15,
2021.

The following are important dates in connection with our 2021 Annual Meeting of Stockholders.

Stockholder Action
Proposal Pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934
Nomination of a Candidate Pursuant to our Bylaws

Proposal of Other Business for Consideration
Pursuant to our Bylaws

Submission Deadline
No later than August 4, 2020

Between September 19, 2020 and
October 19, 2020
Between September 19, 2020 and
October 19, 2020

4201 Woodland Road, Circle Pines, Minnesota 55014

PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
January 17, 2020

The Board of Directors of Northern Technologies International Corporation is soliciting your proxy for
use at the 2020 Annual Meeting of Stockholders to be held on Friday, January 17, 2020. The Board of
Directors expects to make available to our stockholders beginning on or about December 2, 2019 the
Notice of Annual Meeting of Stockholders, this proxy statement and a form of proxy on the Internet or
will mail these materials to stockholders of NTIC upon their request.

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
________________

Date, Time, Place and Purposes of Meeting

The Annual Meeting of Stockholders of Northern Technologies International Corporation (sometimes
referred to as “NTIC,” “we,” “our” or “us” in this proxy statement) will be held on Friday, January 17,
2020, at 11:00 a.m., Central Standard Time, at the principal executive offices of Northern Technologies
International Corporation located at 4201 Woodland Road, Circle Pines, Minnesota 55014, for the
purposes set forth in the Notice of Annual Meeting of Stockholders.

Who Can Vote

Stockholders of record at the close of business on November 20, 2019 will be entitled to notice of and to
vote at the meeting or any adjournment of the meeting. As of that date, there were 9,090,413 shares of
our common stock outstanding. Each share of our common stock is entitled to one vote on each matter to
be voted on at the Annual Meeting. Stockholders are not entitled to cumulate voting rights.

How You Can Vote

Your vote is important. Whether you hold shares directly as a stockholder of record or beneficially in
“street name” (through a broker, bank or other nominee), you may vote your shares without attending the
Annual Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting
voting instructions to your broker, bank or other nominee.

If you are a registered stockholder whose shares are registered in your name, you may vote your shares in
person at the meeting or by one of the three following methods:

 Vote by Internet, by going to the website address www.proxyvote.com and following the

instructions for Internet voting shown on the Notice of Internet Availability of Proxy Materials or
on your proxy card.

 Vote by Telephone, by dialing 1-800-690-6903 and following the instructions for telephone
voting shown on the Notice of Internet Availability of Proxy Materials or on your proxy card.

 Vote by Proxy Card, by completing, signing, dating and mailing the enclosed proxy card in the

envelope provided if you received a paper copy of these proxy materials.

If you vote by Internet or telephone, please do not mail your proxy card.

If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a
separate voting instruction form with this proxy statement or you may need to contact your broker, bank
or other nominee to determine whether you will be able to vote electronically using the Internet or
telephone.

The deadline for voting by telephone or by using the Internet is 11:59 p.m., Eastern Standard Time
(10:59 p.m., Central Standard Time), on the day before the date of the Annual Meeting or any
adjournments thereof. Please see the Notice of Internet Availability of Proxy Materials, your proxy card
or the information your bank, broker, or other holder of record provided to you for more information on
your options for voting.

If you return your signed proxy card or use Internet or telephone voting before the Annual Meeting, the
named proxies will vote your shares as you direct. You have three choices on each matter to be voted on.

For Proposal One—Election of Directors, you may:

 Vote FOR all eight nominees for director,

 WITHHOLD your vote from all eight nominees for director or

 WITHHOLD your vote from one or more of the eight nominees for director.

For Proposal Three—Advisory Vote on the Frequency of Future Advisory Votes on Executive
Compensation, you may:

 Vote for a frequency of every ONE YEAR,

 Vote for a frequency of every TWO YEARS,

 Vote for a frequency of every THREE YEARS or

 ABSTAIN from voting on the proposal.

For each of the other proposals, you may:

 Vote FOR the proposal,

 Vote AGAINST the proposal or

 ABSTAIN from voting on the proposal.

If you send in your proxy card or use Internet or telephone voting, but do not specify how you want to
vote your shares, the proxies will vote your shares FOR all eight of the nominees for election to the
Board of Directors in Proposal One—Election of Directors, for a frequency of every ONE YEAR on
Proposal Three—Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation
and FOR each of the other proposals.

How Does the Board Recommend that You Vote

The Board of Directors unanimously recommends that you vote:

 FOR all eight of the nominees for election to the Board of Directors in Proposal One—Election

of Directors;

 FOR Proposal Two—Advisory Vote on Executive Compensation;

 For a frequency of every ONE YEAR on Proposal Three—Advisory Vote on the Frequency of

Future Advisory Votes on Executive Compensation; and

 FOR Proposal Four—Ratification of Selection of Independent Registered Public Accounting

Firm.

How You May Change Your Vote or Revoke Your Proxy

If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any time
before it is voted by one of the following methods:

 Submitting another proper proxy with a more recent date than that of the proxy first given by
following the Internet or telephone voting instructions or completing, signing, dating and
returning a proxy card to us;

 Sending written notice of your revocation to our Corporate Secretary; or

 Attending the Annual Meeting and voting by ballot.

Quorum Requirement

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority (4,545,207
shares) of the outstanding shares of our common stock as of the record date will constitute a quorum for
the transaction of business at the Annual Meeting. In general, shares of our common stock represented by
proxies marked “For,” “Against,” “Abstain” or “Withheld” are counted in determining whether a quorum
is present. In addition, a “broker non-vote” is counted in determining whether a quorum is present. A
“broker non-vote” is a proxy returned by a broker on behalf of its beneficial owner customer that is not
voted on a particular matter because voting instructions have not been received by the broker from the

customer, and the broker has no discretionary authority to vote on behalf of such customer on such
matter.

Vote Required

Proposal One—Election of Directors will be decided by the affirmative vote of a plurality of shares of our
common stock present in person or represented by proxy and entitled to vote at the Annual Meeting. A
“plurality” for Proposal One means the individuals who receive the greatest number of votes cast “For”
are elected as directors.

Proposal Two—Advisory Vote on Executive Compensation will be decided by the affirmative vote of a
majority of shares of our common stock present in person or represented by proxy and entitled to vote at
the Annual Meeting. Although this is a non-binding, advisory vote, the Compensation Committee and
Board of Directors expect to take into account the outcome of the vote when considering future executive
compensation decisions.

Proposal Three—Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation
will be decided by the affirmative vote of a plurality of shares of our common stock present in person or
represented by proxy and entitled to vote at the Annual Meeting. A “plurality” for Proposal Three means
the frequency that receives the greatest number of votes cast will be considered the preference of our
stockholders. Although this is a non-binding, advisory vote, the Board of Directors expects to take into
account the outcome of the vote when setting the frequency of our advisory votes on executive
compensation.

Proposal Four—Ratification of Selection of Independent Registered Public Accounting Firm will be
decided by the affirmative vote of a majority of shares of our common stock present in person or
represented by proxy and entitled to vote at the Annual Meeting.

If your shares are held in “street name” and you do not indicate how you wish to vote, your broker is
permitted to exercise its discretion to vote your shares only on certain “routine” matters. Proposal One—
Election of Directors, Proposal Two—Advisory Vote on Executive Compensation and Proposal Three—
Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation are not “routine”
matters. Accordingly, if you do not direct your broker how to vote, your broker may not exercise
discretion and may not vote your shares on either of these three proposals. This is called a “broker non-
vote” and although your shares will be considered to be represented by proxy at the meeting, they will not
be considered to be shares “entitled to vote” or “votes cast” at the meeting and will not be counted as
having been voted on the applicable proposal. Proposal Four—Ratification of Selection of Independent
Registered Public Accounting Firm is a “routine” matter, and, as such, your broker is permitted to
exercise its discretion to vote your shares for or against the proposals in the absence of your instruction.

Proposal
Proposal One: Election of
Directors

Votes Required
Plurality of the votes cast. This
means that the eight nominees
receiving the highest number of
affirmative “FOR” votes will be
elected as directors.

Effect of Votes
Withheld /
Abstentions

Votes
withheld will
have no effect.

Effect of
Broker
Non-Votes
Broker non-
votes will have
no effect.

Proposal
Proposal Two: Advisory Vote on
Executive Compensation

Proposal Three: Advisory Vote
on the Frequency of Future
Advisory Votes on Executive
Compensation

Votes Required
Affirmative vote of the holders of
a majority in voting power of the
shares of common stock present
in person or by proxy and
entitled to vote thereon.

Plurality of the votes cast. This
means that the frequency
receiving the highest number of
affirmative votes will be
considered the preference of our
stockholders.

Effect of Votes
Withheld /
Abstentions
Abstentions
will have the
effect of a vote
against the
proposal.

Effect of
Broker
Non-Votes
Broker non-
votes will have
no effect.

Votes
withheld will
have no effect.

Broker non-
votes will have
no effect.

Proposal Four: Ratification of
Appointment of Independent
Registered Public Accounting
Firm

Affirmative vote of the holders of
a majority in voting power of the
shares of common stock present
in person or by proxy and
entitled to vote thereon.

Abstentions
will have the
effect of a vote
against the
proposal.

We do not
expect any
broker non-
votes on this
proposal.

Other Business

Our management does not intend to present other items of business and knows of no items of business
that are likely to be brought before the Annual Meeting, except those described in this proxy statement.
However, if any other matters should properly come before the Annual Meeting, the persons named on
the proxy card will have discretionary authority to vote such proxy in accordance with their best judgment
on the matters.

Procedures at the Annual Meeting

The presiding officer at the Annual Meeting will determine how business at the meeting will be
conducted. Only matters brought before the Annual Meeting in accordance with our Bylaws will be
considered. Only a natural person present at the Annual Meeting who is either one of our stockholders, or
is acting on behalf of one of our stockholders, may make a motion or second a motion. A person acting
on behalf of a stockholder must present a written statement executed by the stockholder or the duly-
authorized representative of the stockholder on whose behalf the person purports to act.

Householding of Annual Meeting Materials

Some banks, brokers and other nominee record holders may be participating in the practice of
“householding” proxy statements, annual reports and the Notice of Internet Availability of Proxy
Materials. This means that only one copy of this proxy statement, our Annual Report to Stockholders or
the Notice of Internet Availability of Proxy Materials may have been sent to multiple stockholders in each
household. We will promptly deliver a separate copy of any of these documents to any stockholder upon
written or oral request to our Stockholder Information Department, Northern Technologies International
Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014, telephone: (763) 225-6637. Any
stockholder who wants to receive separate copies of this proxy statement, our Annual Report to
Stockholders or the Notice of Internet Availability of Proxy Materials in the future, or any stockholder
who is receiving multiple copies and would like to receive only one copy per household, should contact

the stockholder’s bank, broker or other nominee record holder, or the stockholder may contact us at the
above address and telephone number.

Proxy Solicitation Costs

The cost of soliciting proxies, including the preparation, assembly, electronic availability and mailing of
proxies and soliciting material, as well as the cost of making available or forwarding this material to the
beneficial owners of our common stock will be borne by NTIC. Our directors, officers and regular
employees may, without compensation other than their regular compensation, solicit proxies by
telephone, e-mail, facsimile or personal conversation. We may reimburse brokerage firms and others for
expenses in making available or forwarding solicitation materials to the beneficial owners of our common
stock.

PROPOSAL ONE—ELECTION OF DIRECTORS
________________

Number of Directors

Our Bylaws provide that the Board of Directors will consist of at least one member or such other number
as may be determined by the Board of Directors from time to time or by the stockholders at an annual
meeting. The Board of Directors has fixed the number of directors at eight, effective as of the date of the
Annual Meeting.

Nominees for Director

The Board of Directors has nominated the following eight individuals to serve as our directors until the
next annual meeting of stockholders or until their successors are elected and qualified. All of the
nominees named below are current members of the Board of Directors.

 Nancy E. Calderon
 Sarah E. Kemp
 Soo-Keong Koh
 Sunggyu Lee, Ph.D.

 G. Patrick Lynch
 Ramani Narayan, Ph.D.
 Richard J. Nigon
 Konstantin von Falkenhausen

Barbara D. Colwell, a current director, is not standing for re-election at the Annual Meeting. Ms. Colwell
will continue to serve as a director of our company until the Annual Meeting. The Board of Directors
thanks Ms. Colwell for her many years of service to the Board.

Proxies can only be voted for the number of persons named as nominees in this proxy statement, which is
eight.

If prior to the Annual Meeting, the Board of Directors should learn that any nominee will be unable to
serve for any reason, the proxies that otherwise would have been voted for this nominee will be voted for
a substitute nominee as selected by the Board. Alternatively, the proxies, at the Board’s discretion, may
be voted for that fewer number of nominees as results from the inability of any nominee to serve. The
Board of Directors has no reason to believe that any of the nominees will be unable to serve.

Information about Current Directors and Board Nominees

The following table sets forth as of November 20, 2019 the name, age and principal occupation of each
current director and each individual who has been nominated by the Board of Directors to serve as a
director of our company, as well as how long each individual has served as a director of NTIC.

Name
Nancy E. Calderon(1)
Barbara D. Colwell(1)(2)

Sarah E. Kemp(2)
Soo-Keong Koh(2)
Sunggyu Lee, Ph.D.(3)

G. Patrick Lynch

Age Principal Occupation
60
74 Director of NTIC and Certain Other Companies and

Former Partner of KPMG LLP

Organizations

52 Executive Director of Merck
68 Managing Director of EcoSave Pte Ltd.
67 Russ Ohio Research Scholar in Syngas Utilization
and Professor of Chemical and Biomolecular
Engineering at Ohio University
President and Chief Executive Officer of NTIC

Director
Since
2019
2013

2019
2008
2004

2004

Name
Ramani Narayan, Ph.D.

Age Principal Occupation
70 Distinguished Professor in Department of Chemical
Engineering & Materials Science at Michigan State
University
Senior Vice President of Cedar Point Capital, Inc.
Partner of B Capital Partners AG

71
52

Director
Since
2004

2010
2012

Richard J. Nigon(1)(2)(3)
Konstantin von Falkenhausen(1)(3)
_________________________
(1)
(2)
(3)

Member of the Audit Committee
Member of the Nominating and Corporate Governance Committee
Member of the Compensation Committee

Additional Information about Current Directors and Board Nominees

The following paragraphs provide information about each current director and nominee for director,
including all positions he or she holds, his or her principal occupation and business experience for the past
five years, and the names of other publicly-held companies of which the director or nominee currently
serves as a director or has served as a director during the past five years. We believe that all of our
directors and nominees display personal and professional integrity; satisfactory levels of education and/or
business experience; broad-based business acumen; an appropriate level of understanding of our business
and its industry and other industries relevant to our business; the ability and willingness to devote
adequate time to the work of the Board of Directors and its committees; a fit of skills and personality with
those of our other directors that helps build a board that is effective, collegial and responsive to the needs
of our company; strategic thinking and a willingness to share ideas; a diversity of experiences, expertise
and background; and the ability to represent the interests of all of our stockholders. The information
presented below regarding each director and nominee also sets forth specific experience, qualifications,
attributes and skills that led the Board of Directors to the conclusion that such individual should serve as a
director in light of our business and structure.

Nancy E. Calderon has been a director of NTIC since October 2019. Ms. Calderon is a CPA and has over
33 years of experience with KPMG LLP until her retirement on September 30, 2019. Until her
retirement, Nancy served as Global Lead Partner for a Fortune 50 Technology company, a position she
held since July 2012, senior partner of KPMG’s Board Leadership Center from its inception in 2015, and
as a director of KPMG’s Global Delivery Center in India and its related holding companies since
September 2011. Previously, she was KPMG’s Americas Chief Administrative Officer and U.S. National
Partner in Charge, Operations from July 2008 to June 2012. Ms. Calderon has sat on a number of KPMG
committees, including the Americas Region Management Committee, Enterprise Risk Management,
Privacy, Pension Steering and Investment, Social Media and Knowledge Management. She currently
serves as a director of multiple organizations, including the Women Corporate Directors Foundation, the
Greater New York YMCA, the NY Women’s Forum, and The University Club. We believe
Ms. Calderon’s qualifications to sit on the Board of Directors include her extensive financial accounting
experience with KPMG and her current and prior experience on boards of directors, including, in
particular, her experience serving on the audit committees of KPMG’s Global Delivery Center, Women
Corporate Directors Foundation and the New York YMCA. Ms. Calderon received a Bachelor of Science
from UC Berkeley’s Haas Business School and a Master of Science from Golden Gate University.

Barbara D. Colwell has been a director of NTIC since November 2013. Ms. Colwell is not standing for
re-election as a director at the Annual Meeting. Ms. Colwell is a member of the board of directors or
advisory board of several non-profit organizations and private and mutual companies, including most
notably, the Publishers Clearing House, LLC, Triumph Oil & Gas Operating Company, LLC, IPTAR
(Institute for Psychoanalytic Training and Research), the Belizean Grove and Mutual Trust Life

Insurance. We believe Ms. Colwell’s qualifications to sit on the Board of Directors include her current
and prior experience on the boards of directors of other organizations and companies and, in particular,
her experience serving on the audit committee, governance committee and compensation committee of
Publishers Clearing House, LLC, as well as her former experience serving on the audit committee and
compensation committee of Mutual Trust Financial Group.

Sarah E. Kemp has been a director of NTIC since October 2019. Ms. Kemp is Executive Director for
Merck, a global biopharmaceutical company. Effective July 8, 2019, Ms. Kemp joined Merck’s Policy,
Communications and Population Health organization in the role of Executive Director, China Policy
Strategy and Human Health Commercial International Strategic Policy Initiatives. In this role, Ms. Kemp
is responsible for supporting the MSD China team in their strategic policy shaping initiatives, defining
and leading global above-country engagement in support of MSD China, and leading critical policy
shaping initiatives in support of the entire ex-US market set. Before joining Merck, Ms. Kemp was the
Deputy Under Secretary (DUS), the highest career position for the International Trade Administration
(ITA) at the Department of Commerce in Washington, D.C. In this role, she oversaw ITA’s $485 million
annual budget and 2,100 trade and investment professionals based in 108 US cites and 76 markets around
the world. For over 27 years, Ms. Kemp has served in various positions with increasing responsibility at
the U.S. Department of Commerce, including: Deputy Director General, Global Markets, U.S. and
Foreign Commercial Service, from August 2017 to January 2018; Senior Commerce Department Official,
Commercial Counselor, at the U.S. Embassy in Beijing, China from August 2014 to March 2017; Senior
Commerce Department Official, Commercial Counselor, at the U.S. Embassy in Hanoi, Vietnam from
August 2011 to July 2014; and Deputy Senior Commercial Officer at the U.S. Embassy in Beijing, China
from June 2008 to July 2011. Ms. Kemp served on the board of directors of the Concordia International
School in Hanoi, Vietnam, an international day school offering preschool through high school education,
from 2012 to 2014. Ms. Kemp was a Co-Chair of Women Corporate Directors in Vietnam from 2011 to
2014 and in Beijing from 2009 to 2011. We believe Ms. Kemp’s qualifications to sit on the Board of
Directors include her extensive knowledge and experience in international commerce, particularly with
regard to Asia Pacific and Greater China, her prior board experience, and her depth of experience in
international and public affairs. Ms. Kemp received a Bachelor of Arts from Hamilton College, a Masters
of Public Administration from the School of International and Public Affairs at Columbia University, and
a Masters of Business Administration from the Chinese University of Hong Kong.

Soo-Keong Koh has been a director of NTIC since May 2008. Mr. Koh is the Managing Director of
Ecosave Pte Ltd., a company whose business is focused on environmental biotech and energy
conservation technologies, a position he has held since April 2007. From January 1986 to April 2007,
Mr. Koh served as Chief Executive Officer and President of Toll Asia Pte Ltd formerly SembCorp
Logistics Ltd (SembLog), a Singapore public listed company, which was acquired by Toll in May 2006.
Mr. Koh has over 20 years of experience in the logistics industry. Mr. Koh holds a Bachelor of
Engineering, a Master of Business Administration and a Postgraduate Diploma in Business Law from the
University of Singapore (now known as the National University of Singapore). We believe Mr. Koh’s
qualifications to sit on the Board of Directors include his experience on other public company boards of
directors and his significant executive experience with companies including those focused on
environmental awareness, which has become a focus of NTIC during the past several years, especially in
light of NTIC’s Natur-Tec® bioplastics business. Mr. Koh’s previous board of director experience is
helpful in guiding NTIC with respect to corporate governance matters, particularly in his role as Chair of
the Nominating and Corporate Governance Committee. Additionally, Mr. Koh has specific executive
experience with companies located in Asia, which is where several of NTIC’s joint ventures and NTIC’s
Chinese subsidiary are located.

Sunggyu Lee, Ph.D. has been a director of NTIC since January 2004. Dr. Lee is a Russ Ohio Research
Scholar in Syngas Utilization and Professor of Chemical and Biomolecular Engineering, Ohio University,

Athens, Ohio. Previously, he held positions of Professor of Chemical and Biologic Engineering, Missouri
University of Science and Technology, Rolla, Missouri from 2005 to 2010, C.W. LaPierre Professor and
Chairman of Chemical Engineering at University of Missouri-Columbia from 1997 to 2005, and Robert
Iredell Professor and Head of Chemical Engineering Department at the University of Akron, Akron, Ohio
from 1988 to 1996. He has authored 12 books and over 550 archival publications and received 35 U.S.
patents in a variety of chemical and polymer processes and products. He is currently serving as Editor of
Encyclopedia of Chemical Processing, Taylor & Francis, New York, New York and also as Book Series
Editor of Green Chemistry and Chemical Engineering, CRC Press, Boca Raton, Florida. Throughout his
career, he has served as consultant and technical advisor to a number of national and international
companies in the fields of polymers, petrochemicals and energy. He received his Ph.D. from Case
Western Reserve University, Cleveland, Ohio in 1980. We believe Dr. Lee’s qualifications to sit on the
Board of Directors include his significant technical and industrial expertise with chemical and polymer
processes and products. Such expertise is particularly helpful with respect to assessing and operating
NTIC’s Natur-Tec® bioplastics business.

G. Patrick Lynch, an employee of NTIC since 1995, has been President since July 2005 and Chief
Executive Officer since January 2006 and was appointed a director of NTIC in February 2004.
Mr. Lynch served as President of North American Operations of NTIC from May 2004 to July 2005.
Prior to May 2004, Mr. Lynch held various positions with NTIC, including Vice President of Strategic
Planning, Corporate Secretary and Project Manager. Mr. Lynch is also an officer and director of Inter
Alia Holding Company, which is a significant stockholder of NTIC. Prior to joining NTIC, Mr. Lynch
held positions in sales management for Fuji Electric Co., Ltd. in Tokyo, Japan, and programming project
management for BMW AG in Munich, Germany. Mr. Lynch received a Master of Business
Administration degree from the University of Michigan Ross School of Business. We believe
Mr. Lynch’s qualifications to sit on the Board of Directors include his depth of knowledge of our
company and its day-to-day operations in light of his position as Chief Executive Officer of NTIC, as well
as his affiliation with a significant stockholder of NTIC, which the Board of Directors believes generally
helps align management’s interests with those of our stockholders.

Ramani Narayan, Ph.D. has been a director of NTIC since November 2004. He is a Distinguished
Professor at Michigan State University in the Department of Chemical Engineering & Materials Science,
where he has 200+ refereed publications in leading journals to his credit, 19 patents, edited three books
and one expert dossier in the area of bio-based polymeric materials. His research encompasses design
and engineering of sustainable, biobased products, biodegradable plastics and polymers, biofiber
reinforced composites, reactive extrusion polymerization and processing, studies in plastic end-of-life
options like biodegradation and composting. He conducts carbon footprint calculations for plastics and
products. He also performs LCA (Life Cycle Assessment) for reporting a product’s environmental
footprint. He serves as Scientific Chair of the Biodegradable Products Institute (BPI), North America.
He served on the Technical Advisory Board of Tate & Lyle. He served on the Board of Directors of
ASTM International, an international standard setting organization and was the founding Chair of the
committee on Environmentally Degradable Plastics and Biobased Products (D20.96) and the Plastics
Terminology Committee (D20.92). Dr. Narayan is also the technical expert for the United States on ISO
(International Standards Organization) TC 61 on Plastics—specifically for Terminology, Biobased and
Biodegradable Plastics. He has won numerous awards, including the Named MSU University
Distinguished Professor in 2007; the Governors University Award for commercialization excellence;
Michigan State University Distinguished Faculty Award, 2006, 2005 Withrow Distinguished Scholar
award, Fulbright Distinguished Lectureship Chair in Science & Technology Management &
Commercialization (University of Lisbon; Portugal); First recipient of the William N. Findley Award,
The James Hammer Memorial Lifetime Achievement Award, and Research and Commercialization
Award sponsored by ICI Americas, Inc. & the National Corn Growers Association. We believe
Dr. Narayan’s qualifications to sit on the Board of Directors include his significant technical expertise in

the bioplastics area which has been helpful to NTIC’s management in assessing and operating NTIC’s
Natur-Tec® bioplastics business.

Richard J. Nigon has been a director of NTIC since February 2010 and non-executive Chairman of the
Board since November 2012. Mr. Nigon is the Senior Vice President of Cedar Point Capital, Inc., a
private company that raises capital for early stage companies. From February 2001 until May 2007,
Mr. Nigon was a Director of Equity Corporate Finance for Miller Johnson Steichen Kinnard (MJSK), a
privately held investment firm. In December 2006, MJSK was acquired by Stifel Nicolaus, and
Mr. Nigon was a Managing Director of Private Placements at Stifel Nicolaus. From February 2000 to
February 2001, Mr. Nigon served as the Chief Financial Officer of Dantis, Inc., a web hosting company.
Prior to joining Dantis, Mr. Nigon was employed by Ernst & Young, LLP from 1970 to 2000, where he
served as a partner from 1981 to 2000. While at Ernst & Young, Mr. Nigon served as the Director of
Ernst & Young’s Twin Cities Entrepreneurial Services Group and was the coordinating partner on several
publicly-traded companies in the consumer retailing and manufacturing sectors. In addition to NTIC, Mr.
Nigon also serves on the board of directors of Tactile Systems Technology, Inc. and as chairperson of its
audit committee, on the board of directors of Celcuity Inc. and as chairperson of its audit committee and
serves on the board of directors of a number of privately-held companies. Mr. Nigon previously served
on the board of directors of Virtual Radiologic Corporation and Vascular Solutions, Inc. until its
acquisition by Teleflex Incorporated in February 2017. Through his 30 years of service at Ernst &
Young, LLP, Mr. Nigon brings to NTIC’s Board of Directors, and in particular the Audit Committee,
extensive public accounting and auditing experience. The Board believes Mr. Nigon’s strong background
in financial controls and reporting, financial management, financial analysis and SEC reporting
requirements is critical to the Board’s oversight responsibilities. In addition, his strategic planning
expertise and other experiences gained through his management and leadership roles at private investment
firms that have invested in early stage companies, is helpful to the Board in assessing and operating
NTIC’s newer businesses.

Konstantin von Falkenhausen has been a director of NTIC since November 2012. Mr. von Falkenhausen
is currently a Partner of B Capital Partners AG, an independent investment advisory boutique focused on
infrastructure, public private partnerships and clean energy. In this capacity, since April 2018, Mr. von
Falkenhausen has been a Director of the general partner of the B Capital Energy Transition Infrastructure
Fund SICAV-SIF, an investment fund registered with the Luxembourg financial authorities CSSF. From
February 2004 to March 2008, Mr. von Falkenhausen served as a Partner of capiton AG, a private equity
firm. From March 2003 to February 2004, he served as interim Chief Financial Officer of Neon Products
GmbH, a privately held neon lighting company. From May 1999 to February 2003, Mr. von
Falkenhausen served as an investment manager of West Private Equity Ltd. and an investment director of
its German affiliate West Private Capital GmbH. Prior to May 1999, Mr. von Falkenhausen served in
several positions with BankBoston Robertson Stephens International Ltd., an investment banking firm.
Mr. von Falkenhausen is a citizen of Germany. He has a Master’s degree in economics (lic. oec) from the
University of Fribourg (Switzerland) and a Masters of Business Administration from the University of
Chicago. We believe Mr. von Falkenhausen’s qualifications to sit on the Board of Directors include his
experience with several private investment and equity firms that have invested in early stage companies,
which the Board believes is helpful in assessing and operating NTIC’s newer businesses, and his financial
expertise, which the Board believes is helpful in analyzing NTIC’s financial performance.

Board Recommendation

The Board of Directors unanimously recommends a vote FOR the election of all of the eight nominees
named above.

PROPOSAL TWO—ADVISORY VOTE ON EXECUTIVE COMPENSATION

________________

Introduction

The Board of Directors is providing stockholders with an advisory vote on executive compensation
pursuant to the Dodd-Frank Wall Street Consumer Protection Act and Section 14A of the Securities
Exchange Act of 1934, as amended. This advisory vote, commonly known as a “say-on-pay” vote, is a
non-binding vote on the compensation paid to our named executive officers as set forth in the “Executive
Compensation” section of this proxy statement beginning on page 41. At the 2019 Annual Meeting of
Stockholders held on January 18, 2019, 99% of the votes cast by our stockholders were in favor of our
say-on-pay vote. The Compensation Committee generally believes that such results affirmed stockholder
support of our approach to executive compensation.

Our executive compensation program is generally designed to attract, retain, motivate and reward highly
qualified and talented executive officers. The underlying core principles of our executive compensation
program are:

 To align the interests of our executives with those of our stockholders;



Integrate compensation with our business plans and strategic goals;

 Link amount of compensation to both company and individual performance goals; and

 Provide fair and competitive compensation opportunities that attract and retain executives.

The “Executive Compensation” section of this proxy statement, which begins on page 41, describes our
executive compensation program and the executive compensation decisions made by the Compensation
Committee and Board of Directors for fiscal 2019 in more detail. Important considerations include:

 A significant portion of the compensation paid or awarded to our named executive officers in
fiscal 2019 was “performance-based” or “at-risk” compensation that is tied directly to the
achievement of financial and other performance goals or long-term stock price performance.

 Equity-based compensation granted to our named executive officers was in the form of stock
options and aligns the long-term interests of our executives with the long-term interests of our
stockholders.

 Our executive officers receive only modest perquisites and have modest severance and change-in-

control arrangements.

 We have adopted a clawback policy.

 We do not provide any tax “gross-up” payments.

We believe that our executive compensation program and related decisions link pay to performance. For
example, our fiscal 2019 total net sales increased over 8.4% to $55,750,137 during fiscal 2019 compared
to fiscal 2018; however, our net income attributable to NTIC decreased to $5,209,622, or $0.55 per
diluted common share, for fiscal 2019 compared to $6,701,366, or $0.72 per diluted common share, as
adjusted to reflect our two-for-one stock split effected on June 28, 2019, for fiscal 2018. The total

compensation for our named executive officers for fiscal 2019 increased approximately 1% compared to
fiscal 2018.

Accordingly, the Board of Directors recommends that our stockholders vote in favor of the say-on-pay
vote as set forth in the following resolution:

RESOLVED, that our stockholders approve, on an advisory basis, the compensation paid to our

named executive officers, as disclosed in this proxy statement.

Stockholders are not ultimately voting to approve or disapprove the recommendation of the Board of
Directors. As this is an advisory vote, the outcome of the vote is not binding on us with respect to future
executive compensation decisions, including those relating to our named executive officers, or otherwise.
The Compensation Committee and Board of Directors expect to take into account the outcome of this
advisory vote when considering future executive compensation decisions.

Pursuant to Proposal Three—Advisory Vote on the Frequency of Future Advisory Votes on Executive
Compensation, and assuming our stockholders agree with the Board’s recommendation for an annual say-
on-pay vote, the next say-on-pay vote is anticipated to occur at our 2021 Annual Meeting of Stockholders.

Board Recommendation

The Board of Directors unanimously recommends a vote FOR approval, on an advisory basis, of the
compensation paid to our named executive officers, as disclosed in this proxy statement.

PROPOSAL THREE—ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY
VOTES ON EXECUTIVE COMPENSATION
_________________

Background

The Board of Directors is providing our stockholders with an advisory vote on the frequency of future
advisory votes on executive compensation, or say-on-pay votes, such as that provided for in Proposal
Two—Advisory Vote on Executive Compensation. This non-binding advisory vote is required to be
conducted every six years under Section 14A of the Securities Exchange Act of 1934, as amended,
pursuant to the Dodd-Frank Act. Our last frequency of say-on-pay vote was held at our 2014 Annual
Meeting of Stockholders, at which stockholders voted in favor of an annual say-on-pay vote. The next
required advisory vote on the frequency of future stockholder advisory votes on executive compensation
will occur no later than the 2026 Annual Meeting of Stockholders.

Stockholders may indicate whether they prefer that we hold a say-on-pay vote every one year, two years,
or three years, or they may abstain from this vote.

Reasons for an Annual Say-on-Pay Vote Recommendation

After careful consideration, the Board of Directors, upon recommendation of the Compensation
Committee, has determined that holding a say-on-pay vote on an annual basis continues to be the best
approach for NTIC and our stockholders and recommends that stockholders vote for future advisory votes
on executive compensation to occur every one year. While our executive compensation program is
designed to promote a long-term connection between pay and performance, the Board of Directors
recognizes that executive compensation decisions are made annually and that an annual say-on-pay vote:

 Aligns with our annual review of core elements of our executive compensation program;

 Allows stockholders to provide timely, direct input on our executive compensation philosophy,

policies, and practices as disclosed in our proxy statement each year; and



Is consistent with our practice of seeking input and engaging in dialogue with our stockholders on
corporate governance matters and our executive compensation philosophy, policies and practices.

Stockholders are not voting to approve or disapprove the Board of Directors’ recommendation. Instead,
stockholders may indicate their preference regarding the frequency of future say-on-pay votes by
selecting every one year, two years or three years. Stockholders that do not have a preference regarding
the frequency of future say-on-pay votes may abstain from voting on the proposal.

The option of every one year, two years or three years that receives the highest number of votes cast by
our stockholders will reflect the frequency for future say-on-pay votes that has been selected by our
stockholders. As this is an advisory vote, the outcome of the vote is not binding on us, and the
Compensation Committee and the Board of Directors may decide that it is in the best interests of NTIC
and our stockholders to hold a say-on-pay vote more or less frequently than the preference receiving the
highest number of votes of our stockholders. However, the Compensation Committee and the Board of
Directors value the opinions expressed by our stockholders in their vote on this proposal and expect to
take into account the outcome of this vote when considering the frequency of future advisory votes on
executive compensation.

Board Recommendation

The Board of Directors unanimously recommends that our stockholders vote for a frequency of every
ONE YEAR, on an advisory basis, for future advisory votes on executive compensation, or say-on-pay
votes.

PROPOSAL FOUR—RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
_________________

Selection of Independent Registered Public Accounting Firm

The Audit Committee of the Board of Directors selects our independent registered public accounting firm.
In this regard, the Audit Committee evaluates the qualifications, performance and independence of our
independent registered public accounting firm and determines whether to re-engage our current
independent registered public accounting firm. As part of its evaluation, the Audit Committee considers,
among other factors, the quality and efficiency of the services provided by the firm, including the
performance, technical expertise, and industry knowledge of the lead audit partner and the audit team
assigned to our account; the overall strength and reputation of the firm; its global capabilities relative to
our business; and its knowledge of our operations. Upon consideration of these and other factors, the
Audit Committee has selected Baker Tilly Virchow Krause, LLP to serve as our independent registered
public accounting firm for the fiscal year ending August 31, 2020. Baker Tilly Virchow Krause, LLP has
served as our independent registered public accounting firm since 2004.

Although it is not required to do so, the Board of Directors is asking our stockholders to ratify the Audit
Committee’s selection of Baker Tilly Virchow Krause, LLP as a matter of good corporate governance. If
our stockholders do not ratify the selection of Baker Tilly Virchow Krause, LLP, another independent
registered public accounting firm will be considered by the Audit Committee. Even if the selection is
ratified by our stockholders, the Audit Committee in its discretion may change the appointment at any
time during the year, if it determines that such a change would be in the best interests of NTIC and our
stockholders.

Representatives of Baker Tilly Virchow Krause, LLP will be present at the Annual Meeting to respond to
appropriate questions. They also will have the opportunity to make a statement if they wish to do so.

Audit, Audit-Related, Tax and Other Fees

The following table presents the aggregate fees billed to us by Baker Tilly Virchow Krause, LLP for the
fiscal years ended August 31, 2019 and August 31, 2018.

Audit Fees(1) .........................................................
Audit-Related Fees(2) ............................................
Tax Fees ...............................................................
All Other Fees ......................................................

Aggregate Amount Billed by
Baker Tilly Virchow Krause, LLP ($)
Fiscal 2018

Fiscal 2019

$ 478,522
6,000
—
—

$ 493,832
—
—
—

(1)

These fees consisted of the audit of our annual financial statements by year, review of financial statements
included in our quarterly reports on Form 10-Q and other services normally provided in connection with
statutory and regulatory filings or engagements.

(2)

Audit-related fees represent fees for services relating to registration statement filings.

Audit Committee Pre-Approval Policies and Procedures

All services rendered by Baker Tilly Virchow Krause, LLP to NTIC were permissible under applicable
laws and regulations and all services provided to NTIC, other than de minimis non-audit services allowed
under applicable law, were approved in advance by the Audit Committee. The Audit Committee has not
adopted any formal pre-approval policies and procedures.

Board Recommendation

The Board of Directors unanimously recommends that stockholders vote FOR ratification of the selection
of Baker Tilly Virchow Krause, LLP, as our independent registered public accounting firm for the fiscal
year ending August 31, 2020.

STOCK OWNERSHIP
________________

Beneficial Ownership of Significant Stockholders and Management

The following table sets forth information known to us with respect to the beneficial ownership of our
common stock as of November 20, 2019, the record date for the Annual Meeting, for:








each person known by us to beneficially own more than five percent of the outstanding shares of
our common stock;
each of our directors;
each of the executive officers named in the Summary Compensation Table included later in this
proxy statement under “Executive Compensation” and
all of our current directors and executive officers as a group.

The number of shares beneficially owned by a person includes shares subject to options held by that
person that are currently exercisable or that become exercisable within 60 days of November 20, 2019.
Percentage calculations assume, for each person and group, that all shares that may be acquired by such
person or group pursuant to options currently exercisable or that become exercisable within 60 days of
November 20, 2019 are outstanding for the purpose of computing the percentage of common stock owned
by such person or group. However, such unissued shares of common stock described above are not
deemed to be outstanding for calculating the percentage of common stock owned by any other person.

Except as otherwise indicated, the persons in the table below have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable and subject to the information contained in the notes to the table. Share
data set forth in the table below and the footnotes thereto have been adjusted to reflect our two-for-one
stock split effected on June 28, 2019.

Title of Class

Name and Address of Beneficial Owner(1)

Directors and Officers:
Common Stock Nancy E. Calderon
Common Stock Barbara D. Colwell
Sarah E. Kemp
Common Stock
Soo-Keong Koh
Common Stock
Common Stock
Sunggyu Lee, Ph.D.
Common Stock G. Patrick Lynch(3)
Common Stock Ramani Narayan, Ph.D.
Common Stock Richard J. Nigon
Common Stock Konstantin von Falkenhausen
Common Stock Matthew C. Wolsfeld
Common Stock All current directors and executive officers as a

Amount and
Nature of
Beneficial
Ownership(2)

Percent of
Class

0
46,546
0
78,878
8,000
1,402,404
84,546
97,256
52,746
226,761

*
*
*
*
*

15.2%

*
1.1%
*
2.5%

group (10 persons)(4)

1,997,137

20.9%

Significant Beneficial Owners:
Common Stock

Inter Alia Holding Company(5)
23205 Mercantile Road
Beachwood, Ohio 44122

1,203,334

13.2%

Title of Class
Common Stock

Name and Address of Beneficial Owner(1)
Perritt Capital Management, Inc. and
Perritt Funds, Inc.(6)
300 South Wacker Drive, Suite 2880
Chicago, Illinois 60606

__________________________
* Represents beneficial ownership of less than one percent.

Amount and
Nature of
Beneficial
Ownership(2)

524,980

Percent of
Class
5.8%

(1)

(2)

(3)

(4)

(5)

(6)

The business address for each of the directors and officers of NTIC is c/o Northern Technologies
International Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014.

Includes for the persons listed below the following shares of common stock subject to options held by such
persons that are currently exercisable or become exercisable within 60 days of November 20, 2019:

Name
Directors
Nancy E. Calderon .........................................................................
Barbara D. Colwell .........................................................................
Sarah E. Kemp ...............................................................................
Soo-Keong Koh .............................................................................
Sunggyu Lee, Ph.D. .......................................................................
G. Patrick Lynch ....................................................................................
Ramani Narayan, Ph.D...........................................................................
Richard J. Nigon ....................................................................................
Konstantin von Falkenhausen ................................................................
Named Executive Officers
G. Patrick Lynch ......................................................................................
Matthew C. Wolsfeld ...............................................................................
All current directors and executive officers as a group (10 persons) ......

Shares of Common Stock
Underlying
Stock Options

0
43,546
0
45,546
8,000
124,966
45,546
66,656
51,546

124,966
92,367
478,173

Includes 1,203,334 shares held by Inter Alia Holding Company. See note (5) below.

The amount beneficially owned by all current directors and executive officers as a group includes
1,203,334 shares held of record by Inter Alia Holding Company. See notes (3) above and (5) below.

According to a Schedule 13D/A filed with the SEC on October 22, 2019, Inter Alia Holding Company is an
entity of which G. Patrick Lynch, our President and Chief Executive Officer, is a 47% stockholder.
G. Patrick Lynch shares equal voting and dispositive power over such shares with two other members of
his family. Inter Alia Holding Company’s address is 23205 Mercantile Road, Beachwood, Ohio 44122.

According to a Schedule 13G/A filed with the SEC on February 8, 2019, Perritt Capital Management, Inc.,
in its capacity as investment adviser, may be deemed the beneficial owner of 524,980 shares, which are
owned by investment advisory client(s). Perritt Capital Management, Inc. has sole voting power and sole
dispositive power over 44,650 shares and has shared voting power and shared dispositive power over
480,330 shares with Perritt Funds, Inc., an investment company.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes outstanding options and other awards under NTIC’s equity compensation
plans as of August 31, 2019. NTIC’s equity compensation plans as of August 31, 2019 were the Northern
Technologies International Corporation 2019 Stock Incentive Plan, the Northern Technologies
International Corporation Amended and Restated 2007 Stock Incentive Plan and the Northern
Technologies International Corporation Employee Stock Purchase Plan. Except for automatic annual
grants of $50,000 in options to purchase shares of NTIC common stock to NTIC’s directors in
consideration for their services as directors of NTIC, an automatic annual grant of $10,000 in options to
purchase shares of NTIC common stock to NTIC’s Chairman of the Board in consideration for his
services as Chairman on the first day of each fiscal year and automatic initial pro rata grants of $50,000 in
options to purchase shares of NTIC common stock to NTIC’s new directors in consideration for their
services as directors of NTIC, options and other awards granted in the future under the Northern
Technologies International Corporation 2019 Stock Incentive Plan are within the discretion of the Board
of Directors and the Compensation Committee of the Board of Directors and therefore cannot be
ascertained at this time. Share and per share data set forth in the table below and the footnotes thereto
have been adjusted to reflect our two-for-one stock split effected on June 28, 2019.

(a)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights

(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

839,172(1)(2)

—
839,172(1)(2)

$9.13

—
$9.13

(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding securities
reflected in column (a))

891,044(3)

—
891,044 (3)

Plan Category
Equity compensation plans
approved by security holders

Equity compensation plans not
approved by security holders

Total
__________________________
(1)

Amount includes shares of NTIC common stock issuable upon the exercise of stock options outstanding as
of August 31, 2019 under the Northern Technologies International Corporation Amended and Restated
2007 Stock Incentive Plan. No awards had been granted under the Northern Technologies International
2019 Stock Incentive Plan as of August 31, 2019.

(2)

(3)

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

Amount includes 800,000 shares remaining available at August 31, 2019 for future issuance under the
Northern Technologies International Corporation 2019 Stock Incentive Plan and 91,044 shares available at
August 31, 2019 for future issuance under the Northern Technologies International Corporation Employee
Stock Purchase Plan. Following the approval of the Northern Technologies International Corporation 2019
Stock Incentive Plan, no further shares were issued under the Northern Technologies International
Corporation Amended and Restated 2007 Stock Incentive Plan.

CORPORATE GOVERNANCE
________________

Corporate Governance Guidelines

The Board of Directors has adopted Corporate Governance Guidelines. A copy of these Corporate
Governance Guidelines can be found on the “Investor Relations—Corporate Governance” section of our
corporate website www.ntic.com. Among the topics addressed in our Corporate Governance Guidelines
are:

 Board size, composition and qualifications;
 Selection of directors;
 Board leadership;
 Board committees;
 Board and committee meetings;
 Executive sessions of independent directors;
 Meeting attendance by directors and non-

directors;

 Appropriate information and access;
 Ability to retain advisors;
 Conflicts of interest and director independence;
 Board interaction with corporate

constituencies;

 Retirement and term limits;

Board Leadership Structure

 Retirement and resignation policy;
 Change of principal occupation and board

memberships;

 Board compensation;
 Stock ownership by directors and executive

officers;

 Loans to directors and executive officers;
 CEO evaluation;
 Board and committee evaluation;
 Director continuing education;
 Succession planning;
 Related person transactions; and
 Communications with directors.

Under our Corporate Governance Guidelines, the office of Chairman of the Board and Chief Executive
Officer may or may not be held by one person. The Board of Directors believes it is best not to have a
fixed policy on this issue and that it should be free to make this determination based on what it believes is
best under the circumstances. However, the Board of Directors strongly endorses the concept of an
independent director being in a position of leadership. Under our Corporate Governance Guidelines, if at
any time the Chief Executive Officer and Chairman of the Board positions are held by the same person,
the Board of Directors will elect an independent director as a lead independent director.

G. Patrick Lynch currently serves as our President and Chief Executive Officer, and Richard J. Nigon
serves as our non-executive Chairman of the Board. Because the Chief Executive Officer and Chairman
of the Board positions currently are not held by the same person, we do not have a lead independent
director. We currently believe this leadership structure is in the best interests of our company and our
stockholders and strikes the appropriate balance between the Chief Executive Officer’s responsibility for
the strategic direction, day-to-day-leadership and performance of our company and the Chairman’s
responsibility to provide oversight of our company’s corporate governance and guidance to our Chief
Executive Officer and to set the agenda for and preside over Board of Directors meetings.

At each regular Board of Directors meeting, our independent directors meet in executive session with no
company management present during a portion of the meeting. After each such executive session, our
Chairman of the Board provides our Chief Executive Officer with any actionable feedback from our
independent directors.

Director Independence

The Board of Directors has affirmatively determined that seven of NTIC’s current nine directors are
“independent directors” under the Listing Rules of the Nasdaq Stock Market: Nancy E. Calderon,
Barbara D. Colwell, Sarah E. Kemp, Soo-Keong Koh, Sunggyu Lee, Ph.D., Richard J. Nigon and
Konstantin von Falkenhausen.

In making these affirmative determinations that such individuals are “independent directors,” the Board of
Directors reviewed and discussed information provided by the directors and by NTIC with regard to each
director’s business and personal activities as they may relate to NTIC and NTIC’s management.

Board Meetings and Attendance

The Board of Directors met four times during the fiscal year ended August 31, 2019. Each of the
directors attended at least 75% of the aggregate of the total number of meetings of the Board and the total
number of meetings held by all Board committees on which the director served.

Board Committees

The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee, each of which has the composition and responsibilities described
below. The Board of Directors, from time to time, may establish other committees to facilitate the
management of our company and may change the composition and responsibilities of our existing
committees. Each of the Audit Committee, Compensation Committee and Nominating and Corporate
Governance Committee operates under a written charter adopted by the Board of Directors, which can be
found on the “Investor Relations—Corporate Governance” section of our corporate website
www.ntic.com.

The following table summarizes the current membership of each of our three Board committees.

Director
Nancy E. Calderon
Barbara D. Colwell
Sarah E. Kemp
Soo-Keong Koh
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen

Audit Committee

Audit
√
√
—
—
—
—
—
Chair
√

Compensation
—
—
—
—
√
—
—
√
Chair

Nominating and
Corporate Governance
—
√
√
Chair
—
—
—
√
—

Responsibilities. The Audit Committee provides assistance to the Board of Directors in fulfilling its
responsibilities for oversight, for quality and integrity of the accounting, auditing, reporting practices,
systems of internal accounting and financial controls, the annual independent audit of our financial
statements, and the legal compliance and ethics programs of NTIC as established by management. The
Audit Committee’s primary responsibilities include:

 Overseeing our financial reporting process, internal control over financial reporting and

disclosure controls and procedures on behalf of the Board of Directors;

 Having sole authority to appoint, retain and oversee the work of our independent registered public

accounting firm and establish the compensation to be paid to the firm;

 Reviewing and pre-approving all audit services and permissible non-audit services to be provided

to NTIC by our independent registered public accounting firm;

 Establishing procedures for the receipt, retention and treatment of complaints regarding

accounting, internal accounting controls or auditing matters and for the confidential, anonymous
submission by our employees of concerns regarding questionable accounting or auditing matters;
and

 Overseeing the establishment and administration of (including the grant of any waiver from) a
written code of ethics applicable to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions.

The Audit Committee has the authority to engage the services of outside experts and advisors as it deems
necessary or appropriate to carry out its duties and responsibilities.

Composition. The current members of the Audit Committee are Ms. Calderon, Ms. Colwell, Mr. Nigon
and Mr. von Falkenhausen. Mr. Nigon is the chair of the Audit Committee.

Each current member of the Audit Committee qualifies as “independent” for purposes of membership on
audit committees pursuant to the Listing Rules of the Nasdaq Stock Market and the rules and regulations
of the SEC and is “financially literate” as required by the Listing Rules of the Nasdaq Stock Market. In
addition, the Board of Directors has determined that Ms. Calderon and Mr. Nigon qualify as “audit
committee financial experts” as defined by the rules and regulations of the SEC and meet the
qualifications of “financial sophistication” under the Listing Rules of the Nasdaq Stock Market as a result
of their extensive financial backgrounds and various financial positions they have held throughout their
respective careers. Stockholders should understand that these designations related to our Audit
Committee members’ experience and understanding with respect to certain accounting and auditing
matters do not impose upon any of them any duties, obligations or liabilities that are greater than those
generally imposed on a member of the Audit Committee or of the Board of Directors.

Meetings. The Audit Committee met four times during fiscal 2019 and once in executive session with
Baker Tilly Virchow Krause, LLP, our independent registered public accounting firm.

Audit Committee Report. This report is furnished by the Audit Committee of the Board of Directors with
respect to NTIC’s financial statements for the fiscal year ended August 31, 2019.

One of the purposes of the Audit Committee is to oversee NTIC’s accounting and financial reporting
processes and the audit of NTIC’s annual financial statements. NTIC’s management is responsible for the
preparation and presentation of complete and accurate financial statements. NTIC’s independent
registered public accounting firm, Baker Tilly Virchow Krause, LLP, is responsible for performing an
independent audit of NTIC’s financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and for issuing a report on their audit.

In performing its oversight role, the Audit Committee has reviewed and discussed NTIC’s audited
financial statements for the fiscal year ended August 31, 2019 with NTIC’s management. Management

represented to the Audit Committee that NTIC’s financial statements were prepared in accordance with
generally accepted accounting principles. The Audit Committee has discussed with Baker Tilly Virchow
Krause, LLP, NTIC’s independent registered public accounting firm, the matters required to be discussed
under Public Company Accounting Oversight Board standards. The Audit Committee has received the
written disclosures and the letter from Baker Tilly Virchow Krause, LLP required by applicable
requirements of the Public Company Accounting Oversight Board regarding Baker Tilly Virchow Krause,
LLP’s communications with the Audit Committee concerning independence. The Audit Committee has
discussed with Baker Tilly Virchow Krause, LLP its independence and concluded that the independent
registered public accounting firm is independent from NTIC and NTIC’s management.

Based on the review and discussions of the Audit Committee described above, in reliance on the
unqualified opinion of Baker Tilly Virchow Krause, LLP regarding NTIC’s audited financial statements,
and subject to the limitations on the role and responsibilities of the Audit Committee discussed above and
in the Audit Committee’s charter, the Audit Committee recommended to the Board of Directors that
NTIC’s audited financial statements for the fiscal year ended August 31, 2019 be included in its Annual
Report on Form 10-K for the fiscal year ended August 31, 2019 for filing with the Securities and
Exchange Commission.

This report is dated as of October 22, 2019.

Audit Committee

Richard J. Nigon, Chair
Nancy E. Calderon
Barbara D. Colwell
Konstantin von Falkenhausen

Other Information. Additional information regarding the Audit Committee and our independent
registered public accounting firm is disclosed under the “Proposal Four—Ratification of Selection of
Independent Registered Public Accounting Firm” section of this proxy statement.

Compensation Committee

Responsibilities. The Compensation Committee provides assistance to the Board of Directors in fulfilling
its oversight responsibility relating to compensation of our Chief Executive Officer and other executive
officers and administers our equity compensation plans. The Compensation Committee’s primary
responsibilities include:



recommending to the Board of Directors for its determination the annual salaries, incentive
compensation, long-term compensation and any and all other compensation applicable to our
executive officers;

establishing and, from time to time, reviewing and revising corporate goals and objectives with
respect to compensation for our executive officers and establishing and leading a process for the
full Board of Directors to evaluate the performance of our executive officers in light of those
goals and objectives;

administering our equity compensation plans and recommending to the Board of Directors for its
determination grants of options or other equity-based awards for executive officers, employees
and independent consultants under our equity compensation plans;



reviewing our policies with respect to employee benefit plans; and

establishing and, from time to time, reviewing and revising processes and procedures for the
consideration and determination of executive compensation.

The Compensation Committee has the authority to engage the services of outside experts and advisors as
it deems necessary or appropriate to carry out its duties and responsibilities, and prior to doing so,
assesses the independence of such experts and advisors from management.

Composition. The current members of the Compensation Committee are Dr. Lee, Mr. Nigon and Mr. von
Falkenhausen. Mr. von Falkenhausen is the current Chair of the Compensation Committee. The Board of
Directors has determined that each of the members of the Compensation Committee is considered an
“independent director” under the Listing Rules of the Nasdaq Stock Market, a “non-employee director”
within the meaning of Rule 16b-3 under the Exchange Act, and otherwise independent under the rules and
regulations of the SEC.

Processes and Procedures for Consideration and Determination of Executive Compensation. As
described in more detail above under “—Responsibilities,” the Board of Directors has delegated to the
Compensation Committee the responsibility, among other things, to recommend to the Board of Directors
any and all compensation payable to our executive officers, including annual salaries, incentive
compensation and long-term incentive compensation, and to administer our equity and incentive
compensation plans applicable to our executive officers. Decisions regarding executive compensation
made by the Compensation Committee are not considered final and are subject to final review and
approval by the entire Board of Directors. Under the terms of its formal written charter, the
Compensation Committee has the power and authority, to the extent permitted by our Bylaws and
applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the
Compensation Committee. The Compensation Committee has not generally delegated any of its duties
and responsibilities to subcommittees, but rather has taken such actions as a committee, as a whole.

Our President and Chief Executive Officer and our Chief Financial Officer assist the Compensation
Committee in gathering compensation related data regarding our executive officers and making
recommendations to the Compensation Committee regarding the form and amount of compensation to be
paid to each executive officer. In making final recommendations to the Board of Directors regarding
compensation to be paid to our executive officers, the Compensation Committee considers the
recommendations of our President and Chief Executive Officer and our Chief Financial Officer, but also
considers other factors, such as its own views as to the form and amount of compensation to be paid, the
achievement by the company of pre-established performance objectives, the general performance of the
company and the individual officers, the performance of the company’s stock price and other factors that
may be relevant. Neither management nor the Compensation Committee engaged a compensation
consultant.

Final deliberations and decisions by the Compensation Committee regarding its recommendations to the
Board of Directors of the form and amount of compensation to be paid to our executive officers are made
by the Compensation Committee, without the presence of any executive officer of our company. In
making final decisions regarding compensation to be paid to our executive officers, the Board of
Directors considers the same factors and gives considerable weight to the recommendations of the
Compensation Committee.

Meetings. The Compensation Committee met three times during fiscal 2019.

Nominating and Corporate Governance Committee

Responsibilities. The primary responsibilities of the Nominating and Corporate Governance Committee
include:



identifying individuals qualified to become members of the Board of Directors;

recommending director nominees for each annual meeting of our stockholders and director
nominees to fill any vacancies that may occur between meetings of stockholders;

 being aware of best practices in corporate governance matters;

 developing and overseeing an annual Board of Directors and Board committee evaluation

process; and



establishing and leading a process for determination of the compensation applicable to the non-
employee directors on the Board.

The Nominating and Corporate Governance Committee has the authority to engage the services of outside
experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.

Composition. The current members of the Nominating and Corporate Governance Committee are
Ms. Colwell, Ms. Kemp, Mr. Koh and Mr. Nigon. Mr. Koh is the chair of the Nominating and Corporate
Governance Committee. The Board of Directors has determined that each of the members of the
Nominating and Corporate Governance Committee is considered an “independent director” under the
Listing Rules of the Nasdaq Stock Market.

Processes and Procedures for Consideration and Determination of Director Compensation. As
mentioned above under “—Responsibilities,” the Board of Directors has delegated to the Nominating and
Corporate Governance Committee the responsibility, among other things, to review and make
recommendations to the Board of Directors concerning compensation for non-employee members of the
Board of Directors, including but not limited to retainers, meeting fees, committee chair and member
retainers and equity compensation. Decisions regarding director compensation made by the Nominating
and Corporate Governance Committee are not considered final and are subject to final review and
approval by the entire Board of Directors. Under the terms of its formal written charter, the Nominating
and Corporate Governance Committee has the power and authority, to the extent permitted by our Bylaws
and applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance
Committee has not generally delegated any of its duties and responsibilities to subcommittees, but rather
has taken such actions as a committee, as a whole.

In making recommendations to the Board of Directors regarding compensation to be paid to our non-
employee directors, the Nominating and Corporate Governance Committee considers fees and other
compensation paid to directors of comparable public companies, the number of board and committee
meetings that our directors are expected to attend, and other factors that may be relevant. In making final
decisions regarding non-employee director compensation, the Board of Directors considers the same
factors and the recommendation of the Nominating and Corporate Governance Committee.

Meetings. The Nominating and Corporate Governance Committee met seven times during fiscal 2019.

Director Nominations Process

Pursuant to a Director Nominations Process adopted by the Board of Directors, in selecting nominees for
the Board of Directors, the Nominating and Corporate Governance Committee first determines whether
the incumbent directors are qualified to serve, and wish to continue to serve, on the Board. The
Nominating and Corporate Governance Committee believes that NTIC and its stockholders benefit from
the continued service of qualified incumbent directors because those directors have familiarity with and
insight into NTIC’s affairs that they have accumulated during their tenure with the company. Appropriate
continuity of Board membership also contributes to the Board’s ability to work as a collective body.
Accordingly, it is the practice of the Nominating and Corporate Governance Committee, in general, to re-
nominate an incumbent director if the director wishes to continue his or her service with the Board, the
director continues to satisfy the criteria for membership on the Board that the Nominating and Corporate
Governance Committee generally views as relevant and considers in deciding whether to re-nominate an
incumbent director or nominate a new director, the Nominating and Corporate Governance Committee
believes the director continues to make important contributions to the Board, and there are no special,
countervailing considerations against re-nomination of the director.

Pursuant to a Director Nominations Process adopted by the Board of Directors, in identifying and
evaluating new candidates for election to the Board, the Nominating and Corporate Governance
Committee solicits recommendations for nominees from persons whom the Nominating and Corporate
Governance Committee believes are likely to be familiar with qualified candidates having the
qualifications, skills and characteristics required for Board nominees from time to time. Such persons
may include members of the Board of Directors and our senior management and advisors to our company.
In addition, from time to time, if appropriate, the Nominating and Corporate Governance Committee may
engage a search firm to assist it in identifying and evaluating qualified candidates. Nancy E. Calderon
and Sarah E. Kemp, who both joined the Board of Directors in October 2019, were recommended by
Barbara D. Colwell, who worked with Ms. Calderon and Ms. Kemp at a female corporate directors
organization.

The Nominating and Corporate Governance Committee reviews and evaluates each candidate whom it
believes merits serious consideration, taking into account available information concerning the candidate,
any qualifications or criteria for Board membership established by the Nominating and Corporate
Governance Committee, the existing composition of the Board, and other factors that it deems relevant.
In conducting its review and evaluation, the Nominating and Corporate Governance Committee solicits
the views of our management, other Board members, and other individuals it believes may have insight
into a candidate. The Nominating and Corporate Governance Committee may designate one or more of
its members and/or other Board members to interview any proposed candidate.

The Nominating and Corporate Governance Committee will consider recommendations for the
nomination of directors submitted by our stockholders. For more information, see the information set
forth under “Stockholder Proposals and Director Nominations for the 2021 Annual Meeting of
Stockholders ─ Director Nominations for 2021 Annual Meeting.” The Nominating and Corporate
Governance Committee will evaluate candidates recommended by stockholders in the same manner as
those recommended as stated above.

There are no formal requirements or minimum qualifications that a candidate must meet in order for the
Nominating and Corporate Governance Committee to recommend the candidate to the Board. The
Nominating and Corporate Governance Committee believes that each nominee should be evaluated based
on his or her merits as an individual, taking into account the needs of our company and the Board of
Directors. However, in evaluating candidates, there are a number of criteria that the Nominating and
Corporate Governance Committee generally views as relevant and is likely to consider. Some of these

factors include whether the candidate is an “independent director” under the Listing Rules of the Nasdaq
Stock Market and meets any other applicable independence tests under the federal securities laws and
rules and regulations of the SEC; whether the candidate is “financially literate” and otherwise meets the
requirements for serving as a member of an audit committee under the Listing Rules of the Nasdaq Stock
Market; whether the candidate is “financially sophisticated” under the Listing Rules of the Nasdaq Stock
Market and an “audit committee financial expert” under the federal securities laws and the rules and
regulations of the SEC; the needs of our company with respect to the particular talents and experience of
its directors; the personal and professional integrity and reputation of the candidate; the candidate’s level
of education and business experience; the candidate’s broad-based business acumen; the candidate’s level
of understanding of our business and its industry; the candidate’s ability and willingness to devote
adequate time to the work of the Board and its committees; the fit of the candidate’s skills and personality
with those of other directors and potential directors in building a board that is effective, collegial and
responsive to the needs of our company; whether the candidate possesses strategic thinking and a
willingness to share ideas; the candidate’s diversity of experiences, expertise, background and other
attributes; and the candidate’s ability to represent the interests of all stockholders and not a particular
interest group.

While we do not have a formal stand-alone diversity policy in considering whether to recommend any
director nominee, including candidates recommended by stockholders, and the Board of Directors has not
adopted a formal definition of diversity, the Board’s diversity is a consideration in the director nomination
process. As discussed above, the Nominating and Corporate Governance Committee considers the factors
described above, including the candidate’s diversity of experiences, expertise, background and other
attributes. The Nominating and Corporate Governance Committee seeks nominees with a broad diversity
of experience, expertise, backgrounds and other attributes. The Nominating and Corporate Governance
Committee does not assign specific weights to particular criteria and no particular criterion is necessarily
applicable to all prospective nominees. The Board of Directors believes that the backgrounds and
qualifications of directors, considered as a group, should provide a significant mix of experience,
knowledge and abilities that will allow the Board of Directors to fulfill its responsibilities.

For this year’s election, the Board of Directors has nominated eight individuals; all are incumbent
nominees who collectively bring tremendous diversity to the Board. Each nominee is a strategic thinker
and has varying, specialized experience in the areas relevant to NTIC and its businesses. Moreover, their
collective experience covers a wide range of geographies and industries, and roles in academia, corporate
governance and government. The eight director nominees range in age from 52 to 71; two of the eight
director nominees are women; three are of Asian descent; one is a citizen of Singapore; one is a citizen of
the Republic of Korea and one is a citizen of Germany.

Board Oversight of Risk

The Board of Directors as a whole has responsibility for risk oversight, with more in-depth reviews of
certain areas of risk being conducted by the relevant Board committees that report on their deliberations
to the full Board of Directors. The oversight responsibility of the Board and its committees is enabled by
management reporting processes that are designed to provide information to the Board about the
identification, assessment and management of critical risks and management’s risk mitigation strategies.
The areas of risk that we focus on include operational, financial (accounting, credit, liquidity and tax),
legal, compensation, competitive, health, safety, environmental, economic, political and reputational
risks.

The standing committees of the Board of Directors oversee risks associated with their respective principal
areas of focus. The Audit Committee’s role includes a particular focus on the qualitative aspects of
financial reporting, on our processes for the management of business and financial risk, our financial

reporting obligations and for compliance with significant applicable legal, ethical and regulatory
requirements. The Audit Committee, along with management, is also responsible for developing and
participating in a process for review of important financial and operating topics that present potential
significant risk to our company. The Compensation Committee is responsible for overseeing risks and
exposures associated with our executive compensation programs and arrangements and management
succession planning. The Nominating and Corporate Governance Committee oversees risks relating to
our corporate governance matters, director compensation programs and director succession planning.

We recognize that a fundamental part of risk management is understanding not only the risks a company
faces and what steps management is taking to manage those risks, but also understanding what level of
risk is appropriate for the company. The involvement of the full Board of Directors each year in
establishing our key corporate business strategies and annual fiscal budget is a key part of the Board’s
assessment of management’s appetite for risk and also a determination of what constitutes an appropriate
level of risk for our company.

We believe our current Board leadership structure is appropriate and helps ensure proper risk oversight
for our company for a number of reasons, including: (1) general risk oversight by the full Board of
Directors in connection with its role in reviewing our key business strategies and monitoring on an on-
going basis the implementation of our key business strategies; (2) more detailed oversight by our standing
Board committees that are currently comprised of and chaired by our independent directors, and (3) the
focus of our Chairman of the Board on allocating appropriate Board agenda time for discussion regarding
the implementation of our key business strategies and specifically risk management.

Code of Ethics

The Board of Directors has adopted a Code of Ethics, which applies to all of our directors, executive
officers, including our Chief Executive Officer and Chief Financial Officer, and other employees, and
meets the requirements of the SEC and the Nasdaq Stock Market. A copy of our Code of Ethics is
available on the “Investor Relations—Corporate Governance” section of our corporate website
www.ntic.com.

Policy Regarding Director Attendance at Annual Meetings of Stockholders

Although a regular Board of Directors meeting is generally held on the day of each annual meeting of
stockholders, this meeting is typically held by telephone. It is the policy of the Board of Directors that if
a regular in-person Board of Directors meeting occurs on the day of the annual meeting of stockholders,
directors standing for re-election should attend the annual meeting of stockholders, if their schedules
permit. Since a telephonic Board meeting was held on the day of last year’s annual meeting of
stockholders, the only directors who attended the meeting were Mr. Nigon and Mr. Lynch.

Complaint Procedures

The Audit Committee has established procedures for the receipt, retention and treatment of complaints
received by NTIC regarding accounting, internal accounting controls or auditing matters, and the
submission by our employees, on a confidential and anonymous basis, of concerns regarding questionable
accounting or auditing matters. Our personnel with such concerns are encouraged to discuss their
concerns with our outside legal counsel, who in turn will be responsible for informing the Audit
Committee.

Process Regarding Stockholder Communications with Board of Directors

Stockholders may communicate with the Board or any one particular director by sending correspondence,
addressed to NTIC’s Corporate Secretary, Northern Technologies International Corporation, 4201
Woodland Road, Circle Pines, MN 55014 with an instruction to forward the communication to the Board
or one or more particular directors. NTIC’s Corporate Secretary will promptly forward all such
stockholder communications to the Board or the one or more particular directors, with the exception of
any advertisements, solicitations for periodical or other subscriptions and other similar communications.

Summary of Cash and Other Compensation

DIRECTOR COMPENSATION
________________

The table below provides summary information concerning the compensation of each individual who
served as a director of our company during the fiscal year ended August 31, 2019, other than G. Patrick
Lynch, our President and Chief Executive Officer, who was not compensated separately for serving on
the Board of Directors during fiscal 2019. His compensation during fiscal 2019 for serving as an
executive officer of our company is set forth under “Executive Compensation” included elsewhere in this
proxy statement. Share and per share data set forth in the footnotes below have been adjusted to reflect
our two-for-one stock split effected on June 28, 2019.

DIRECTOR COMPENSATION – FISCAL 2019

Name
Barbara D. Colwell ...................... $
Soo-Keong Koh ...........................
Sunggyu Lee, Ph.D. .....................
Ramani Narayan, Ph.D. ...............
Richard J. Nigon ..........................
Konstantin von Falkenhausen ......
__________________________
(1)

Fees Earned or
Paid in Cash ($)

Option
Awards ($)(1)(2)

All Other

Compensation ($)(3) Total ($)

42,500 $
36,000
34,000
30,000
65,500
46,500

50,000 $
50,000
0
50,000
60,000
50,000

— $
—
—
144,000
—
—

92,500
86,000
34,000
224,000
125,500
96,500

The amounts in this column do not reflect compensation actually received by the directors nor do they
reflect the actual value that will be recognized by the directors. Instead, the amounts reflect the grant date
fair value for option grants made by us in fiscal 2019, as calculated in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718.

On September 1, 2018, each then current director, other than Dr. Lee and Mr. Lynch, received a stock
option to purchase 5,546 shares of our common stock at an exercise price of $18.23 per share granted under
the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan, the
material terms of which are described in more detail under “Executive Compensation—Stock Incentive
Plan.” These options vested in full on September 1, 2019 and will expire on August 31, 2028 or earlier in
the case of a director whose service as a director is terminated prior to such date. In addition, on September
1, 2018, Mr. Nigon received an additional stock option to purchase 1,110 shares of our common stock in
consideration for his service as Chairman of the Board. The terms of this stock option are identical to the
other director stock options granted on that date. See “—Non-Employee Director Compensation
Program—Stock Options.” The grant date fair value associated with these awards and as calculated in
accordance with FASB ASC Topic 718 is determined based on our Black-Scholes option pricing model.
The grant date fair value per share for the options granted on September 1, 2018 was $9.02 and was
determined using the following specific assumptions: risk free interest rate: 2.75%; expected life:
10.0 years; expected volatility: 45.8%; and expected dividend yield: 0%.

(2)

The table below provides information regarding the aggregate number of options to purchase shares of our
common stock outstanding at August 31, 2019 and held by each of the directors listed in the Director
Compensation Table. Note that because of the grant date, neither the Director Compensation Table nor the
table below reflect option grants on September 1, 2019. See “—Non-Employee Director Compensation
Program—Stock Options.”

Name
Barbara D. Colwell ..................
Soo-Keong Koh .......................

Aggregate Number
Of Securities
Underlying Options

43,546
45,546

Exercisable/
Unexercisable
38,000/5,546
40,000/5,546

Exercise
Price(s)

$6.70 – 18.23
$6.70 – 18.23

Expiration
Date(s)
11/18/2023 – 8/31/2028
08/31/2023 – 8/31/2028

Name
Sunggyu Lee, Ph.D. .................
Ramani Narayan, Ph.D. ...........
Richard J. Nigon ......................
Konstantin von Falkenhausen ..

Aggregate Number
Of Securities
Underlying Options

8,000
45,546
66,656
51,546

Exercisable/
Unexercisable
8,000/0
40,000/5,546
60,000/6,656
46,000/5,546

Exercise
Price(s)

$7.35
$6.70 – 18.23
$6.70 – 18.23
$5.125 – 18.23

Expiration
Date(s)

8/31/2023
08/31/2023 – 8/31/2028
08/31/2023 – 8/31/2028
11/15/2022 – 8/31/2028

(3)

We do not provide perquisites or other personal benefits to our directors. The amounts reflected for
Dr. Narayan reflects consulting fees paid during the fiscal year ended August 31, 2019 as described in more
detail below under “—Consulting Agreement.”

Non-Employee Director Compensation Program

Overview. Our non-employee directors for purposes of our director compensation program currently
consist of Nancy E. Calderon, Barbara D. Colwell, Sarah E. Kemp, Soo-Keong Koh, Sunggyu Lee, Ph.D.,
Ramani Narayan, Ph.D., Richard J. Nigon and Konstantin von Falkenhausen. Our non-employee
directors for fiscal 2019 were Barbara D. Colwell, Soo-Keong Koh, Sunggyu Lee, Ph.D., Ramani
Narayan, Ph.D., Richard J. Nigon and Konstantin von Falkenhausen.

We use a combination of cash and long-term equity-based incentive compensation in the form of annual
stock option grants to attract and retain qualified candidates to serve on the Board of Directors. In setting
non-employee director compensation, we follow the processes and procedures described under
“Corporate Governance—Nominating and Corporate Governance Committee—Processes and
Procedures for the Determination of Director Compensation.”

Cash Retainers and Meeting Fees. Each of our non-employee directors receives annual cash retainers and
meeting fees. The following table sets forth the annual cash retainers paid to our non-employee directors
during fiscal 2019:

Description
Non-employee Board Member ....................................................................................
Chairman of the Board ................................................................................................
Audit Committee Chair ...............................................................................................
Audit Committee Member (including Chair) ..............................................................
Compensation Committee Chair .................................................................................
Compensation Committee (including Chair) ..............................................................
Nominating and Corporate Governance Committee Chair .........................................
Nominating and Corporate Governance Committee (including Chair) .......................

Annual Cash
Retainer
25,000
15,000
5,000
4,500
4,000
3,000
2,000
3,000

Each of our non-employee directors also receives $1,000 for each Board, Board committee and strategy
review meeting attended. No director, however, earns more than $1,000 per day in Board, Board
committee and strategy review meeting fees.

Stock Options. Pursuant to our non-employee director compensation program, each non-employee
director who is expected to stand for re-election at the next annual meeting of stockholders, is
automatically granted a ten-year non-qualified option to purchase $50,000 in shares of our common stock
on the first day of each fiscal year in consideration for his or her service as a director of NTIC, and the
Chairman of the Board is automatically granted an additional ten-year non-qualified option to purchase
$10,000 in shares of our common stock on the first day of each fiscal year in consideration for his or her
services as Chairman. In addition, each new non-employee director is automatically granted a ten-year
non-qualified option to purchase a pro rata portion of $50,000 shares of our common stock calculated by

dividing the number of months remaining in the fiscal year at the time of election or appointment by
12 on the date the director is first elected or appointed as a director of NTIC. The number of shares of
common stock underlying the options is determined based on the grant date fair value of the options. Each
option becomes exercisable in full on the one-year anniversary of the grant date. The exercise price of
such options is equal to the fair market value of a share of our common stock on the grant date.

Each non-employee director of NTIC as of the first day of fiscal 2019, September 1, 2018, received a
stock option award pursuant to this program, with the exception of Dr. Sunggyu Lee, who has rejected
option grants to directors in connection with his services as a director of NTIC since 2014. More
recently, each non-employee director of NTIC as of the first day of fiscal 2020, September 1, 2019,
received a stock option award pursuant to this program, with the exception of Dr. Sunggyu Lee and
Ms. Colwell since she is not standing for re-election. Ms. Calderon and Ms. Kemp received options to
purchase 8,366 shares of our common stock on October 22, 2019 as a result of their initial election to the
Board of Directors on such date.

Under the terms of our stock incentive plan, unless otherwise provided in a separate agreement or
modified in connection with the termination of a director’s service, if a director’s service with our
company terminates for any reason, the unvested portion of options then held by the director will
immediately terminate and the director’s right to exercise the then vested portion will:



immediately terminate if the director’s service relationship with our company terminated for
“cause”;
continue for a period of 12 months if the director’s service relationship with our company
terminates as a result of the director’s death, disability or retirement; or
continue for a period of three months if the director’s service relationship with our company
terminates for any reason, other than for cause or upon the director’s death, disability or
retirement.

We refer you to note (1) to the Director Compensation Table for a summary of all option grants to our
non-employee directors during the fiscal year ended August 31, 2019 and note (2) to the Director
Compensation Table for a summary of all options to purchase shares of our common stock held by our
non-employee directors as of August 31, 2019.

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

Consulting Agreement

NTIC, Bioplastic Polymers LLC and Dr. Narayan are parties to a consulting agreement pursuant to which
Dr. Narayan provides certain consulting services to us relating to our Natur-Tec® business and bioplastics
program. The consulting agreement sets out terms for clear separation between Dr. Narayan’s work at
Michigan State University and any related inventions and his work with us and related inventions. In
exchange for the consulting services, we pay Dr. Narayan $12,000 per month. The term of the consulting
agreement is five years, and unless earlier terminated by the parties, will terminate on January 11, 2022.
Either party may terminate the consulting agreement earlier upon 30 days prior written notice. The
consulting agreement will terminate automatically upon the death of Dr. Narayan or in the event of his
disability that prevents him from performing the consulting services under the agreement. We paid
consulting fees to Bioplastic Polymers LLC, which is owned by Ramani Narayan, Ph.D., in the aggregate
amount of $144,000 during the fiscal year ended August 31, 2019.

EXECUTIVE COMPENSATION
________________

Compensation Review

In this Compensation Review, we describe the key principles and approaches we use to determine
elements of compensation paid to, awarded to and earned by G. Patrick Lynch, who serves as our
President and Chief Executive Officer (referred to as our “CEO”), and Matthew C. Wolsfeld, who serves
as our Chief Financial Officer (referred to as our “CFO”). Their compensation is set forth in the
Summary Compensation Table found later in this proxy statement. The CEO and CFO are the only two
individuals who have been designated by our Board of Directors as “executive officers” of NTIC within
the meaning of the federal securities laws. This Compensation Review should be read in conjunction
with the accompanying compensation tables, corresponding notes and narrative discussion, as they
provide additional information and context to our compensation disclosures. We refer to the CEO and
CFO in this proxy statement as our “named executive officers” or “executives.”

When reading this Compensation Review, please note that we are a “smaller reporting company” under
the federal securities laws and are not required to provide a “Compensation Discussion and Analysis” of
the type required by Item 402 of Regulation S-K. This Compensation Review is intended to supplement
the SEC-required disclosure, which is included below this section, and it is not a Compensation
Discussion and Analysis.

Executive Summary

One of our key executive compensation objectives is to link pay to performance by aligning the financial
interests of our executives with those of our stockholders and by emphasizing pay for performance in our
compensation programs. We believe we accomplish this objective primarily through our annual bonus
plan, which compensates executives for achieving annual corporate financial goals and individual goals.

Our fiscal 2019 total net sales increased over 8.4% to $55,750,137 during fiscal 2019 compared to fiscal
2018; however, our net income attributable to NTIC decreased to $5,209,622, or $0.55 per diluted
common share, for fiscal 2019 compared to $6,701,366, or $0.72 per diluted common share, as adjusted
to reflect our two-for-one stock split effected on June 28, 2019, for fiscal 2018.

Total compensation for our named executive officers for fiscal 2019 increased approximately 1%
compared to fiscal 2018, primarily as a result of increased stock option grants, which were made in partial
payment for their anticipated bonuses under our annual bonus plan.

Compensation Highlights and Best Practices

Our compensation practices include many best pay practices that support our executive compensation
objectives and principles and benefit our stockholders, such as the following:

 Pay for performance. We tie compensation directly to financial performance. Our annual bonus
plan pays out only if a certain minimum adjusted earnings threshold is met, and the payouts are
completely dependent upon our actual adjusted earnings.

 At-risk pay. A significant portion of executives’ compensation is “performance-based” or “at
risk.” For fiscal 2019, 49% of total compensation for our named executive officers was
performance-based, assuming grant date fair values for equity awards.

 Equity-based pay. A significant portion of executives’ compensation is “equity-based” and in the
form of stock-based incentive awards. For fiscal 2019, 28% of total compensation for our named
executive officers was equity-based, assuming grant date fair values for equity awards.

 Clawback policy. Our stock incentive plan and related award agreements include a “clawback”
mechanism to recoup incentive compensation if it is determined that executives engaged in
certain conduct adverse to our interests. In addition, in August 2018, we adopted a clawback
policy pursuant to which we may recover certain incentive compensation from current or former
executive officers in the event a financial metric used to determine the vesting or payment of
incentive compensation to an executive was calculated incorrectly or the executive engaged in
egregious conduct that is substantially detrimental to our company.

 No tax gross-ups. We do not provide any tax “gross-up” payments in connection with any

compensation, benefits or perquisites provided to our executives.

 Limited perquisites. We provide only limited perquisites to our executives.

 No hedging or pledging. We prohibit our executives from engaging in hedging transactions, such
as short sales, transactions in publicly traded options, such as puts, calls and other derivatives,
and pledging our common stock in any significant respect.

Say-on-Pay Vote

At our 2019 Annual Meeting of Stockholders, our stockholders had the opportunity to provide an
advisory vote on the compensation paid to our named executive officers, or a “say-on-pay” vote. Of the
votes cast by our stockholders, 99% were in favor of our “say-on-pay” proposal. Accordingly, the
Compensation Committee generally believes that these results affirmed stockholder support of our
approach to executive compensation and did not believe it was necessary to make, and therefore has not
made, any changes to our executive pay program solely in response to that vote. Due to the fact that the
last advisory vote on the frequency of the say-on-pay vote was conducted at our 2014 Annual Meeting of
Stockholders, NTIC is holding an advisory vote on the frequency of the say-on-pay vote at this year’s
meeting. The Board of Directors will take into account the preference of NTIC’s stockholders in
determining the new frequency. Assuming stockholders agree with the Board of Directors and vote in
favor of an annual frequency of say-on-pay votes, the next say-on-pay vote will occur at our 2021 Annual
Meeting of Stockholders. Our next vote on the frequency of the say-on-pay vote is expected to occur at
our 2026 Annual Meeting of Stockholders.

Executive Compensation Objectives

Our guiding compensation philosophy is to maintain an executive compensation program that allows us
to attract, retain, motivate and reward qualified and talented executives that will enable us to grow our
business, achieve our annual, long-term and strategic goals and drive long-term stockholder value.

The following core principles provide a framework for our executive compensation program:

 Align interests of our executives with stockholder interests;



Integrate compensation with our business plans and strategic goals;

 Link amount of compensation to both company and individual performance; and

 Provide fair and competitive compensation opportunities that attract and retain executives.

How We Make Compensation Decisions

There are several elements to our executive compensation decision-making, which we believe allow us to
most effectively implement our compensation philosophy. Each of these elements and their roles are
described briefly below.

Role of the Compensation Committee. The Compensation Committee, which is comprised solely of
independent directors, oversees our executive compensation program. Within its duties, the
Compensation Committee recommends compensation for the CEO and CFO. In doing so, the
Compensation Committee:

 Approves and recommends that the Board approve the total executive compensation package for
each executive, including his base salary, annual bonus payout and annual stock option awards;

 Approves and recommends that the Board approve the terms of our annual bonus plan;

 Approves and recommends that the Board approve annual stock option grants;

 Evaluates market competitiveness of our executive compensation program; and

 Evaluates proposed significant changes to all other elements of our executive compensation

program.

In setting or recommending executive compensation for our executives, the Compensation Committee
considers the following primary factors:



each executive’s position within the company and the level of responsibility;

the ability of the executive to impact key business initiatives;

the executive’s individual experience and qualifications;

company performance, as compared to specific pre-established objectives;

individual performance, generally and as compared to specific pre-established objectives;

the executive’s current and historical compensation levels;

advancement potential and succession planning considerations;

an assessment of the risk that the executive would leave NTIC and the harm to our business
initiatives if the executive left;

the retention value of executive equity holdings, including outstanding stock options;

the dilutive effect on the interests of our stockholders of long-term equity-based incentive
awards; and

anticipated share-based compensation expense as determined under applicable accounting
rules.

The Compensation Committee also considers the recommendations of the CEO with respect to executive
compensation to be paid to other executives and employees. The significance of any individual factor
described above in setting executive compensation will vary from year to year and may vary among our
executives. In making its final decision regarding the form and amount of compensation to be paid to our
named executive officers (other than the CEO), the Compensation Committee considers and gives great
weight to the recommendations of the CEO recognizing that due to his reporting and otherwise close

relationship with each executive and employee, the CEO often is in a better position than the
Compensation Committee to evaluate the performance of each executive (other than himself). In making
its final decision regarding the form and amount of compensation to be paid to the CEO, the
Compensation Committee considers the results of the CEO’s self-review and his individual annual
performance review by the Compensation Committee and the recommendations of our non-employee
directors. The CEO’s compensation is approved by the Board of Directors (with the CEO abstaining),
upon recommendation of the Compensation Committee.

Role of Management. Management’s role is to provide current compensation information to the
Compensation Committee and provide analysis and recommendations on executive compensation to the
Compensation Committee based on the executive’s level of professional experience; the executive’s
duties and responsibilities; individual performance; tenure; and historic corporate performance. None of
our executives, including the CEO, provides input or recommendations with respect to his own
compensation.

Use of Market Data. Since there are no public companies of which NTIC is aware that are substantially
similar to NTIC, in terms of its business, industry and corporate profile, the Compensation Committee has
not used market data to review and evaluate executive compensation in any material respect. However,
the Compensation Committee has recently used a group of peer companies with a market capitalization
similar to NTIC and either in a similar industry or located in Minnesota.

Elements of Our Executive Compensation Program

Our executive compensation program for the fiscal year ended August 31, 2019 consisted of the following
key elements:

 Base salary;
 Annual incentive compensation;
 Long-term equity-based incentive compensation, in the form of stock options; and
 All other compensation, including health and welfare benefits, retirement plans and perquisites.

The table below provides some of the key characteristics of and purpose for each element along with
some key actions taken during fiscal 2019.

Element
Base Salary A fixed amount, paid in cash

Key Characteristics

and reviewed annually and,
if appropriate, adjusted.

Annual
Incentive

A variable, short-term
element of compensation that
is typically payable in cash
and is based on Adjusted
EBITOI and individual
performance goals.

Purpose

Provide a source of fixed income
that is competitive and reflects
scope and responsibility of the
position held.
Motivate and reward our executives
for achievement of annual business
results intended to drive overall
company performance.

Key Fiscal 2019 Actions
Our named executive officers
received 10% increases to their
fiscal 2018 annual base salaries.

Messrs. Lynch and Wolsfeld
received bonuses in the amount
of $182,342 and $134,775,
respectively, in each case
representing 43% of their annual
base salary. A portion of the
annual incentive earned for fiscal
2019 was paid in the form of a
stock option grant made at the
beginning of fiscal 2019.

Element
Long-Term
Equity-
Based
Incentive

Key Characteristics
A variable, long-term element
of compensation that is
provided in the form of stock
options. Stock options are
time-based and vest on the
one-year anniversary of the
grant date.

Purpose
Align the interests of our executives
with the long-term interests of our
stockholders; promote stock
ownership and create significant
incentives for executive retention.

Key Fiscal 2019 Actions
Stock options vest on the one-
year anniversary of the grant date
instead of over three years. A
portion of the fiscal 2019 stock
option grant was intended as
partial payout of the fiscal 2019
annual bonus program.

Health and
Welfare
Benefits

Retirement
Plans

Perquisites

Includes health, dental and
life insurance.

Provide competitive health and
welfare benefits at a reasonable cost
and promote employee health.

No significant changes were
made.

Includes a 401(k) plan.
We do not provide pension
arrangements or post-
retirement health coverage for
our executives or employees.
We also do not provide any
nonqualified defined
contribution or other deferred
compensation plans.

Includes use of a company-
owned automobile. We do not
provide any other perquisites
to our executives.

Provide an opportunity for
employees to save and prepare
financially for retirement.

No significant changes were
made.

Assist in the attraction and retention
of executives.

No significant changes were
made.

We describe each key element of our executive compensation program in more detail in the following
pages, along with the compensation decisions made in fiscal 2019.

Base Salary. We provide a base salary for our named executive officers, which, unlike some of the other
elements of our executive compensation program, is not subject to company or individual performance
risk. We recognize the need for most executives to receive at least a portion of their total compensation in
the form of a guaranteed base salary that is paid in cash regularly throughout the year.

We initially fix base salaries for our executives at a level that we believe enables us to hire and retain
them in a competitive environment and to reward satisfactory individual performance and a satisfactory
level of contribution to our overall business objectives. The Compensation Committee reviews base
salaries for our named executive officers each year typically in August and generally recommends to the
Board of Directors any increases for the following fiscal year in August. Any increases in base salaries
are effective as of September 1.

The Compensation Committee’s recommendations to the Board of Directors regarding the base salaries of
our named executive officers are based on a number of factors, including: the executive’s level of
responsibility, prior experience and base salary for the prior year, the skills and experiences required by
the position, length of service with our company, past individual performance, cost of living increases and
other considerations the Compensation Committee deems relevant. The Compensation Committee also
recognizes that in addition to the typical responsibilities and duties held by our executives, by virtue of
their positions, our executives, due to the small number of our executives and employees, often possess
additional responsibilities and perform additional duties that would be typically delegated to others in
most organizations with additional personnel and resources.

Annualized base salary rates for fiscal 2018 and fiscal 2019 for our named executive officers were as
follows:

Name
G. Patrick Lynch ......................
Matthew C. Wolsfeld ................

Fiscal
2018

$ 389,962
288,232

Fiscal
2019

$ 428,958
317,056

% Change From
Fiscal 2018
10.0%
10.0%

An increase of 10% was determined appropriate in light of the increased responsibilities taken on by our
executives and performance during fiscal 2018. The Board of Directors, upon recommendation of the
Compensation Committee, recently set base salaries for fiscal 2020. Mr. Lynch’s base salary for fiscal
2020 is $435,392, and Mr. Wolsfeld’s base salary for fiscal 2020 is $321,811, representing base salary
increases of 1.5% over their respective base salaries for fiscal 2019.

Annual Incentive Compensation. In addition to base compensation, we provide our named executive
officers the opportunity to earn annual incentive compensation based on the achievement of certain
company and individual related performance goals. Our annual bonus program directly aligns the
interests of our executive officers and stockholders by providing an incentive for the achievement of key
corporate and individual performance measures that are critical to the success of our company and linking
a significant portion of each executive’s annual compensation to the achievement of such measures.

Under the annual bonus plan for fiscal 2019, the total amount available under the bonus plan for all plan
participants, including executives, as in past years, was a percent of NTIC’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 (referred to as “Adjusted EBITOI”). For fiscal 2019, the other adjustments included
amounts paid under NTIC’s sales and management bonus plan and profit sharing plan. For each named
executive officer participant, 75% of the amount of their individual bonus payout was determined based
upon their individual allocation percentage of the total amount available under the bonus plan, and 25%
of their individual payout was determined based upon their achievement of certain pre-established but
more qualitative individual performance objectives.

A plan participant’s individual allocation percentage of the total amount available under the bonus plan
was based on the number of plan participants, the individual’s annual base salary and the individual’s
position and level of responsibility within the company. Mr. Lynch’s individual allocation percentage for
fiscal 2019 was 23% and Mr. Wolsfeld’s individual allocation percentage for fiscal 2019 was 17%.

Mr. Lynch’s individual performance objectives for fiscal 2019 related primarily to NTIC’s operations in
China and other subsidiaries, management of pending litigation, improvement and maintenance of key
joint venture relationships, improvement and maintenance of investors relations and retention and
improvement of key personnel. Mr. Wolsfeld’s individual performance objectives for fiscal 2019 related
primarily to implementation of cost control measures, comparative analysis of NTIC’s joint ventures,
financial oversight of NTIC’s subsidiary in China, management of NTIC’s Human Resources department
and improvement and maintenance of institutional investor relations. In the case of both Mr. Lynch and
Mr. Wolsfeld, the Compensation Committee determined each executive achieved his individual
performance objectives at a 66.2% achievement level.

Mr. Lynch received a total cash bonus of $182,342 for fiscal 2019 and Mr. Wolsfeld received a total
bonus of $134,775 for fiscal 2019. Additionally, a portion of the annual bonus earned was paid in the
form of a stock option grant on September 1, 2018.

The structure and material terms of our annual bonus plan for fiscal 2020 are similar to the annual bonus
plan for fiscal 2019. As in past years, the payment of bonuses under the plan for fiscal 2020 will be
discretionary and may be paid to participants in cash and/or shares of NTIC common stock.

Long-Term Equity-Based Incentive Compensation. The long-term equity-based incentive compensation
component of our executive compensation program consists of annual option grants to our executives and
certain other employees. The stock options are typically granted on the first business day of each fiscal
year. Share and per share data set forth below have been adjusted to reflect our two-for-one stock split
that was effective June 28, 2019.

Accordingly, on September 1, 2018, NTIC granted Mr. Lynch an option to purchase 27,596 shares of
common stock and Mr. Wolsfeld an option to purchase 20,396 shares of common stock. These options
vested in full on the first anniversary of the grant date. More recently, on September 1, 2019, NTIC
granted Mr. Lynch an option to purchase 58,651 shares of common stock and Mr. Wolsfeld an option to
purchase 43,351 shares of common stock. These options will vest on the first anniversary of the grant
date. In determining the number of stock options to grant to our executives and other employees, the
Board of Directors, upon recommendation of the Compensation Committee, considered the anticipated
amount to be earned under the annual bonus plan and a portion of which it preferred to pay out in the
form of a stock option grant and the total amount of stock-based compensation expense budgeted for such
options and divided that amount by the grant date fair value per share to obtain a total option pool. Of the
total option pool, the number of options to be granted to each executive and employee receiving options
was then determined based on the individual’s base salary as a percentage of the total aggregate base
salaries of all executive and employees receiving option grants.

The Compensation Committee’s primary objectives with respect to long-term equity-based incentive
compensation are to align the interests of our executives with the long-term interests of our stockholders,
promote stock ownership and create significant incentives for executive retention. Long-term equity-
based incentives are intended to comprise a significant portion of each executive’s compensation package,
consistent with our executive compensation objective to align the interests of our executives with the
interests of our stockholders. For fiscal 2019, equity-based compensation comprised 28% of the total
compensation for Mr. Lynch and Mr. Wolsfeld, assuming grant date fair value for equity awards. All
equity-based compensation granted to our executives and other employees is granted under our then
current stockholder-approved stock incentive plan.

The Compensation Committee uses stock options as opposed to other equity-based incentive awards since
the Compensation Committee believes that options effectively incentivize executives to maximize
company performance, as the value of awards is directly tied to an appreciation in the value of our
common stock. Stock options also provide an effective retention mechanism because of vesting
provisions. An important objective of our long-term equity-based incentive program is to strengthen the
relationship between the long-term value of our common stock and the potential financial gain for our
executives. Stock options provide recipients with the opportunity to purchase our common stock at a
price fixed on the grant date regardless of future market price. The vesting of our stock options is time-
based – upon the one-year anniversary of the date of grant. Our policy is to grant options only with an
exercise price equal to or more than the fair market value of our common stock on the grant date. Under
the terms of our incentive plan, fair market value is defined as the mean between the reported high and
low sale prices of our common stock as of the grant date at the end of the regular trading session, as
reported on the Nasdaq Global Market. Because stock options become valuable only if the share price
increases above the exercise price and the option holder remains employed during the period required for
the option to vest, they provide an incentive for an executive to remain employed. In addition, stock
options link a portion of an employee’s compensation to the interests of our stockholders by providing an

incentive to achieve corporate goals and increase the market price of our common stock over the vesting
period.

Although we do not have any stock retention or ownership guidelines, the Board of Directors encourages
our executives to have a financial stake in our company in order to align the interests of our executives
with the interests of our stockholders. Through the grant of stock options, we seek to align the long-term
interests of our executives with the long-term interests of our stockholders by creating a strong and direct
link between compensation and long-term stockholder return. When our executives deliver returns to our
stockholders, in the form of increases in our stock price or otherwise, stock options permit an increase in
their compensation. We also believe that stock options enable our executives to achieve a meaningful
equity ownership in our company and enable us to attract, retain and motivate our executives by
maintaining competitive levels of total compensation. As described in more detail below, under the terms
of our insider trading policy, our executives are prohibited from engaging in any hedging or significant
pledging of their shares of our common stock.

All Other Compensation. It is generally our policy not to extend significant perquisites to our executives
that are not available to our employees generally. The only significant perquisite that we provide to our
executives is the personal use of a company-owned vehicle. Our executives also receive benefits, which
are also received by our other employees, including participation in the Northern Technologies
International Corporation 401(k) Plan and health, dental and life insurance benefits. Under the 401(k)
plan, all eligible participants, including our executives, may voluntarily request that we reduce his or her
pre-tax compensation by up to 10% (subject to certain special limitations) and contribute such amounts to
a trust. We typically contribute an amount equal to 50% of the first 7% of the amount that each
participant contributed under this plan. We do not provide pension arrangements or post-retirement
health coverage for our executives or employees. We also do not provide any nonqualified defined
contribution or other deferred compensation plans.

Change in Control and Post-Termination Severance Arrangements

Change in Control Arrangements. To encourage continuity, stability and retention when considering the
potential disruptive impact of an actual or potential corporate transaction, we have established change in
control arrangements, including provisions in our stock incentive plans and written employment
agreements with our executives. These arrangements are designed to incentivize our executives to remain
with NTIC in the event of a change in control or potential change in control.

Under the terms of our stock incentive plans and the individual award documents provided to recipients of
awards under those plans, all stock options become immediately vested and exercisable upon the
completion of a change in control of NTIC. For more information, see “—Potential Payments Upon
Termination or Change in Control—Change in Control Arrangements.” Thus, the immediate vesting of
stock options is triggered by the change in control, itself, and thus is known as a “single trigger” change
in control arrangement. We believe these “single trigger” equity acceleration change in control
arrangements provide important retention incentives during what can often be an uncertain time for
executives. They also provide executives with additional monetary motivation to focus on and complete a
transaction that the Board of Directors believes is in the best interests of our stockholders rather than to
seek new employment opportunities. If an executive were to leave before the completion of the change in
control, non-vested options held by the executive would terminate.

In addition, we have entered into employment agreements with our named executive officers to provide
certain payments and benefits in the event of a change in control, which are payable only in the event
their employment is terminated in connection with the change in control (“double-trigger” provisions).
These change in control protections provide consideration to executives for certain restrictive covenants

that apply following termination of employment and provide continuity of management in connection
with a threatened or actual change in control transaction. If an executive’s employment is terminated
without “cause” or by the executive for “good reason” (as defined in the employment agreements) within
24 months following a change in control, the executive will be entitled to receive a lump sum payment
equal to two times, in the case of the CEO, and one and one-half times, in the case of the CFO, his
average total annual compensation for the two most recently completed fiscal years, plus a pro rata
portion of the target bonus that the executive otherwise would have been eligible to receive under our
bonus plan for the fiscal year during which the executive’s employment is terminated, with such pro rata
portion based on the number of completed months during the fiscal year that the executive was employed
with our company. These arrangements, and a quantification of the payment and benefits provided under
these arrangements, are described in more detail under “—Potential Payments Upon Termination or
Change in Control—Change in Control Arrangements.” Other than the immediate acceleration of equity-
based awards, which we believe aligns our executives’ interests with those of our stockholders by
allowing executives to participate fully in the benefits of a change in control as to all of their equity, in
order for a named executive officer to receive any other payments or benefits as a result of a change in
control of NTIC, there must be a termination of the executive’s employment, either by us without cause
or by the executive for good reason. The termination of the executive’s employment by the executive
without good reason will not give rise to additional payments or benefits either in a change in control
situation or otherwise. Thus, these additional payments and benefits will not just be triggered by a change
in control, but also will require a termination event not within the control of the executive, and thus are
known as “double trigger” change in control arrangements. As opposed to the immediate acceleration of
stock options, we believe that other change in control payments and benefits should properly be tied to
termination following a change in control, given the intent that these amounts provide economic security
to ease the executive’s transition into new employment.

We believe these change in control arrangements are an important part of our executive compensation
program in part because they mitigate some of the risk for executives working in a smaller company
where there is a meaningful risk that the company may be acquired. Change in control benefits are
intended to attract and retain qualified executives who, absent these arrangements and in anticipation of a
possible change in control of NTIC, might consider seeking employment alternatives to be less risky than
remaining with NTIC through the transaction. We believe that relative to our company’s overall value,
our potential change in control benefits are relatively small. We also believe that the form and amount of
these change in control benefits are fair and reasonable to both our company and our executives. The
Compensation Committee reviews our change of control arrangements periodically to ensure that they
remain necessary and appropriate.

Other Severance Arrangements. Each of our named executive officers is entitled to receive severance
benefits upon certain other qualifying terminations of employment, other than a change in control,
pursuant to the provisions of such executive’s employment agreement. These severance arrangements are
primarily intended to retain our executives and provide consideration to those executives for certain
restrictive covenants that apply following termination of employment. Additionally, we entered into the
employment agreements because they provide us valuable protection by subjecting the executives to
restrictive covenants that prohibit the disclosure of confidential information during and following their
employment and limit their ability to engage in competition with us or otherwise interfere with our
business relationships following their termination of employment. For more information on our
employment agreements and severance arrangements with our named executive officers, see the
discussions below under “—Summary Compensation—Employment Agreements” and “—Potential
Payments Upon a Termination or Change in Control.”

We believe that the form and amount of these severance benefits are fair and reasonable to both our
company and our executives. The Compensation Committee reviews our severance arrangements
periodically to ensure that they remain necessary and appropriate.

Hedging and Pledging Policies

Our insider trading policy prohibits NTIC directors, officers, employees, consultants and their immediate
family members, other household members and controlled entities from engaging in hedging or
monetization transactions that hedge or offset, or are designed to hedge or offset, any decrease in the
market value of NTIC securities, including, without limitation, prepaid variable forward contracts, equity
swaps, collars and exchange funds. In addition, our insider trading policy limits the ability of the
individuals listed above to pledge NTIC securities. NTIC securities may only be pledged in an
insignificant manner if the individual has a compelling reason for the pledge and is able to demonstrate
the financial capacity to repay the loan without resort to the pledged securities. The proposed transaction
must be submitted at least two weeks prior to its proposed execution in order for the Chief Financial
Officer to review and approve the transaction.

Clawback Policy

In August 2018, we adopted a clawback policy pursuant to which we may recover certain incentive
compensation from current or former executive officers in the event a financial metric used to determine
the vesting or payment of incentive compensation to an executive was calculated incorrectly or the
executive engaged in egregious conduct that is substantially detrimental to our company.

Summary of Cash and Other Compensation

The table below provides summary information concerning all compensation awarded to, earned by or
paid to named executive officers. G. Patrick Lynch, our President and Chief Executive Officer, serves as
our principal executive officer, and Matthew C. Wolsfeld, our Chief Financial Officer and Corporate
Secretary, serves as our principal financial officer. Mr. Lynch and Mr. Wolsfeld are the only two
individuals who have been designated by our Board of Directors as “executive officers” of our company.

SUMMARY COMPENSATION TABLE – FISCAL 2019

Name and Principal
Position
G. Patrick Lynch ...............
President and Chief
Executive Officer

Fiscal
Year
2019
2018

Salary
$ 428,958
389,962

Option
Awards(1)
$ 248,776
45,353

Non-Equity
Incentive Plan
Compensation(2)
$

182,342
413,590

All Other
Compensation(3)
$

13,102
13,102

Total
$ 873,178
862,007

317,056
288,233

183,878
33,519

134,775
305,697

12,875
12,875

648,584
640,324

Matthew C. Wolsfeld ........
Chief Financial Officer
and Corporate Secretary
__________________________
(1)

2019
2018

On September 1, 2018, each of the named executive officers was granted a stock option under the Northern
Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan. We refer you to
the information under the heading “Compensation Review—Elements of Our Executive Compensation
Program—Long-Term Equity-Based Incentive Compensation” for a discussion of the option grants and
their terms. The amounts reflected in the column entitled “Option Awards” for each officer represent the
aggregate grant date fair value for the option awards, as computed in accordance with FASB ASC Topic
718. The grant date fair value is determined based on a Black-Scholes option pricing model. The grant
date fair value per share for the options granted on September 1, 2018 was $9.02 (as adjusted for the two-
for-one stock split effected on June 28, 2019) and was determined using the following specific

assumptions: risk free interest rate: 2.75%; expected life: 10.0 years; expected volatility: 45.8%; and
expected dividend yield: 0%.

(2)

The amounts reflected in the column entitled “Non-Equity Incentive Plan Compensation” reflect the cash
amount of bonus earned by each of the officers in consideration for their fiscal 2019 and 2018 performance,
respectively, but paid to such officers during fiscal 2020 and 2019, respectively. We refer you to the
information under “Compensation Review—Elements of Our Executive Compensation Program—Annual
Incentive Compensation” for a discussion of the factors taken into consideration by the Board of Directors,
upon recommendation of the Compensation Committee, in determining the amount of bonus paid to each
named executive officer.

(3)

The amounts shown in the column entitled “All Other Compensation” for fiscal 2019 include the following
with respect to each named executive officer:

Name
G. Patrick Lynch ............................................. $ 8,750
Matthew C. Wolsfeld ...................................... 8,750

401(k) Match

Personal Use
of Auto
$ 4,352
4,125

Outstanding Equity Awards at Fiscal Year End

The table set forth below provides information regarding stock options for each of our named executive
officers that remained outstanding at August 31, 2019. Note that because of the grant date, the table set
forth below does not reflect option grants on September 1, 2019. We did not have any equity incentive
plan awards or stock awards outstanding at August 31, 2019. Share and per share data have been adjusted
to reflect our two-for-one stock split that was effective June 28, 2019.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END—FISCAL 2019

Name
G. Patrick Lynch ....................

Matthew C. Wolsfeld .............

Number of Securities
Underlying Unexercised
Options (#)
Exercisable
6,724
13,450
16,650
11,610
10,488
14,574
10,714
3,901
0

Option Awards
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable(1)
0
0
0
0
0
0
5,358(2)
7,803(3)
27,596(4)

4,970
9,942
12,306
8,582
7,752
10,772
7,920
2,883
0

0
0
0
0
0
0
3,960(2)
5,767(3)
20,396(4)

Option
Exercise
Price ($)
$ 5.125
5.125
5.125
7.35
10.05
7.43
6.70
9.18
18.23

5.125
5.125
5.125
7.35
10.05
7.43
6.70
9.18
18.23

Option
Expiration Date
11/15/2022
11/15/2022
11/15/2022
08/31/2023
08/31/2024
08/31/2025
08/31/2026
08/31/2027
08/31/2028

11/15/2022
11/15/2022
11/15/2022
08/31/2023
08/31/2024
08/31/2025
08/31/2026
08/31/2027
08/31/2028

__________________________
(1)

All options described in this table were granted under the Northern Technologies International Corporation
Amended and Restated 2007 Stock Incentive Plan. Under the plan, upon the occurrence of a change in
control, the unvested and unexercisable options will be accelerated and become fully vested and

immediately exercisable as of the date of the change in control. For more information, we refer you to the
discussion below under “—Stock Incentive Plan.”

(2)

(3)

These options vested over a three-year period, with one-third of the underlying shares vesting on each of
September 1, 2017, 2018 and 2019 so long as the individual remains an employee of NTIC as of such date.

These options vest over a three-year period, with one-third of the underlying shares vesting on each of
September 1, 2018, 2019 and 2020 so long as the individual remains an employee of NTIC as of such date.

(4)

These options vested on September 1, 2019, the one-year anniversary of the grant date.

Stock Incentive Plan

We have two stock incentive plans under which stock options are currently outstanding – the Northern
Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan and the
Northern Technologies International Corporation 2019 Stock Incentive Plan. However, future stock
incentive awards may only be granted under the Northern Technologies International Corporation 2019
Stock Incentive Plan. Under the terms of the 2019 plan, our named executive officers, in addition to other
employees and individuals, are eligible to receive stock-based compensation awards, such as stock
options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards, and
other stock-based awards. To date, only incentive and non-statutory stock options have been granted
under the plan. The plan contains both an overall limit on the number of shares of our common stock that
may be issued, as well as individual limits for non-employee directors and other grant limits.

Incentive stock options must be granted with a per share exercise price equal to at least the fair market
value of a share of our common stock on the date of grant. For purposes of the plan, the fair market value
of our common stock is the mean between the reported high and low sale price of our common stock, as
reported by the Nasdaq Global Market. We generally set the per share exercise price of all stock options
granted under the plan at an amount equal to the fair market value of a share of our common stock on the
date of grant.

Except in connection with certain specified changes in our corporate structure or shares, the Board of
Directors or Compensation Committee may not, without prior approval of our stockholders, seek to effect
any re-pricing of any previously granted, “underwater” option or stock appreciation right by amending or
modifying the terms of the underwater option or stock appreciation right to lower the exercise price,
cancelling the underwater option or stock appreciation right in exchange for cash, replacement options or
stock appreciation rights having a lower exercise price, or other incentive awards, or repurchasing the
underwater options or stock appreciation rights and granting new incentive awards under the plan. For
purposes of the plan, an option or stock appreciation right is deemed to be “underwater” at any time when
the fair market value of our common stock is less than the exercise price.

We generally provide for the vesting of stock options in equal annual installments over a three-year
period commencing on the one-year anniversary of the date of grant for employees and in full on the one-
year anniversary of the date of grant for directors. We generally provide for option terms of ten years.

Optionees may pay the exercise price of stock options in cash, except that the Compensation Committee
may allow payment to be made (in whole or in part) by (1) using a broker-assisted cashless exercise
procedure pursuant to which the optionee, upon exercise of an option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares of our common stock or loan a sufficient amount of money to
pay all or a portion of the exercise price of the option and/or any related withholding tax obligations and
remit such sums to us and directs us to deliver stock certificates to be issued upon such exercise directly
to such broker or dealer; or (2) using a cashless exercise procedure pursuant to which the optionee

surrenders to us shares of our common stock either underlying the option or that are otherwise held by the
optionee.

Under the terms of the plan, unless otherwise provided in a separate agreement or amended in connection
with an optionee’s termination of employment, if a named executive officer’s employment or service with
our company terminates for any reason, the unvested portion of the options held by such officer will
immediately terminate, and the executive’s right to exercise the then vested portion of the options will:



immediately terminate if the executive’s employment or service relationship with our company
terminates for “cause”;
continue for a period of 12 months if the executive’s employment or service relationship with our
company terminates as a result of the executive’s death, disability or retirement; or
continue for a period of three months if the executive’s employment or service relationship with
our company terminates for any reason, other than for cause or upon death, disability or
retirement.

As set forth in the plan, the term “cause” is as defined in any employment or other agreement or policy
applicable to the named executive officer or, if no such agreement or policy exists, means (i) dishonesty,
fraud, misrepresentation, embezzlement or other act of dishonesty with respect to us or any subsidiary,
(ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a
duty or duties that, individually or in the aggregate, are material in relation to the overall duties, or
(iv) any material breach of any employment, service, confidentiality or non-compete agreement entered
into with us or any subsidiary.

Under the terms of the plan, if a participant is determined by the committee to have taken any action that
would constitute “cause” or an “adverse action” during or within one year after the termination of the
participant’s employment or other service with our company, all rights of the participant under the plan
and any incentive award agreements then held by the participant will terminate and be forfeited without
notice of any kind, and the committee may rescind the exercise, vesting or issuance of, or payment in
respect of, any incentive awards of the participant that were exercised, vested or issued, or as to which
such payment was made, and require the participant to pay any amount received or the amount of any
gain realized as a result of such rescinded exercise, vesting, issuance or payment. Additionally, as
applicable, we may defer the exercise of any option or stock appreciation right for a period of up to six
months after receipt of a participant’s written notice of exercise or the issuance of share certificates upon
the vesting of any incentive award for a period of up to six months after the date of such vesting in order
for the committee to make any determination as to the existence of cause or an adverse action. An
“adverse action” includes any of the following actions or conduct that the committee determines to be
injurious, detrimental, prejudicial or adverse to our interests: (i) disclosing any confidential information of
our company or any subsidiary to any person not authorized to receive it; (ii) engaging, directly or
indirectly, in any commercial activity that in the judgment of the committee competes with our business
or the business of any of our subsidiaries; or (iii) interfering with our relationships or the relationships of
our subsidiaries and our and their respective employees, independent contractors, customers, prospective
customers and vendors.

As described in more detail under “—Post-Termination Severance and Change in Control Arrangements”
if there is a change in control of our company, then, under the terms of agreements evidencing options
granted to our named executive officers and other employees under the plan, all outstanding options will
become immediately exercisable in full and will remain exercisable for the remainder of their terms,
regardless of whether the executive to whom such options have been granted remains in the employ or
service of us or any of our subsidiaries.

Post-Termination Severance and Change in Control Arrangements

We have entered into employment agreements with G. Patrick Lynch, NTIC’s President and Chief
Executive Officer, and Matthew C. Wolsfeld, NTIC’s Chief Financial Officer and Corporate Secretary.
Although each executive’s employment with our company remains “at will,” the employment agreements
provide each executive with certain severance benefits in the event the executive’s employment is
terminated by us without “cause” or by the executive for “good reason” and the executive executes and
does not revoke a separation agreement and a release of all claims.

If an executive’s employment is terminated by us without “cause” or by the executive for “good reason,”
in addition to any accrued but unpaid salary and benefits through the date of termination, the executive
will be entitled to a severance cash payment from us in an amount equal to two times (one and one-half
times, in the case of Mr. Wolsfeld) the executive’s average total annual compensation for the two most
recently completed fiscal years, plus a pro rata portion of the target bonus that the executive otherwise
would have been eligible to receive under our bonus plan for the fiscal year during which the executive’s
employment is terminated, with such pro rata portion based on the number of complete months during the
fiscal year that the executive was employed with our company. The severance payment will be paid in
several installments in the form of salary continuation in accordance with our normal payroll practices
over a 24-month period (18-month period, in the case of Mr. Wolsfeld). If, however, the termination
event occurs within 24 months after a change in control of our company, the severance payment will be
paid in one lump sum. If the executive is eligible for and timely elects continued coverage under our
group medical plan, group dental plan and/or group vision plan pursuant to Section 4980B of the Internal
Revenue Code of 1986, as amended (referred to as “COBRA”), for each of the first 18 months of the
COBRA continuation period, we also will reimburse the executive in an amount equal to the difference
between the amount the executive pays for such COBRA continuation coverage each month and the
amount paid by a full-time active employee each month for the same level of coverage elected by the
executive. In addition, all outstanding and unvested options to purchase shares of our common stock and
other stock incentive awards granted to the executive under our stock incentive plan will become
immediately vested and exercisable.

Under the employment agreements, “cause” is defined as (i) the executive’s material breach of any of the
executive’s obligations under the employment agreement or the executive’s willful and continued failure
or refusal to perform his duties, responsibilities and obligations as an executive officer of our company,
for reasons other than the executive’s disability, to the satisfaction of the Board of Directors; (ii) the
executive’s commission of an act of dishonesty, fraud, embezzlement, misappropriation, or intentional
and deliberate injury or material breach of fiduciary duty, or material breach of the duty of loyalty related
to or against us or our business, or any unlawful or criminal activity of a serious nature involving any
felony, or conviction by a court of competent jurisdiction of, or pleading guilty or nolo contendere to, any
felony or any crime involving moral turpitude; or (iii) the existence of any court order or settlement
agreement prohibiting the executive’s continued employment with our company. “Good reason” is
defined as (i) a material diminution in the executive’s authority, duties or responsibilities; (ii) a material
diminution in the executive’s annual base salary; (iii) a material change in the geographic location at
which we require the executive to provide services, except for travel reasonably required in the
performance of the executive’s responsibilities; or (iv) any action or inaction that constitutes a material
breach by us of the employment agreement. “Change in control” has the meaning assigned to such term
in our stock incentive plan as in effect from time to time to the extent such change in control is a “change
of control event” as defined under Code Section 409A and applicable Internal Revenue Service
regulations. Under the terms of our stock incentive plan, a “change in control” means:



the sale, lease, exchange or other transfer of all or substantially all of our assets to a corporation
that is not controlled by us;

the approval by our stockholders of any plan or proposal for our liquidation or dissolution;
certain merger or business combination transactions;



 more than 40% of our outstanding voting shares are acquired by any person or group of persons

who did not own any shares of common stock on the effective date of the plan; and
certain changes in the composition of our Board of Directors.



If a change in control of our company had occurred on August 31, 2019, the number of options indicated
in the table below held by each of our named executive officers would have been automatically
accelerated and exercisable. The estimated value of the automatic acceleration of the vesting of unvested
stock options held by a named executive officer as of August 31, 2019 is also indicated in the table below
and is based on the difference between: (i) the market price of the shares of our common stock underlying
the unvested stock options held by such officer as of August 31, 2019 (based on the closing sale price of
our common stock on the last trading day of fiscal 2019, August 30, 2019 — $10.95), and (ii) the exercise
price of the options. Share and per share data in the below tables and the footnotes thereto have been
adjusted to reflect our two-for-one stock split that was effective June 28, 2019.

Executive Officer
G. Patrick Lynch .............
Matthew C. Wolsfeld ......

Number of Unvested Options
Subject to Automatic Acceleration
40,755
30,123

Estimated Value of Automatic
Acceleration of Vesting
36,577
27,036

If the employment of our named executive officers was terminated as of August 31, 2019, they would
have been entitled to the following compensation and benefits, depending upon the applicable triggering
event:

Executive Officer
G. Patrick Lynch .......... Cash severance(1)

Type of Payment

Benefits continuation(2)
Equity acceleration(3)
Total:

Matthew C. Wolsfeld... Cash severance(1)

Benefits continuation(2)
Equity acceleration(3)
Total:

Triggering Event

Involuntary
Termination
without
Cause
$ 1,539,837
29,940
36,577
$ 1,606,354

Qualifying
Change in
Control
Termination
$1,539,837
29,940
36,577
$1,606,354

Voluntary/
For Cause
Termination
0
$
0
0
0

0
0
0
0

$ 875,235
29,940
27,036
$ 932,211

Death

0
0
0
0

Disability
0
$
0
0
0

0
0
0
0

__________________________
(1)

Includes the value of two times (one and one-half times, in the case of Mr. Wolsfeld) the executive’s
average total annual compensation for the two most recently completed fiscal years plus a pro rata portion
of the target bonus that the executive otherwise would have been eligible to receive under our bonus plan
for the fiscal year during which the executive’s employment is terminated, which in this case, in light of the
assumed termination date of August 31, 2019, the last day of the fiscal year, represents the value of the full
target bonus for the entire year.

(2)

(3)

Includes the value of medical, dental and vision benefit continuation for each executive and their family for
18 months following the executive’s termination.

Includes the value of acceleration of all unvested shares that are subject to options, based on a closing sale
price of $10.95 per share as of the last trading day of fiscal 2019, August 30, 2019. Adjusted to exclude
underwater options.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee has served as one of our officers or employees at any time.
Except as otherwise disclosed in this proxy statement, no member of the Compensation Committee has
had any relationship with NTIC requiring disclosure under Item 404 of Regulation S-K under the
Exchange Act. None of our executive officers has served as a director, or member of the compensation
committee (or other committee serving an equivalent function), of an organization that has an executive
officer also serving as a member of our Board of Directors or Compensation Committee.

RELATED PERSON RELATIONSHIPS AND TRANSACTIONS
________________

Introduction

Below under “—Description of Related Party Transactions” is a description of transactions that have
occurred during the past fiscal year, or any currently proposed transactions, to which we were or are a
participant and in which:



the amounts involved exceeded or will exceed the lesser of: $120,000 or one percent (1%) of the
average of our total assets at year end for the last two completed fiscal years; and

a related person (including any director, director nominee, executive officer, holder of more than
5% of our common stock or any member of their immediate family) had or will have a direct or
indirect material interest.

These transactions are referred to as “related party transactions.”

Procedures Regarding Approval of Related Party Transactions

As provided in our Corporate Governance Guidelines, the Audit Committee will review, approve or ratify
reportable related party transactions by use of the following procedures:

 NTIC’s Chief Financial Officer, with the assistance of NTIC’s legal counsel, will evaluate the
disclosures provided in the director and officer questionnaires and from data obtained from
NTIC’s records for potential related person transactions.

 Management will periodically, but no less than annually, report to the Audit Committee on all
related person transactions that occurred since the beginning of the prior fiscal year or that it
believes will occur in the next year. Such report should include information as to (i) the related
person’s relationship to NTIC and interest in the transaction; (ii) the material facts of the
transaction; (iii) the benefits to NTIC of the transaction; and (iv) an assessment of whether the
transaction is (to the extent applicable) in the ordinary course of business, at arm’s length, at
prices and on terms customarily available to unrelated third party vendors or customers generally,
and whether the related party had any direct or indirect personal interest in, or received any
personal benefit from, such transaction.

 Taking into account the factors listed above, and such other factors and information as the Audit

Committee may deem appropriate, the Audit Committee will determine whether or not to approve
or ratify (as the case may be) each related party transaction so identified.

 Transactions in the ordinary course of business, between NTIC and an unaffiliated corporation of
which a non-employee director of NTIC serves as an officer, that meet the below criteria are
deemed conclusively pre-approved:

at arm’s length;

at prices and on terms customarily available to unrelated third party vendors or customers
generally;

in which the non-employee director had no direct or indirect personal interest, nor received
any personal benefit; and

in amounts that are not material to NTIC’s business or the business of such unaffiliated
corporation.

Description of Related Party Transactions

Please see “Director Compensation” and “Executive Compensation” for information regarding a
consulting agreement we have with one of our current directors and the other compensation arrangements
with our directors and executive officers.

G. Patrick Lynch is the President and Chief Executive Officer of NTIC. Inter Alia Holding Company
owns 13.2% of the total voting power of NTIC. According to a Schedule 13D/A filed with the SEC on
October 22, 2019, Inter Alia Holding Company is an entity of which Mr. Lynch is a 47% stockholder.
Mr. Lynch shares equal voting and dispositive power over such shares with three other members of his
family. Inter Alia Holding Company’s address is 23205 Mercantile Road, Beachwood, Ohio 44122.

We have entered into agreements with all of our directors and executive officers under which we are
required to indemnify them against expenses, judgments, penalties, fines, settlements and other amounts
actually and reasonably incurred, including expenses of a derivative action, in connection with an actual
or threatened proceeding if any of them may be made a party because he or she is or was one of our
directors or executive officers. We will be obligated to pay these amounts only if the director or
executive officer acted in good faith and in a manner that he or she reasonably believed to be in or not
opposed to our best interests. With respect to any criminal proceeding, we will be obligated to pay these
amounts only if the director or executive officer had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth procedures that will apply in the event of a claim
for indemnification.

NTIC has not identified any arrangements or agreements relating to compensation provided by a third
party to NTIC’s directors or director nominees in connection with their candidacy or board service as
required to be disclosed pursuant to Nasdaq Rule 5250(b)(3).

STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR
2021 ANNUAL MEETING OF STOCKHOLDERS
________________

Stockholder Proposals for 2021 Annual Meeting

Stockholders who, in accordance with Rule 14a-8 under the Exchange Act, wish to present proposals for
inclusion in the proxy materials relating to the 2021 Annual Meeting of Stockholders must submit their
proposals so that they are received by us at our principal executive offices no later than the close of
business on August 5, 2020, unless the date of the meeting is delayed by more than 30 calendar days. The
proposals must satisfy the requirements of the proxy rules promulgated by the SEC and as the rules of the
SEC make clear, simply submitting a proposal does not guarantee that it will be included.

Any other stockholder proposals to be presented at the 2021 Annual Meeting of Stockholders (other than
a matter brought pursuant to SEC Rule 14a-8) must be given in writing to our Corporate Secretary and
must be delivered to or mailed to and received at our principal executive offices not less than 90 days nor
more than 120 days prior to the anniversary date of the 2020 Annual Meeting of Stockholders; provided,
however, that in the event that the 2021 Annual Meeting of Stockholders is not held within 30 days before
or after such anniversary date, notice by the stockholder to be timely must be received not later than the
close of business on the 10th day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made, whichever first occurs. The proposal must contain
specific information required by our Amended and Restated Bylaws, a copy of which may be obtained by
writing to our Corporate Secretary. If a proposal is not timely and properly made in accordance with the
procedures set forth in our Amended and Restated Bylaws, it will be defective and may not be brought
before the meeting. If the proposal is nonetheless brought before the meeting and the Chairman of the
meeting does not exercise the power and duty to declare the proposal defective, the persons named in the
proxy may use their discretionary voting with respect to the proposal.

Director Nominations for 2021 Annual Meeting

In accordance with procedures set forth in our Bylaws, NTIC stockholders may propose nominees for
election to the Board of Directors only after providing timely written notice to our Corporate Secretary.
To be timely, a stockholder’s notice to the Corporate Secretary must be delivered to or mailed to and
received at NTIC’s principal executive offices not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting; provided, however, that in the event that
the annual meeting with respect to which such notice is to be tendered is not held within 30 days before or
after such anniversary date, notice by the stockholder to be timely must be received not later than the
close of business on the 10th day following the day on which such notice of the date of the meeting was
mailed or public disclosure was made, whichever first occurs. The notice must set forth, among other
things:



the nominee’s name, age, business address, residence address and record address;

the nominee’s principal occupation or employment;

the class and number of shares of NTIC capital stock which are beneficially owned by the
nominee;



signed consent to serve as a director of NTIC; and



any other information concerning the nominee required under the rules of the SEC in a proxy
statement soliciting proxies for the election of directors.

Submissions must be made by mail, courier or personal delivery. E-mailed submissions will not be
considered. The Nominating and Corporate Governance Committee will consider only those stockholder
recommendations whose submissions comply with the procedural requirements set forth in NTIC’s
Bylaws. The Nominating and Corporate Governance Committee will evaluate candidates recommended
by stockholders in the same manner as those recommended by others.

COPIES OF FISCAL 2019 ANNUAL REPORT
________________

We have sent or made electronically available to each of our stockholders a copy of our annual
report on Form 10-K (without exhibits) for the fiscal year ended August 31, 2019. The exhibits to
our Form 10-K are available by accessing the SEC’s EDGAR filing database at www.sec.gov. We
will furnish a copy of any exhibit to our Form 10-K upon receipt from any such person of a written
request for such exhibits upon the payment of our reasonable expenses in furnishing the exhibits.
This request should be sent to: Northern Technologies International Corporation, 4201 Woodland
Road, Circle Pines, Minnesota 55014, Attention: Stockholder Information.

_________________________

Your vote is important. Whether or not you plan to attend the Annual Meeting in person, vote your
shares of NTIC common stock by the Internet or telephone, or request a paper proxy card to sign, date
and return by mail so that your shares may be voted.

By Order of the Board of Directors,

Richard J. Nigon
Chairman of the Board

December 2, 2019
Circle Pines, Minnesota

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED AUGUST 31, 2019

TABLE OF CONTENTS

Page

PART I ........................................................................................................................................................................ 1

Item 1.

BUSINESS ........................................................................................................................................ 1

Item 1A. RISK FACTORS ............................................................................................................................. 15

Item 1B. UNRESOLVED STAFF COMMENTS .......................................................................................... 32

Item 2.

PROPERTIES .................................................................................................................................. 32

Item 3.

LEGAL PROCEEDINGS ................................................................................................................ 33

Item 4. MINE SAFETY DISCLOSURES ................................................................................................... 33

Item 4A.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS .......................................................... 33

PART II .................................................................................................................................................................... 35

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ......................................... 35

Item 6.

SELECTED FINANCIAL DATA ................................................................................................... 37

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

AND RESULTS OF OPERATIONS .............................................................................................. 38

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................ 54

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................................ 55

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ................................................................................................ 87

Item 9A. CONTROLS AND PROCEDURES ................................................................................................... 87

Item 9B. OTHER INFORMATION ............................................................................................................... 87

PART III .................................................................................................................................................................. 88

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ........................ 88

Item 11.

EXECUTIVE COMPENSATION ................................................................................................... 88

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS ........................................................................... 89

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE ........................................................................................................................... 90

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES ................................................................. 90

PART IV ................................................................................................................................................................... 91

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES ............................................................... 91

SIGNATURES ......................................................................................................................................................... 96

_______________

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

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

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; (6) “Natur Tec Lanka” refer to NTIC’s majority-owned subsidiary in Sri Lanka, Natur Tec
Lanka (Pvt) Ltd and (7) “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.

On June 3, 2019, the Company’s Board of Directors declared a two-for-one stock split of the Company’s common
stock effected in the form of a 100% share dividend distributed on June 28, 2019 to record holders as of June 17,
2019. All share and per share values in this report have been adjusted to retroactively reflect the effect of the two-
for-one stock split.

Item 1. BUSINESS

Overview

PART I

Northern Technologies International Corporation (NTIC) develops and markets proprietary,
environmentally-beneficial products and services in over 60 countries either directly or via a network of
subsidiaries, joint ventures, independent distributors, and agents. NTIC’s primary business is corrosion
prevention, marketed mainly under the ZERUST® 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 bio-based 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), 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. Accordingly, for the past several years, NTIC has focused significant sales and
marketing efforts on the oil and gas industry, as the infrastructure that supports the 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 leaks caused by
corrosion. 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.

Natur-Tec® biobased and compostable plastics are manufactured using NTIC’s patented and/or proprietary
technologies and are intended to replace conventional 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, branded apparel packaging
bags and accessories, and various foodservice ware items, such as disposable cutlery, drinking straws, food-
handling gloves, 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 wholly-owned subsidiary in China, NTIC Shanghai, its majority-owned
subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India), its majority-owned subsidiary in Sri
Lanka, Natur Tec Lanka (Pvt) Ltd (Natur Tec Lanka), and through distributors and certain joint ventures.

NTIC’s Subsidiaries

NTIC has ownership interests in seven operating subsidiaries in North America, South America, Europe, and
Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of November 11, 2019, the
country in which the subsidiary is organized, and NTIC’s ownership percentage in each subsidiary:

Subsidiary Name

NTIC (Shanghai) Co., Ltd
NTI Asean LLC
Zerust Prevenção de Corrosão S.A.
ZERUST-EXCOR MEXICO, S. de R.L. de C.V
Natur-Tec India Private Limited
Natur Tec Lanka (Pvt) Ltd
NTIC Europe GmbH
____________________

Country
China
United States
Brazil
Mexico
India
Sri Lanka(1)
Germany

NTIC
Percent (%)
Ownership
100%
60%
85%
100%
75%
75%
100%

(1) Natur Tec Lanka is 100% owned by Natur-Tec India and, therefore, indirectly owned by NTIC.

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

On September 1, 2018, the minority owner in Natur-Tec India made an additional capital contribution of US
$134,034, which diluted NTIC’s ownership interest from 90% to 75%. This contribution was made with
NTIC’s consent and with the intended purpose of increasing the minority owner’s ownership interest
accordingly.

NTIC’s Joint Venture Network

NTIC participates in 21 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.

The following table sets forth a list of NTIC’s operating joint ventures as of November 11, 2019, the country
in which the joint venture is organized, and NTIC’s ownership percentage in each joint venture:

Joint Venture Name

TAIYONIC LTD.
ACOBAL SAS
EXCOR KORROSIONSSCHUTZ – TECHNOLOGIEN
….UND PRODUKTE GMBH
ZERUST AB
MOSTNIC-ZERUST
ZERUST OY

Country
Japan
France

Germany

Sweden
Russia
Finland

NTIC
Percent (%)
Ownership
50%
50%

50%

50%
50%
50%

Joint Venture Name

HARITA-NTI LTD
ZERUST (U.K.) LTD.
EXCOR-ZERUST S.R.O.
EXCOR SP. Z.O.O.
ZERUST A.Ş.
ZERUST CONSUMER PRODUCTS, LLC
ZERUST – DNEPR
KOREA ZERUST CO., LTD.
ZERUST-NIC (TAIWAN) CORP.
PT. CHEMINDO – NTIA
ZERUST SPECIALTY TECH CO. LTD.
CHONG WAH-NTIA SDN. BHD.
NTIA ZERUST PHILIPPINES, INC.
ZERUST SINGAPORE PTE. LTD
ZERUST VIETNAM CO. LTD
____________________

(1) Indirect ownership interest through NTI Asean.
(2) NTI Asean owns 100% of this joint venture.

Country
India
United Kingdom
Czech Republic
Poland
Turkey
United States
Ukraine
South Korea (1)
Taiwan (1)
Indonesia (1)
Thailand (1)
Malaysia (1)
Philippines (1)
Singapore (1)(2)
Vietnam (1)(2)

NTIC
Percent (%)
Ownership
50%
50%
50%
50%
50%
50%
50%
30%
30%
30%
30%
30%
30%
60%
60%

NTIC receives funds from its joint ventures for fees received for services that NTIC provides and as dividend
distributions. The fees for services provided to joint ventures are determined based on either a flat fee or a
percentage of sales depending on local laws and tax regulations. With respect to NTIC’s joint venture in
Germany (EXCOR), NTIC recognizes an agreed upon quarterly fee for services. NTIC recognizes equity
income from 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, what amount is paid 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.

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

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

Products

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

ZERUST® Corrosion Prevention Solutions. In fiscal 2019, 68.5% of NTIC’s consolidated net sales were
derived from developing, manufacturing and marketing ZERUST® rust and corrosion inhibiting products and

services. NTIC’s consolidated net sales in fiscal 2019 included $38,174,712 in sales of ZERUST® rust and
corrosion inhibiting products and services, a decrease of 7.7% from such sales in fiscal 2018. Corrosion not
only damages the appearance of metal products and components but also negatively impacts their mechanical
performance. This applies to the rusting of ferrous metals (iron and steel) and the deterioration by oxidation
of nonferrous metals (aluminum, copper, brass, etc.). NTIC’s ZERUST® corrosion prevention solutions
include plastic and paper packaging, powders, liquids, coatings, rust removers, cleaners, diffusers, and
engineered solutions for the oil and gas industry as well as technical corrosion management and consulting
services.

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

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

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

Rust Removers and Cleaners. NTIC also sells rust removal and cleaning products designed to restore rusty
parts to a usable condition without the use of labor-intensive, abrasive cleaners that damage surfaces and
commonly fail to remove rust from complex metal surfaces, like the teeth of small gears, under the
Axxaclean™ brand name.

Diffusers. NTIC’s corrosion prevention solutions include a line of corrosion inhibiting vapor diffusers, such
as ZERUST® ActivPak®, ZERUST® ICT® Vapor Capsules, ZERUST® ICT® Plastabs®, ZERUST® ICT® Cor-
Tabs®, ZERUST® ICT® Pipe Strip, and ZERUST® ICT® Tube Strip. These diffusers are designed to protect
metals within enclosures, like switch gearboxes and electronic cabinets, or can be used as added protection to
ZERUST® packaging products. Diffusers work by permeating the interior air of an enclosure with an

invisible and odorless corrosion inhibiting vapor that protects nearby metal surfaces that are within a specific
“radius of protection” for a period of one or two years depending on the model. This invisible and dry
protective layer revaporizes upon removal of the capsule from the enclosure, leaving all surfaces clean, dry,
residue-free, and corrosion-free.

Z-CIS® Technical Services. As an on-going effort to help NTIC’s customers improve and control their
corrosion management processes, NTIC markets and offers unique corrosion management and consulting
services to target customers. This ZERUST® corrosion inhibition system (known as Z-CIS®) leverages
NTIC’s global network to dispatch highly-trained technical service engineers to customer sites to solve
complex corrosion problems. Several major automotive companies and their automotive parts suppliers have
used NTIC’s Z-CIS® system.

ZERUST® Corrosion Prevention Solutions Designed Specifically for the Oil and Gas Industry. NTIC has
developed proprietary engineered corrosion inhibiting solutions specifically for the mitigation of corrosion of
the types of capital assets used in the petroleum and chemical process industries and has targeted the sale of
these ZERUST® corrosion solutions to potential customers in the oil and gas industry. NTIC’s consolidated
net sales in fiscal 2019 included $2,727,283 in sales made to customers in the oil and gas industry, a decrease
of 11.1% from such sales in fiscal 2018. NTIC anticipates that its sales of ZERUST® products and services
into the oil and gas industry will continue to remain subject to significant volatility as sales are recognized,
specifically due to the volatility of oil prices brought about by various political and economic factors.
Demand for ZERUST® 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 sales compared to prior fiscal year period sales. Projects in Europe and the Middle East are a
small but strategically important part of the sales growth picture. The infrastructure that supports the oil and
gas industry is predominantly constructed using metals that are highly susceptible to corrosion. The
industrial environment at these facilities usually contains compounds, including sulfides and chlorides, which
cause aggressive corrosion. This problem affects pipelines, petroleum storage tanks, spare parts in long-term
storage, processing, and other critical equipment. In addition to the costs associated with the replacement of
parts and structures, maintenance and repairs, and product loss, there are significant economic losses
associated with critical infrastructure being down for repair and maintenance. Furthermore, there are also
considerable health, safety, and environmental risks caused by corrosion that can greatly increase economic
losses. NTIC believes that its ZERUST® oil and gas corrosion prevention solutions minimize maintenance
downtime on critical oil and gas industry infrastructure, extend the life of such infrastructure, and reduce the
risk of environmental pollution due to leaks caused by corrosion.

NTIC’s rust and corrosion inhibiting products for the oil and gas industry include ZERUST® Flange Savers®,
ZERUST® ReCAST-SSB solutions, and ZERUST® chemicals, including Zerion powders and gels, in
addition to many of the standard industrial ZERUST® rust and corrosion inhibiting products previously
described.

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

ZERUST® ReCAST-SSB solutions protect the Soil Side Bottoms (SSB) of aboveground storage tanks
through a variety of unique and highly effective delivery systems designed by the Zerust Oil & Gas team to
deliver proprietary Zerion FVS corrosion inhibitor to spaces under tank bottoms that are susceptible to

significant corrosion. Tank bottoms are typically made of steel plates, which are in direct contact with a
foundation surface that may be concrete, sand/soil, or asphalt/bitumen. It is typically not possible to protect
this underside surface with traditional coatings. Cathodic protection (CP) systems can only provide partial
protection, but also have significant limitations that cause failures well ahead of the expected service life of a
tank. The ZERUST® solutions provide effective protection even to areas that cannot be addressed with CP.
This is an engineered solution where each system is tailored to a customer’s requirements depending on
factors including the tank foundation design, specific environmental conditions, and tank diameter.

ZERUST® Zerion powder-based inhibitor solutions include the following:

• Zerion FVS is a unique inhibitor blend that is used in both the SSB Solutions and in internal pipeline
protection. This “best-in-class” product has been successfully deployed at multiple client sites in
North and South America, Europe, the Middle East, India as well as other parts of Asia.

• Zerion FAN-5 is a lower cost inhibitor that is very effective at protecting metals upon contact. It can
be used to treat large volumes of water that may be used for hydrotesting. In combination with
Zerion FVS, it offers a more complete solution for the protection of pipeline internals.

• AutoFog is a revolutionary product that allows for the quick VCI saturation of large volume spaces

without the need for mechanical “fogging” equipment. This rapid self-diffusing capability is
designed for sealed void spaces, protection of large/complex assets like heat exchangers, and heater-
treaters.

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

Natur-Tec® Resin Compounds and Finished Products. NTIC manufactures and sells a broad range of
bioplastic packaging solutions, including bio-based and certified compostable (fully biodegradable) polymer
resin compounds, and finished products under the Natur-Tec® brand. NTIC’s consolidated net sales in fiscal
2019 included $17,575,425 in sales of Natur-Tec® resins and finished products, an increase of 74.9% over
such sales in fiscal 2018. Market drivers such as volatile petroleum prices, reduced dependence on foreign
oil, reduced carbon footprints, requirements by multinational brands for sustainable packaging solutions that
meet Circular Economy and environmentally responsible end-of-life disposal mandates, and concerns about
plastic residue in the environment have led to heightened interest in using sustainable, bio-based and
renewable plant-biomass resources for the manufacture of plastics and industrial products. Plastics that are
fully biodegradable in composting or anaerobic digestor systems allow the safe and effective conversion of
these plastics to carbon dioxide, water, and fertilizer at the end of their service life. Increased environmental
and sustainability awareness at the corporate and consumer level, improved technical properties and product
functionality, as well as recent foreign, state, and local governmental regulations banning the use of
conventional plastics or mandating the use of certain biodegradable or compostable products have also fueled
this interest in bio-based and biodegradable-compostable plastics. The term “bio-plastics” encompasses a
broad category of plastics that are either bio-based, which means derived from renewable resources such as
corn or cellulosic/plant material or blends thereof, or are engineered to be fully compostable, or both.

Resin Compounds. Natur-Tec® resin compounds are produced by blending commercially available base
resins, such as Ecoflex® from BASF and Ingeo® PLA from NatureWorks LLC, with organic and inorganic
fillers and proprietary polymer modifiers and compatibilizers using NTIC’s proprietary and patented ReX

Process. In this process, biodegradable polymers, natural polymers made from renewable, plant-biomass
resources, and organic and inorganic materials are reactively blended in the presence of proprietary
compatibilizers and polymer modifiers to produce bio-based and/or compostable polymer resin formulations
that exhibit unique and stable morphology. Natur-Tec® resin compounds are engineered for high
performance, ease of processing, and reduced cost compared to most other bio-plastic materials and can be
processed by converters using conventional plastic manufacturing processes and equipment.

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

Natur-Tec® flexible film resin compounds are fully compostable and meet the requirements of international
standards for compostable plastics, such as ASTM (American Society for Testing and Materials) D6400
(U.S.), EN 13432 (European standards for products and services by European Committee for
Standardization), and ISO (International Organization for Standardization) 17088, and are certified as 100%
compostable by organizations including the BPI (Biodegradable Products Institute) in the United States and
TÜV Austria in Europe. Natur-Tec® film resin compounds can be used to produce film for applications,
such as bags, including compost bags, lawn and leaf bags, pet waste collection bags, and carry-out bags,
agricultural film, and consumer and industrial packaging. Natur-Tec® film resin compounds are also used to
produce bags and covers for branded apparel packaging and to manufacture specialty food service ware
items, such as compostable drinking straws, thermoformed lids and disposable food-handling gloves.

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

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

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

The Natur-Bag® product line offers 15 different compostable trash bag sizes, from 3-gallon to 96-gallon, as
well as shopper bags. The bags are available in various SKU configurations, including retail packs that are
sold to the consumer either through retail outlets or through online stores and industrial case packs that are
sold to commercial and industrial customers primarily through wholesalers and distributors. The Natur-Bag®

products are manufactured from the Natur-Tec® flexible film resin compounds and thus are fully
biodegradable and compostable.

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

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

Sales, Marketing, and Distribution

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

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

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

Natur-Tec® Resin Compounds and Finished Products. In the United States, NTIC markets its Natur-Tec®
resin compounds and finished products through a network of national and regional distributors and
independent manufacturer’s sales representatives and two NTIC direct sales employees as of August 31,
2019. Target customers for Natur-Tec® finished products include individual consumers as well as
commercial and institutional organizations, such as corporations and government agencies, and educational
organizations, such as universities and school districts. NTIC is also targeting key national and regional
retailers utilizing independent sales agents. Target customers for Natur-Tec® resin compounds include film
extruders and injection molders who would purchase Natur-Tec® resin compounds to manufacture and sell
their own finished bio-based and compostable end products, such as film, bags, and cutlery.

Internationally, NTIC uses Natur-Tec India and its joint ventures and a network of international distributors
to market its Natur-Tec® resin compounds and finished products. With Indian government mandates

banning the use of non-biodegradable plastics in certain types of food and consumer packaging, NTIC
expects the market in India for bio-plastic packaging solutions to continue to grow substantially. Similarly, in
the last fiscal year, NTIC saw a rise in the sales of Natur-Tec® products in China and anticipates that sales
will continue to grow.

Competition

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

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

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

Research and Development

NTIC’s research and development activities are directed at improving existing products, developing new
products, reducing costs, and improving quality assurance through improved testing of NTIC’s products.
NTIC’s internal research and development activities are conducted at its facilities located in Circle Pines,

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

NTIC anticipates that it will spend between $3,600,000 and $3,900,000 in fiscal 2020 on research and
development activities.

Intellectual Property Rights

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

In 1980, NTIC developed and patented the first polyolefin (plastic) based industrial corrosion inhibiting
packing material in the world. The U.S. patent granted under this patent application became the most
important intellectual property right in NTIC’s history. This patent expired in 2000. NTIC has since filed
for 12 letters of patent in the United States covering various corrosion inhibiting technologies, systems, and
applications and now owns several patents in these areas. These patents and patent applications have been
extended to the countries of strategic relevance to NTIC, including Australia, Brazil, Canada, China, Europe,
Japan, India, Korea, Mexico, Russia, and Taiwan. In addition, EXCOR owns several patents in the area
covering various corrosion inhibiting technologies and has also applied for new patents on proprietary new
corrosion inhibiting technologies. NTIC is also seeking additional patent protection covering various host
materials into which its corrosion inhibiting additives and other protective features can be incorporated,
proprietary new process technologies, and chemical formulations outside the area of corrosion
protection. NTIC owns several patents outside the area of corrosion protection both in the United States and
in countries of strategic relevance to NTIC, including the above-noted countries.

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

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

their employment or service arrangement with NTIC will fall under NTIC’s proprietary intellectual property
rights.

Manufacturing

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

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

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

Availability of Raw Materials

NTIC does not typically carry excess quantities of raw materials because of widespread availability for such
materials from various suppliers. However, with respect to its Natur-Tec® resin compounds and finished
products, there are a limited number of suppliers of the base resins used to manufacture the resin compounds
and finished products. Additionally, there is growing demand for these base resins. In the past and during
fiscal year 2019, NTIC has experienced some delays in obtaining such base resins. In addition, a few raw
materials and purchased parts used in NTIC’s rust and corrosion inhibiting products and Natur-Tec® finished
products are sourced from suppliers who currently serve as NTIC’s sole source of supply for these materials
and parts. Although NTIC believes it can obtain these raw materials and parts from other sources of supply,
an unexpected loss of supply over a short period of time may not allow NTIC time to replace these sources in
the ordinary course of business.

Backlog

NTIC had an estimated order backlog of $3,224,000 as of August 31, 2019, compared to $2,068,000 as of
August 31, 2018, which was generally across all business units. Sales relating to this backlog are expected to
be realized during first quarter of fiscal 2020. These are orders that are held by NTIC pending release
instructions from the customers to be used in just-in-time production. Customers generally place orders on
an “as needed” basis and expect delivery within a relatively short period of time.

Governmental Regulation

The U.S. Food and Drug Administration (FDA) has indicated to NTIC that it has no objection to the use of
ZERUST® ICT® packaging products in protecting metal food containers and processing equipment. In
addition, the manufacture, sale and use of NTIC’s Natur-Tec® resin compounds and finished products are
subject to regulation in the United States by the FDA. The FDA’s regulations are concerned with substances
used in food packaging materials. Thus, food and beverage containers are in compliance with FDA
regulations if the components used in the food and beverage containers are approved by the FDA as indirect

food additives for their intended uses and comply with the applicable FDA indirect food additive regulations
or are generally recognized as safe for their intended uses and are of suitable purity for those intended uses.
NTIC believes that its resin compounds are in compliance with all FDA requirements and that NTIC does not
require further FDA approval prior to the sale of its products.

Employees

As of August 31, 2019, NTIC had 73 full-time employees located in North America, consisting of 22 in sales
and marketing, 19 in research and development and lab, 23 in administration, and 9 in production. As of
August 31, 2019, NTIC’s wholly-owned subsidiary in China had 35 full-time employees, its majority-owned
subsidiary in Brazil had 20 full-time employees, its majority-owned subsidiary in India had 9 full-time
employees, its wholly owned subsidiary in Mexico had no full-time employees, and its holding company,
NTI Asean, had no full-time employees. There are no unions representing NTIC’s employees, and NTIC
believes that its relations with its employees are good.

Available Information

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

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

Forward-Looking Statements

This report on Form 10-K contains not only historical information, but also forward-looking statements that
are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections.
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 “Part II.
Item 7. 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 the 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, import duties, taxes, and tariffs;

• The effect of the 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;

• 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 the 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 and risks associated therewith, 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 Tax Cuts and Jobs Act;

• 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 “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 SEC.

Item 1A. RISK FACTORS

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

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

The U.S. and world economies may suffer from uncertainty, volatility, disruption, and other adverse
conditions, and those conditions may adversely impact the business community and the financial markets.
Adverse economic and financial market conditions may negatively affect NTIC’s customers and its markets,
thereby negatively impacting its business and operating results. For example, weak market conditions could
extend the length of NTIC’s sales cycle and cause potential customers to delay, defer, or decline to make
purchases of NTIC’s products and services due to uncertainties surrounding the future performance of their
businesses, limitations on their capital expenditures due to internal budget constraints, the inability to obtain
financing in the capital markets, and the adverse effects of the economy on their business and financial
condition. As a result, if economic and financial market conditions weaken or deteriorate, then NTIC’s
business, financial condition, and operating results, including its ability to grow and expand its business and
operations, could be materially and adversely affected.

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

Changes to trade regulation, quotas, duties, or tariffs, caused by the changing U.S. and geopolitical
environments or otherwise, may negatively impact NTIC’s business, operating results, and financial
condition.

The U.S. government has created significant uncertainty about the future relationship between the United
States and other countries with respect to trade policies, taxes, government regulations, and tariffs. The
current U.S. administration has signaled support for implementing and, in some instances, has already
proposed or taken action with respect to major changes to certain trade policies in an effort to encourage U.S.
production. Such changes include the imposition of additional tariffs on imported products in an effort to
address trade imbalances, specifically with China, the withdrawal of the U.S. from the Trans-Pacific
Partnership, and the renegotiation of the North American Free Trade Agreement. In response to such actions,
certain countries have imposed retaliatory actions against the U.S. NTIC and its subsidiaries and joint
ventures engage in sales outside of the United States and is, therefore, negatively impacted by such actions.
Any changes or potential changes in trade policies in the United States and the potential corresponding
actions by other countries in which NTIC does business could adversely and materially affect NTIC’s
business, results of operations, and financial condition.

Changes to the London Interbank Offered Rate (LIBOR) or the replacement of LIBOR with an
alternative reference rate may require NTIC to renegotiate its revolving line of credit.

At the option of NTIC, outstanding advances under NTIC’s $3,000,000 revolving line of credit with PNC
Bank, National Association (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. On July 27, 2017, the Financial Conduct Authority in the
United Kingdom announced that it would phase out LIBOR as a benchmark by the end of 2021. If LIBOR
ceases to exist, NTIC may need to renegotiate its credit facility, and it may not be able to do so on terms that
are favorable to NTIC. Further, the overall financial market may be disrupted as a result of the phase-out or
replacement of LIBOR. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates
Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing
LIBOR with the Secured Overnight Financing Rate (SOFR), a new index calculated by short-term
repurchase agreements, backed by Treasury securities. However, whether or not SOFR attains market
traction as a LIBOR replacement tool remains in question, and the future of LIBOR remains uncertain at this
time. The uncertainty related to the phase-out or replacement of LIBOR could disrupt the overall financial
market and adversely affect NTIC’s ability to renegotiate its revolving line of credit.

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

Any tightening of the credit and financial markets could negatively impact the ability of companies to
borrow money from their existing lenders, obtain credit from other sources, or raise financing to fund their
operations. This could negatively impact the ability of NTIC’s customers and the customers of NTIC’s joint
ventures to purchase NTIC’s products, suppliers’ ability to provide NTIC and its joint ventures with
materials and components, and the ability of NTIC and its joint ventures, distributors, and sales
representatives to finance operations, if needed, on commercially reasonable terms, or at all. Any or all of
these events could negatively impact NTIC’s business, operating results, and financial condition. Although
NTIC maintains allowances for doubtful accounts for estimated losses resulting from the inability of its
customers, distributors, and joint ventures to make required payments, and such losses historically have been
within NTIC’s expectations and the provisions established, NTIC cannot guarantee that it will continue to
experience the same loss rates that it has in the past, especially if there are weaknesses in the worldwide
economy. A significant change in the liquidity or financial condition of NTIC’s customers, distributors, or
joint ventures could cause unfavorable trends in NTIC’s receivable collections and additional allowances

may be required, which could adversely affect NTIC’s operating results. In addition, weaknesses in the
worldwide economy and recent protectionist measures by the U.S. government, including the imposition of
higher tariffs and withdrawal from the Trans-Pacific Partnership, may adversely impact the ability of
suppliers to provide NTIC with materials and components, which could adversely affect NTIC’s business
and operating results. NTIC is unable to predict the prospects for a global economic recovery, but the longer
the duration of such adverse and uncertain economic conditions, the greater the risks NTIC faces in operating
its business.

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

NTIC conducts business, either directly or indirectly, through several joint venture arrangements that operate
in North America, Europe, and Asia. Each of these joint ventures manufactures, markets, and sells finished
products in the geographic territory that it is assigned. NTIC’s receipt of funds as a result of sales by its joint
ventures is dependent upon NTIC’s receipt of fees for services that NTIC provides to its joint ventures based
primarily on the net sales of the individual joint ventures and NTIC’s receipt of dividend distributions from
its joint ventures based on the profitability of its joint ventures. NTIC’s liquidity and financial position rely
on NTIC’s receipt of fees for services that NTIC provides to its joint ventures and dividend distributions
from its joint ventures. During fiscal 2019, NTIC recognized $5,727,579 in fees and $5,039,041 in dividend
distributions from its joint ventures. Because NTIC owns 50% or less of each of its joint venture entities,
NTIC does not control the decisions of these entities regarding whether to pay dividends and, if paid, how
much they should be in any given year. Thus, NTIC cannot guarantee that any of its joint ventures will pay
dividends in any given year. The failure of NTIC’s joint ventures to declare dividends or the failure of NTIC
to receive fees for services provided to joint ventures in amounts typically expected by NTIC could adversely
affect NTIC’s liquidity and financial position.

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

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

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

NTIC considers its joint venture in Germany (EXCOR) to be individually significant to NTIC’s consolidated
assets and income and, therefore, provides certain additional information regarding EXCOR in the notes to
NTIC’s consolidated financial statements and in certain sections of this report. Of the total equity in income
from joint ventures of $7,225,518 during fiscal 2019, NTIC had equity in income from joint ventures of
$5,415,362 attributable to EXCOR. Of the total fee income for services provided to joint ventures of
$5,727,579 during fiscal 2019, fees of $852,526 were attributable to EXCOR. Accordingly, if sales of
NTIC’s products and services by this joint venture were to decline significantly or if NTIC’s relationships

with this joint venture were to deteriorate significantly such that the joint venture terminated or was not
motivated to sell NTIC’s products and services, NTIC’s operating results likely would be adversely affected.

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

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

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

Several factors, including implications of withdrawal by the U.S. from, or revision to, international trade
agreements, foreign policy changes between the U.S. and other countries, weakened international economic
conditions, or the impact of sovereign debt defaults by certain European countries, could adversely affect our
international net sales. Additionally, the expansion of our existing international operations and entry into
additional international markets require significant management attention and financial resources. In many
of the countries in which NTIC sells its products directly or indirectly through NTIC China, Zerust Brazil,
Natur-Tec India, Natur-Tec Lanka, Zerust Mexico, and NTI Asean, its joint ventures, distributors,
representatives, and agents are, to some degree, subject to political, economic, and/or social instability.
NTIC’s international operations expose NTIC and its joint venture partners, distributors, representatives, and
agents to risks inherent in operating in foreign jurisdictions. These risks include:

• difficulties in managing and staffing international operations and the required infrastructure costs,

•

including legal, tax, accounting, and information technology;
the imposition of additional U.S. and foreign governmental controls or regulations, new trade
restrictions, and restrictions on the activities of foreign agents, representatives, and distributors, the
imposition of costly and lengthy export licensing requirements and changes in duties and tariffs,
license obligations, and other non-tariff barriers to trade;
the imposition of U.S. and/or international sanctions against a country, company, person, or entity
with whom NTIC does business that would restrict or prohibit continued business with the
sanctioned country, company, person, or entity;

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

•
•
•

experience internationally;
laws and business practices favoring local companies;
adverse currency exchange rate fluctuations;
longer payment cycles and difficulties enforcing agreements and collecting receivables through
certain foreign legal systems;

• national and international conflicts, including foreign policy changes or terrorist acts;

• difficulties in enforcing or defending intellectual property rights;
• multiple, changing, and often inconsistent enforcement of laws and regulations; and
•

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

Furthermore, in June 2016, the United Kingdom held a referendum in which voters approved an exit from the
European Union, commonly referred to as “Brexit.” As a result of the referendum, the British government is
negotiating the terms of the United Kingdom’s future relationship with the European Union. Although it is
unknown what those terms will be, or whether an agreement will be reached, it is possible that there will be
increased regulatory complexities, which could affect NTIC’s ability to sell its products in certain European
Union countries. Brexit could lead to legal uncertainty and potentially divergent national laws and
regulations as the United Kingdom determines which European Union laws to replace or replicate. In
addition, Brexit could cause disruptions to trade and free movement of goods, services, and people to and
from the United Kingdom, increased foreign exchange volatility with respect to the British pound, and
additional political and economic uncertainty. NTIC does not know to what extent these changes will impact
its business. Any of these effects of Brexit, and other similar referenda that NTIC cannot anticipate, could
adversely affect its business, operations, and financial results.

The operations of NTIC China may be adversely affected by China’s evolving economic, political, and
social conditions.

The results of operations and future prospects of NTIC China may be adversely affected by, among other
things, changes in China’s political, economic, and social conditions, changes in the relationship between
China and its western trade partners, changes in policies of the Chinese government, changes in laws and
regulations or in the interpretation of existing laws and regulations, changes in foreign exchange regulations,
measures that may be introduced to control inflation, such as interest rate increases, and changes in the rates
or methods of taxation. In addition, changes in demand could result from increased competition with local
Chinese manufacturers who have cost advantages or who may be preferred suppliers for Chinese end users.
Also, Chinese commercial laws, regulations, and interpretations applicable to non-Chinese owned market
participants, such as NTIC China, are continually changing. These laws, regulations, and interpretations
could impose restrictions on NTIC’s and NTIC China’s ownership or operations or NTIC’s interests in China
and could adversely affect NTIC’s business, results of operations, and financial condition.

Intellectual property rights are difficult to enforce in China, which could harm NTIC’s business, results
of operations, or financial condition.

Chinese commercial law is relatively undeveloped compared to commercial law in many of NTIC’s other
major markets, and limited protection of intellectual property is available in China as a practical matter.
Although NTIC takes precautions in the operation of NTIC China to protect NTIC’s intellectual property,
any local manufacturer of products that NTIC undertakes in China could subject NTIC to an increased risk
that unauthorized parties will be able to copy or otherwise obtain or use NTIC’s intellectual property, which
could harm NTIC’s business. NTIC may also have limited legal recourse in the event it encounters patent or
trademark infringers, which could adversely affect NTIC’s business, results of operations, and financial
condition.

Uncertainties with respect to the Chinese legal system may adversely affect the operations of NTIC China.

NTIC China is subject to laws and regulations applicable to foreign investment in China. There are
uncertainties regarding the interpretation and enforcement of laws, rules, and policies in China. The Chinese
legal system is based on written statutes, and prior court decisions have limited precedential value. Because
many laws and regulations are relatively new, and the Chinese legal system is still evolving, the
interpretations of many laws, regulations, and rules are not always uniform. Moreover, the relative
inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any

litigation, and the interpretation of statutes and regulations may be subject to government policies reflecting
domestic political agendas. Finally, enforcement of existing laws or contracts based on existing law may be
uncertain and sporadic. For the preceding reasons, it may be difficult for NTIC or NTIC China to obtain
timely or equitable enforcement of laws ostensibly designed to protect companies like NTIC or NTIC China,
which could adversely affect NTIC’s business, results of operations, and financial condition.

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

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

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

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

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

Because the functional currency of NTIC’s foreign operations is the applicable local currency, NTIC is
exposed to foreign currency exchange rate risk arising from transactions in the normal course of business.
NTIC’s principal exchange rate exposure is with the Euro, the Japanese Yen, the Indian Rupee, the Chinese
Renminbi, the South Korean Won, and the English Pound against the U.S. dollar. NTIC’s fees for services
provided to its joint ventures and dividend distributions from these foreign entities are paid in foreign

currencies; thus, fluctuations in foreign currency exchange rates could result in declines in NTIC’s earnings.
Any changes in foreign currency exchange rates would be reflected as a foreign currency translation
adjustment and would not change NTIC’s equity in income from joint ventures reflected in its consolidated
statements of operations. NTIC does not hedge against its foreign currency exchange rate risk.

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

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

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

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

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

NTIC’s ZERUST® rust and corrosion inhibiting products and services generate a significant portion of
NTIC’s net sales and the net sales of NTIC’s joint ventures. During fiscal 2019, 68.5% of NTIC’s

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

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

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

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

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

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

The expansion of NTIC’s corrosion prevention solutions into the oil and gas industry and the continued
expansion of NTIC’s Natur-Tec® resin compounds and finished products will continue to require resources
during fiscal 2020 and beyond. To the extent that NTIC’s existing capital, including amounts available
under its revolving line of credit, is insufficient to meet these requirements, NTIC may raise additional
capital through financings or additional borrowings. Any equity or debt financing, if available at all, may be
on terms that are not favorable to NTIC, and any equity financings could result in dilution to NTIC’s
stockholders.

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

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

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the absence of a significant operating history;
the lack of commercialized products;
the lack of market acceptance of new products;
expected substantial and continual losses for such businesses for the foreseeable future;
the lack of manufacturing experience and limited marketing experience;
an expected reliance on third parties for the manufacture and commercialization of some of the
products;
a competitive environment characterized by numerous, well-established and well-capitalized
competitors;
insufficient capital and other resources; and
reliance on key personnel.

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

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

NTIC’s dependence on manufacturing and logistical services provided by contractors could give rise to
product defect or warranty liability.

NTIC uses third party manufacturers to produce the majority of its products. In addition, NTIC relies upon
certain contractors for logistical services. Although NTIC’s arrangements with its contract manufacturers and

contractors may contain provisions for warranty expense reimbursement, NTIC may remain responsible to its
customers for warranty service in the event of product defects and could experience an unanticipated product
defect or warranty liability. In addition, product defects could harm NTIC’s reputation amongst its
customers.

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

NTIC relies on suppliers for certain raw materials and components used in its products. For reasons of
quality assurance, cost effectiveness, or availability, NTIC procures certain raw materials and components
from sole or limited source suppliers. Among the limited source suppliers NTIC does business with are the
manufacturers of plastic resins used in Natur-Tec® products. NTIC generally acquires these and other raw
materials and components through purchase orders placed in the ordinary course of business, and as a result,
NTIC does not have a significant inventory of these materials and components and does not have any
guaranteed or contractual supply arrangements with many of these suppliers for these materials and
components. NTIC’s dependence on third-party suppliers involves several risks, including limited control
over pricing, availability, quality, and delivery schedules, as well as manufacturing yields and costs.
Suppliers of such raw materials and components may decide, or be required, for reasons beyond NTIC’s
control, to cease supplying such raw materials and components to NTIC or to raise their prices.

Shortages of raw materials, quality control problems, production capacity constraints, or delays by suppliers
could negatively affect NTIC’s ability to meet its production obligations and result in increased prices for
affected parts. For example, the rapid growth in demand for bioplastics products globally has increased the
demand and the price for plastic resins, and limited suppliers of such plastic resins may experience shortages
caused by demand outpacing their production capabilities, which could result in NTIC’s inability to produce
its Natur-Tec® products promptly or in the volumes demanded. These and other shortages, constraints, or
delays may result in delays in shipments of products or components, which could adversely affect NTIC’s
net sales and other operating results and its reputation. From time to time, materials and components used in
NTIC’s products are subject to allocation because of shortages of these materials and components.

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

NTIC uses certain raw materials and components in its products, including in particular plastic resins, which
are subject to price increases. In light of increased global demand for bioplastics, the prices of certain plastic
resins have increased, which could adversely affect gross margins on NTIC’s Natur-Tec® products.
Additionally, changes to international trade agreements could result in additional tariffs, duties, or other
charges on raw materials or components we import into the U.S. Increases in prices for raw materials and
components used in NTIC’s products could adversely affect NTIC’s gross margins and other operating
results.

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

Although there is a developed market for petroleum-based plastics, the market for “bioplastics” which are
plastics produced with bio-based resins, which are derived from renewable resources such as corn or
cellulosic/plant material or blends thereof, or plastics that are engineered to be fully biodegradable or both, is
still developing. The commercial success of NTIC’s Natur-Tec® resin compounds and finished products
depends on the widespread market acceptance of products manufactured with bio-based and biodegradable
resins. It is currently difficult to assess or predict with any assurance the potential size, timing, and viability
of market opportunities for NTIC’s Natur-Tec® resin compounds and finished products. The traditional
plastics market sector is well-established with entrenched competitors with whom NTIC competes. Pricing

for traditional plastics has been highly volatile in recent years, which drives, to some extent, the commercial
and other support for bioplastics. While NTIC expects to be able to command a premium price for its Natur-
Tec® resin compounds and finished products, a widening gap in the pricing for bioplastics versus petroleum-
based plastics may reduce the size of the addressable market for NTIC’s Natur-Tec® resin compounds and
finished products. In addition, the growth of the market will create some pressure on price for applications
today considered commodities, including in particular NTIC’s current Natur-Tec® finished products.

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

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

U.S. federal income tax reforms could adversely affect NTIC’s business, results of operations, or financial
conditions.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax
Cuts and Jobs Act (Tax Reform Act). The Tax Reform Act makes broad and complex changes to the U.S.
corporate income tax system and includes a Transition Toll Tax (Toll Tax), which is a one-time mandatory
deemed repatriation tax on accumulated foreign subsidiaries’ previously untaxed foreign earnings. The Toll
Tax will be paid over an eight-year period, starting in 2018, and will not accrue interest. The Tax Reform Act
also imposed a global intangible low-taxed income tax (GILTI), which is a new tax on certain off-shore
earnings at an effective rate of 10.5% for tax years beginning after December 31, 2017 (increasing to
13.125% for tax years beginning after December 31, 2025) with a partial offset for foreign tax credits. NTIC
continues to analyze the impact the Tax Reform Act may have on NTIC’s business, results of operations, or
financial condition. U.S Treasury regulations, administrative interpretations, or court decisions interpreting
the Tax Reform Act may require changes in NTIC’s estimates, which could have a material adverse effect on
NTIC’s business, results of operations, and financial condition.

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

The mix of pre-tax income or loss among the tax jurisdictions in which NTIC operates, which have varying
tax rates, could impact NTIC’s effective tax rate. NTIC is subject to income taxes as well as non-income
based taxes in both the United States and various foreign jurisdictions. Judgment is required in determining
the worldwide provision for income taxes, other tax liabilities, interest, and penalties. Future events could

change management’s assessment. NTIC operates within multiple taxing jurisdictions and is subject to tax
audits in these jurisdictions. These audits can involve complex issues, which may require an extended period
of time to resolve. NTIC also has made assumptions about the realization of deferred tax assets. Changes in
these assumptions could result in a valuation allowance for these assets. Final determination of tax audits or
tax disputes may be different from what is currently reflected by NTIC’s income tax provisions and accruals.

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

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

• diversion of management’s attention;
• difficulties in assimilating the operations and products of a new joint venture or acquired business or

in realizing projected efficiencies, cost savings, and revenue synergies;

• potential loss of key employees or customers of the new joint venture or acquired business or

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adverse effects on existing business relationships with suppliers and customers;
adverse impact on overall profitability if the new joint venture or acquired business does not achieve
the financial results projected in NTIC’s valuation models;
reallocation of amounts of capital from other operating initiatives and/or an increase in NTIC’s
leverage and debt service requirements to pay the joint venture capital contribution or the acquisition
purchase price, which could in turn restrict NTIC’s ability to access additional capital when needed
or to pursue other important elements of NTIC’s business strategy;
inaccurate assessment of undisclosed, contingent, or other liabilities or problems and unanticipated
costs associated with the new joint venture or acquisition; and
incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges,
and write-off of significant amounts of goodwill that could adversely affect NTIC’s operating
results.

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

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

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

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

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

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

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

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

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

Severe weather could have a material adverse effect on our business.

NTIC’s business could be materially and adversely affected by severe weather. NTIC’s customers, including
in particular NTIC’s oil and gas customers, may have operations located in parts of the southern United
States or other places and may be adversely affected by hurricanes and tropical storms, resulting in reduced
demand for NTIC’s products and services or increased operating costs. Furthermore, NTIC’s customers and
raw material suppliers’ operations may be adversely affected by such hurricanes and other extreme or
seasonal weather conditions. Adverse weather can also directly impede NTIC’s operations. Repercussions of
severe weather conditions may include:

curtailment of services or reduced demand for products;

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• weather-related damage to facilities and equipment, resulting in suspension of operations;
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inability to deliver equipment, personnel and products to job sites in accordance with contract
schedules or increased transportation or other operating costs; and
loss of productivity.

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These constraints could delay NTIC’s operations and materially increase NTIC’s operating and capital costs.

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

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

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

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

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

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

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

The efficient operation of NTIC’s business is dependent on its management information systems. NTIC
relies on its management information systems to effectively manage accounting and financial functions;
manage order entry, order fulfillment, and inventory replenishment processes; and to maintain its research
and development data. The failure of management information systems to perform as anticipated could
disrupt NTIC’s business and product development and could result in decreased sales, causing NTIC’s

business and operating results to suffer. In addition, NTIC’s management information systems are
vulnerable to damage or interruption from natural or man-made disasters, including terrorist attacks, attacks
by computer viruses or hackers, power loss to computer systems, Internet outages, and telecommunications
or data network failure. Any such interruption could adversely affect NTIC’s business and operating results.

NTIC’s business could be negatively impacted by cyber security threats.

In the ordinary course of NTIC’s business, NTIC uses its management information systems to store and
access proprietary business information. NTIC faces various cyber security threats, including cyber
security attacks to its information technology infrastructure and attempts by others to gain access to its
proprietary or sensitive information. The procedures and controls NTIC uses to monitor these threats and
mitigate its exposure may not be sufficient to prevent cyber security incidents. The result of these incidents
could include disrupted operations, lost opportunities, misstated financial data, liability for stolen assets or
information, increased costs arising from the implementation of additional security protective measures,
litigation, and reputational damage. Any remedial costs or other liabilities related to cyber security incidents
may not be fully insured or indemnified by other means.

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

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

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

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

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

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

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

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

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

Changing laws, regulations, and standards relating to corporate governance and public disclosure, including
the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002 and
related and other regulations implemented by the SEC and the Nasdaq Stock Market, are challenging for
small publicly-held companies, including NTIC. NTIC’s efforts to comply with evolving laws, regulations,
and standards have resulted in, and are likely to continue to result in, significant general and administrative
expenses and a diversion of management time and attention from revenue-generating activities to compliance
activities. In particular, NTIC’s efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and
the related regulations regarding NTIC’s assessment of its internal control over financial reporting and the
attestation report by NTIC’s independent registered public accounting firm have required and will continue
to require the expenditure of significant financial and managerial resources. Although NTIC’s management
has concluded that NTIC’s internal control over financial reporting was effective as of August 31, 2019, no
assurance can be provided that NTIC’s management will reach a similar conclusion as of any later date.
NTIC’s failure to maintain effective internal control over financial reporting may have an adverse effect on
its stock price.

NTIC’s compliance with accounting principles generally accepted in the United States of America and
any changes in such principles might adversely affect NTIC’s operating results and financial condition.
Any requirement to consolidate NTIC’s joint ventures could adversely affect NTIC’s operating results and
financial condition.

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

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

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

Risks Related to NTIC’s Common Stock

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

The number of shares of NTIC’s common stock being traded daily is often very low, and on some trading
days, there is no trading volume at all. During fiscal 2019, the daily trading volume ranged from zero shares
to 122,018 shares. Any NTIC stockholder wishing to sell his, her, or its stock may cause a significant
fluctuation in the trading price of NTIC’s common stock. In addition, low trading volume of a stock
increases the possibility that, despite rules against such activity, the price of the stock may be manipulated by
persons acting in their own self-interest. NTIC may not have adequate market makers and market making
activity to prevent manipulation in its common stock.

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

The market price and trading volume of NTIC’s common stock price historically has fluctuated over a wide
range. During fiscal 2019, as adjusted to reflect NTIC’s two-for-one stock split effective June 28, 2019, the
sale price of NTIC’s common stock ranged from a low of $10.02 per share to a high of $18.27 per share, and
the daily trading volume ranged from zero shares to 122,018 shares. It is likely that the price and trading
volume of NTIC’s common stock will continue to fluctuate in the future. The securities of small
capitalization companies, including NTIC, from time to time experience significant price and volume
fluctuations, often unrelated to the operating performance of these companies. Securities class action
litigation is sometimes brought against a company following periods of volatility in the market price of its
securities or for other reasons. NTIC may become the target of similar litigation, especially if NTIC fails to
meet its annual projected financial guidance or lowers its annual projected financial guidance. Securities
litigation, whether with or without merit, could result in substantial costs and divert management’s attention
and resources, which could harm NTIC’s business, operating results, and financial condition as well as the
market price of its common stock.

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

As of November 11, 2019, NTIC had 9,090,413 shares of common stock outstanding, 16.7% of which were
beneficially owned by directors, executive officers, principal stockholders, and their respective affiliates.
The stock of companies with a substantial amount of stock held by insiders is usually not as liquid as the
stock of other public companies where insider ownership is not as concentrated. Thus, the trading market for
shares of NTIC’s common stock may not be as liquid as the stock of other public companies.

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

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

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

As of November 11, 2019, Inter Alia Holding Company, or Inter Alia, beneficially owned approximately
13.2% of NTIC’s outstanding common stock. Inter Alia is an entity partially owned by G. Patrick Lynch,
NTIC’s President and Chief Executive Officer and director, as well as two other members of the Lynch
family. Mr. Lynch shares voting and dispositive power of shares of NTIC’s common stock held by Inter
Alia with the other owners. As a result of his share ownership through Inter Alia and his position as
President and Chief Executive Officer and director of NTIC, Mr. Lynch may be able to influence the affairs
and actions of NTIC, including matters requiring stockholder approval, such as the election of directors and
approval of significant corporate transactions. The interests of Mr. Lynch and Inter Alia may differ from the
interests of NTIC’s other stockholders. This concentration of ownership may have the effect of delaying,
preventing, or deterring a change in control of NTIC, could deprive NTIC’s stockholders of an opportunity to
receive a premium for their common stock as part of a sale or merger of NTIC, and may negatively affect the
market price of NTIC’s common stock. Transactions that could be affected by this concentration of
ownership include proxy contests, tender offers, mergers, or other purchases of common stock that could
give stockholders the opportunity to realize a premium over the then-prevailing market price for shares of
NTIC’s common stock.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2.

PROPERTIES

NTIC’s principal executive offices, production facilities, and domestic research and development operations
are located at 4201 Woodland Road, Circle Pines, Minnesota 55014. NTIC owns this real estate and
building. NTIC also owns real estate and a building in Beachwood, Ohio, which it uses for office,
manufacturing, laboratory, and warehouse space. Additionally, NTIC has contract warehousing agreements

in California and Indiana to hold and release stock products to customers. NTIC’s subsidiaries in Brazil,
India, Mexico, and China all lease office, warehouse, and laboratory space. NTIC’s management considers
its current properties suitable and adequate for its current and foreseeable needs.

Item 3. LEGAL PROCEEDINGS

On March 23, 2015, NTIC and NTI Asean LLC (NTI Asean) filed a lawsuit in Tianjin No 1 Intermediate
People’s Court against two individuals, Tao Meng and Xu Hui, related to breaches of duties and contractual
commitments owed to NTI Asean under certain agreements related to NTIC’s former joint venture in China,
Tianjin Zerust Anti-Corrosion Technologies Ltd. (Tianjin Zerust). The lawsuit alleges, among other things,
that Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received
economic benefits that were required to go to Tianjin Zerust. As of August 31, 2019, NTIC is not able to
reasonably estimate the amount of any recovery to NTI Asean, if any.

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

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 4A. INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The two individuals named below have been designated by NTIC’s Board of Directors as “executive
officers” of NTIC. Their ages and the offices held, as of November 11, 2019, are as follows:

Name

G. Patrick Lynch

Age
52

President and Chief Executive Officer

Position with NTIC

Matthew C. Wolsfeld

Chief Financial Officer and Corporate Secretary

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

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

Other corporate officers of NTIC, their ages, and offices held, as of November 11, 2019, are as follows:

Name

Vineet R. Dalal

Age
50 Vice President and Director – Global Market Development –

Position with NTIC

Natur-Tec®

Gautam Ramdas

46 Vice President and Director – Global Market Development –

Oil & Gas

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

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

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

NTIC’s common stock is listed for trading on the Nasdaq Global Market under the symbol “NTIC.”

Dividends

During fiscal 2019, 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. All per share data have been
adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

Declaration Date
October 24, 2018
January 23, 2019
April 25, 2019
July 24, 2019

Amount
$0.06
$0.06
$0.06
$0.06

Record Date
November 7, 2018
February 6, 2019
May 9, 2019
August 7, 2019

Payable Date
November 21, 2018
February 22, 2019
May 23, 2019
August 21, 2019

On October 22, 2019, NTIC’s Board of Directors declared a cash dividend of $0.065 per share of NTIC’s
common stock, payable on November 20, 2019 to stockholders of record on November 6, 2019. Although
NTIC’s Board of Directors intends to declare regular quarterly cash dividends going forward, the payment of
any future dividends will be determined by NTIC’s Board of Directors in light of conditions then existing,
including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements,
business conditions, and other factors.

Number of Record Holders

As of August 31, 2019, there were 166 record holders of NTIC’s common stock. This does not include
shares held in “street name” or beneficially owned.

Recent Sales of Unregistered Equity Securities

NTIC did not sell any shares of its common stock or any other equity securities of NTIC that were not
registered under the Securities Act of 1933, as amended, during the fourth quarter of fiscal 2019.

Issuer Purchases of Equity Securities

The following table shows NTIC’s stock repurchase activity during the fourth quarter of fiscal 2019.

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

N/A

Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased
Under the Plans
or Programs
(1)

(1)

(1)(2)

Period

June 1, 2019 through
June 30, 2019
July 1, 2019 through
July 31, 2019
August 1, 2019
through August 31,
2019
Total

(1)

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

(2)

As of August 31, 2019, up to $2,640,548 in shares of NTIC common stock remained available for
repurchase under NTIC’s stock repurchase program.

Item 6.

SELECTED FINANCIAL DATA

The following tables set forth certain of NTIC’s selected consolidated financial data as of the dates and for
the fiscal years indicated. The selected consolidated financial data was derived from NTIC’s consolidated
financial statements. The audited consolidated financial statements as of August 31, 2019 and 2018 and for
the fiscal years ended August 31, 2019 and 2018 are included elsewhere in this report. The audited
consolidated financial statements as of August 31, 2017, 2016, and 2015 and for the fiscal years ended
August 31, 2017, 2016, and 2015 are not included in this report. Historical results are not necessarily
indicative of the results to be expected for any future period. All share and per share data have been adjusted
for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

2019

Fiscal Year Ended August 31,
2017

2016

2018

2015

Statements of Operations Data:
Net sales, excluding joint ventures ........................ $ 53,142,583 $ 48,516,749 $ 36,346,645
3,222,478
Net sales, to joint ventures ....................................
39,569,123
Total net sales ......................................................
26,316,511
Cost of goods sold .................................................
13,252,612
Gross profit .........................................................
5,898,908
Equity in income from joint ventures ....................
5,452,687
Fees for services provided to joint ventures ..........
11,351,595
Total joint venture operations ...........................
9,283,310
Selling expenses ....................................................
7,807,563
General and administrative expenses ....................
2,912,393
Research and development expenses .....................
20,003,266
Total operating expenses ...................................
4,600,941
Operating income ..................................................
43,539
Interest income ......................................................
Interest expense .....................................................
(20,382)
Impairment on investment at carrying value.........
Other income .........................................................
Income (loss) before income taxes ........................
Less: Income tax expense ................................
Net income (loss) ..................................................
Less: Net income (loss) attributable to non-

2,908,072
51,424,821
34,165,440
17,259,381
7,527,383
6,142,139
13,669,522
10,886,011
8,500,490
3,524,953
22,911,454
8,017,449
99,463
(17,962)

2,607,554
55,750,137
37,970,244
17,779,893
7,225,518
5,727,579
12,953,097
10,968,592
9,349,559
3,822,070
24,140,221
6,592,769
78,257
(13,567)

4,624,098
699,519
3,924,579

8,098,950
876,103
7,222,847

6,657,459
841,837
5,815,622

—
—

$ 30,211,660 $ 27,491,392
2,831,301
30,322,693
20,555,932
9,766,761
5,936,565
5,715,491
11,652,056
5,820,748
8,399,146
4,047,279
18,267,173
3,151,644
34,835
(20,960)
—
515
3,166,034
648,674
2,517,360

2,721,905
32,933,565
22,320,156
10,613,409
4,743,831
5,137,710
9,881,541
6,255,353
8,232,369
4,724,596
19,212,318
1,282,632
42,115
(13,261)
(1,883,668)
—
(572,182)
626,120
(1,198,302)

controlling interests ...........................................

606,000
Net income (loss) attributable to NTIC ................. $ 5,209,622
Net income (loss) attributable to NTIC per

521,481
$ 6,701,366

502,453
$ 3,422,126

(330,788)
727,789
(867,514) $ 1,789,571

common share:

Basic ................................................................. $
Diluted .............................................................. $
Weighted-average common shares assumed

outstanding:

0.57
0.55

$
$

0.74
0.72

$
$

0.38
0.38

$
$

(0.10) $
(0.10) $

0.20
0.19

Basic .................................................................
Diluted ..............................................................

9,085,584
9,415,974

9,077,676
9,370,404

9,057,222
9,154,718

9,075,008
9,075,008

9,043,576
9,298,120

Balance Sheet Data:
Cash and cash equivalents ..................................... $ 5,856,758 $ 4,163,023 $ 6,360,201
3,766,984
Available for sale securities ..................................
26,067,618
Total current assets ................................................
56,612,693
Total assets ............................................................
4,894,617
Total current liabilities ..........................................
2,857,448
Non-controlling interests .......................................
48,860,628
Total stockholders’ equity .....................................
51,718,076
Total equity ...........................................................

3,300,110
30,567,773
63,549,236
7,730,182
2,742,309
53,076,745
55,819,054

3,565,258
33,302,362
67,511,087
7,841,532
3,074,679
56,594,615
59,669,294

$ 3,395,274 $
2,243,864
20,942,171
51,070,050
3,994,102
2,540,973
44,543,975
47,075,948

2,623,981
2,027,441
19,275,612
51,565,648
3,671,841
3,019,702
44,874,105
47,893,807

2019

Fiscal Year Ended August 31,
2017

2016

2018

2015

Other Financial Data:
Net cash provided by (used in) operating activities $ 5,477,022 $
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash

(1,339,921)
(2,393,664)

608,687
(300,109)
(2,372,124)

$ 5,735,691
(2,607,915)
(226,690)

$ 2,055,607 $
(955,240)
(270,247)

(755,545)
1,901,224
(874,652)

equivalents .........................................................

(49,702)

(133,632)

63,839

(18,826)

(124,064)

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

RESULTS OF OPERATIONS

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

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

• Business Overview. This section provides a brief overview description of NTIC’s business,

focusing in particular on developments during the most recent fiscal year.

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

• Financial Overview. This section provides a brief summary of NTIC’s financial results and

financial condition for fiscal 2019 compared to 2018.

• Sales and Expense Components. This section provides a brief description of the significant line

items in NTIC’s consolidated statements of operations.

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

consolidated statements of operations.

• Liquidity and Capital Resources. This section provides an analysis of NTIC’s liquidity and cash

flows and a discussion of NTIC’s financial condition and financial commitments.

•

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

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

• Related Party Transactions. This section describes any material related party transactions to

which NTIC is a party.

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

arrangements.

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

• Recent Accounting Pronouncements. This section references Note 2 to NTIC’s consolidated

financial statements, which summarizes the effect of recently issued accounting pronouncements on
NTIC’s results of operations and financial condition.

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 bio-based 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), 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 leaks caused by
corrosion.

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.

Natur-Tec® bio-based 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, branded
apparel packaging bags and accessories, and various foodservice ware items, such as disposable cutlery,
drinking straws, food-handling gloves, 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 wholly-owned subsidiary in China, NTIC
China, its majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India) its
majority-owned subsidiary in Sri Lanka, Natur Tec Lanka (Pvt) Ltd (Natur Tec Lanka), and through
distributors and certain joint ventures.

NTIC’s Subsidiaries and Joint Venture Network

Subsidiary Name

Country
China
United States
Brazil
Mexico
India
Sri Lanka(1)
Germany

NTIC
Percent (%)
Ownership
100%
60%
85%
100%
75%
75%
100%

(1) Natur Tec Lanka is 100% owned by Natur-Tec India and, therefore, indirectly owned by NTIC.

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

NTIC’s receives funds from its joint ventures as fees for services that NTIC provides to its joint ventures and
as dividend distributions. 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.

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. All share
and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective
June 28, 2019.

NTIC’s consolidated net sales increased 8.4% during fiscal 2019 compared to fiscal 2018. This increase was
primarily a result of an increase in sales of Natur-Tec® products.

During fiscal 2019, 68.5% of NTIC’s consolidated net sales were derived from sales of ZERUST® products
and services, which decreased 7.7% to $38,174,712 during fiscal 2019 compared to $41,374,305 during
fiscal 2018. This decrease was due to lower sales from existing customers for products as a result of
decreased 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 fiscal 2019
included $2,727,283 of sales made to customers in the oil and gas industry compared to $3,066,953 for fiscal
2018. 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 fiscal 2019, 31.5% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products
compared to 19.5% during fiscal 2018. Net sales of Natur-Tec® products increased 74.9% to $17,575,425
during fiscal 2019 compared to fiscal 2018 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 increased to 68.1% during fiscal 2019 compared to 66.4%
during fiscal 2018. This increase was primarily a result of an increased percentage of product sales from
Natur-Tec® products that have lower gross margins than NTIC’s traditional ZERUST® industrial products.

NTIC’s equity in income from joint ventures decreased 4.0% to $7,225,518 during fiscal 2019 compared to
$7,527,383 during fiscal 2018. This decrease was primarily due to a corresponding decrease in net sales at
the joint ventures, which were $114,635,435 during fiscal 2019, compared to $120,060,897 during fiscal
2018. The decrease in the net sales of NTIC’s joint ventures was due primarily to decreased sales from
existing customers for existing products as a result of decreased demand. The decrease in net sales of NTIC’s
joint ventures resulted in a corresponding decrease in fees for services provided to joint ventures, as such
fees are a function of net sales of NTIC’s joint ventures.

NTIC’s total operating expenses increased $1,228,767, or 5.4%, to $24,140,221 during fiscal 2019 compared
to $22,911,454 in fiscal 2018. This increase was primarily due to an increase in NTIC’s personnel expenses.
Operating expenses, as a percent of net sales, for fiscal 2019 were 43.3% compared to 44.6% for fiscal 2018.
This reduction in operating expenses, as a percent of net sales, was primarily due to higher net sales, partially
offset by higher operating expenses.

NTIC spent $3,822,070 in fiscal 2019 in connection with its research and development activities, compared
to $3,524,953 in fiscal 2018. NTIC anticipates that it will spend between $3,600,000 and $3,900,000 in fiscal
2020 on research and development activities.

Net income attributable to NTIC decreased to $5,209,622, or $0.55 per diluted common share, for fiscal 2019
compared to net income of $6,701,366, or $0.72 per diluted common share, for fiscal 2018. This decrease
was primarily the result of the increase in operating expenses and decrease in joint venture operations during
fiscal 2019 compared to fiscal 2018, partially offset by the increase in gross margin and decrease in tax
expense, primarily as a result of the $700,000 one-time provisional adjustment related to the Tax Cuts and
Jobs Act that occurred in the second quarter of fiscal 2018.

NTIC anticipates that its quarterly net income will continue to be subject to significant volatility primarily
due to the financial performance of its subsidiaries and joint ventures, sales of its ZERUST® products and
services into the oil and gas industry, and sales of its Natur-Tec® bioplastics products, which sales fluctuate
more on a quarterly basis than the traditional ZERUST® business.

NTIC’s working capital, defined as current assets less current liabilities, was $25,460,569 at August 31,
2019, including $5,856,758 in cash and cash equivalents and $3,565,258 in available for sale securities,
compared to $22,837,591 at August 31, 2018, including $4,163,023 in cash and cash equivalents and
$3,300,110 in available for sale securities.

During fiscal 2019, the Company’s Board of Directors declared four quarterly cash dividends of $0.06 per
share each. On October 22, 2019, the Company’s Board of Directors announced a quarterly cash dividend of
$0.065 per share payable on November 20, 2019 to stockholders of record on November 6, 2019.

Sales and Expense Components

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

Net Sales, Excluding Joint Ventures. NTIC derives net sales from the sale of its ZERUST® products and
services and its Natur-Tec® products. NTIC sells its ZERUST® products and services and its Natur-Tec®
products either directly, through its subsidiaries, or via a network of joint ventures, independent distributors,
and agents. Net sales, excluding joint ventures represents net sales by NTIC either directly to end users or to
distributors worldwide, but not sales to NTIC’s joint ventures and not sales by NTIC’s joint ventures. NTIC
recognizes revenue from the sale of its products primarily upon shipment of the products.

Net Sales, To Joint Ventures. Net sales, to joint ventures represents net sales by NTIC to NTIC’s joint
ventures, but not sales by NTIC either directly to end users or to distributors or sales by NTIC’s joint
ventures. NTIC’s revenue recognition policy for sales to its joint ventures is the same as NTIC’s policy for
sales to unaffiliated customers. NTIC recognizes revenue from the sale of its products to joint ventures
primarily upon shipment of the products.

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

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures consists of NTIC’s
share of equity in income from each joint venture based on the overall profitability of the joint ventures.

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

Fees for Services Provided to Joint Ventures. NTIC provides certain services to its joint ventures, including
consulting, legal, travel, insurance, technical, and marketing services based on licensing or other agreements
with its joint ventuers. NTIC receives fees for these services it provides to its joint ventures based primarily
on the net sales by NTIC’s joint ventures, the latter of which are not included in NTIC’s net sales reflected
on NTIC’s consolidated statements of operations. The fees for services received by NTIC from its joint
ventures are generally determined based on either a flat fee or a percentage of net sales by NTIC’s joint
ventures depending on local laws and tax regulations. With respect to EXCOR, NTIC receives an agreed
upon fixed quarterly fee for such services. Under NTIC’s agreements with its joint ventures in which the
fees for services is described, amounts are earned when product is shipped from joint venture facilities, at
which point a sale is deemed to have occurred and results in obligation of the joint venture to pay the royalty
and recognition of the fee by the Company.

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

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

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

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

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

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

including historical data and projections of future results. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Results of Operations

Fiscal Year 2019 Compared to Fiscal Year 2018

The following table sets forth NTIC’s results of operations for fiscal 2019 and fiscal 2018.

Net sales, excluding joint ventures .................
Net sales, to joint ventures ...........................
Cost of goods sold ..............................................
Equity in income from joint ventures .................
Fees for services provided to joint ventures........
Selling expenses ........................................
General and administrative expenses ..............
Research and development expenses ..............

Fiscal 2019
$ 53,142,583
2,607,554
37,970,244
7,225,518
5,727,579
10,968,592
9,349,559
3,822,070

Fiscal 2018

% of
Net
Sales
95.3% $ 48,516,749
2,908,072
34,165,440
7,527,383
6,142,139
10,886,011
8,500,490
3,524,953

4.7%
68.1%
13.0%
10.3%
19.7%
16.8%
6.9%

% of
Net
Sales
94.3%
5.7%
66.4%
14.6%
11.9%
21.2%
16.5%
6.9%

$
Change
$ 4,625,834
(300,518)
3,804,804
(301,865)
(414,560)
82,581
849,069
297,117

%
Change
9.5%
(10.3)%
11.1%
(4.0)%
(6.7)%
0.8%
10.0%
8.4%

Net Sales. NTIC’s consolidated net sales increased 8.4% to $55,750,137 during fiscal 2019 compared to
$51,424,821 during fiscal 2018. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s
joint ventures increased 9.5% to $53,142,583 during fiscal 2019 compared to $48,516,749 during fiscal
2018. These increases were primarily a result of an increase in sales of Natur-Tec® products. Net sales to
joint ventures decreased 10.3% to $2,607,554 in fiscal 2019 compared to fiscal 2018. This decrease was
primarily a result of timing differences on various shipments to joint ventures.

The following table sets forth NTIC’s net sales by product segment for fiscal 2019 and fiscal 2018:

Fiscal 2019
Total ZERUST® sales .................... $ 38,174,712
Total Natur-Tec® sales .....................
17,575,425
Total net sales ................................... $ 55,750,137

Fiscal 2018
$ 41,374,305
10,050,516
$ 51,424,821

$
Change
$ (3,199,593)
7,524,909
$ 4,325,316

%
Change

(7.7)%
74.9%
8.4%

During fiscal 2019, 68.5% of NTIC’s consolidated net sales were derived from sales of ZERUST® products
and services, which decreased 7.7% to $38,174,712 compared to $41,374,305 during fiscal 2018. 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.

The following table sets forth NTIC’s net sales of ZERUST® products for fiscal 2019 and fiscal 2018:
%
Change
(7.2)%
(10.3)%
(11.1)%
(7.7)%

ZERUST® industrial net sales ................... $
ZERUST® joint venture net sales ..............
ZERUST® oil & gas net sales ....................

$
Change
$ (2,559,405)
(300,518)
(339,670)
$ (3,199,593)

32,839,875
2,607,554
2,727,283
38,174,712

35,399,280
2,908,072
3,066,953
41,374,305

Total ZERUST® net sales ................... $

Fiscal 2018

Fiscal 2019

NTIC’s total ZERUST® net sales decreased during fiscal 2019 compared to fiscal 2018 primarily due to an
overall decreased demand for ZERUST® industrial products and services in North America and China and
decreased demand for ZERUST® oil and gas products and services. 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 ZERUST® 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 fiscal 2019, 31.5% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products,
compared to 19.5% during fiscal 2018. Sales of Natur-Tec® products increased 74.9% to $17,575,425 during
fiscal 2019 compared to $10,050,516 during fiscal 2018. This increase was primarily due to an increase in
finished product sales in North America and finished products sales at NTIC’s majority-owned subsidiary in
India, Natur-Tec India.

Cost of Goods Sold. Cost of goods sold increased 11.1% in fiscal 2019 compared to fiscal 2018 primarily as
a result of the increase in net sales, as described above. Cost of goods sold as a percentage of net sales
increased to 68.1% during fiscal 2019 compared to 66.4% during fiscal 2018 primarily due to an increased
percentage of product sales from Natur-Tec® products that have lower gross margins than NTIC’s traditional
ZERUST® industrial products.

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures decreased 4.0% to
$7,225,518 during fiscal 2019 compared to $7,527,383 during fiscal 2018. This decrease was primarily a
result of changing profitability of the joint ventures during fiscal 2019 and fiscal 2018 that fluctuate based on
net sales. Of the total equity in income from joint ventures, NTIC had equity in income from joint ventures
of $5,415,362 attributable to EXCOR during fiscal 2019 compared to $5,549,765 attributable to EXCOR
during fiscal 2018. NTIC had equity in income of all other joint ventures of $1,810,156 during fiscal 2019
compared to $1,977,618 during fiscal 2018.

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint
ventures of $5,727,579 during fiscal 2019 compared to $6,142,139 during fiscal 2018, representing a
decrease of 6.7%, or $414,560. 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 decreased $5,425,462 to
$114,635,435 during fiscal 2019 compared to $120,060,897 during fiscal 2018, representing a decrease of
4.5%. Net sales of NTIC’s joint ventures are not included in NTIC’s product sales and are not included in
NTIC’s consolidated financial statements. Of the total fee income for services provided to joint ventures,
fees of $852,526 were attributable to EXCOR during fiscal 2019 compared to $900,316 attributable to
EXCOR during fiscal 2018.

Selling Expenses. NTIC’s selling expenses increased 0.8% in fiscal 2019 compared to fiscal 2018 due
primarily to increases in operating expenses associated with ZERUST® sales efforts, consisting primarily of
selling and personnel expenses. Selling expenses as a percentage of net sales decreased to 19.7% for fiscal
2019 compared to 21.2% in fiscal 2018 primarily due to an increase in net sales, as previously described.

General and Administrative Expenses. NTIC’s general and administrative expenses increased 10.0% in
fiscal 2019 compared to fiscal 2018 primarily due to increased personnel costs. As a percentage of net sales,
general and administrative expenses increased to 16.8% for fiscal 2019 from 16.5% for fiscal 2018. This
increase was due primarily to the increase in expenses in North America and Natur-Tec India partially offset
by increases in net sales, as previously described.

Research and Development Expenses. NTIC’s research and development expenses increased 8.4% in fiscal
2019 compared to fiscal 2018 primarily due to increases in research and development efforts.

Interest Income. NTIC’s interest income decreased to $78,257 in fiscal 2019 compared to $99,463 in fiscal
2018 due to changing levels of invested cash.

Interest Expense. NTIC’s interest expense decreased to $13,567 in fiscal 2019 compared to $17,962 in fiscal
2018.

Income Before Income Tax Expense. NTIC incurred income before income tax expense equal to $6,657,459
for fiscal 2019 compared to income before income tax expense of $8,098,950 for fiscal 2018.

Income Tax Expense. Income tax expense was $841,837 during fiscal 2019 compared to $876,103 during
fiscal 2018 for an effective tax rate of 12.7% and 10.8%, respectively. 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 on
foreign subsidiaries and joint ventures. The Company was subject to a blended U.S. 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 Tax Reform Act resulted in an increase in income tax expense of
$632,523 recognized during fiscal 2018 due to the re-measurement of the Company’s net deferred tax assets
to reflect the reduction in the U.S. corporate income tax rate.

Net Income Attributable to NTIC. Net income attributable to NTIC decreased to $5,209,622, or $0.55 per
diluted common share, for fiscal 2019 compared to $6,701,366, or $0.72 per diluted common share, for fiscal
2018, a decrease of $1,491,744 or $0.17 per diluted share. This decrease was primarily the result of the
increase in operating expenses and decrease in joint venture operations during fiscal 2019 compared to fiscal
2018, partially offset by the increase in gross profit.

Other Comprehensive Income - Foreign Currency Translations Adjustment. The changes in the foreign
currency translations adjustment was due to the fluctuation of the U.S. dollar compared to the Euro and other
foreign currencies during fiscal 2019 compared to fiscal 2018.

Liquidity and Capital Resources

Sources of Cash and Working Capital. As of August 31, 2019, NTIC’s working capital was $25,460,569,
including $5,856,758 in cash and cash equivalents and $3,565,258 in available for sale securities, compared
to working capital of $22,837,591, including $4,163,023 in cash and cash equivalents and $3,300,110 in
available for sale securities, as of August 31, 2018.

As of August 31, 2019, NTIC had a revolving line of credit with PNC Bank of $3,000,000 with no amounts
outstanding.

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 fiscal 2020, NTIC expects to continue to invest directly and through its use of
working capital in NTIC China, Zerust Mexico, NTI Europe, research and development, marketing efforts,
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 Flow. Net cash provided by operating activities during fiscal 2019 was $5,477,022,
which resulted primarily from NTIC’s net income, dividends received from joint ventures, stock-based
compensation, increases in accounts payable, decreases in prepaid expenses and other, depreciation and
amortization, partially offset by NTIC’s equity in income from joint ventures, increases in inventories and
decreases in income taxes and accrued expenses. Net cash provided by operating activities during fiscal
2018 was $608,687, which resulted primarily from NTIC’s net income, dividends received from joint
ventures, and increases in accounts payable, accrued liabilities, depreciation and amortization, partially offset
by NTIC’s equity in income from joint ventures, increases in trade receivables excluding joint ventures,
inventories, and prepaid expenses and other.

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 are 30 days for trade receivables excluding joint ventures and 90 days for trade receivables
from its joint ventures. 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.

NTIC experienced a decrease in trade receivables as of August 31, 2019 compared to August 31, 2018. Trade
receivables excluding joint ventures as of August 31, 2019 decreased $140,590 compared to August 31,
2018, primarily related to slightly shorter collection terms in India and China and the increase in overall sales

in all territories. Outstanding trade receivables excluding joint ventures balances as of August 31, 2019
decreased by an average of 7 days to an average of 67 days from balances outstanding from these customers
as of August 31, 2018. Outstanding trade receivables from joint ventures as of August 31, 2019 increased
$62,967 compared to August 31, 2018 primarily due to the timing of payments. Outstanding balances from
trade receivables from joint ventures increased by an average of 20 days as of August 31, 2019 to an average
of 115 days from an average of 96 days from balances outstanding from these customers compared to August
31, 2018. The average days outstanding of trade receivables from joint ventures as of August 31, 2019 were
primarily due to the receivable balances at NTIC’s joint ventures in South Korea, Germany and France.

Outstanding receivables for services provided to joint ventures as of August 31, 2019 decreased $89,255
compared to August 31, 2018 and remained constant at an average of 81 days from fees receivable
outstanding as of August 31, 2019 to an average of 82 days compared to August 31, 2018.

Net cash used in investing activities during fiscal 2019 was $1,339,921, which was primarily the result of
purchases of available for sale securities, additions to property and equipment and additions to patents,
partially offset by proceeds from the sale of available for sale securities. Net cash used in investing activities
during fiscal 2018 was $300,109, which was primarily the result of purchases of available for sale securities,
additions to property and equipment and additions to patents, partially offset by proceeds from the sale of
available for sale securities.

Net cash used in financing activities for fiscal 2019 was $2,393,664, which resulted from dividends paid on
NTIC common stock and a dividend paid by a consolidated subsidiary to a non-controlling interest, partially
offset by proceeds from purchases under NTIC’s employee stock purchase plan and an investment by a non-
controlling interest. Net cash used in financing activities for fiscal 2018 was $2,372,124, which resulted
from dividends paid on NTIC common stock and a dividend paid by a consolidated subsidiary to a non-
controlling interest, partially offset by proceeds from stock option exercises and 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. As of August 31, 2019, up to $2,640,548 in shares of NTIC common stock
remained available for repurchase under NTIC’s stock repurchase program. No shares of NTIC common
stock were repurchased during fiscal 2019 or fiscal 2018.

Cash Dividends. During fiscal 2019, 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. All per
share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28,
2019.

Declaration Date
October 24, 2018
January 23, 2019
April 25, 2019
July 24, 2019

Amount
$0.06
$0.06
$0.06
$0.06

Record Date
November 7, 2018
February 6, 2019
May 9, 2019
August 7, 2019

Payable Date
November 21, 2018
February 22, 2019
May 23, 2019
August 21, 2019

Stock Split. On June 3, 2019, NTIC’s Board of Directors declared a two-for-one stock split of NTIC’s
common stock effected in the form of a 100% share dividend distributed on June 28, 2019 to record holders
as of June 17, 2019. As a result of this action, approximately 4.5 million shares were issued to stockholders
of record as of June 17, 2019. The par value of the common stock remains at $0.02 per share, and,
accordingly, approximately $90,900 was transferred from additional paid-in capital to common stock.
Earnings and dividends declared per share and weighted average shares outstanding are presented in this
report after the effect of the 100 percent stock dividend. The two-for-one stock split is reflected in the share
amounts in all periods presented in this report.

Capital Expenditures and Commitments. NTIC spent $1,013,851 on capital expenditures during fiscal 2019,
which related primarily to the purchase of new equipment. NTIC expects to spend an aggregate of
approximately $600,000 to $900,000 on capital expenditures during fiscal 2020, which it expects will relate
primarily to the purchase of new equipment.

Contractual Obligations. Set forth below is information concerning NTIC’s known contractual obligations as
of August 31, 2019 that are fixed and determinable by year starting with the twelve months ending August
31, 2020.

Contractual
Obligations
Rent obligations ..

Total .................

Inflation and Seasonality

Payments Due by Period

Total
635,280

Less than
1 Year
$ 286,723

1-3 Years
$ 348,557

3-5 Years

$ -0-

635,280

$ 286,723

$ 348,557

$ -0-

More than
5 Years
-0-

-0-

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 the 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, the Indian Rupee, the Chinese Renminbi, the 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 August 31, 2019, NTIC had no
borrowings under the line of credit.

Related Party Transactions

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

NTIC established its joint venture network approximately 30 years ago as a method to increase its worldwide
distribution network for ZERUST® rust and corrosion inhibiting products and services. NTIC participates,
either directly or indirectly, in 20 active joint venture arrangements in North America, Europe, and Asia.
Each of these joint ventures generally manufactures and markets finished products in the geographic territory
to which it is assigned. NTIC’s joint venture partners are knowledgeable in the applicable environmental,
labor, tax, and other requisite regulations and laws of the respective foreign countries in which they operate,
as well as the local customs and business practices. NTIC’s revenue recognition policy for sales to its joint
ventures is the same as its policy for sales to unaffiliated customers.

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 records revenue related to
fees for services provided to joint ventures when earned, amounts are determinable, and collectability is
reasonably assured. Under NTIC’s agreements with its joint ventures, fee amounts are earned when product
is shipped from joint venture facilities. NTIC reviews the financial situation of each joint venture to assist in
the likelihood of collections on amounts earned. From time to time, NTIC elects to account for such fees on
a cash basis for certain joint ventures when uncertainty exists surrounding the collections of such fees. There
are no fees being accounted for in this manner at present. The expenses incurred in support of its joint
ventures are direct expenses that NTIC incurs related to its joint ventures and include such items as employee
compensation and benefit expenses, travel expense, insurance, consulting expense, legal expense, and lab
supplies and testing expense.

See Note 13 to NTIC’s consolidated financial statements for other related party transaction disclosures.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

The preparation of NTIC’s consolidated financial statements requires management to make estimates and
judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. The Securities and Exchange Commission has defined a company’s most
critical accounting policies as those that are most important to the portrayal of its financial condition and

results of operations and those which require the company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on
this definition, NTIC has identified the following critical accounting policies. Although NTIC believes that
its estimates and assumptions are reasonable, they are based upon information available when they are made.
Actual results may differ significantly from these estimates under different assumptions or conditions.

Principles of Consolidation

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

Investments in Joint Ventures and Recoverability of Investments in Joint Ventures

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

Investment at Carrying Value

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

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

decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other
income (expense), and a new cost basis in the investment is established.

Revenue Recognition

Revenue is measured based on consideration specified in the contract with a customer, adjusted for any
applicable estimates of variable consideration and other factors affecting the transaction price, including
noncash consideration, consideration paid or payable to customers, and significant financing components.
While most of the Company’s revenue is contracted with customers through one-time purchase orders and
short-term contracts, the Company does have long-term arrangements with certain customers. Revenue from
all customers is recognized when a performance obligation is satisfied by transferring control of a distinct
good or service to a customer. The transaction price for the Company’s products is the invoiced amount.
Revenue is recognized when transfer of control occurs as defined by the terms in the customer agreement,
generally upon shipment of product.

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

Accounts Receivable

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

Payment terms for NTIC’s unaffiliated customers are determined based on credit risk and vary by customer.
NTIC typically offers standard payment terms of net 30 days to unaffiliated customers. Payment terms for
NTIC’s joint ventures also are determined based on credit risk; however, additional consideration is given to
the individual joint venture due to the transportation time associated with ocean delivery of most products
and certain other factors. NTIC typically offers payment terms to joint ventures of net 90 days. NTIC does
not accrue interest on past due accounts receivable. NTIC reviews the credit histories of its customers,
including its joint ventures, before extending unsecured credit. NTIC values accounts and notes receivable
net of an allowance for doubtful accounts. Each quarter, NTIC prepares an analysis of its ability to collect
outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In doing so,
NTIC evaluates the age of its receivables, past collection history, current financial conditions of key
customers and its joint ventures, and economic conditions. Based on this evaluation, NTIC establishes a
reserve for specific accounts and notes receivable that it believes are uncollectible, as well as an estimate of

uncollectible receivables not specifically known. Deterioration in the financial condition of any key
customer or joint venture or a significant slowdown in the economy could have a material negative impact on
NTIC’s ability to collect a portion or all of the accounts and notes receivable. NTIC believes that an analysis
of historical trends and its current knowledge of potential collection problems provide NTIC with sufficient
information to establish a reasonable estimate for an allowance for doubtful accounts. However, since NTIC
cannot predict with certainty future changes in the financial stability of its customers or joint ventures,
NTIC’s actual future losses from uncollectible accounts may differ from its estimates. In the event NTIC
determined that a smaller or larger uncollectible accounts reserve is appropriate, NTIC would record a credit
or charge to selling expense in the period that it made such a determination.

Recoverability of Long-Lived Assets

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

Foreign Currency Translation (Accumulated Other Comprehensive Income)

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

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

Stock-Based Compensation

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

Inventory Valuation

NTIC’s inventories consist primarily of production materials and finished goods. NTIC purchases
production materials and finished goods based on forecasted demand and records inventory at the lower of
cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) method. Management
regularly assesses inventory valuation based on current and forecasted usage, demand and pricing, shelf life,
customer inventory-related contractual obligations, and other considerations. If actual results differ from
management estimates with respect to the actual or projected selling of inventories at amounts less than their
carrying amounts, NTIC would adjust its inventory balances accordingly.

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

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is
the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from
transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the
Japanese Yen, the Indian Rupee, the Chinese Renminbi, the 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.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following items are included herein:

Management’s Report on Internal Control Over Financial Reporting ..................................................................... 56
57-58
Report of Independent Registered Public Accounting Firm .................................................................................
59
Consolidated Balance Sheets as of August 31, 2019 and 2018 ................................................................................
60
Consolidated Statements of Operations for the years ended August 31, 2019 and 2018 .........................................
61
Consolidated Statements of Comprehensive Income for the years ended August 31, 2019 and 2018 .....................
62
Consolidated Statements of Equity for the years ended August 31, 2019 and 2018 ................................................
Consolidated Statements of Cash Flows for the years ended August 31, 2019 and 2018 ........................................
63
Notes to Consolidated Financial Statements ............................................................................................................ 64-86

Page

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

NTIC’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for Northern Technologies
International Corporation and its subsidiaries. This system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles.

The Company's internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with U.S. generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements, and even when determined to be effective, can only provide reasonable assurance with
respect to financial statement preparation and presentation. In addition, projection of any evaluation of the
effectiveness of internal control over financial reporting to future periods is subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.

Management, with the participation of the Company's President and Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of the Company's internal control over financial reporting as of
August 31, 2019. In making this evaluation, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013).
Based on this assessment, management concluded that the Company's internal control over financial
reporting was effective as of August 31, 2019. Our internal control over financial reporting as of August 31,
2019 has been audited by Baker Tilly Virchow Krause, LLP, NTIC’s independent registered public
accounting firm, as stated in their report, which is included herein.

G. Patrick Lynch
President and Chief Executive Officer

Matthew C. Wolsfeld
Chief Financial Officer

_____

Further discussion of the Company's internal controls and procedures is included in Part II, Item 9A,
"Controls and Procedures" of this report.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders, Audit Committee and Board of Directors
Northern Technologies International Corporation and Subsidiaries
Circle Pines, Minnesota

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Northern Technologies International
Corporation and Subsidiaries (the "Company") as of August 31, 2019 and 2018, the related consolidated
statements of operations, comprehensive income, equity, and cash flows, for each of the two years in the
period ended August 31, 2019, and the related notes (collectively referred to as the "consolidated financial
statements"). We also have audited the Company’s internal control over financial reporting as of August 31,
2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of August 31, 2019 and 2018, and the results of its operations and its cash flows
for each of the two years in the period ended August 31, 2019, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of August 31, 2019, based on criteria
established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated
financial statements and an opinion on the Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud and whether effective internal
control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed 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. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ Baker Tilly Virchow Krause, LLP

We have served as the Company’s auditor since 2004.

Minneapolis, Minnesota
November 13, 2019

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AUGUST 31, 2019 AND 2018

ASSETS
CURRENT ASSETS:

Cash and cash equivalents
Available for sale securities
Receivables:

Trade excluding joint ventures, less allowance for doubtful accounts

of $65,000 as of August 31, 2019 and $50,000 as of August 31, 2018

Trade joint ventures
Fees for services provided to joint ventures

Income taxes
Inventories
Prepaid expenses

Total current assets

PROPERTY AND EQUIPMENT, NET

OTHER ASSETS:

Investments in joint ventures
Deferred income taxes
Patents and trademarks, net
Other
Total other assets
Total assets

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Income taxes payable
Accrued liabilities:

Payroll and related benefits
Other

Total current liabilities

COMMITMENTS AND CONTINGENCIES (Note 15)

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 August 31, 2019 and August 31, 2018;
issued and outstanding 9,086,816 and 9,082,606, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Stockholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity

August 31, 2019

August 31, 2018

5,856,758
3,565,258

4,163,023
3,300,110

9,779,518
824,473
1,268,000
457,018
10,488,728
1,062,609
33,302,362

7,358,159

24,207,339
1,634,258
1,008,969
—
26,850,566
67,511,087

4,505,531
6,759

1,857,971
1,471,532
7,841,793

9,920,108
761,506
1,357,255
273,333
9,130,861
1,661,577
30,567,773

7,168,826

22,950,995
1,551,536
1,156,257
153,849
25,812,637
63,549,236

3,905,034
70,892

2,747,303
1,006,953
7,730,182

—

181,736
16,013,338
44,992,719
(4,593,178)
56,594,615
3,074,679
59,669,294
67,511,087

181,652
14,528,951
41,963,341
(3,597,199)
53,076,745
2,742,309
55,819,054
63,549,236

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2019 AND 2018

NET SALES:
Net sales, excluding joint ventures
Net sales, to joint ventures
Total net sales
Cost of goods sold
Gross profit

JOINT VENTURE OPERATIONS:

Equity in income from joint ventures
Fees for services provided to joint ventures

To Total joint venture operations

OPERATING EXPENSES:

Selling expenses
General and administrative expenses
Research and development expenses
Total operating expenses

OPERATING INCOME

INTEREST INCOME
INTEREST EXPENSE

INCOME BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE

NET INCOME

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS

NET INCOME ATTRIBUTABLE TO NTIC

NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:

Basic
Diluted

WEIGHTED AVERAGE COMMON SHARES

ASSUMED OUTSTANDING:

Basic
Diluted

$
$

2019

2018

53,142,583
2,607,554
55,750,137
37,970,244
17,779,893

7,225,518
5,727,579
12,953,097

10,968,592
9,349,559
3,822,070
24,140,221

48,516,749
2,908,072
51,424,821
34,165,440
17,259,381

7,527,383
6,142,139
13,669,522

10,886,011
8,500,490
3,524,953
22,911,454

6,592,769

8,017,449

78,257
(13,567)

6,657,459

841,837

5,815,622

606,000

5,209,622

0.57
0.55

$
$

99,463
(17,962)

8,098,950

876,103

7,222,847

521,481

6,701,366

0.74
0.72

9,085,584
9,415,974

9,077,676
9,370,404

CASH DIVIDENDS DECLARED PER COMMON SHARE

0.24

0.20

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED AUGUST 31, 2019 AND 2018

NET INCOME

$
OTHER COMPREHENSIVE INCOME (LOSS) – FOREIGN

CURRENCY TRANSLATION ADJUSTMENT

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTERESTS

2019

2018

5,815,622

7,222,847

(1,003,643)

(1,162,755)

4,811,979

6,060,092

(598,336)

(484,861)

COMPREHENSIVE INCOME ATTRIBUTABLE TO NTIC

4,213,643

5,575,231

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED AUGUST 31, 2019 AND 2018 .

STOCKHOLDERS’ EQUITY

Common Stock

Amount

Additional

Paid-in

Capital

Retained

Earnings

Accumulated

Other

Non-

Comprehensive

Controlling

Income (Loss)

Interests

Total

Equity

BALANCE AT AUGUST 31, 2017

9,070,036

$181,400

$14,072,809

$ 37,077,483

$ (2,471,064)

$ 2,857,448

$ 51,718,076

Stock options exercised
Stock issued for employee stock
purchase plan

Stock option expense

Dividends paid to shareholders
Dividend received by non-controlling
interest

Net income

Other comprehensive loss

BALANCE AT AUGUST 31, 2018
Stock issued for employee stock
purchase plan

Stock option expense
Investment by non-controlling
Interest

Dividends paid to shareholders
Dividend received by non-controlling
interest

Net income

Other comprehensive loss

8,820

3,750

—

176

—

15,257

27,875

413,010

—

—-

—

(1,815,508)

—

6,701,366

—

(1,126,135)

—

15,433

27,951

413,010

(1,815,508)

(600,000)

521,481

(36,620)

7,222,847

(1,162,755)

9,082,606

181,652

14,528,951

41,963,341

(3,597,199)

2,742,309

55,819,054

4,210

—

52,462

1,431,925

—

—-

—

(2,180,244)

—

5,209,622

—

(995,979)

—

52,546

1,431,925

134,034

—

(2,180,244)

(400,000)

606,000

(7,664)

5,815,622

(1,003,643)

BALANCE AT AUGUST 31, 2019

9,086,816

$181,736

$16,013,338

$ 44,992,719

$ (4,593,178)

$ 3,074,679

$ 59,669,294

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2019 AND 2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:

2019

2018

5,815,622

7,222,847

Stock-based compensation
Depreciation expense
Amortization expense
Equity in income from joint ventures
Dividends received from joint ventures

Gain on disposal of property and equipment

Deferred income taxes

Changes in current assets and liabilities:

Receivables:

Trade, excluding joint ventures
Trade, joint ventures
Fees for services provided to joint ventures
Income taxes

Inventories
Prepaid expenses and other
Accounts payable
Income tax payable
Accrued liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of available for sale securities
Proceeds from the sale of available for sale securities
Purchases of property and equipment
Investments in patents

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest

Investment by non-controlling interest
Dividends paid on NTIC common stock

Proceeds from employee stock purchase plan
Proceeds from exercise of stock options
Net cash used in financing activities

1,431,925
841,236
261,724
(7,225,518)
5,039,041
(36,098)
(89,637)

(50,315)
(62,967)
89,255
(189,226)
(1,486,833)
744,323
682,786
(65,344)
(222,952)
5,477,022

3,100,000
(3,365,146)
(960,339)
(114,436)
(1,339,921)

(400,000)
134,034
(2,180,244)
52,546
—
(2,393,664)

413,010
853,555
252,312
(7,527,383)
3,697,503
(10,723)
186,808

(4,372,619)
(69,754)
(54,311)
(191,090)
(1,909,253)
(1,317,269)
1,641,132
73,546
1,720,376
608,687

(1,518,596)
1,985,470
(680,502)
(86,481)
(300,109)

(600,000)
—
(1,815,508)
27,951
15,433
(2,372,124)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

(49,702)

(133,632)

1,693,735
4,163,023

(2,197,178)
6,360,201

CASH AND CASH EQUIVALENTS AT END OF YEAR

5,856,758

4,163,023

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 2019 AND 2018

NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

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

The Company participates, either directly or indirectly, in 21 active joint venture arrangements in North
America, Europe, and Asia. Each of these joint ventures generally manufactures and markets products in the
geographic territory to which it is assigned. While most of the Company’s joint ventures exclusively sell rust
and corrosion inhibiting products, some of the joint ventures also sell the Company’s Natur-Tec® resin
compounds and finished products. The profits of joint ventures are shared by the respective joint venture
owners in accordance with their respective ownership percentages. The Company typically owns 50% or less of
its joint venture entities and does not control the decisions of these entities, including dividend declaration or
amount in any given year.

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

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

Non-Controlling Interests – The Company owns 75% of Natur-Tec India, 75% of Natur Tec Lanka, 85% of
Zerust Brazil, and 60% of NTI Asean. The remaining ownership is accounted for as non-controlling interests
and reported as part of equity in the consolidated financial statements. The Company allocates gains and losses
to the non-controlling interest even when such allocation might result in a deficit balance, reducing the losses
attributed to the controlling interest. Changes in ownership interests are treated as equity transactions if the
Company maintains control.

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

In May 2014, the Financial Accounting Standards Board (FASB) issued guidance creating Accounting
Standards Codification (ASC) Section 606, Revenue from Contracts with Customers (ASC 606), which
establishes a comprehensive new model for the recognition of revenue from contracts with customers. This
model is based on the core principle that revenue should be recognized to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.

On September 1, 2018, the Company adopted ASC 606 for all customer contracts using the modified
retrospective method. To determine revenue recognition for arrangements within the scope of ASC 606, the
Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the
performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to
the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a
performance obligation. The Company only applies the five-step model to contracts when it is probable that the
entity will collect the consideration it is entitled to in exchange for the goods it transfers to, or services it
performs for, the customer.

The adoption of ASC 606 neither impacted the previously reported financial statements in any prior period nor
did it result in a cumulative effect adjustment to retained earnings. Therefore, the adoption of the standard did
not impact the Company’s revenue recognition process. Generally, the Company’s performance obligations are
satisfied when the customers take possession of the products, which normally occurs at the shipping point or
destination depending on the terms of the contracts. The Company’s services are generally sold based upon
quotes or contracts with customers that include a fixed or determinable price, and sales arrangements do not
contain any significant financing component for its customers. The Company does not recognize revenue
related to product warranties, nor does the Company incur significant contract costs. Customer arrangements do
not generate contract assets or liabilities.

Changes to the Company’s significant accounting policies as a result of adopting ASC 606 are discussed below.

Revenue Recognition - Revenue is measured based on consideration specified in the contract with a customer,
adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price,
including noncash consideration, consideration paid or payable to customers, and significant financing
components. While most of the Company’s revenue is contracted with customers through one-time purchase
orders and short-term contracts, the Company does have long-term arrangements with certain customers.
Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a
distinct good or service to a customer.

Individually promised goods and services in a contract are considered a distinct performance obligation and
accounted for separately if the customer can benefit from the individual good or service on its own or with other
resources that are readily available to the customer and the good or service is separately identifiable from other
promises in the arrangement. When an arrangement includes multiple performance obligations, the
consideration is allocated between the performance obligations in proportion to their estimated standalone
selling price. Costs related to products delivered are recognized in the period incurred, unless criteria for
capitalization of costs are met. Costs of revenues consist primarily of direct labor, manufacturing overhead,
materials, and components. The Company does not incur significant upfront costs to obtain a contract. If costs
to obtain a contract were to become material, the costs would be recorded as an asset and amortized to expense
in a manner consistent with the related recognition of revenue.

The Company excludes government assessed and imposed taxes on revenue generating transactions that are
invoiced to customers from revenue. The Company includes freight billed to customers in revenue. Shipping
and handling costs associated with outbound freight after control over a product has transferred to a customer
are accounted for as a fulfillment cost and are included in cost of goods sold.

The timing of revenue recognition, billing, and cash collections results in accounts receivable on the balance
sheet.

Performance Obligations - A performance obligation is a promise in a contract to transfer a distinct good or
service to the customer. A contract’s transaction price is allocated to each distinct performance obligation in
proportion to its standalone selling price and recognized as revenue when, or as, the performance obligation is
satisfied. The Company’s various performance obligations and the timing or method of revenue recognition are
discussed below.

The Company sells its products to both distributors and end-users. Each unit of product delivered under a
customer order represents a distinct and separate performance obligation, as the customer can benefit from each
unit on its own or with other resources that are readily available to the customer, and each unit of product is
separately identifiable from other products in the arrangement.

The transaction price for the Company’s products is the invoiced amount. The Company does not have variable
consideration in the form of refunds, credits, rebates, price concessions, pricing incentives, or other items
impacting transaction price. The purchase order pricing in arrangements with customers is deemed to
approximate standalone selling price; therefore, the Company does not need to allocate proceeds on a relative
standalone selling price allocation between performance obligations. The Company applies the practical
expedient in paragraph 606-10-50-14 and does not disclose information about remaining performance
obligations that have original expected durations of one year or less. There are no material obligations that
extend beyond one year.

Revenue is recognized when transfer of control occurs, as defined by the terms in the customer agreement. The
Company immediately recognizes incidental items that are immaterial in the context of the contract. The
Company has applied the practical expedient in paragraph 606-10-25-16A and does not assess if immaterial
items are promised goods or services. The Company has also applied the practical expedient in paragraph 606-
10-32-18 regarding the adjustment of the promised amount of consideration for the effects of a significant
financing component when the customer pays for that good or service within one year or less, as the Company
does not have any significant financing components in its customer arrangements since payment is received at or
shortly after the point of sale, generally thirty to ninety days.

The Company estimates returns based on an analysis of historical experience if the right to return products is
granted to its customers. The Company does not record a return asset, as non-conforming products are generally
not returned. The Company’s return policy does not vary by geography. The customer has no rotation or price
protection rights, and the Company is not under a warranty obligation.

Sales Commissions - Sales commissions paid to sales representatives are eligible for capitalization, as they are
incremental costs that would not have been incurred without entering into a specific sales arrangement and are
recoverable through the expected margin on the transaction. The Company has elected to apply the practical
expedient provided by ASC 340-40-25-4 and recognize the incremental costs of obtaining contracts as an
expense when incurred, as the amortization period of the assets that would have otherwise been recognized is
one year or less. The Company records these costs as a selling expense.

Product Warranty - The Company offers warranties on various products and services. These warranties are
assurance type warranties that are not sold on a standalone basis; therefore, they are not considered distinct

performance obligations. The Company estimates the costs that may be incurred under its warranties and
records a liability in the amount of such costs at the time the revenue is recognized for the product sale.

International Revenue - The Company markets its products to numerous countries in North America, Europe,
Latin America, Asia, and other parts of the world. See Note 11, Segment and Geographical Information, for
information regarding revenue disaggregation by geography.

Trade Receivables – Payment terms for the Company’s unaffiliated customers are determined based on credit
risk and vary by customer. The Company typically offers standard payment terms to unaffiliated customers of
net 30 days. The Company does not accrue interest on past due accounts receivable. The Company reviews the
credit histories of its customers before extending unsecured credit. The Company presents accounts and notes
receivable net of an allowance for doubtful accounts. Each quarter, the Company prepares an analysis of its
ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts.
In doing so, the Company evaluates the age of its receivables, past collection history, current financial
conditions of key customers and its joint ventures, and economic conditions. Based on this evaluation, the
Company establishes a reserve for specific accounts and notes receivable that it believes are uncollectible, as
well as an estimate of uncollectible receivables not specifically known. The Company believes that an analysis
of historical trends and its current knowledge of potential collection problems provide the Company with
sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. In the event the
Company determines that a smaller or larger uncollectible accounts reserve is appropriate, the Company records
a credit or charge to selling expense in the period that it made such determination. Accounts receivable have
been reduced by an allowance for uncollectible accounts of $65,000 as of August 31, 2019 and $50,000 as of
August 31, 2018. Accounts are considered past due based on terms agreed upon between the Company and the
customer. Accounts receivable are written-off only after all collection attempts have failed and are based on
individual credit evaluation and specific circumstances of the customer.

Trade Receivables from Joint Ventures – Trade receivables from joint ventures arise from sales of products the
Company makes to its joint ventures. Payment terms for the Company’s joint ventures also are determined
based on credit risk; however, additional consideration is given to the individual joint venture due to the
transportation time associated with ocean delivery of most products and certain other factors. Generally,
accounts receivable from the Company’s joint ventures unpaid after 90 days are considered past due. The
Company does not accrue interest on past due balances. The Company periodically reviews amounts due from
its joint ventures for collectability and, based on past experience and continuous review of the balances due,
determined that an allowance for doubtful accounts related to its joint venture receivables was not necessary as
of August 31, 2019 or 2018.

Fees for Services Provided to Joint Ventures – The Company provides services to its joint ventures including
consulting, legal, travel, insurance, technical, and marketing services based on licensing or other agrements with
its joint ventures. The Company receives fees for the services it provides to its joint ventures. The fees for
services received by the Company from its joint ventures are generally based on either a flat fee or a percentage
of net sales by the Company’s joint ventures depending on local laws and tax regulations. Under the
Company’s agreements with its joint ventures, amounts are earned when product is shipped from joint venture
facilities, at which point a sale is deemed to have occurred and results in obligation for the joint venture to pay
the royalty and recognition of the fee by the Company. The Company reviews the financial situation of each of
its joint ventures to assist in the likelihood of collections on amounts earned. The Company accounts for these
fees on a cash basis if uncertainty exists surrounding the collection of such fees.

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

Available for Sale Securities – Available for sale securities are recorded at fair value. Unrealized holding gains
and losses on available for sale securities are not significant.

Stock Split – On June 3, 2019, NTIC’s Board of Directors declared a two-for-one stock split of NTIC’s common
stock effected in the form of a 100% share dividend distributed on June 28, 2019 to record holders as of June 17,
2019. Earnings and dividends declared per share and weighted average shares outstanding are presented in this
report after the effect of the 100 percent stock dividend. The two-for-one stock split is retroactively reflected in
the share amounts in all periods presented in this report.

Inventories – Inventories are recorded at the lower of cost (first-in, first-out basis) or net realizable value.

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

Buildings and improvements
Machinery and equipment

5-30 years
3-10 years

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

Investments in Joint Ventures – Investments in the Company’s joint ventures are accounted for using the equity
method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends,
distributed and undistributed earnings and losses, changes in foreign currency exchange rates, and additional
investments. In the event the Company’s share of a joint venture’s cumulative losses exceeds the Company’s
investment balance, the balance is reported at zero value until proportionate income exceeds the losses. The
Company assesses its joint ventures for impairment on an annual basis as of August 31 of each year as part of its
fiscal year end analysis. In addition to the annual review for impairment, the Company reviews the operating
results of each joint venture on a quarterly basis in comparison to its historical operating results and its accrual
of fees for services provided to joint ventures. If the operating results of a joint venture do not meet financial
performance expectations, an additional evaluation is performed on the joint venture. The Company’s
evaluation of its investments in joint ventures requires the Company to make assumptions about future cash
flows of its joint ventures. These assumptions require significant judgment, and actual results may differ from
assumed or estimated amounts. All investments in joint ventures had positive equity as of August 31, 2019 and
2018. The Company considers any of its joint ventures to be significant and discloses entity specific financial
information if the joint venture’s income or assets make up more than 20% of the Company’s total assets or
income.

The Company classifies distributions received from its joint ventures based on the nature of the distributions,
generally, as a return on its investment in operating activities on the consolidated statements of cash flows.

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

investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit
quality, the duration and extent to which the fair value is less than cost, and for equity securities, the Company’s
intent and ability to hold, or plans to sell, the investment. The Company also considers specific adverse
conditions related to the financial health of and business outlook for the investee, including industry and sector
performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair
value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense),
and a new cost basis in the investment is established.

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

Income Taxes – The Company utilizes the asset and liability method of accounting for income taxes, which
requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the consolidated financial statements. Deferred income tax assets and liabilities are
determined based on the differences between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the
enactment date.

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

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

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

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

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

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

Research and Development – The Company expenses all costs related to product research and development as
incurred.

Common Stock – The Company issues authorized but unissued shares of common stock upon the exercise of
stock options.

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

Subsequent Events – The Company has evaluated events occurring after the date of the consolidated financial
statements for events requiring disclosure in the consolidated financial statements.

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

ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements Adopted

The Company applies the practical expedient in paragraph 606-10-50-14 and does not disclose information
about remaining performance obligations that have original expected durations of one year or less. There are no
material obligations that extend beyond one year. Revenue is recognized when transfer of control occurs as
defined by the terms in the customer agreement. The Company immediately recognizes incidental items that are
immaterial in the context of the contract. The Company has applied the practical expedient in paragraph 606-
10-25-16A and does not assess if immaterial items are promised goods or services. The Company has also
applied the practical expedient in paragraph 606-10-32-18 regarding the adjustment of the promised amount of
consideration for the effects of a significant financing component when the customer pays for that good or
service within one year or less, as the Company does not have any significant financing components in its
customer arrangements since payment is received at or shortly after the point of sale, generally thirty to ninety
days.

Recently Issued Accounting Pronouncements

During February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU No.
2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease
transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset
(as defined). The Company will adopt this ASU for its annual and interim periods beginning September 1,
2019, and elected not to restate comparative periods in transition. The Company performed a review of the
requirements of the new guidance and identified which of its leases will be within the scope of ASU 2016-02.
The Company completed its adoption plan, which included a review of lease contracts, applying the new
standard to the lease contracts and comparing the results to our current accounting. Effective for our quarter
ending November 30, 2019, the Company will revise its lease accounting policy disclosures to reflect the
requirements of ASU 2016-02. The Company estimates the impact of the adoption will be an increase in the
range of $500,000 and $750,000 to both assets and liabilities on the consolidated balance sheet. The Company
does not believe the adoption of this guidance will have a material impact on its consolidated results of
operations or cash flows. The Company also expects additional qualitative and quantitative disclosures will be
required upon adoption.

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 Reform Act that are stranded in accumulated other comprehensive income. This standard
also requires certain disclosures about stranded tax effects. ASU No. 2018-02, 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 No. 2018-02 will be effective for the Company’s fiscal year 2020, with the option
for early adoption 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.

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.

INVENTORIES

Inventories consisted of the following:

Production materials
Finished goods

August 31, 2019
1,980,816
8,507,912
$ 10,488,728

August 31, 2018
1,824,489
7,306,372
9,130,861

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

Land
Buildings and improvements
Machinery and equipment

Less accumulated depreciation

PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

Patents and trademarks
Less accumulated amortization

August 31, 2019
310,365
7,749,980
4,903,664
12,964,009
(5,605,850)
7,358,159

August 31, 2018
310,365
6,927,484
4,680,072
11,917,921
(4,749,095)
7,168,826

August 31, 2019
2,938,876
(1,929,907)
1,008,969

August 31, 2018
2,824,440
(1,668,183)
1,156,257

Patent and trademark costs are amortized over seven years. Costs incurred related to patents and trademarks are
capitalized until filed and approved, at which time the amounts capitalized to date are amortized, and any further
costs, including maintenance costs, are expensed as incurred. Amortization expense was $261,724 and
$252,312 for the years ended August 31, 2019 and 2018, respectively. Amortization expense is estimated to be
$200,000 in each of the next five fiscal years.

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 accounting principles generally accepted in the United States of
America in all material respects. All material profits on sales recorded that remain on the balance sheet from the
Company to its joint ventures and from joint ventures to other joint ventures have been eliminated for financial
reporting purposes.

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

Current assets
Total assets
Current liabilities
Noncurrent liabilities
Joint ventures’ equity
Northern Technologies International
Corporation’s share of joint ventures’
equity
Northern Technologies International
Corporation’s share of joint ventures’
undistributed earnings

Net sales
Gross profit
Net income
Northern Technologies International
Corporation’s share of equity in
income of joint ventures
Northern Technologies International
Corporation’s dividends received from
joint ventures

Total
59,162,834
63,326,703
14,145,499
20,797
49,160,407

As of August 31, 2019
EXCOR

29,139,787
31,666,841
3,573,160
—
28,093,681

All Other

30,023,047
31,659,862
10,572,339
20,797
21,066,726

24,207,339

14,046,842

10,160,497

22,178,126

14,015,937

8,162,189

Total
114,635,435
51,312,013
14,688,999

Fiscal Year Ended August 31, 2019
EXCOR

47,015,841
25,622,261
10,827,448

All Other

67,619,594
25,689,752
3,861,551

7,225,518

5,415,362

1,810,156

5,039,041

3,345,600

1,693,441

Total
58,086,747
62,803,261
15,991,886
403,653
46,407,722

As of August 31, 2018
EXCOR

27,354,788
30,033,750
4,535,954
—
25,497,796

All Other

30,731,959
32,769,511
11,455,932
403,653
20,909,926

22,950,995

12,748,899

10,195,263

20,921,783

12,717,994

8,203,789

Total
120,060,897
53,348,459
15,300,276

Fiscal Year Ended August 31, 2018
EXCOR

47,537,949
25,584,666
11,095,523

All Other

72,522,948
27,763,793
4,204,753

7,527,383

5,549,765

1,977,618

3,697,503

2,357,544

1,339,959

The Company did not make any joint venture investments during fiscal 2019 or fiscal 2018, except for the
creation during fiscal 2019 of a new joint venture in Vietnam which the Company indirectly owns through its
ownership interest in NTI Asean.

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 August 31, 2019 and 2018. At the option of the
Company, outstanding advances under the line of credit bear interest at either (a) an annual rate based on
LIBOR plus 2.15% for the applicable LIBOR interest period selected by the Company or (b) at the rate publicly
announced by PNC Bank from time to time as its prime rate. The line of credit matures on January 7, 2020.

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 August 31, 2019, the Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to
$1,200,000. The Company did not have any letters of credit reserved against the available letters of credit
balance as of August 31, 2019 and 2018 with PNC Bank. The availability of advances under the line of credit
are reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under the
revolving credit facility.

As of August 31, 2019, the Company had $88,831 of letters of credit with JP Morgan Chase Bank that are
performance based and set to expire between 2020 and 2022.

STOCKHOLDERS’ EQUITY

On June 3, 2019, the Company’s Board of Directors declared a two-for-one stock split of the Company’s
common stock effected in the form of a 100% share dividend distributed on June 28, 2019 to record holders as
of June 17, 2019. All share and per share values have been adjusted to retroactively reflect the effect of the two-
for-one stock split.

Declaration Date
October 24, 2018
January 23, 2019
April 25, 2019
July 24, 2019

Amount
$0.06
$0.06
$0.06
$0.06

Record Date
November 7, 2018
February 6, 2019
May 9, 2019
August 7, 2019

Payable Date
November 21, 2018
February 22, 2019
May 23, 2019
August 21, 2019

During fiscal 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
November 20, 2017
January 24, 2018

Amount
$0.05
$0.05

Record Date
December 8, 2017
February 7, 2018

Payable Date
December 21, 2017
February 21, 2018

April 25, 2018
July 25, 2018

$0.05
$0.05

May 9, 2018
August 8, 2018

May 23, 2018
August 22, 2018

On January 15, 2015, the Company’s Board of Directors authorized the repurchase of up to $3,000,000 in shares
of common stock through open market purchases or unsolicited or solicited privately negotiated transactions.
This program has no expiration date but may be terminated by the Company’s Board of Directors at any time.
As of August 31, 2019, up to $2,640,548 in shares of common stock remained available for repurchase under the
stock repurchase program.

During fiscal 2019, the Company did not repurchase or retire any shares of its common stock. During fiscal
2019, no stock options to purchase shares of common stock were exercised.

During fiscal 2018, the Company did not repurchase or retire any shares of its common stock. During fiscal
2018, stock options to purchase an aggregate of 12,814 shares of common stock were exercised at a weighted
average exercise price of $5.80 per share. Some of the shares were cashless exercises, resulting in the issuance
of 8,820 net shares.

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:

Numerator:
Net income attributable to NTIC

August 31, 2019
5,209,622

August 31, 2018
6,701,366

Denominator:
Basic-weighted shares outstanding
Weighted shares assumed upon exercise of
stock options
Diluted – weighted shares outstanding

9,085,584

330,390
9,415,974

9,077,676

292,728
9,370,404

Basic earnings per share:
Diluted earnings per share:

$
$

0.57
0.55

$
$

0.74
0.72

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

The dilutive impact summarized above relates to the periods when the average market price of Company stock
exceeded the exercise price of the potentially dilutive option securities granted. Earnings per common share
were based on the weighted average number of common shares outstanding during the periods when computing
the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock
market method when computing the diluted earnings per share. Excluded from the computation of diluted net
income per share as of August 31, 2019 were options to purchase 141,768 shares of common stock. There were
no shares excluded from the computation of diluted income per share as of August 31, 2018.

10.

STOCK-BASED COMPENSATION

The Company has three stock-based compensation plans under which stock options or other stock-based awards
have been granted, the Northern Technologies International Corporation 2019 Stock Incentive Plan (the 2019
Plan), which was approved by stockholders at the 2019 annual meeting of stockholders, the Northern

Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) and
the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The 2019 Plan
replaced the 2007 Plan with respect to future grants; and, therefore, no further awards may be made under the
2007 Plan. The Compensation Committee of the Board of Directors and the Board of Directors administer these
plans.

The 2019 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation
rights, restricted stock, stock unit awards, performance awards, and stock bonuses to eligible recipients to enable
the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity
participation in the Company and to reward those individuals who contribute to the achievement of the
Company’s economic objectives. Subject to adjustment as provided in the 2019 Plan, up to a maximum of
800,000 shares of the Company’s common stock are issuable under the 2019 Plan. Options granted generally
have a term of ten years and become exercisable over a one- or three- year period beginning on the one-year
anniversary of the date of grant. Options are granted at per share exercise prices equal to the market value of the
Company’s common stock on the date of grant. The Company issues new shares upon the exercise of options.
As of August 31, 2019, no stock options or other equity awards had been granted under the 2019 Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is
200,000 shares, subject to adjustment as provided in the ESPP. The ESPP provides for six-month offering
periods beginning on September 1 and March 1 of each year. The purchase price of the shares is 90% of the
lower of the fair market value of common stock at the beginning or end of the offering period. This discount
may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal
Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes. The Company
issued 2,462 and 1,970 shares on March 1, 2019 and 2018, respectively, and 1,748 and 1,780 shares on
September 1, 2018 and 2017, respectively, under the ESPP. As of August 31, 2019, 91,044 shares of common
stock remained available for sale under the ESPP.

The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with
the assumptions listed below. The volatility factor used in the Black-Scholes option pricing model is based on
historical stock price fluctuations, and the risk-free interest rate is based on U.S. treasury rates appropriate for
the expected term. Dividend yield and expected volatility are estimated using historical amounts that are
anticipated to be consistent with current values. Expected life of the option is based on the life of the option
agreements. Based on these valuations, the Company recognized compensation expense of $1,431,925 and
$413,010 during fiscal 2019 and fiscal 2018, respectively, related to the options that vested during such time.
As of August 31, 2019, the total compensation cost for non-vested options not yet recognized on the Company’s
consolidated statements of operations was $65,270, which is expected to be recognized during fiscal 2020, based
on outstanding options as of August 31, 2019. 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:

Dividend yield
Expected volatility
Expected life of option
Weighted average risk-free interest rate

Fiscal Year 2019
1.32%
45.8%
10 years
2.75%

Fiscal Year 2018
2.18%
45.9%
10 years
1.87%

Stock option activity during the periods indicated was as follows:

Outstanding at August 31, 2017
Options granted
Options exercised
Options terminated

Outstanding at August 31, 2018
Options granted
Options exercised
Options terminated

Number of
Shares (#)
615,716
94,504
(12,814)
—

697,406
141,767
—
—

Weighted Average

Exercise Price

Aggregate
Intrinsic Value

6.97
9.18
5.80
—

7.29
18.23
—

—

Outstanding at August 31, 2019

839,173

9.13

$ 2,610,422

Exercisable at August 31, 2019

640,617

7.20

$ 2,403,847

*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

The weighted average per share fair value of options granted during fiscal 2019 and fiscal 2019 was $9.02 and
$3.88, respectively. The weighted average remaining contractual life of the options outstanding and exercisable
as of August 31, 2019 was 5.90 years and 5.06 years, respectively.

11.

SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company’s chief operating decision maker (CODM) is its Chief Executive Officer. The Company’s
business is organized into two reportable segments: ZERUST® and Natur-Tec®. The Company has been selling
its proprietary ZERUST® rust and corrosion inhibiting products and services to the automotive, electronics,
electrical, mechanical, military, and retail consumer markets for over 40 years and, more recently, has targeted
and expanded into the oil and gas industry. The Company also sells a portfolio of bio-based and compostable
(fully biodegradable) polymer resins and finished products under the Natur-Tec® brand.

The following tables present the Company’s business segment information in fiscal 2019 and fiscal 2018:

ZERUST® net sales
Natur-Tec® net sales
Total net sales

Fiscal 2019

Fiscal 2018

38,174,712
17,575,425

41,374,305
10,050,516

55,750,137

51,424,821

The following table sets forth the Company’s cost of goods sold for fiscal 2019 and fiscal 2018 by segment:

Fiscal 2019

Fiscal 2018

Direct cost of goods sold
ZERUST®
$ 21,505,335
Natur-Tec®
13,691,038
2,773,871
Indirect cost of goods sold
Total net cost of goods sold $ 37,970,244

$ 24,326,493
7,303,439
2,535,508
$ 34,165,440

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

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

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

Geographic Information

Net sales by geographic location were as follows:

Inside the U.S.A. to unaffiliated customers
Outside the U.S.A. to:

Joint ventures in which the Company is a

shareholder directly and indirectly

Unaffiliated customers

Fiscal Year Ended August 31,

2019

$ 24,560,459

2018
$ 25,301,243

2,607,554
28,582,124
$ 55,750,137

2,908,072
23,215,506
$ 51,424,821

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

Fees for services provided to joint ventures by geographic location as a percentage of total fees for services
provided to joint ventures during fiscal 2019 and fiscal 2018, respectively, were as follows:

Germany
Japan
Poland
Sweden
France
Thailand
India
South Korea
Czech
United Kingdom
Finland
Other

Fiscal 2019
852,526
748,489
704,942
589,654
430,537
418,334
350,171
346,244
345,798
319,671
281,296
339,917
$ 5,727,579

Fiscal 2018
900,316
759,418
775,319
600,336
532,565
429,319
365,018
370,171
377,844
352,585
320,501
358,747
$ 6,142,139

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

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

The geographical distribution of total long-lived assets and net sales is as follows:

China
Other
United States

Total long-lived assets

At August 31, 2019
$

337,162
178,087
6,842,910
7,358,159

China
Brazil
India
Other
United States

Total net sales

Fiscal Year Ended
August 31, 2019
13,030,298
3,151,509
8,109,468
6,898,403
24,560,459
55,750,137

At August 31, 2018

205,490
100,955
6,862,381
7,168,826

Fiscal Year Ended
August 31, 2018
12,507,039
3,093,697
3,052,741
7,470,101
25,301,243
51,424,821

Long-lived assets located in China, Brazil, Germany, and India consist of property and equipment. These assets
are periodically reviewed to assure the net realizable value from the estimated future production based on
forecasted sales exceeds the carrying value of the assets.

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

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

12.

RETIREMENT PLAN

The Company has a 401(k) employee savings plan. Employees who meet certain age and service requirements
may elect to contribute up to 15% of their salaries. The Company typically contributes the lesser of 50% of the
participant’s contributions or 3.5% of the employee’s salary. The Company recognized expense for the savings
plan of $228,605 and $219,379 for fiscal 2019 and fiscal 2018, respectively.

13.

RELATED PARTY TRANSACTIONS

During both fiscal 2019 and fiscal 2018, the Company made consulting payments of $144,000 to Bioplastic
Polymers LLC, an entity owned by Ramani Narayan, Ph.D., a director of the Company.

14.

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 made broad and complex changes to the U.S.
tax code, which had a number of impacts on the Company’s fiscal year ended 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 was subject to a blended U.S. federal tax rate of 25.7% for the
fiscal year ended 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. For the fiscal year ended August 31, 2019, the Company was subject to a U.S.
federal tax rate of 21.0%.

The provision for income taxes for the fiscal years ended August 31, 2019 and 2018 was approximately as
follows:

Current:

Federal
State
Foreign

Deferred:
Federal
State
Foreign

Fiscal Year Ended August 31,
2019

2018

— $

48,000
902,000

950,000

(315,000)
(21,000)
228,000
(108,000)

842,000 $

—
1,000
671,000

672,000

477,000
24,000
(297,000)
204,000

876,000

Reconciliations of the expected federal income tax at the statutory rate (21.0% in fiscal 2019 and 25.7% in fiscal
2018) with the provisions for income taxes for the fiscal years ended August 31, 2019 and 2018 were
approximately as follows:

Tax computed at statutory rates
State income tax, net of federal benefit
Tax effect on equity in income of
international joint ventures
Tax effect of foreign operations
Deemed repatriation
Foreign tax credit
Research and development credit
Valuation allowance
Stock based compensation
Non-controlling interest
Deferred rate change
Other

Fiscal Year Ended August 31,

2019

2018

1,398,000 $
27,000

2,081,000
25,000

(1,490,000)
672,000
204,000
-
(133,000)
133,000
208,000
(74,000)
-
(103,000)

(1,903,000)
101,000
4,011,000
(3,783,000)
(10,000)
(173,000)
57,000
(103,000)
633,000
(60,000)

842,000 $

876,000

The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the
cumulative undistributed earnings of certain foreign subsidiaries and joint ventures that are essentially
permanent in duration. The Tax Reform Act generally eliminated U.S. federal income taxes on dividends
received from the Company’s foreign subsidiaries and joint ventures after December 31, 2017. However, the
Company will still be subject to foreign withholding taxes upon repatriation of any undistributed earnings that
are not essentially permanent in duration. The Company recorded tax expense of approximately $4,000 and
$79,000 during fiscal 2019 and fiscal 2018, respectively, representing foreign withholding taxes to be paid with
respect to the portion of the cumulative undistributed earnings of foreign subsidiaries and joint ventures that the
Company determined were not essentially permanent in duration.

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. The tax effect of the temporary
differences and tax carryforwards comprising the net deferred taxes shown on the consolidated balance sheets as
of August 31, 2019 and 2018 was approximately as follows:

Accrued compensation
Inventory costs
Other accrued expenses
Goodwill and other intangible assets
Stock-based compensation
Foreign tax credit carryforward
Other credit and loss carryforwards
Total deferred tax assets
Valuation allowance

August 31,

2019

2018

153,400 $
60,900
39,700
688,400
299,300
5,790,500
3,631,700

430,600
58,900
63,700
695,800
197,500
5,789,600
3,241,200

10,663,900
(8,764,300)

10,477,300
(8,654,500)

Total deferred tax assets after valuation

allowance

Property and equipment
Other
Total deferred tax liabilities

Net deferred tax assets

August 31,

2019

2018

1,899,600
(111,900)
(153,400)
(265,300)
1,634,300 $

1,822,800
(124,600)
(146,200)
(270,800)
1,552,000

As of August 31, 2019, the Company had foreign tax credit carryforwards of approximately $5,790,500, which
will begin to expire if not utilized prior to August 31, 2021. In addition, the Company had federal and state tax
credit carryforwards of $2,973,800 as of August 31, 2019 which began to expire in fiscal 2020. These federal
and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit
carryforwards. The Company also has a deferred tax asset of $532,000 for federal and state net operating loss
carryforwards as of August 31, 2019. The federal net operating loss carryforward has an indefinite carryforward
period. The Company has a deferred tax asset of $152,000 for foreign net operating loss carryforwards, which
will begin to expire in fiscal 2021.

As of August 31, 2019, the Company has recorded a valuation allowance of $5,790,500 with respect to the
foreign tax credit carryforwards. In addition, the Company has recorded a valuation allowance of $2,973,800
with respect to federal and state tax credit carryforwards.

As of August 31, 2018, the Company had recorded a valuation allowance of $5,789,600 with respect to the
foreign tax credit carryforwards. In addition, the Company had recorded a valuation allowance of $2,864,900
with respect to federal and state tax credit carryforwards.

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

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

Gross unrecognized tax benefits – beginning balance
Gross decreases – prior period tax positions
Gross increases – current period tax positions
Gross unrecognized tax benefits – ending balance

Fiscal Year Ended August 31,

2019

242,000
1,000
5,000
248,000

2018

250,000
(12,000)
4,000
242,000

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

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the
Company’s income tax provision. Accrued interest and penalties are included within the related tax liability line
in the consolidated balance sheet. There was no liability for the payment of interest and penalties as of both
August 31, 2019 and August 31, 2018.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few
exceptions, as of August 31, 2019, the Company is no longer subject to federal, state, local, or foreign
examinations by tax authorities for years prior to August 31, 2016.

15.

COMMITMENTS AND CONTINGENCIES

On August 28, 2019, 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, 2020. For fiscal 2020, 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 2020 compared to a pre-established target EBITOI for fiscal
2020, and 25% of the payout will be determined based upon such executive officer’s achievement of certain pre-
established individual performance objectives. The payment of bonuses under the plan is discretionary, and
bonuses may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact
amount and percentages of which were 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 2020.

On August 31, 2018, 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, 2019.

Accrued bonuses as of August 31, 2019 and 2018 were $1,200,000 and $2,153,000, respectively.

Five joint ventures (consisting of the Company’s joint ventures in South Korea, Thailand, France, Germany and
India) accounted for 69.6% of the Company’s trade joint venture receivables as of August 31, 2019, and three
joint ventures (consisting of the Company’s joint ventures in South Korea, Thailand, and India) accounted for
74.1% of the Company’s trade joint venture receivables as of August 31, 2018.

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

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 August 31, 2019, the amount of liability, if
any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s
consolidated results of operations, financial position, or cash flows.

The Company has leases for office and warehouse space in the United States, China, India, Germany, and Brazil
with monthly rents ranging from $350 to $6,621, which expire at various dates through August 31, 2022. Future
minimum rents due under these leases are as follows for each of the next five years ended August 31:

Fiscal 2020
Fiscal 2021
Fiscal 2022
Total future minimun
rent

286,723
241,035
107,522

635,280

16.

STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information consist of:

Cash paid during the year for income tax
Cash paid during the year for interest

Fiscal Year Ended
August 31,

2019

2018

$ 841,837
13,567

$ 876,103
17,962

Non-cash investing and financing activites:
Purchases of property and equipment included in
accounts payable

53,512

17.

FAIR VALUE MEASUREMENTS

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

The hierarchy is broken down into three levels defined as follows:

Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for

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

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

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

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

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

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

Fair value as of
August 31, 2019
3,565,258

Fair value as of
August 31, 2018
3,300,110

Fair Value Measurements
Using Inputs Considered as

Level 1
$ 3,565,258

Level 2
$ —

Level 3
$ —

Fair Value Measurements
Using Inputs Considered as

Level 1
$ 3,300,110

Level 2
$ —

Level 3
$ —

Available for sale securities

Valuation Techniques

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

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to
observe valuation inputs may result in a reclassification of levels for certain securities within the fair value
hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy
at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer
occurs. There were no transfers between Level 1, Level 2, or Level 3 during the fiscal years ended August 31,
2019 or August 31, 2018. When a determination is made to classify an asset or liability within Level 3, the
determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

18.

SUBSEQUENT EVENTS

including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements,
business conditions, and other factors.

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

FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Management’s Report on Internal Control over Financial Reporting

NTIC’a management report on internal control over financial reporting is included in this report in Part II, Item
8, "Financial Statements and Supplementary Data" under the caption "Management's Report on Internal
Control over Financial Reporting," Which is incorporated herein by reference. The report of Baker Tilly
Virchow Krause, LLP, NTIC’s independent registered public accounting firm, regarding the effectiveness of
NTIC’s internal control over financial reporting is included in this report in Part II, Item 8, "Financial
Statements and Supplementary Data" under the caption "Report of Independent Registered Public Accounting
Firm."

Changes in Internal Control over Financial Reporting

There was no change in NTIC’s internal control over financial reporting that occurred during the quarter ended
August 31, 2019 that has materially affected or is reasonably likely to materially affect NTIC’s internal control
over financial reporting.

Item 9B. OTHER INFORMATION

Not applicable.

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

PART III

Directors

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

Executive Officers

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

Code of Ethics

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

Changes to Nomination Procedures

During the fourth quarter of fiscal 2019, NTIC made no material changes to the procedures by which
stockholders may recommend nominees to NTIC’s Board of Directors, as described in NTIC’s most recent
proxy statement.

Audit Committee Matters

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

Item 11. EXECUTIVE COMPENSATION

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

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

Stock Ownership

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

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes outstanding options and other awards under NTIC’s equity compensation plans
as of August 31, 2019. NTIC’s equity compensation plans as of August 31, 2019 were the Northern
Technologies International Corporation 2019 Stock Incentive Plan, the Northern Technologies International
Corporation Amended and Restated 2007 Stock Incentive Plan, and the Northern Technologies International
Corporation Employee Stock Purchase Plan. Except for automatic annual grants of $50,000 in options to
purchase shares of NTIC common stock to NTIC’s directors in consideration for their services as directors of
NTIC and an automatic annual grant of $10,000 in options to purchase shares of NTIC common stock to NTIC’s
Chairman of the Board in consideration for his services as Chairman, in each case on the first day of each fiscal
year, and automatic initial pro rata grants of $50,000 in options to purchase shares of NTIC common stock to
NTIC’s new directors in consideration for their services as directors of NTIC on the first date of their
appointment as directors, options and other awards granted in the future under the Northern Technologies
International Corporation 2019 Stock Incentive Plan are within the discretion of the Board of Directors and the
Compensation Committee of the Board of Directors and, therefore, cannot be ascertained at this time. No future
grants of options or other stock awards will be made under the Northern Technologies International Corporation
Amended and Restated 2007 Stock Incentive Plan.

(a)

(b)

Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))

839,172(1)(2)

—
839,172(1)(2)

$9.13

—
$9.13

891,044(3)

—

891,044 (3)

Plan Category

Equity compensation plans
approved by security holders

Equity compensation plans not
approved by security holders

Total

______________________
*Share and per share data have been adjusted for all periods presented to reflect the two-for-one stock split effective June 28, 2019.

(1)

(2)

Amount includes shares of NTIC common stock issuable upon the exercise of stock options outstanding as of
August 31, 2019 under the Northern Technologies International Corporation Amended and Restated 2007 Stock
Incentive Plan. No options or other equity awards were outstanding as of August 31, 2019 under the Northern
Technologies International Corporation 2019 Stock Incentive Plan.

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

common stock on the first day of the offering period or (ii) the closing sales price per share of NTIC common
stock on the last day of the offering period.

(3)

Amount includes 800,000 shares available at August 31, 2019 for future issuance under Northern Technologies
International Corporation 2019 Stock Incentive Plan and 91,044 shares available at August 31, 2019 for future
issuance under the Northern Technologies International Corporation Employee Stock Purchase Plan.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

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

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements

PART IV

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

Financial Statement Schedules

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

Exhibits

The exhibits being filed or furnished with this report are listed below. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this report is asterisked below.

A copy of any exhibits listed or referred to herein will be furnished at a reasonable cost to any person who is a
stockholder upon receipt from any such person of a written request for any such exhibit. Such request should be
sent to: Mr. Matthew Wolsfeld, Corporate Secretary, Northern Technologies International Corporation, 4201
Woodland Road, P.O. Box 69, Circle Pines, Minnesota 55014 Attn: Stockholder Information.

Item No.
3.1

Item
Restated Certificate of Incorporation of Northern
Technologies International Corporation

3.2

3.3

Certificate of Amendment to the Restated
Certificate of Incorporation of Northern
Technologies International Corporation dated
January 16, 2018

Certificate of Validation of the Certificate of
Amendment to Restated Certificate of
Incorporation of Northern Technologies
International Corporation dated January 18, 2019

3.4

Amended and Restated Bylaws of Northern
Technologies International Corporation

4.1

Specimen Stock Certificate Representing Common
Stock of Northern Technologies International
Corporation

Method of Filing
Incorporated by reference to Exhibit 3.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended February 28, 2009
(File No. 001-11038)

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)

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 25, 2019 (File No.
001-11038)

Incorporated by reference to Exhibit 3.1 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on November 24, 2008 (File
No. 001-11038)

Incorporated by reference to Exhibit 4.1 to
NTIC’s Registration Statement on Form 10
(File No. 001-19331) (Filed on paper -
hyperlink is not required pursuant to Rule
105 of Regulation S-T)

Item No.
4.2

Item
Description of Common Stock of Northern
Technologies International Corporation

10.1

Northern Technologies International Corporation
2019 Stock Incentive Plan*

10.2

10.3

Form of Incentive Stock Option Agreement for
Northern Technologies International Corporation
2019 Stock Incentive Plan*

Form of Non-Statutory Stock Option Agreement
for Northern Technologies International
Corporation 2019 Stock Incentive Plan*

10.4

Northern Technologies International Corporation
Amended and Restated 2007 Stock Incentive Plan*

10.5

Form of Incentive Stock Option Agreement for
Northern Technologies International Corporation
Amended and Restated 2007 Stock Incentive Plan*

10.6

Form of Non-Statutory Stock Option Agreement
for Northern Technologies International
Corporation Amended and Restated 2007 Stock
Incentive Plan*

10.7

Form of Restricted Stock Agreement for Northern
Technologies International Corporation Amended
and Restated 2007 Stock Incentive Plan*

10.8

Northern Technologies International Corporation
Employee Stock Purchase Plan*

10.9

Material Terms of Northern Technologies
International Corporation Annual Bonus Plan*

Method of Filing
Filed herewith

Incorporated by reference to Exhibit 10.1 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 25, 2019 (File No.
001-11038)

Incorporated by reference to Exhibit 10.2 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 25, 2019 (File No.
001-11038)

Incorporated by reference to Exhibit 10.3 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 25, 2019 (File No.
001-11038)

Incorporated by reference to Exhibit 10.1 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 24, 2011 (File No.
001-11038)

Incorporated by reference to Exhibit 10.2 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 24, 2011 (File No.
001-11038)

Incorporated by reference to Exhibit 10.3 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 24, 2011 (File No.
001-11038)

Incorporated by reference to Exhibit 10.4 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 24, 2011 (File No.
001-11038)

Incorporated by reference to Exhibit 10.11
to NTIC’s Annual Report on Form 10-KSB
for the fiscal year ended August 31, 2006
(File No. 001-11038)

Incorporated by reference to Exhibit 10.6 to
NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2015 (File
No. 001-11038)

Item No.
10.10

Item
Form of Indemnification Agreement between
Northern Technologies International Corporation
and its Directors and Officers*

10.11

Agreement dated as of May 25, 2009 between
Northern Technologies International Corporation
and Sunggyu Lee, Ph.D.*

10.12

Description of Non-Employee Director
Compensation Arrangements*

10.13

10.14

10.15

10.16

10.17

Executive Employment Agreement dated as of
November 18, 2011 between Northern
Technologies International Corporation and G.
Patrick Lynch*

Confidential Information, Inventions Assignment,
Noncompetition and Non-Solicitation Agreement
dated as of November 18, 2011 between Northern
Technologies International Corporation and G.
Patrick Lynch*

Executive Employment Agreement dated as of
November 18, 2011 between Northern
Technologies International Corporation and
Matthew C. Wolsfeld*

Amended and Restated Committed Line of Credit
Note dated as of January 10, 2011 issued by
Northern Technologies International Corporation to
PNC Bank, National Association

10.18

Loan Agreement dated as of January 10, 2011
between Northern Technologies International
Corporation and PNC Bank, National Association

Method of Filing
Incorporated by reference to Exhibit 10.1 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on November 24, 2008 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.2 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended May 31, 2009 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.9 to
NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2018 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.13
to NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2011 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.14
to NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2011 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.15
to NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2011 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.16
to NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2011 (File
No. 001-11038)

Incorporated by reference to Exhibit 10.2 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 12, 2011 (File No.
001-11038)

Incorporated by reference to Exhibit 10.6 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on January 12, 2011 (File No.
001-11038)

10.19

Waiver and First Amendment to Loan Documents
dated as of January 10, 2012 between Northern
Technologies International Corporation and PNC
Bank, National Association

Incorporated by reference to Exhibit 10.6 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2011
(File No. 001-11038)

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

Item No.
10.20

Item
Waiver and Second Amendment to Loan
Documents dated December 11, 2012 between
Northern Technologies International Corporation
and PNC Bank, National Association

Letter dated December 31, 2013 to Northern
Technologies International Corporation from PNC
Bank, National Association

Letter dated January 8, 2015 to Northern
Technologies International Corporation from PNC
Bank, National Association

Method of Filing
Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2012
(File No. 001-11038)

Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended February 28, 2014
(File No. 001-11038)

Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended February 28, 2015
(File No. 001-11038)

Amendment to Loan Documents dated January 6,
2016 by and between Northern Technologies
International Corporation from PNC Bank,
National Association

Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended February 29, 2016
(File No. 001-11038)

Letter Agreement effective as of January 11, 2017
between PNC Bank, National Association and
Northern Technologies International Corporation

Letter Agreement effective as of January 5, 2018
between PNC Bank, National Association and
Northern Technologies International Corporation

Letter Agreement effective as of January 8, 2019
between PNC Bank, National Association and
Northern Technologies International Corporation

Purchase and Sale Agreement dated as of July 14,
2014 between Northern Technologies International
Corporation and Glen Willow Holdings, LLC

Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2016
(File No. 001-11038)

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)

Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2018
(File No. 001-11038)

Incorporated by reference to Exhibit 10.1 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on July 15, 2014 (File No.
001-11038)

Consulting Agreement dated January 11, 2017 by
and among Northern Technologies International
Corporation, BioPlastic Polymers LLC, and
Ramani Narayan, Ph.D.

Incorporated by reference to Exhibit 10.2 to
NTIC’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2016
(File No. 001-11038)

14.1

Code of Ethics

Incorporated by reference to Exhibit 14.1 to
NTIC’s Annual Report on Form 10-KSB for
the fiscal year ended August 31, 2004 (File
No. 001-11038)

21.1

Subsidiaries of the Registrant

23.1

Consent of Baker Tilly Virchow Krause, LLP

Filed herewith

Method of Filing

Filed herewith

Furnished herewith

Filed herewith

Item No.
31.1

Item
Certification of President and Chief Executive
Officer Pursuant to SEC Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002

31.2

32.1

32.2

101

Certification of Chief Financial Officer Pursuant to
SEC Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

Certification of President and Chief Executive
Officer Pursuant to Rule 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer Pursuant to
Rule 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

The following materials from Northern
Technologies International Corporation’s Annual
Report on Form 10-K for the fiscal year ended
August 31, 2019, formatted in XBRL (Extensible
Business Reporting Language): (i) the
Consolidated Balance Sheets, (ii) the Consolidated
Statements of Operations, (iii) the Consolidated
Statements of Comprehensive Income (Loss), (iv)
the Consolidated Statements of Equity, (v) the
Consolidated Statements of Cash Flows, and (vi)
Notes to Consolidated Financial Statements

__________________________
*

A management contract or compensatory plan or arrangement.

Item 16. FORM 10-K SUMMARY

None.

SIGNATURES

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

NORTHERN TECHNOLOGIES INTERNATIONAL

CORPORATION

November 13, 2019

By: /s/ G. Patrick Lynch
G. Patrick Lynch
President and Chief Executive Officer

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

Name

Title

Date

President and Chief Executive Officer and
Director
(principal executive officer)

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

November 13, 2019

Chairman of the Board

November 13, 2019

/s/ G. Patrick Lynch
G. Patrick Lynch

/s/ Matthew C. Wolsfeld, CPA
Matthew C. Wolsfeld, CPA

/s/ Richard J. Nigon
Richard J. Nigon

/s/ Nancy E. Calderon
Nancy E. Calderon

/s/ Barbara D. Colwell
Barbara D. Colwell

/s/ Sarah E. Kemp
Sarah E. Kemp

/s/ Soo Keong Koh
Soo Keong Koh

/s/ Sunggyu Lee, Ph.D.
Sunggyu Lee, Ph.D.

/s/ Ramani Narayan, Ph. D.
Ramani Narayan, Ph.D.

Director

/s/ Konstantin von Falkenhausen
Konstantin von Falkenhausen

Director

November 13, 2019

Board of Directors
Mr. Richard J. Nigon
Chairman of the Board, NTIC
Senior Vice President of Cedar Point Capital, Inc.

Mr. G. Patrick Lynch
President & CEO, NTIC

Dr. Ramani Narayan
Distinguished Professor in the Department of
Engineering & Materials Science, Michigan State University

Dr. Sunggyu Lee
Professor of Chemical & Molecular Engineering, Russ
College of Engineering & Technology at Ohio University

Mr. Soo-Keong Koh
Managing Director, EcoSave Pte Ltd.

Mr. Konstantin von Falkenhausen
Partner, B Capital Partners AG

Ms. Sarah E. Kemp
Executive Director, Policy/Government Relations, Merck

Ms. Nancy E. Calderon
Former Global Lead Partner, KPMG, LLP

NTIC Executive Officers
Mr. G. Patrick Lynch
President & CEO

Mr. Matthew C. Wolsfeld
Chief Financial Officer, Treasurer and Corporate Secretary

Independent Registered Public
Accounting Firm
Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota

Transfer Agent and Registrar
For a response to questions regarding misplaced stock
certificates, changes of address or the consolidation
of accounts, please contact NTIC’s transfer agent:

Broadridge Corporate Issuer Solutions, Inc.
1717 Arch Street, Suite 1300
Philadelphia, PA 19103
1-877-830-4936
shareholder@broadridge.com

Investor Relations
Northern Technologies International Corporation
welcomes inquiries from its stockholders and other
interested investors. For further information on
NTIC’S activities or additional copies of this report,
please contact:

Investor Relations
Northern Technologies International Corporation
4201 Woodland Road, P.O. Box 69
Circle Pines, Minnesota 55014
(763) 225-6600
investors@ntic.com
www.ntic.com

Stock Listing
NTIC’s common stock is traded on the
Nasdaq Global Market under the symbol NTIC.

Annual Meeting
The annual meeting of stockholders will be held at
11:00 am (local time) on Friday, January 17, 2020 at
NTIC’s corporate headquarters:

Northern Technologies International Corporation
4201 Woodland Road
Circle Pines, MN 55014 USA
(763) 225-6600