Northern Technologies
International Corporation
Fiscal 2021 Annual Report
Northern Technologies International Corporation
• Notice of 2022 Annual Meeting
• Proxy Statement
• Annual Report on Form 10-K - August 31, 2021
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:
• Environmentally responsible business practices.
• Advanced R&D processes that promote the use of
environmentally responsible raw materials.
• Selecting components and manufacturing processes that reduce
waste and an impact on the environment.
• Raising 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 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® 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 & Gas provides advanced corrosion control technologies and services to the
petrochemical industry. Zerust® Oil & 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® 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 Stockholders of Northern Technologies International Corporation (NTIC),
We are proud of our fiscal 2021’s strong operating and financial results. Our performance was especially
encouraging, given that we not only had to continue to navigate COVID-19 pandemic challenges, but also global
supply chain bottlenecks and related material shortages. Fiscal 2021 was a transformative year of recovery,
reinvestment, and growth, made possible by our long-term focus, and the support of our customers, employees,
joint venture partners and suppliers.
From the onset of the COVID-19 pandemic, we were well positioned to maintain our operations, staffing levels and
services to our customers, while investing in new product development and pursuing new sales opportunities.
This kept us ready to benefit from a significant resurgence in industrial production that started to occur in the
second half of fiscal 2021. In fact, as we exit the COVID-19 pandemic, we are in a stronger competitive position
and with a higher level of profitability. I believe this can be attributed to our strong global customer base, business
model, and cost structure.
During fiscal 2021, we also made certain one-time strategic investments in our business and reinstated our
quarterly cash dividend as a sustained macroeconomic recovery became clearer. In the fourth quarter, we
invested $6.2 million to buy a new facility in China, reflecting our commitment to the Chinese market and
supporting our expected future growth within this geography. The new facility, anticipated to open in February
2022, will support our R&D, production, sales and marketing and training efforts in what we believe will become
our largest geographic market.
Additionally, after fiscal 2021 ended, we acquired the remaining 50% ownership interest in our Indian joint
venture, HARITA-NTI LTD., also known as Zerust India, for $6.25 million in cash. We funded this purchase mostly
with cash on hand and some borrowings under our revolving line of credit, which was increased in connection
with the transaction to $5.0 million. Zerust India is now a wholly owned subsidiary of NTIC and will be fully
consolidated in NTIC’s consolidated financial statements beginning in fiscal year 2022. Zerust India is expected to
contribute approximately $10.0 million in net sales along with over $2.2 million in net income during fiscal year
2022, amounting to an additional anticipated $0.10 per diluted share. Many of our multinational customers either
have their own operations in India or have suppliers based there, making it one of our strongest international
markets. As a result, we are positioned to further enhance our presence in India.
NTIC’s Board of Directors reinstated our regular quarterly cash dividend in May 2021. This followed a brief
and prudent suspension during fiscal 2020, as a result of the uncertainty caused by the COVID-19 pandemic.
Furthermore, on October 20, 2021, NTIC’s Board elected to increase our quarterly cash dividend payment to
$0.07 per share, representing the third increase in our quarterly dividend since 2017.
The entire NTIC team, both employees and our joint venture partners, has been working tirelessly alongside our
customers, suppliers, and vendors to work through global supply chain challenges, including the availability of
raw materials, labor, and inflation. While many of these challenges are expected to remain throughout our fiscal
2022, I believe NTIC’s asset-light business model and global presence in over 65 countries provides the Company
with an advantage navigating these macro-related headwinds.
Our strong financial position has continued to contribute to our success. We ended fiscal 2021 with no debt and
$7.9 million in cash, cash equivalents and available for sale securities. Our cash, cash equivalents and available
for sale securities declined on a year-over-year basis as a result of the $6.2 million investment we made in the
fourth quarter to buy our new Chinese facility. NTIC’s highly profitable financial model, combined with our
approximately $15.9 million investment in our joint ventures, provides the Company with the financial flexibility
to continue allocating capital to support our future growth initiatives and quarterly dividend program.
Looking at fiscal 2021 financial results in more detail, NTIC’s consolidated net sales for fiscal 2021 were a record
$56.5 million. The 18.6% annual increase in net sales was a result of a 32.1% increase in total ZERUST® sales
driven by a rebound in global manufacturing from last year’s impacts of the pandemic and a 36.3% increase in
ZERUST® Oil & Gas net sales. Partially offsetting these trends was a 16.9% decline in annual Natur-Tec® sales as
this business recovers from the pandemic’s impact.
Improving global market conditions throughout fiscal 2021 also expanded the financial performance across
many of our joint ventures. Record joint venture sales helped increase NTIC’s joint venture operating income by
51.2% to $13.4 million, compared to joint venture operating income of $8.9 million during the fiscal year ended
August 31, 2020.
Profitability improved materially in fiscal 2021 due to strong sales growth, prudent operating expense
management and a $4.5 million increase in joint venture operating income. Net income attributable to NTIC
was $6.5 million, or $0.66 per diluted share, compared to a net loss of $1.3 million, or a loss of $0.15 per diluted
share, last fiscal year. The net loss attributable to NTIC for fiscal year 2020 included a one-time $1.6 million non-
cash adjustment to the Company’s U.S. deferred tax asset, which was required to remove the net U.S. deferred
tax asset from NTIC’s balance sheet.
ZERUST® Industrial Corrosion Prevention
ZERUST® industrial sales benefitted from the global resurgence of industrial production that occurred throughout
fiscal 2021, and we experienced strong demand both in North America and across the territories served by our
global joint ventures. Sales by our joint ventures increased approximately 39.0% to a record $121.0 million
during the fiscal year ended August 31, 2021, compared to $87.0 million for the fiscal year ended August 31,
2020.
Net sales at our wholly owned NTIC China subsidiary also rebounded throughout fiscal 2021 and increased by
over 29.0% for the full year to an annual record of $17.3 million. Strong performance at NTIC China is primarily
due to higher sales to new and existing customers. We continue to believe the Chinese market represents a
significant opportunity for NTIC. Given our recent growth and strong team, we expect China will likely become
our largest geographic market in the years ahead.
Overall, ZERUST® industrial sales trends rebounded significantly during fiscal 2021 and were up over 30.0%
over the prior fiscal year. Notably, on a two-year basis, comparing fiscal 2021 to fiscal 2019 results, ZERUST®
industrial sales increased nearly 18.0% reflecting strong underlying trends across our global ZERUST® industrial
business. We are optimistic that the start of fiscal 2022 will show continued positive momentum across our
markets as global industrial production remains strong.
ZERUST® in the Oil & Gas Industry
ZERUST® Oil & Gas sales started to rebound during the second half of fiscal year 2021 as lockdowns and travel
restrictions were lifted and we were able to implement our corrosion prevention solutions at client jobsites. As
a result, we ended the year with strong momentum for our ZERUST® Oil & Gas solutions. Fiscal 2021 fourth
quarter ZERUST® Oil & Gas sales increased 139.6% over the prior fiscal year period, and for the first time in our
history, we have had two consecutive quarters of oil and gas revenues over $1 million.
I am also pleased to report, NTIC is getting noticed globally for our growing base of successful installations of
oil & gas assets protected by our Vapor Corrosion Inhibitor (VCI) based technologies. During fiscal 2021, the
American Petroleum Institute (API) released its technical report detailing how VCI based technologies, like the
ones offered by ZERUST® Oil & Gas, can provide effective corrosion protection for the bottoms of above ground
storage tanks. We believe this API technical report validates our technology and will help NTIC’s long-term sales
growth efforts within the oil & gas market. As a result, we believe there are substantial opportunities to drive
growth throughout fiscal 2022 and beyond.
Natur-Tec® Bioplastics
The COVID-19 pandemic continued to impact our Natur-Tec® business during fiscal 2021. Many high-volume
users of compostable products including college campuses, stadiums, arenas, restaurants, and cafeterias in large
corporate office complexes have remained affected by lower attendance and measured reopening plans. As a
result, Natur-Tec® sales declined 16.9% to $10.9 million for fiscal 2021.
Quarterly sales trends improved on a year-over-year basis during the second half of fiscal 2021 but are not yet
back to pre-COVID levels. We expect quarterly volatility will remain over the near-term as it takes time for large
users of compostable plastics to fully re-open their facilities after prolonged COVID-19 shutdowns. However, we
remain optimistic about our long-term prospects and strong market position within this large and compelling
global market. In addition, as the focus on the pandemic wanes, we expect social and political support for
alternatives to single-use plastics to reaccelerate, helping drive future demand for our leading bioplastic solutions.
Closing
I am proud of the progress we made throughout fiscal 2021 and expect the positive momentum to continue
into the new fiscal year. This includes the recently announced expansion of our Chinese operation and the
purchase of the remaining 50% ownership interest of our Indian joint venture. In addition, we continue investing
in our Natur-Tec® and Zerust® Oil & Gas business units to take advantage of long-term trends within these
markets. 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 2021.
As we start fiscal 2022, I am excited by the potential NTIC has for profitable sales growth throughout our ZERUST®
industrial, ZERUST® Oil & Gas, and Natur-Tec® product categories.
Sincerely,
G. Patrick Lynch
President & CEO, NTIC
G. Patrick Lynch
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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
January 21, 2022
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 12:00 p.m., Central Standard Time, on Friday, January 21, 2022, for
the following purposes:
1. To elect seven 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 ratify the selection of Baker Tilly US, LLP as our independent registered public accounting firm
for the fiscal year ending August 31, 2022.
4. To transact such other business as may properly come before the meeting or any adjournment of the
meeting.
Due to the evolving nature of the COVID-19 pandemic, we may impose additional procedures or limitations
on Annual Meeting attendees or may decide to hold the Annual Meeting at a different venue or solely by
means of virtual communication. If we take this step, we will publicly announce the decision to do so in
advance, and details on how to participate will be posted on our website at ir.ntic.com/investor-relations and
filed with the Securities and Exchange Commission as additional proxy materials.
Only those stockholders of record at the close of business on November 23, 2021 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 11, 2022 during normal business hours for examination by any
stockholder registered on NTIC’s stock ledger as of the record date, November 23, 2021, for any purpose
germane to the Annual Meeting.
By Order of the Board of Directors,
Matthew C. Wolsfeld
Corporate Secretary
December 6, 2021
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 ......................................................................... ii
PROXY STATEMENT SUMMARY ........................................................................................................... 1
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING ................................. 9
Date, Time, Place and Purposes of Meeting ............................................................................................. 9
Who Can Vote .......................................................................................................................................... 9
How You Can Vote .................................................................................................................................. 9
How Does the Board Recommend that You Vote .................................................................................. 11
How You May Change Your Vote or Revoke Your Proxy .................................................................... 11
Quorum Requirement ............................................................................................................................. 11
Vote Required ......................................................................................................................................... 11
Other Business ........................................................................................................................................ 13
Procedures at the Annual Meeting .......................................................................................................... 13
Householding of Annual Meeting Materials .......................................................................................... 13
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—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ............................................................................................................ 21
Selection of Independent Registered Public Accounting Firm ............................................................... 21
Audit, Audit-Related, Tax and Other Fees ............................................................................................. 21
Audit Committee Pre-Approval Policies and Procedures ....................................................................... 22
Board Recommendation ......................................................................................................................... 22
STOCK OWNERSHIP ............................................................................................................................... 23
Beneficial Ownership of Significant Stockholders and Management .................................................... 23
Stock Ownership Guidelines .................................................................................................................. 24
Securities Authorized for Issuance Under Equity Compensation Plans ................................................. 25
CORPORATE GOVERNANCE ................................................................................................................ 26
Corporate Governance Guidelines .......................................................................................................... 26
Board Leadership Structure .................................................................................................................... 26
Director Independence ............................................................................................................................ 27
Board Meetings and Attendance ............................................................................................................. 27
Board Committees .................................................................................................................................. 27
Audit Committee .................................................................................................................................... 28
Compensation Committee ...................................................................................................................... 29
Nominating and Corporate Governance Committee .............................................................................. 31
Director Nominations Process ................................................................................................................ 32
Board Diversity Matrix ........................................................................................................................... 34
Board Oversight of Risk ......................................................................................................................... 35
Code of Ethics ........................................................................................................................................ 35
Policy Regarding Director Attendance at Annual Meetings of Stockholders ........................................ 35
i
Complaint Procedures ............................................................................................................................. 36
Stockholder Engagement ........................................................................................................................ 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 .......................................................................................... 51
Outstanding Equity Awards at Fiscal Year End ..................................................................................... 52
Stock Incentive Plans .............................................................................................................................. 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 2023 ANNUAL
MEETING OF STOCKHOLDERS........................................................................................................ 59
Stockholder Proposals for 2023 Annual Meeting ................................................................................... 59
Director Nominations for 2023 Annual Meeting .................................................................................... 59
COPIES OF FISCAL 2021 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 6,
2021, we expect to begin mailing a Notice of Internet Availability of Proxy Materials to stockholders of
record as of November 23, 2021 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.
ii
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 2021 Annual Report to Stockholders
before voting.
2022 ANNUAL MEETING OF STOCKHOLDERS
DATE AND TIME
Friday, January 21, 2022
12:00 p.m. (Central Time)
LOCATION
4201 Woodland Road
Circle Pines, MN 55014
Due to the COVID-19
pandemic, the Annual Meeting
may be held at a different
venue or solely by means of
virtual communication.
RECORD DATE
November 23, 2021
Proposal
Proposal No. 1: Election of
directors
Proposal No. 2: Advisory vote on
executive compensation
Proposal No. 3: Ratification of
appointment of independent
registered public accounting firm
Board’s Vote
Recommendation
Page
FOR
FOR
FOR
14
19
21
Holders of record of our common stock at the close of business on
November 23, 2021 are entitled to notice of, to attend, and to vote at
the 2022 Annual Meeting of Stockholders or any continuation,
postponement, or adjournment thereof.
On or about December 6, 2021, we expect to begin mailing a Notice of Internet Availability of Proxy
Materials to stockholders of record as of November 23, 2021 and post our proxy materials on the website
referenced in the Notice of Internet Availability of Proxy Materials (www.proxyvote.com).
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 21, 2022
This proxy statement and our 2021 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 2021
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.
1
FISCAL 2021 BUSINESS HIGHLIGHTS
Below are highlights of our financial, operational and strategic achievements during fiscal 2021.
Financial
Net Sales
Research and
Development
Our net sales increased 18.6% during fiscal 2021 compared to fiscal 2020
due to increased demand globally as a result of the recovery from the
COVID-19 pandemic.
We increased research and development spending by 10.6% in fiscal
2021 in order to increase personnel and development efforts, which will
allow us to continue growing and adapting our product offerings.
Quarterly Cash Dividends We reinstated our quarterly cash dividend program during fiscal 2021,
which had been suspended due to the pandemic, and paid a quarterly cash
dividend of $0.065 per share during each of the last three quarters of
fiscal 2021 and we recently increased it to $0.07 per share.
Operational
18 Joint Ventures
Our 18 joint ventures provide us with access to global markets with an
annual global market potential estimated at $500 million.
10 Operating Subsidiaries We maintain 10 wholly or majority-owned operating subsidiaries in
Over 60 Countries
Strategic
Industrial Manufacturing
Industry
Oil and Gas Industry
Bioplastics Industry
North America, South America, Europe and Asia. Effective as of
September 1, 2021, we purchased the remaining ownership interest in
Harita-NTI Limited, which is now a new wholly owned subsidiary.
Our network of joint ventures and subsidiaries allows us to operate in
over 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 2021,
ZERUST® industrial sales increased by 30.3% as a result of increased
demand.
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 2021, sales into the oil and gas industry
increased by 36.6% due in part to new opportunities with new customers.
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. Although sales of our Natur-Tec® products decreased in fiscal
2021, we anticipate increased sales in the future due to re-opening
initiatives and government regulation related to disposable plastics in
India and China.
2
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
Stock ownership guidelines for executive
officers and directors
STOCKHOLDER ENGAGEMENT
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
Limits on board memberships held
We are committed to a robust and proactive stockholder engagement program. The Board of Directors
values the perspectives of our stockholders, and feedback from stockholders on our business, corporate
governance, executive compensation, and sustainability practices are important considerations for Board
discussions throughout the year.
Some of the actions we have taken in response to feedback from proxy advisory firms and stockholders
over the last several years are described below.
What We Heard
Encourage Board refreshment
Increase Board gender diversity
Increase stockholder influence over director
elections
Align long-term incentives
Increase visibility of Environmental, Social and
Governance (“ESG”) principles
Ensure the recovery of incentive compensation
based on incorrect calculations that resulted in a
financial restatement or egregious behavior
Align the interests of executive officers and
directors with those of stockholders
What We Did
We added two new members to the Board of
Directors in October 2019.
We added Nancy E. Calderon and Sarah E. Kemp
to the Board of Directors.
In November 2020, we adopted a “plurality plus”
vote standard for uncontested director elections,
with a director resignation policy, instead of a
simple plurality vote standard.
We extended the vesting of our annual stock option
grants to three-year vesting in response to a
concern raised by one of our institutional
stockholders.
We adopted a Health, Safety and Environment
Policy as well as a Human Rights Policy to
formalize our approach and further our goals with
respect to these matters, as described below.
We adopted a robust clawback policy which
applies to not only financial restatements but also if
an executive engages in egregious conduct that is
substantially detrimental to NTIC.
We adopted stock ownership guidelines applicable
to our executive officers and directors to ensure
that their interests would be closely aligned with
those of our stockholders.
3
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.
All of our Board nominees 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 seven director nominees range in age from 54 to
73; two of the seven director nominees are women; two are of Asian descent; one is a citizen of the
Republic of Korea and one is a citizen of Germany.
4
BOARD OF DIRECTORS NOMINEES
Below are the directors nominated for election by stockholders at the 2022 Annual Meeting of
Stockholders for a one-year term. All director nominees listed below served during the fiscal year ended
August 31, 2021. Additionally, all director nominees listed below attended 100% of all Board meetings
and 100% of the sum of all meetings of the Board of Directors and its committees, as applicable.
Director
Nancy E. Calderon
Sarah E. Kemp
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen
Age
62
55
69
54
72
73
54
Serving Since
2019
2019
2004
2004
2004
2010
2012
Independent
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
Sarah E. Kemp
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen
Audit
Committee
●
Compensation
Committee
Nominating and Corporate
Governance Committee
●
●
●
●
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KEY QUALIFICATIONS
The following are some key qualifications, skills and experiences of our Board of Directors.
Director
Leadership/
Management
Financial
Expertise
International
Experience
Prior Board
Experience
Government
Experience
Nancy E. Calderon
Sarah E. Kemp
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von
Falkenhausen
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
5
Bioplastics
Industry
Experience
●
●
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
Maintain stock ownership guidelines
HOW WE PAY
criteria are met
No hedging of NTIC securities
No excessive perquisites
No tax gross-ups
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.
2021 EXECUTIVE COMPENSATION ACTIONS
2021 compensation actions and incentive plan outcomes based on performance are summarized below:
Element
Key Fiscal 2021 Actions
Base Salary
Our executives received no base salary increases during fiscal 2021.
Annual Incentive
Our executives received annual bonuses based primarily on Adjusted
EBITOI (earnings before interest, taxes, and other income, as adjusted to
6
Element
Long-Term Incentive
Key Fiscal 2021 Actions
take into account amounts paid under bonus plan and other adjustments), in
amounts representing 87% of their base salaries. A portion of the annual
incentive earned for fiscal 2021 was paid in the form of stock option grants
made at the beginning of fiscal 2021.
Our executives received stock option grants on September 1, 2020, which
vest annually over a three-year period. A portion of the fiscal 2021 stock
option grant was intended as partial payout of the fiscal 2021 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 2021 Annual Meeting of Stockholders held on January 15, 2021. At that meeting,
98% 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.
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Although stockholder ratification is not required, the appointment of Baker Tilly US, LLP as NTIC’s
independent registered public accounting firm for fiscal 2022 is being submitted for ratification at the
2021 Annual Meeting of Stockholders as a matter of good corporate governance.
The Board of Directors recommends a vote “FOR” the ratification of Baker Tilly US, LLP as NTIC’s
independent registered public accounting firm.
2023 ANNUAL MEETING OF STOCKHOLDERS
We anticipate that our 2023 Annual Meeting of Stockholders will be held on or about Friday, January 13,
2023.
The following are important dates in connection with our 2023 Annual Meeting of Stockholders.
Stockholder Action
Proposal Pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934, as amended
Nomination of a Candidate Pursuant to our Bylaws
Proposal of Other Business for Consideration
Pursuant to our Bylaws
Submission Deadline
No later than August 8, 2022
Between September 23, 2022 and
October 23, 2022
Between September 23, 2022 and
October 23, 2022
7
OUR COMMITMENT TO ENVIRONMENTAL, SOCIAL AND
GOVERNANCE PRINCIPLES
ESG COMMITMENTS
Environmental: We are committed to operating in an environmentally responsible manner, as set forth
in our Policy Statement on Health, Safety and Environment, in order to reduce our impact on climate
change, conserve natural resources and operate in compliance with environmental regulations.
Social: We are committed to being a socially responsible employer by prioritizing health and safety, as
set forth in our Policy Statement on Health, Safety and Environment, and fostering an environment of
diversity and inclusion across our business, as set forth in our Human Rights Policy.
Governance: We are committed to building a culture dedicated to ethical business behavior and
responsible corporate activity, as set forth in our Code of Ethics. We believe strong corporate governance
is the foundation to delivering on our commitments.
HEALTH, SAFETY AND ENVIRONMENT
Health, safety and environment are the cornerstone of NTIC. We are in the business of converting
unique, environmentally beneficial materials science into value added products and services for industrial
and consumer applications. We believe that we are responsible to our worldwide customers, our people,
our communities and our stockholders, and we take these responsibilities seriously. We are dedicated to
investing in the future of the planet and our people and we intend to continue to invest in health, safety
and environmental protection and improvements in a timely manner consistent with available technology.
We are guided by our Policy Statement on Health, Safety and Environment, which describes our health,
safety and environmental objectives, including ensuring that all activities across the value chain are
conducted in a manner consistent with our quality management standard and health, safety and
environmental programs, ensuring that business activities are conducted to prevent harm and protect
health and safety, and developing, manufacturing, distributing and marketing products and services with
full regard for health, safety and environmental aspects. To accomplish these objectives, we intend to
establish targets within our quality management standard and health, safety and environmental programs
to measure progress and ensure continuous improvement, provide safe and healthy workplaces for our
employees and contractors, and provide continued training to enable employees to meet their
responsibility to contribute to compliance with our health, safety and environmental objectives.
DIVERSITY AND INCLUSION; CODE OF ETHICS
Diversity and inclusion are embedded in our values and integrated into our strategies. Our Human Rights
Policy was designed to align with the United Nations Global Compact and core elements of the United
Nations Universal Declaration of Human Rights. We are committed to providing an environment free of
discrimination and harassment, where all individuals are treated with respect and dignity, can contribute
fully, and have equal opportunities. We have worked to build a diverse and inclusive workforce and are
committed to equal opportunity. We invest in building diverse talent pools and provide training to
improve skills where appropriate. We uphold and support the right to equal treatment without
discrimination or harassment.
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 employees.
8
4201 Woodland Road, Circle Pines, Minnesota 55014
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
January 21, 2022
The Board of Directors of Northern Technologies International Corporation is soliciting your proxy for
use at the 2022 Annual Meeting of Stockholders to be held on Friday, January 21, 2022. The Board of
Directors expects to make available to our stockholders beginning on or about December 6, 2021 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 21,
2022, at 12:00 p.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.
Due to the evolving COVID-19 pandemic, we may impose additional procedures or limitations on Annual
Meeting attendees or may decide to hold the Annual Meeting at a different venue or solely by means of
virtual communication. If we take this step, we will publicly announce the decision to do so in advance,
and details on how to participate will be posted on our website at ir.ntic.com/investor-relations and filed
with the Securities and Exchange Commission as additional proxy materials.
Who Can Vote
Stockholders of record at the close of business on November 23, 2021 will be entitled to notice of and to
vote at the meeting or any adjournment of the meeting. As of that date, there were 9,203,446 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.
9
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 seven nominees for director,
WITHHOLD your vote from all seven nominees for director or
WITHHOLD your vote from one or more of the seven nominees for director.
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 seven of the nominees for election to the
Board of Directors in Proposal One—Election of Directors and FOR each of the other proposals.
10
How Does the Board Recommend that You Vote
The Board of Directors unanimously recommends that you vote:
FOR all seven of the nominees for election to the Board of Directors in Proposal One—
Election of Directors;
FOR Proposal Two—Advisory Vote on Executive Compensation; and
FOR Proposal Three—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 (4,601,724
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. However, under our Corporate Governance Guidelines, in an uncontested
election of directors, any nominee for director who receives a greater number of votes “withheld” from
his or her election than votes “for” his or her election by stockholders present in person or by proxy at the
Annual Meeting and entitled to vote in the election of directors is required to tender a written offer to
resign from the Board of Directors within five business days of the certification of the stockholder vote by
the Inspector of Elections.
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
11
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—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 and Proposal Two—Advisory Vote 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 any of these two 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 Three—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 seven nominees
receiving the highest number of
affirmative “FOR” votes will be
elected as directors.(1)
Effect of
Broker
Non-Votes
Broker non-
votes will have
no effect.
Effect of Votes
Withheld /
Abstentions
Votes withheld
will have no
effect, unless
there are more
votes withheld
than “FOR”
votes.(1)
Proposal Two: Advisory Vote
on Executive Compensation
Affirmative vote of a majority of
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.
Broker non-
votes will have
no effect.
Proposal Three: Ratification
of Appointment of
Independent Registered Public
Accounting Firm
Affirmative vote of a majority of
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.
________________________
(1)
Under our Corporate Governance Guidelines, in an uncontested election of directors, any
nominee for director who receives a greater number of votes “withheld” from his or her election
than votes “for” his or her election by stockholders present in person or by proxy at the Annual
Meeting and entitled to vote in the election of directors is required to tender a written offer to
resign from the Board of Directors within five business days of the certification of the
stockholder vote by the Inspector of Elections.
12
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, unless contrary instructions have been given. 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.
13
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 seven.
Nominees for Director
The Board of Directors has nominated the following seven 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
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen
Proxies can only be voted for the number of persons named as nominees in this proxy statement, which is
seven.
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 23, 2021 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 NTIC, as well as how long each individual has served as a director of NTIC.
Name
Nancy E. Calderon(1)
Sarah E. Kemp(2)
Sunggyu Lee, Ph.D.(3)
G. Patrick Lynch
Ramani Narayan, Ph.D.
Age Principal Occupation
62
Former Partner of KPMG LLP
55 Associate Vice President of Merck
69 Chief Technologist of Chemtech Innovators LLC
President and Chief Executive Officer of NTIC
54
72 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
73
54
Director
Since
2019
2019
2004
2004
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
14
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 NTIC; 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 retired
from KPMG LLP in September 2019 after a distinguished 33-year career. Until her retirement, Nancy
served as Global Lead Partner for a Fortune 40 Technology company, managing a global team of over
500 professionals in more than 50 countries, 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 on the boards of directors
of Arcimoto, Inc. and Belden Inc. 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 Arcimoto, Inc.; Belden, Inc.; 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.
Sarah E. Kemp has been a director of NTIC since October 2019. Ms. Kemp is Associate Vice President
for Organon, a global biopharmaceutical company where she leads Global Women’s Health Policy and
ESG. Prior to Organon, Ms. Kemp lead Merck’s Policy Communication and Population Health
organization responsible for emerging markets. Prior to this role, she was the Executive Director, Public
Policy and Commercial Strategies for China and the Asia Pacific. Before joining Merck, Ms. Kemp was
the Deputy Under Secretary, for the International Trade Administration at the U.S. Department of
Commerce in Washington, D.C. In this role, she oversaw a $485 million annual budget and 2,100 trade
and investment professionals based in 108 US cites and 76 markets around the world. Prior to her time in
D.C., she was the Minister Counselor for Commercial Affairs at the U.S. Embassy in Beijing, overseeing
the U.S. Department of Commerce’s trade promotion and trade policy activities in its operations in
Beijing, Chengdu, Shanghai, Wuhan, Shenyang and Guangzhou. In this capacity, she was a key advisor
to the Ambassador and advised U.S. CEOs—from fortune 500 companies to SME’s—on China business
strategy, market access, export promotion, anti-dumping / countervailing duty cases, intellectual property
protection and export controls. As a career Foreign Commercial Service Officer, she served as the
Country Manager in China and Vietnam, and had multiple postings in Beijing, Hong Kong and Bangkok.
Ms. Kemp joined Commerce as a Presidential Management Fellow. Ms. Kemp served on the board of
directors of the Concordia International School in Hanoi, Vietnam, an international day school offering
15
preschool through high school education, from 2012-2014 and was the Co-Chair of Women Corporate
Directors in Vietnam from 2011-2014 and in Beijing from 2009-2011. Ms. Kemp is currently a member
of the World Economic Forum’s Global Future Council on China. 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
in depth experience in international and public affairs. Ms. Kemp received her Master of Business
Administration from the Chinese University of Hong Kong, her Master of Public Administration from
Columbia University and her Bachelor of Arts in Physiological–Anthropology from Hamilton College.
Sunggyu Lee, Ph.D. has been a director of NTIC since January 2004. Dr. Lee is Chief Technologist,
Chemtech Innovators LLC, Akron, Ohio. Previously, he held positions of Russ Ohio Research Scholar
and Professor of Chemical and Biomolecular Engineering, Ohio University, Athens, Ohio from 2010 to
2020, Professor of Chemical and Biological 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 NTIC 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
16
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
17
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 seven nominees
named above.
18
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 (the “Exchange Act”). 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 2021
Annual Meeting of Stockholders held on January 15, 2021, 98% 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 2021 in more detail. Important considerations include:
A significant portion of the compensation paid or awarded to our named executive officers in
fiscal 2021 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 is in the form of stock
options and aligns the long-term interests of our executives with the long-term interests of our
stockholders. In response to a concern raised by one of our stockholders, stock options
granted to our executives now vest annually over a three-year period as opposed to a one-year
period.
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.
19
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.
In accordance with the result of the advisory vote on the frequency of the say-on-pay vote, which was
conducted at our 2020 Annual Meeting of Stockholders, the Board of Directors has determined that we
will conduct an executive compensation advisory vote on an annual basis. Accordingly, after this Annual
Meeting, the next say-on-pay vote will occur at our next Annual Meeting of Stockholders anticipated to
be held in January 2023. We anticipate that the next say-on-frequency vote will occur at our 2026 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.
20
PROPOSAL THREE—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. Additionally, the Audit Committee considers the
impact of a change of independent registered public accounting firm. Upon consideration of these and
other factors, the Audit Committee believes the selection of Baker Tilly US, LLP (“Baker Tilly”) as our
independent registered public accounting firm for the fiscal year ending August 31, 2022 is in the best
interests of NTIC and its stockholders. Baker Tilly 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 as a matter of good corporate governance. If our stockholders do
not ratify the selection of Baker Tilly, 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 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 for the fiscal years ended
August 31, 2021 and August 31, 2020.
Audit Fees(1) .........................................................
Audit-Related Fees(2) ............................................
Tax Fees ...............................................................
All Other Fees ......................................................
Aggregate Amount Billed by
Baker Tilly ($)
Fiscal 2021
$
415,288
6,000
—
—
Fiscal 2020
$
386,570
—
—
—
(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.
21
Audit Committee Pre-Approval Policies and Procedures
All services rendered by Baker Tilly 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 as our independent registered public accounting firm for the fiscal year ending August 31,
2022.
22
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 23, 2021, 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 23, 2021.
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 23, 2021 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.
Title of Class
Name and Address of Beneficial Owner(1)
Directors and Officers:
Common Stock Nancy E. Calderon
Sarah E. Kemp
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)
26,416
24,392
8,000
1,489,871
112,309
130,572
80,509
291,551
Percent of
Class
*
*
*
15.8%
1.2%
1.4%
*
3.1%
group (8 persons)(4)
2,163,620
22.0%
Significant Beneficial Owners:
Common Stock
Inter Alia Holding Company(5)
23205 Mercantile Road
Beachwood, Ohio 44122
__________________________
* Represents beneficial ownership of less than one percent.
1,203,334
13.1%
23
(1)
(2)
(3)
(4)
(5)
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 23, 2021:
Name
Directors
Nancy E. Calderon .........................................................................
Sarah E. Kemp ...............................................................................
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 (8 persons) ........
Shares of Common Stock
Underlying
Stock Options
24,392
24,392
8,000
212,433
57,309
99,972
79,309
212,433
157,016
678,823
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.
Stock Ownership Guidelines
In November 2021, we adopted stock ownership guidelines that are intended to further align the interests
of our executive officers and directors with those of our stockholders. The stock ownership guidelines for
our executive officers and directors are as follows:
Position
Non-Employee Director
Chief Executive Officer
Other Executive Officers
Guideline
3x annual cash retainer
6x annual base salary
3x annual base salary
Each executive officer and director has five years from the institution of these guidelines and, thereafter,
from the date of appointment or hire or, if the ownership multiple has increased during his tenure, five
years from the date established in connection with such increase to reach his or her ownership targets.
24
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, 2021. NTIC’s equity compensation plans as of August 31, 2021 were the Northern
Technologies International Corporation Amended and Restated 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
Amended and Restated 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)
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
(c)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(excluding securities
reflected in column (a))
1,426,651 (1)(2)
—
1,426,651 (1)(2)
$9.30
—
$9.30
954,178(3)
—
954,178(3)
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
__________________________
(1)
Amount includes 706,007 shares of NTIC common stock issuable upon the exercise of stock options
outstanding as of August 31, 2021 under the Northern Technologies International Corporation Amended
and Restated 2007 Stock Incentive Plan and 720,644 shares of NTIC common stock issuable upon the
exercise of stock options outstanding as of August 31, 2021 under the Northern Technologies International
Corporation Amended and Restated 2019 Stock Incentive Plan.
(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 879,356 shares available as of August 31, 2021 for future issuance under Northern
Technologies International Corporation Amended and Restated 2019 Stock Incentive Plan and 74,822
shares available at August 31, 2021 for future issuance under the Northern Technologies International
Corporation Employee Stock Purchase Plan.
25
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
Stock ownership guidelines
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
Communications with directors
Limits on board memberships held
Board Leadership Structure
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 NTIC 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 NTIC and the Chairman’s responsibility
to provide oversight of NTIC’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.
26
Director Independence
The Board of Directors has affirmatively determined that five of NTIC’s current seven directors are
“independent directors” under the Listing Rules of the Nasdaq Stock Market: Nancy E. Calderon, Sarah
E. Kemp, Sunggyu Lee, Ph.D., Richard J. Nigon and Konstantin von Falkenhausen.
The Board of Directors additionally made the affirmative determination that Soo Keong Koh, who
resigned as a NTIC director on August 10, 2021, was an “independent director” under the Listing Rules
of the Nasdaq Stock Market.
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, 2021. 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 NTIC 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
Sarah E. Kemp
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen
Audit
Chair
—
—
—
—
√
√
Compensation
—
—
√
—
—
√
Chair
Nominating and
Corporate Governance
—
Chair
—
—
—
√
—
27
Audit Committee
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;
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; and
coordinating with the Nominating and Corporate Governance Committee in that committee’s
primary oversight over NTIC’s ESG activities.
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, Mr. Nigon and Mr. von
Falkenhausen. Mr. Nigon served as chair of the Audit Committee during fiscal 2021. Ms. Calderon
assumed the role of Audit Committee chair immediately after the filing of NTIC’s Annual Report on
Form 10-K for the fiscal year ended August 31, 2021.
Each member of the Audit Committee who served during fiscal 2021 is considered “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 2021 and once in executive session with
Baker Tilly, our independent registered public accounting firm.
28
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, 2021.
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 US, 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, 2021 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 US, 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 US, LLP required by applicable requirements of the Public
Company Accounting Oversight Board regarding Baker Tilly US, LLP’s communications with the Audit
Committee concerning independence. The Audit Committee has discussed with Baker Tilly US, 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 US, 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, 2021 be included in its Annual Report on Form
10-K for the fiscal year ended August 31, 2021 for filing with the Securities and Exchange Commission.
This report is dated as of November 11, 2021.
Audit Committee
Richard J. Nigon, Chair
Nancy E. Calderon
Konstantin von Falkenhausen
Other Information. Additional information regarding the Audit Committee and our independent
registered public accounting firm is disclosed under the “Proposal Three—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;
29
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;
establishing and, from time to time, reviewing and revising processes and procedures for the
consideration and determination of executive compensation;
overseeing and periodically reviewing NTIC’s culture and policies and strategies related to
human capital management; and
coordinating with the Nominating and Corporate Governance Committee in that committee’s
primary oversight over NTIC’s ESG activities.
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 who
served during fiscal 2021 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
30
achievement by NTIC of pre-established performance objectives, the general performance of NTIC and
the individual officers, the performance of NTIC’s stock price and other factors that may be relevant.
During fiscal 2021, the Compensation Committee engaged Mercer US Inc. to provide analysis and
recommendations to the Compensation Committee regarding peer group selection for executive
compensation comparisons and benchmarking certain aspects of our executive compensation program. A
representative of Mercer attended a Compensation Committee meeting and met with members of the
Compensation Committee outside the presence of management. Mercer reported to the Compensation
Committee and not to management.
In determining to engage Mercer, the Compensation Committee considered the independence of Mercer,
taking into consideration relevant factors, including the absence of other services provided to the
Company by Mercer, the amount of fees the Company paid to Mercer as a percentage of Mercer’s total
revenue, the policies and procedures of Mercer that are designed to prevent conflicts of interest, any
business or personal relationship of the individual compensation advisors employed by Mercer with any
executive officer of the Company, any business or personal relationship the individual compensation
advisors employed by Mercer have with any member of the Compensation Committee, and any stock of
the Company owned by Mercer or the individual compensation advisors employed by Mercer. The
Compensation Committee has determined, based on its analysis and in light of all relevant factors,
including the factors listed above, that the work of Mercer and the individual compensation advisor
employed by Mercer as a compensation consultant to the Compensation Committee has not created any
conflicts of interest, and that Mercer is independent pursuant to the independence standards set forth in
Nasdaq’s continued listing requirements promulgated pursuant to Section 10C of the Exchange Act.
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 NTIC. 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 twice during fiscal 2021.
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;
establishing and leading a process for determination of the compensation applicable to the
non-employee directors on the Board;
overseeing NTIC’s ESG activities and coordinating with and soliciting input from the
Compensation Committee and the Audit Committee in formulating the approach to NTIC’s
ESG activities.
31
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. Kemp and Mr. Nigon. Ms. Kemp is the chair of the Nominating and Corporate Governance
Committee. Mr. Koh served on the Nominating and Corporate Governance Committee during fiscal 2021
until his resignation on August 10, 2021.
The Board of Directors has determined that each of the members of the Nominating and Corporate
Governance Committee who served during fiscal 2021 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 twice during fiscal 2021.
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 NTIC. 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.
32
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 NTIC. 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.
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 2023 Annual Meeting of
Stockholders ─ Director Nominations for 2023 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 NTIC 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 NTIC 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 of Directors 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 NTIC; 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
33
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, including diversity of age, gender, race,
ethnicity, education, skills, knowledge, and viewpoints. 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 seven 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 seven director nominees range in age from 54 to 73; two of the seven
director nominees are women; two are of Asian descent; one is a citizen of the Republic of Korea and one
is a citizen of Germany.
Board Diversity Matrix
The recently adopted Nasdaq listing requirements require each listed company to have, or explain why it
does not have, two diverse directors on the board, including at least one diverse director who self-
identifies as female and one diverse director who self-identifies as an underrepresented minority or
LGBTQ+ (subject to the exceptions). Our current Board composition is in compliance with the Nasdaq
diversity requirement.
The table below provides certain highlights of the composition of our board members and nominees.
Each of the categories listed in the below table has the meaning as it is used in Nasdaq Rule 5605(f).
Total Number of Directors
Board Diversity Matrix (As of November 23, 2021)
7
Part I: Gender Identity
Directors
Part II: Demographic Background
African American or Black
Alaskan Native or Native American
Asian
Hispanic or Latinx
Native Hawaiian or Pacific Islander
White
Two or More Races or Ethnicities
LGBTQ+
Did Not Disclose Demographic Background
Female
Male
Non-
Binary
Did Not
Disclosure
Gender
2
—
—
—
—
—
2
—
5
—
—
2
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
34
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 NTIC. 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 NTIC. 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 of Directors’
assessment of management’s appetite for risk and also a determination of what constitutes an appropriate
level of risk for NTIC.
We believe our current Board leadership structure is appropriate and helps ensure proper risk oversight
for NTIC 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
35
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.
Stockholder Engagement
We are committed to a robust and proactive stockholder engagement program. The Board of Directors
values the perspectives of our stockholders, and feedback from stockholders on our business, corporate
governance, executive compensation, and sustainability practices are important considerations for Board
discussions throughout the year.
Some of the actions we have taken in response to feedback from proxy advisory firms and stockholders
over the last several years are described below.
What We Heard
Encourage Board refreshment
Increase Board gender diversity
Increase stockholder influence over director
elections
Align long-term incentives
Increase visibility of ESG principles
Ensure the recovery of incentive compensation
based on incorrect calculations that resulted in a
financial restatement or egregious behavior
Align the interests of executive officers and
directors with those of stockholders
What We Did
We added two new members to the Board of
Directors in October 2019.
We added Nancy E. Calderon and Sarah E. Kemp
to the Board of Directors.
In November 2020, we adopted a “plurality plus”
vote standard for uncontested director elections,
with a director resignation policy, instead of a
simple plurality vote standard.
We extended the vesting of our annual stock option
grants to three-year vesting in response to a
concern raised by one of our institutional
stockholders.
We adopted a Health, Safety and Environment
Policy as well as a Human Rights Policy to
formalize our approach and further our goals with
respect to these matters, as described below.
We adopted a robust clawback policy which
applies to not only financial restatements but also if
an executive engages in egregious conduct that is
substantially detrimental to NTIC.
In November 2021, we adopted stock ownership
guidelines applicable to our executive officers and
directors to ensure that their interests would be
closely aligned with those of our stockholders.
36
Process Regarding Stockholder Communications with Board of Directors
Stockholders may communicate with the Board of Directors 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 of Directors or one or more particular directors. NTIC’s Corporate Secretary
will promptly forward all such stockholder communications to the Board of Directors or the one or more
particular directors, with the exception of any advertisements, solicitations for periodical or other
subscriptions and other similar communications.
37
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 NTIC during the fiscal year ended August 31, 2021, 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 2021. His compensation during fiscal 2021 for serving as an executive officer
of NTIC is set forth under “Executive Compensation” included elsewhere in this proxy statement.
DIRECTOR COMPENSATION – FISCAL 2021
Name
Nancy E. Calderon ....................... $
Sarah E. Kemp .............................
Soo-Keong Koh(4) .........................
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 ($)(3) Total ($)
38,500 $
35,500
26,500
34,000
31,000
64,500
45,500
50,000 $
50,000
50,000
0
50,000
60,000
50,000
— $
—
—
—
144,000
—
—
88,500
85,500
76,500
34,000
225,000
124,500
95,500
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 2021, as calculated in accordance with FASB ASC Topic
718.
On September 1, 2020, each then current director, other than Dr. Lee and Mr. Lynch, received a stock
option to purchase 16,026 shares of our common stock at an exercise price of $8.24 per share granted under
the Northern Technologies International Corporation 2019 Stock Incentive Plan, the material terms of
which are described in more detail under “Executive Compensation—Stock Incentive Plans.” These
options vested in full on September 1, 2021 and will expire on August 31, 2030 or earlier in the case of a
director whose service as a director is terminated prior to such date. In addition, on September 1, 2020,
Mr. Nigon received an additional stock option to purchase 3,205 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, 2020 was $7.29 and was
determined using the following specific assumptions: risk free interest rate: 0.77%; expected life:
10.0 years; expected volatility: 45.4%; 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, 2021 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, 2021. See “—Non-Employee Director Compensation
Program—Stock Options.”
Name
Nancy E. Calderon ..............
Sarah E. Kemp ....................
Soo-Keong Koh ...................
Aggregate Number
Of Securities
Underlying Options
24,392
24,392
5,546
38
Exercisable/
Unexercisable
8,366/16,026
8,366/16,026
5,546/0
Exercise
Price(s)
$ 8.24 – 12.09
$ 8.24 – 12.09
$18.23
Expiration
Date(s)
10/21/2029 – 08/31/2030
10/21/2029 – 08/31/2030
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
73,309
99,972
79,309
Exercisable/
Unexercisable
8,000/0
57,283/16,026
80,741/19,231
63,283/16,026
Exercise
Price(s)
Expiration
Date(s)
$7.35
$ 6.70 – 18.23
$ 6.70 – 18.23
$5.125 – 18.23
8/31/2023
08/31/2023 – 8/31/2030
08/31/2023 – 8/31/2030
11/15/2022 – 8/31/2030
(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, 2021 as described in more
detail below under “—Consulting Agreement.”
(4)
Mr. Koh resigned from our board of directors effective as of August 10, 2021.
Non-Employee Director Compensation Program
Overview. Our non-employee directors for purposes of our director compensation program currently
consist of Nancy E. Calderon, Sarah E. Kemp, Sunggyu Lee, Ph.D., Ramani Narayan, Ph.D., Richard J.
Nigon and Konstantin von Falkenhausen. Our non-employee directors for fiscal 2021 were Nancy E.
Calderon, Sarah E. Kemp, Soo-Keong Koh, Sunggyu Lee, Ph.D., Ramani Narayan, Ph.D., Richard J.
Nigon and Konstantin von Falkenhausen. Soo-Keong Koh resigned from our Board of Directors on
August 10, 2021.
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 2021:
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
39
$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 2021, September 1, 2020, received a
stock option award pursuant to this program, with the exception of Dr. Lee, who has rejected option
grants to directors in connection with his services as a director of NTIC since 2014. More recently, each
current non-employee director of NTIC as of the first day of fiscal 2022, September 1, 2021, received a
stock option award pursuant to this program, with the exception of Dr. Lee and Mr. Koh who resigned on
August 10, 2021. These stock options will vest in full on the first anniversary of the grant 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 NTIC
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 NTIC terminated for
“cause”;
continue for a period of 12 months if the director’s service relationship with NTIC 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 NTIC
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, 2021 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, 2021.
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 of Directors
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, 2021.
40
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 2021 total net sales increased 18.6% to $56,493,819 compared to fiscal 2020 and NTIC
incurred net income attributable to NTIC of $6,281,238, or $0.64 per diluted common share, for fiscal
2021 compared to net loss attributable to NTIC of $(1,337,709), or $(0.15) per diluted common share.
Total compensation for our named executive officers for fiscal 2021 increased approximately 40%
compared to fiscal 2020, primarily as a result of increased annual bonus plan payouts.
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 2021, 58% 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 2021, 36% of total compensation for our
41
CEO and 22% of total compensation for our CFO 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 NTIC.
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.
Stock ownership guidelines. We maintain stock ownership guidelines that allow us to ensure
that the interests of our executive officers are closely aligned with those of our stockholders.
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 2021 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, 98% 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. In accordance with the
result of the advisory vote on the frequency of the say-on-pay vote, which was conducted at our 2020
Annual Meeting of Stockholders, our Board of Directors has determined that we will conduct an
executive compensation advisory vote every year. Accordingly, the next say-on-pay vote will occur at
our 2023 Annual Meeting of Stockholders. Our next vote on the frequency of the say-on-pay vote will
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.
42
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 NTIC 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
43
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 historically 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, 2021 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 2021.
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 2021 Actions
Our named executive officers did
not receive an increase to their
fiscal 2020 annual base salaries.
Messrs. Lynch and Wolsfeld
received bonuses in the amount
of $376,539 and $278,311,
respectively, in each case
representing 87% of their annual
base salary. A portion of the
annual incentive earned for fiscal
2021 was paid in the form of a
stock option grant made at the
beginning of fiscal 2021.
44
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 annually
over three years. Prior options
granted 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 2021 Actions
In response to stockholder
concerns, stock options now vest
annually over three years instead
of vesting in full on the one year
anniversary of the grant date.
A portion of the fiscal 2021 stock
option grant was intended as
partial payout of the fiscal 2021
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 2021.
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 NTIC, 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
45
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 2020 and fiscal 2021 for our named executive officers were as
follows:
Name
G. Patrick Lynch ......................
Matthew C. Wolsfeld ................
Fiscal
2020
$ 435,393
321,812
Fiscal
2021
$ 435,393
321,812
% Change From
Fiscal 2020
0.0%
0.0%
Both Mr. Lynch’s and Mr. Wolsfeld’s base salaries for fiscal 2021 remained the same as their respective
base salaries for fiscal 2020 in light of the pending COVID-19 pandemic and the uncertainties as a result
thereof at that time. The Board of Directors, upon recommendation of the Compensation Committee,
recently set base salaries for fiscal 2022. Both Mr. Lynch’s and Mr. Wolsfeld’s base salaries for fiscal
2022 increased by 8.0% of their respective base salaries for fiscal 2021, which increase reflected the fact
that base salaries were not increased during the prior fiscal year.
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, along with our stock
ownership guidelines, 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 NTIC and linking a significant portion of each executive’s annual compensation to the
achievement of such measures.
Under the annual bonus plan for fiscal 2021, the total amount available under the bonus plan for all plan
participants, including our two executive officers, as in past years, was a percent (25%) 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 2021, the
other adjustments included amounts paid under NTIC’s sales and management bonus plan and profit
sharing plan and a portion of stock-based compensation expense. As in past years, for fiscal 2021, 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 (which for fiscal 2021 was seven participants), the
individual’s annual base salary for fiscal 2021 and the individual’s position and level of responsibility
within NTIC. Individual allocation percentages ranged from approximately 6% to 24%. Mr. Lynch’s
individual allocation percentage for fiscal 2021 was 24% and Mr. Wolsfeld’s individual allocation
percentage for fiscal 2021 was 18% of a total management bonus pool of approximately $1,600,000.
Mr. Lynch’s individual performance objectives for fiscal 2021 related primarily to NTIC’s operations in
China, India 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 2021 related
primarily to investor relations, implementation of cost control measures, financial oversight of NTIC’s
subsidiary in China, and management of NTIC’s Human Resources department. In the case of both
46
Mr. Lynch and Mr. Wolsfeld, the Compensation Committee determined each executive achieved his
individual performance objectives at a 100% achievement level.
Mr. Lynch received a total cash bonus of $376,539 for fiscal 2021 and Mr. Wolsfeld received a total
bonus of $278,311 for fiscal 2021. Additionally, a portion of the annual bonus earned was paid in the
form of a stock option grant on September 1, 2020.
The structure and material terms of our annual bonus plan for fiscal 2022 are similar to the annual bonus
plan for fiscal 2021. As in past years, the payment of bonuses under the plan for fiscal 2022 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.
Accordingly, on September 1, 2020, NTIC granted Mr. Lynch an option to purchase 74,742 shares of
common stock and Mr. Wolsfeld an option to purchase 55,244 shares of common stock. In response to
stockholder concerns, these options vest annually over three years, as opposed to vesting in full on the
first anniversary of the date of grant. More recently, on September 1, 2021, NTIC granted Mr. Lynch an
option to purchase 32,540 shares of common stock and Mr. Wolsfeld an option to purchase 24,051 shares
of common stock. These stock options vest annually over three years.
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, along with our stock ownership guidelines, 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 2021, equity-based
compensation comprised over 33% 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 – over three years and previously upon the one-year anniversary of the date of grant. Our policy is
47
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.
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 NTIC and
enable us to attract, retain and motivate our executives by maintaining competitive levels of total
compensation.
As described in more detail below, in November 2021, the Board of Directors adopted stock ownership
guidelines to align the interests of our executives with the interests of our stockholders, and 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
48
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. The average total
annual compensation will be determined based on the calculation used to determine total compensation in
the Summary Compensation Table. Accordingly, it will not include equity gains; only, the grant date fair
value of equity grants. Additionally, each of the CEO and CFO is eligible to receive 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 NTIC.
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 NTIC 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 NTIC’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 NTIC 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
49
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 NTIC and
our executives. The Compensation Committee reviews our severance arrangements periodically to ensure
that they remain necessary and appropriate.
Stock Ownership Guidelines
In November 2021, the Board of Directors adopted stock ownership guidelines that are intended to align
the interests of our executive officers with those of our stockholders. The stock ownership guidelines for
our executive officers are as follows:
Position
Chief Executive Officer
Other Executive Officers
Guideline
6x annual base salary
3x annual base salary
As of the date of this proxy statement, each of our executive officers required to meet the stock ownership
guidelines had met such guideline.
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
We have 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 NTIC.
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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 NTIC.
SUMMARY COMPENSATION TABLE – FISCAL 2021
Name and Principal
Position
G. Patrick Lynch ............
President and Chief
Executive Officer
Matthew C. Wolsfeld .....
Chief Financial Officer
and Corporate Secretary
Fiscal
Year
2021
2020
Salary
$ 435,392
435,392
Option
Awards(1)
$ 233,195
249,854
Non-Equity
Incentive Plan
Compensation(2)
$
376,539
56,026
All Other
Compensation(3)
$
13,102
13,102
Total
$ 1,058,228
754,374
2021
2020
321,812
321,812
172,362
184,675
278,311
41,410
12,875
12,875
785,360
560,772
__________________________
(1)
On September 1, 2020, each of the named executive officers was granted a stock option under the Northern
Technologies International Corporation 2019 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, 2020 was $7.29 and was determined using the following specific
assumptions: risk free interest rate: 0.77%; expected life: 10.0 years; expected volatility: 45.4%; 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 2021 and 2020 performance,
respectively, but paid to such officers during fiscal 2022 and 2021, 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 2021 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
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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, 2021. Note that because of the grant date, the table set
forth below does not reflect option grants on September 1, 2021. We did not have any equity incentive
plan awards or stock awards outstanding at August 31, 2021. 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 2021
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
16,072
11,704
27,596
58,651
0
4,970
9,942
12,306
8,582
7,752
10,772
11,880
8,650
20,396
43,351
0
Option Awards
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable(1)
0
0
0
0
0
0
0
0
0
0
74,742(2)
0
0
0
0
0
0
0
0
0
0
55,244(2)
Option
Exercise
Price ($)
$ 5.125
5.125
5.125
7.35
10.05
7.43
6.70
9.18
18.23
10.80
8.24
5.125
5.125
5.125
7.35
10.05
7.43
6.70
9.18
18.23
10.80
8.24
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
08/31/2029
08/31/2030
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
08/31/2029
08/31/2030
__________________________
(1)
All options described in this table were granted under the Northern Technologies International Corporation
2019 Stock Incentive Plan or the Northern Technologies International Corporation Amended and Restated
2007 Stock Incentive Plan. Under these plans, 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 Plans.”
(2)
These options vested over a three-year period, with one-third of the underlying shares vesting on each of
September 1, 2021, 2022 and 2023 so long as the individual remains an employee of NTIC as of such date.
Stock Incentive Plans
We have two stock incentive plans under which stock options are currently outstanding: the Northern
Technologies International Corporation Amended and Restated 2019 Stock Incentive Plan and the
Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan.
However, future stock incentive awards may only be granted under the Northern Technologies
International Corporation Amended and Restated 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
52
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
NTIC 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 NTIC
terminates for “cause”;
continue for a period of 12 months if the executive’s employment or service relationship with
NTIC 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 NTIC terminates for any reason, other than for cause or upon death, disability or
retirement.
53
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 NTIC, 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 NTIC 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 NTIC, 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 NTIC 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. The average total annual compensation will be determined based on the
calculation used to determine total compensation in the Summary Compensation Table. Accordingly, it
will not include equity gains; only, the grant date fair value of equity grants. Additionally, the CEO and
54
CFO are eligible to receive 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 NTIC. 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 NTIC, 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 NTIC, 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 NTIC.
“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 NTIC had occurred on August 31, 2021, 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, 2021 is also indicated in the table below and is based
55
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, 2021 (based on the closing sale price of our common
stock on the last trading day of fiscal 2021, August 31, 2021 — $16.67), and (ii) the exercise price of the
options.
Executive Officer
G. Patrick Lynch .............
Matthew C. Wolsfeld ......
Number of Unvested Options
Subject to Automatic Acceleration
74,742
55,244
Estimated Value of Automatic
Acceleration of Vesting
$ 630,075
465,707
If the employment of our named executive officers was terminated as of August 31, 2021, 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:
Triggering Event
Involuntary
Termination
without
Cause
$ 1,814,657
29,940
630,075
$2,474,672
Qualifying
Change in
Control
Termination
$1,814,657
29,940
630,075
$2,474,672
Voluntary/
For Cause
Termination
0
$
0
0
0
$
Matthew C. Wolsfeld... Cash severance(1)
Benefits continuation(2)
Equity acceleration(3)
Total:
$
$
0
0
0
0
$ 1,010,738
29,940
465,707
$ 1,506,385
$1,010,738
29,940
465,707
$1,506,385
Death
0
0
0
0
0
0
0
0
$
$
$
$
Disability
0
$
0
0
0
$
$
$
0
0
0
0
__________________________
(1)
Represents 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. Does not include 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, since in light of the
assumed termination date of August 31, 2021, the last day of the fiscal year, such bonus would have been
earned.
(2)
(3)
Represents the value of medical, dental and vision benefit continuation for each executive and their family
for 18 months following the executive’s termination.
Represents the value of acceleration of all unvested shares that are subject to options, based on the
difference between the closing sale price of $16.67 per share as of the last trading day of fiscal 2021,
August 31, 2021, and the exercise price.
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.
56
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:
o at arm’s length;
o at prices and on terms customarily available to unrelated third party vendors or customers
generally;
o
o
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.
57
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).
58
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR
2023 ANNUAL MEETING OF STOCKHOLDERS
________________
Stockholder Proposals for 2023 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 2023 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 8, 2022, 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 2023 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 2023 Annual Meeting of Stockholders; provided,
however, that in the event that the 2023 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 2023 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.
59
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 2021 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, 2021. 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 6, 2021
Circle Pines, Minnesota
125995436.11
60
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number 001-11038
____________________
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
4201 Woodland Road
P.O. Box 69
Circle Pines, Minnesota
(Address of principal executive offices)
41-0857886
(I.R.S. Employer Identification No.)
55014
(Zip Code)
(763) 225-6600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.02 per share
Trading Symbol(s)
NTIC
Name of each exchange on which registered
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). YES NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES NO
The aggregate market value of the registrant’s common stock, excluding shares beneficially owned by affiliates, computed by reference to the
closing sales price at which the common stock was last sold as of February 26, 2021 (the last business day of the registrant’s second fiscal quarter) as
reported by the Nasdaq Global Market on that date was approximately $123.0 million.
As of November 15, 2021, 9,187,446 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the
registrant’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be held January 21, 2022.
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED AUGUST 31, 2021
TABLE OF CONTENTS
Page
Item 1.
PART I ......................................................................................................................................................................................... 1
BUSINESS ....................................................................................................................................................... 1
INFORMATION ABOUT OUR EXECUTIVE OFFICERS .......................................................................... 15
RISK FACTORS ............................................................................................................................................ 17
UNRESOLVED STAFF COMMENTS ......................................................................................................... 36
PROPERTIES ................................................................................................................................................ 36
LEGAL PROCEEDINGS .............................................................................................................................. 36
MINE SAFETY DISCLOSURES .................................................................................................................. 36
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II ..................................................................................................................................................................................... 37
Item 5.
Item 6.
Item 7.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES ........................................................................... 37
[RESERVED] ................................................................................................................................................. 37
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ......................................................................................................................................... 38
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ............................... 54
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............................................................... 55
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ......................................................................................................................... 81
Item 9A. CONTROLS AND PROCEDURES .............................................................................................................. 81
OTHER INFORMATION .............................................................................................................................. 82
Item 9B.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS .............. 82
Item 9C.
Item 7A.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
PART III .................................................................................................................................................................................... 83
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ....................................... 83
EXECUTIVE COMPENSATION ................................................................................................................. 83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS .................................................................................................... 83
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE .......................................................................................................................................... 85
PRINCIPAL ACCOUNTANT FEES AND SERVICES ............................................................................... 85
Item 14.
Item 13.
PART IV .................................................................................................................................................................................... 86
EXHIBIT AND FINANCIAL STATEMENT SCHEDULES ....................................................................... 86
FORM 10-K SUMMARY .............................................................................................................................. 90
Item 15.
Item 16.
_______________
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.
_______________
i
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) “Harita-NTI” refer to
NTIC’s wholly-owned subsidiary in India effective as of September 1, 2021, Harita-NTI Limited; (6) “Natur-Tec India” refer
to NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited; (7) “Natur Tec Lanka” refer to NTIC’s
majority-owned subsidiary in Sri Lanka, Natur Tec Lanka (Pvt) Ltd and (8) “NTI Asean” refer to NTIC’s majority-owned
holding company subsidiary, NTI Asean LLC, which holds investments in certain entities that operate in the Association of
Southeast Asian Nations (ASEAN) region, including the following countries: Indonesia, South Korea, Malaysia, Philippines,
Singapore, Taiwan, Thailand and Vietnam.
NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures. Except as otherwise
indicated, references in this report to NTIC’s joint ventures do not include any of NTIC’s wholly-owned or majority-owned
subsidiaries.
As used in this report, references to “EXCOR” refer to NTIC’s joint venture in Germany, Excor Korrosionsschutz –
Technologien und Produkte GmbH.
All trademarks, trade names, or service marks referred to in this report are the property of their respective owners.
ii
Item 1.
BUSINESS
Overview
PART I
Northern Technologies International Corporation (NTIC) develops and markets proprietary, environmentally beneficial
products and services in over 65 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 45 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), certain
majority-owned and wholly-owned subsidiaries, and joint venture arrangements in North America, Europe, and Asia.
Effective as of September 1, 2021, NTIC purchased the remaining ownership interest in Harita-NTI Limited (Harita-
NTI) and now sells its ZERUST products in India through this wholly-owned subsidiary. NTIC also sells products
directly to its European 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 in
a continuously increasing number of 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, sheet/profile extrusion, injection molding, extrusion coating/lamination and engineered plastics. These resin
compounds are certified to be fully biodegradable in a commercial 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 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.
1
Internationally, NTIC sells its Natur-Tec® resin compounds and finished products both directly and through its NTIC
China wholly-owned subsidiary as well as its Natur-Tec India and Natur-Tec Lanka majority-owned subsidiaries in
India and Sri Lanka, and through distributors and certain joint ventures.
Impact of COVID-19 Pandemic and Worldwide Supply Chain Disruptions
Beginning last year, the novel coronavirus (COVID-19) pandemic negatively impacted the global economy, disrupted
global supply chains, created significant volatility and disruption in financial markets and resulted in lockdowns. As a
result of the COVID-19 pandemic and related government mandated restrictions on the Company’s business, as well as
the businesses of its joint ventures, customers and suppliers, disruption to the Company’s business and the manufacture
and sale of its products and services has occurred. In fiscal year 2021, the Company was impacted by shipping issues,
including freight container shortages, shipping delays, and increased costs, and supply chain issues, including longer
lead times and raw material cost increases. These impacts were largely a result of disruptions caused by the COVID-19
pandemic and the uptick in demand due to the ongoing global economic recovery. While there has been some recovery
in the global economy and financial markets due in part to the easing of government mandated restrictions due to lower
rates of infection, these restrictions may be reinstated if rates of infection continue to rise due to the Delta variant or
subsequent variants of COVID-19, which could cause the COVID-19 pandemic to continue to have a material adverse
effect on NTIC’s business, operating results and financial condition in fiscal 2022.
Worldwide supply chain disruptions, which were initially brought about by the impact of the COVID-19 pandemic,
have persisted despite the recovery in the global economy and financial markets, and these issues are expected to
continue in fiscal 2022. In fiscal 2021, NTIC experienced longer lead times for raw materials, was forced to find new
suppliers of certain raw materials, and experienced raw material cost increases compared to prior fiscal years.
Additionally, NTIC experienced significantly longer shipping times and significant price increases per shipping
container compared to prior fiscal years due to ocean freight capacity issues resulting from increased demand for
shipping and reduced capacity and equipment. These and other issues resulting from worldwide supply chain
disruptions are expected to continue in fiscal 2022 and could continue to have a material adverse effect on NTIC’s
business, operating results and financial condition. The precise financial impact and duration, however, cannot be
reasonably estimated at this time.
NTIC’s Subsidiaries and Joint Venture Network
NTIC has ownership interests in 10 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 15, 2021, 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
Harita-NTI Limited
Natur-Tec India Private Limited
Natur Tec Lanka (Pvt) Ltd
NTIC Europe GmbH
Zerust Singapore Pte Ltd
Zerust Vietnam Co. Ltd
____________________
Country
China
United States
Brazil
Mexico
India
India
Sri Lanka(1)
Germany
Singapore(2)
Vietnam(2)
NTIC
Percent (%)
Ownership
100%
60%
85%
100%
100%
75%
75%
100%
60%
60%
(1) Natur Tec Lanka (Pvt) Ltd. is 100% owned by Natur-Tec India Private Limited and, therefore, indirectly owned by
NTIC.
(2) Zerust Singapore Pte Ltd and Zerust Vietnam Co. Ltd are 100% owned by NTI Asean LLC and, therefore,
indirectly owned by NTIC.
The results of these subsidiaries are fully consolidated in NTIC’s consolidated financial statements, except that Harita-
NTI Limited only became a wholly owned subsidiary as of September 1, 2021; and therefore, its results of operations
2
are not included in NTIC’s consolidated financial statements included in this report as the investment and financial
results of this joint venture are consolidated utilizing the equity method of accounting.
NTIC participates in 18 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 15, 2021, 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
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.
____________________
(1) Indirect ownership interest through NTI Asean.
Country
Japan
France
Germany
Sweden
Russia
Finland
United Kingdom
Czech Republic
Poland
Turkey
United States
Ukraine
South Korea (1)
Taiwan (1)
Indonesia (1)
Thailand (1)
Malaysia (1)
Philippines (1)
NTIC
Percent (%)
Ownership
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
30%
30%
30%
30%
30%
30%
NTIC receives funds from its joint ventures as fees received 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 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 dividends are paid and, if so, 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.
As of August 31, 2021, Harita-NTI Limited was a joint venture and consolidated using the equity method of accounting.
Harita-NTI Limited only became a wholly owned subsidiary as of September 1, 2021.
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 as of August 31, 2021.
NTIC considers EXCOR, ACOBAL SAS, ZERUST OY, ZERUST SPECIALTY TECH CO. LTD. and its former joint
venture, Harita-NTI Limited, to be individually significant to NTIC’s consolidated assets and income as of August 31,
3
2020. Therefore, NTIC provides certain additional information regarding these joint ventures 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 2021, 80.6% 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 2021 included $45,554,434 in sales of ZERUST® rust and corrosion inhibiting products
and services, an increase of 32.1% from such sales in fiscal 2020. 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 invisible, odorless and non-toxic vapor that forms a passivating layer on any metal surfaces it
comes in contact with and thereby inhibits rust and corrosion. The corrosion inhibiting protection is maintained only as
long as the metal products to be protected remain enclosed within the ZERUST® packaging. Electron scanning shows
that once metal products are removed from the ZERUST® packaging, the ZERUST® protective layer 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 as compared to traditional methods of corrosion prevention in terms of labor, material, and capital expenditures
for equipment to apply, remove, and dispose of oils and greases, as well as environmental, health and safety benefits
provided by not having to handle and work with hazardous chemicals.
NTIC was first to develop the means of infusing volatile corrosion inhibiting chemical compounds (VCIs) into
polyethylene and polypropylene resins. Combining ZERUST® chemical compounds 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
customers the ability to ship and store ferrous, nonferrous, and mixed-metal products in a clean, dry, and corrosion-free
condition, at an overall savings in total process costs. In addition to plastic packaging, NTIC has also developed VCI
compounds 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 protection in aggressively corrosive
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.
4
Rust Removers and Cleaners. NTIC also sells rust removal and cleaning products, under the Axxaclean™ brand name,
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.
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 electronics cabinets, or can be used as extra protection when added to ZERUST®
packaging products. Diffusers work by permeating the interior air of an enclosure with an invisible and odorless
corrosion inhibiting vapor that settles as a protective layer on all metal surfaces that are within the range of a specific
“radius of protection” for a period of one or two years depending on the product model. This invisible and dry
protective layer revaporizes and dissipates into the air upon removal of a diffuser from an 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 2021 included
$3,793,466 in sales made to customers in the oil and gas industry, an increase of 36.3% from such sales in fiscal 2020.
NTIC anticipates that its sales of ZERUST® products and services into the oil and gas industry will continue to remain
subject to significant volatility, specifically due to economic factors, such as potential crude oil price changes and global
production slowdowns caused by travel and other restrictions that may be reinstated as a result of the COVID-19
pandemic. NTIC anticipates that its sales of ZERUST® products and services into the oil and gas industry may be
subject to additional volatility due to uncertainty caused by certain environmental policies of the current administration.
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/assets that support the oil and gas industry are 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 the service life and safety of 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. While the industry predominantly uses various paints/coatings, engineered alloys, cathodic protection,
etc. to mitigate corrosion, there are several situations where such options are not feasible and NTIC believes that its
ZERUST® oil and gas corrosion prevention solutions are more effective at minimizing 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
5
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. These are engineered solutions 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.
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 2021 included $10,939,385
in sales of Natur-Tec® resins and finished products, a decrease of 16.9% compared to sales in fiscal 2020. 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 commercial 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, including regulations in
China and India, 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 commercially
compostable, or both.
Natur-Tec® resins and finished products sales in North America and finished product sales at NTIC’s majority-owned
subsidiary in India, Natur-Tec India Private Limited, experienced reduced demand globally as a result of the COVID-19
pandemic. The COVID-19 pandemic continues to have an impact on demand from many large users of bioplastics,
including college campuses, stadiums, arenas, restaurants, and corporate office complexes. These are expected to be
some of the last businesses to re-open, and many of these institutions have still not reopened to pre-COVID capacity.
Furthermore, production across the apparel industry has declined sharply, further decreasing demand for our Natur-Tec
bioplastic bags, which have become an important part of the sustainability initiatives within this industry.
Resin Compounds. Natur-Tec® resin compounds are produced by blending commonly available base resins, such as
Ecoflex® from BASF, Ingeo® PLA from NatureWorks LLC, and Luminy® from Total-Corbion with organic and
inorganic fillers and proprietary polymer modifiers and compatibilizers using NTIC’s proprietary and patented ReX
6
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 sold 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 commercially 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 foodservice 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 foodservice 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, produce bags and gloves. 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.
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Both Natur-Bag® and Natur-Ware® products are certified fully commercially 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 wholly-owned or majority-owned
subsidiaries to conduct its business in Brazil, Mexico, Vietnam and Singapore. In addition, effective as of September 1,
2021, NTIC purchased the remaining 50% ownership interest in its Indian joint venture, Harita-NTI Limited, and will
continue selling its ZERUST products in India through this wholly-owned subsidiary.
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. Additionally, NTIC has worked to adapt its marketing activities in light of the COVID-19
pandemic. 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 user 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, 2021. 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 plastics converters and foodserviceware brands that 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. Additionally, NTIC has targeted retailers and customers that may have applications for our products related to
the COVID-19 pandemic.
Internationally, NTIC uses Natur-Tec India, Natur Tec Lanka, NTIC China and a network of international distributors to
market its Natur-Tec® resin compounds and finished products. The government of India recently announced a phased
ban on the manufacture and sale of single-use plastics beginning in July 2022. The first phase bans earbuds and plastic
sticks used in balloons and ice cream. The second phase bans plastic cigarette packets and plastic bags less than 100
microns thick. Notably, compostable plastics are exempt from this ban. Accordingly, 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.
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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 polymer resins used to manufacture NTIC’s Natur-Tec® resin compounds and
finished products since there are a limited number of suppliers of such base polymer 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 $4,400,000 and $4,800,000 in fiscal 2022 on research and development
activities.
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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, 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 the
United States. NTIC’s Natur-Tec® resin compounds can be shipped to manufacturing facilities around the world,
where they then can be converted into finished products, such as film or piece of cutlery. NTIC’s Natur-Tec® finished
products are manufactured using NTIC’s Natur-Tec® resin compounds by select 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.
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Availability of Raw Materials
NTIC does not typically carry excess quantities of raw materials because of historically 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, which has caused cost increases and, more
recently, supply issues. In the past and during fiscal year 2021, NTIC has experienced some delays in obtaining these
base resins. Due to supply chain disruptions associated with the COVID-19 pandemic and otherwise, NTIC experienced
longer lead times for raw materials, was forced to find new suppliers of certain raw materials, and experienced raw
material cost increases during fiscal 2021 compared to prior fiscal years. It is anticipated that these worldwide
disruption in supply issues will continue throughout fiscal year 2022. Additionally, during fiscal year 2021, extreme
weather caused supply chain disruptions and caused delays in receiving 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 suppliers, an
unexpected loss of supply over a short period of time, including as a result of the worldwide disruption in supply issues,
may not allow NTIC time to replace these sources in the ordinary course of business.
Backlog
NTIC had an estimated order backlog of $4,192,000 as of August 31, 2021, compared to $3,593,000 as of August 31,
2020, which was generally across all business units. Sales relating to this backlog are expected to be realized during
first quarter of fiscal 2022. These are orders that are held by NTIC pending release instructions from the customers to
be used for 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, 2021, NTIC had a total of 78 full-time employees located in North America, consisting of 21 in sales
and marketing, 19 in research and development and lab, 27 in administration, and 11 in production. As of August 31,
2021, 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.
Effective as of September 1, 2021, NTIC purchased the remaining 50% ownership interest in its former Indian joint
venture, Harita-NTI Limited, and will continue selling its ZERUST products in India through this wholly-owned
subsidiary. Harita-NTI has 58 full-time employees. There are no unions representing NTIC’s employees, and NTIC
believes that its relations with its employees are good.
Health, Safety and Environment
Health, safety and environment (HSE) are the cornerstone of NTIC. NTIC is in the business of converting unique,
environmentally beneficial materials science into value added products and services for industrial and consumer
applications. NTIC believes that it is responsible to its worldwide customers, its people, its communities and its
stockholders, and NTIC takes these responsibilities seriously. NTIC is dedicated to investing in the future of the planet
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and NTIC’s people and intends to continue to invest in HSE protection and improvements in a timely manner consistent
with available technology.
NTIC is guided by its Policy Statement on HSE, which sets forth NTIC’s HSE objectives, including ensuring that all
activities across the value chain are conducted in a manner which is consistent with NTIC’s quality management
standard and HSE programs, ensuring that business activities are conducted to prevent harm and protect health and
safety, and developing, manufacturing, distributing and marketing products and services with full regard for HSE
aspects. To accomplish these objectives, NTIC intends to, among other things, establish targets within its quality
management standard and HSE programs to measure progress and ensure continuous improvement, provide safe and
healthy workplaces for its employees, contractors and other service providers, and provide continued training to enable
employees to meet their responsibility to contribute to compliance with NTIC’s HSE objectives.
Diversity and Inclusion
Diversity and inclusion are embedded in NTIC’s values and integrated into its strategies. NTIC’s Human Rights Policy
was designed to align with the United Nations Global Compact and core elements of the United Nations Universal
Declaration of Human Rights. NTIC is committed to providing an environment free of discrimination and harassment,
where all individuals are treated with respect and dignity, can contribute fully, and have equal opportunities. NTIC has
worked to build a diverse and inclusive workforce and is committed to equal opportunity. NTIC invests in building
diverse talent pools and provides training to improve skills where appropriate. NTIC upholds and supports the right to
equal treatment without discrimination or harassment.
Education
NTIC offers an educational assistance benefit program to eligible employees. NTIC may reimburse all or part of the
registration and tuition costs for full-time employees who continue their education in a work-related field. In addition to
educational assistance for formal education, NTIC may arrange training programs that enable employees to progress in
their technical, commercial, or financial knowledge of NTIC’s business.
Compensation and Benefits
NTIC’s compensation program is designed to attract and retain talented employees in the industry by offering
competitive compensation and benefits. NTIC has established fair and competitive pay levels that are based on local
markets and job descriptions and are not based on gender, age, ethnicity, nationality or other personal characteristics or
beliefs. NTIC provides compensation and benefits that are competitive and comply with applicable laws, and NTIC
commits to a fair and living wage.
Values and Ethics
In connection with NTIC’s core values, NTIC acts in accordance with its Code of Ethics. NTIC’s Code of Ethics
requires its employees, officers and directors to be honest, trustworthy, conscientious and dedicated to the highest
standards of ethical business practices. Each employee, officer and director must know and abide by applicable laws.
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.
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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. These forward-looking statements 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, the statements about
NTIC’s plans, objectives, strategies, and prospects regarding, among other things, NTIC’s financial condition, results of
operations and business, the anticipated effect of COVID-19 on NTIC’s business, operating results and financial
condition, the outcome of contingencies, such as legal proceedings. 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 COVID-19 on NTIC’s business, operating results and financial condition, including disruption to
our customers, suppliers and subcontractors, as well as the global economy and financial markets;
The effect of worldwide disruption in supply issues on NTIC’s business, operating results and financial
condition, which will likely continue throughout fiscal year 2022, regardless of the status of the COVID-19
pandemic;
The effect of current worldwide economic conditions and any turmoil and disruption in the global credit and
financial markets on NTIC’s business;
Variability in NTIC’s sales of ZERUST® products and services to 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 ventures, 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 effect of 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;
Risks associated with NTIC’s recent acquisition of the remaining 50% ownership interest in its Indian joint
venture, Harita-NTI;
NTIC’s relationships with its joint ventures and its ability to maintain those relationships, especially in light of
anticipated succession planning issues, and risks associated with possible future acquisitions of the remaining
ownership interests of certain joint ventures;
Fluctuations in the cost and availability of raw materials, including resins and other commodities, including
supply chain disruptions and weather related impacts;
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 to the oil and gas industry and Natur-Tec® products and the often lengthy and extensive sales process
involved in selling such products and services;
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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 to the oil and gas industry;
NTIC’s operations in China, and the risks associated therewith;
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;
The 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 and 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
that NTIC files with or furnishes to the SEC.
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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 15, 2021, are as follows:
Name
G. Patrick Lynch
Age
54
President and Chief Executive Officer
Position with NTIC
Matthew C. Wolsfeld
47
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 15, 2021, are as follows:
Name
Vineet R. Dalal
Gautam Ramdas
Brian Haglund
Age
52
Position with NTIC
Vice President and Director – Global Market Development – Natur-Tec®
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Vice President and Director – Global Market Development – Oil & Gas
Vice President of Operations – North America
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.
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Brian Haglund, an employee of NTIC since 2018, is currently serving as Vice President of Operations – North America.
Prior to joining NTIC, Mr. Haglund held various leadership roles within Textron, a Fortune 500 industrial
conglomerate. During his tenure with Textron, Mr. Haglund led various global operations and manufacturing facilities
across the US, in China, and in Germany focusing on aerospace and industrial manufacturing. Mr. Haglund received an
M.B.A. degree with a concentration in Finance from The Miller College of Business through Ball State University. He
also holds a B.A. degree in Supply Chain Management from Eli Broad College of Business through Michigan State
University.
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Item 1A. RISK FACTORS
The following are the most material factors known to NTIC that could materially adversely affect its business, operating
results, or financial condition.
Risk Factors Summary
This summary is not complete and should be read in conjunction with the risk factors set forth below.
Risks Related to NTIC’s Business and Industry
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 COVID-19 pandemic has adversely impacted and will likely continue to adversely impact NTIC’s
business, operating results and financial condition.
Supply chain disruptions could interrupt product manufacturing, increase product costs and result in lost sales,
which may have a material adverse effect on NTIC’s business, operating results and financial condition.
Disruptions to the distribution channels for NTIC’s products may negatively impact NTIC’s business,
operating results, and financial condition.
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’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.
Increases in prices for raw materials and components used in NTIC’s products could adversely affect NTIC’s
operating results.
NTIC relies on others for its production and any interruptions of these arrangements could disrupt NTIC’s
ability to fill its customers’ orders.
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.
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.
NTIC has limited staffing, faces challenges caused by its aging workforce and given its limited resources, it
may not effectively manage its growth.
Risks Related to NTIC’s Joint Ventures
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.
Since a significant portion of NTIC’s earnings results from its equity income from joint ventures which varies
quarter to quarter, NTIC’s earnings are subject to quarterly fluctuations.
Risks Related to NTIC’s International Operations and the Foreign Markets in which NTIC Operates
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.
If sales of NTIC’s products and services by its joint venture in Germany 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’s recent acquisition of the remaining 50% ownership interest of Harita-NTI and any future similar
acquisitions involve risk.
NTIC China’s operations may be adversely affected by China’s evolving economic, political, and social
conditions and intellectual property rights are difficult to enforce in China, which could harm NTIC’s business,
results of operations, or financial condition.
Uncertainties with respect to the Chinese legal system may adversely affect the operations of NTIC China.
Failure to comply with the U.S. Foreign Corrupt Practices Act could subject NTIC to penalties and legal
expenses.
Fluctuations in foreign currency exchange rates could result in declines in NTIC’s earnings and changes in
NTIC’s foreign currency translation adjustments.
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Economic uncertainty in developing markets could adversely affect NTIC’s revenue and earnings.
Risks Related to NTIC’s Products
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 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.
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.
No assurance can be provided that NTIC’s investments in 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 will be successful.
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 dependence on manufacturing and logistical services provided by contractors could give rise to
product defect or warranty liability.
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.
NTIC relies on its joint ventures, distributors, manufacturer’s sales representatives, and other agents to market
and sell its products.
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, and the sale of ZERUST® rust and corrosion inhibiting
products into the oil and gas industry is risky in light of the hazards typically associated with such operations
and the significant amount of potential liability involved.
The sale of ZERUST® rust and corrosion inhibiting products into the oil and gas industry is somewhat
seasonal and dependent upon oil prices.
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.
Risks Related to Governmental Regulation, Laws, and Compliance
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.
Fluctuations in NTIC’s effective tax rate could have a significant impact on NTIC’s financial position, results
of operations, or cash flows.
Certain of NTIC’s operations are subject to regulation by the U.S. Food and Drug Administration.
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.
NTIC’s compliance with generally accepted accounting principles any changes in such principles might
adversely affect NTIC’s operating results and financial condition.
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 and the price and trading volume has been, and may continue to be, volatile.
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.
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Risks Related to NTIC’s Business and Industry
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, such as
the impact of the COVID-19 pandemic, and those conditions have adversely impacted and may continue to 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, India 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, including decreased production resulting from the ongoing microchip shortage, have negatively impacted and
may continue to negatively impact NTIC’s business, operating results, and financial condition.
The COVID-19 pandemic has adversely impacted and will likely continue to adversely impact NTIC’s business,
operating results and financial condition.
The COVID-19 pandemic has resulted in a periodic, substantial curtailment of business activities worldwide and has
caused, and may again cause, recessionary economic conditions in many countries, including the United States and
many countries abroad. As part of efforts to contain the spread of COVID-19, many state, local and foreign
governments at times imposed various restrictions on the conduct of business and travel, including lockdowns imposed
in parts of China and India during fiscal 2021. While some of these restrictions have been curtailed or lifted, others
have been reinstated or may be reinstated in the future. Government restrictions, such as stay-at-home orders,
quarantines and worker absenteeism as a result of COVID-19 have led to a significant number of business closures and
slowdowns. These business closures and slowdowns adversely impacted, and will likely continue to adversely impact,
NTIC directly and have caused its customers and suppliers to slow or stop production, which has significantly disrupted
and will likely continue to significantly disrupt NTIC’s sales, production and supply chain. These and other factors,
such as uncertainty due to the Delta variant and other COVID-19 variants that may arise, contributed to NTIC
experiencing significantly decreased global demand for its products and services during fiscal 2021 and fiscal 2020 and
increased supply chain and shipping costs and disruptions, which will likely continue during fiscal 2022. This
significantly decreased demand has had, and will likely continue to have, a material adverse effect on NTIC’s business,
operating results and financial condition in fiscal 2022. Due to the international reach of COVID-19, NTIC anticipates
that its international joint ventures will continue to be adversely impacted by the causes listed above, as well as other
local issues that may arise, which will likely continue to have a material adverse effect on NTIC’s joint venture
operations and equity in income from joint ventures. It is currently not possible to predict the precise potential impact,
as well as the extent of any impact, of the COVID-19 pandemic on NTIC’s business, and on the global economy as a
whole. It is also currently not possible to predict how long the pandemic will last or the time that it will take for
economic activity to return to prior levels or supply chain disruptions to cease. A prolonged situation could have a
significant adverse effect on economies and financial markets globally, potentially deepening the current worldwide
economic downturn, which could have a significant adverse effect on NTIC’s business, operating results and financial
condition.
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The extent to which the COVID-19 pandemic impacts NTIC’s business will likely depend on numerous evolving
factors that NTIC may not be able to accurately predict, including:
the duration and scope of the pandemic;
governmental, business and individuals’ actions that have been and continue to be taken in response to the
pandemic;
the availability, acceptance and efficacy of vaccines;
the spread of COVID-19 variants;
the impact of the pandemic on economic activity and actions taken in response;
the effect on NTIC’s customers and demand for its products and services;
NTIC’s ability to continue to manufacture and sell its products and services, including as a result of travel
restrictions and people working from home;
the ability of NTIC’s customers to pay for its products and services; and
any closures of NTIC’s facilities and the facilities of its customers and suppliers.
Any of these events could materially adversely affect NTIC’s business, operating results and financial condition. In
addition, the COVID-19 pandemic has already adversely affected and could continue to adversely affect NTIC’s stock
price.
Supply chain disruptions could interrupt product manufacturing, increase product costs and result in lost sales,
which may have a material adverse effect on NTIC’s business, operating results and financial condition.
Supply chain disruptions, resulting from factors such as the COVID-19 pandemic, labor supply shortages and shipping
container shortages, have impacted, and may continue to impact, NTIC and its third-party manufacturers. These
disruptions have resulted in longer lead times and increased product costs and shipping expenses. While NTIC has taken
steps to minimize the impact of these increased costs by working closely with its suppliers and customers, there can be
no assurances that unforeseen events impacting the supply chain will not have a material adverse effect on NTIC in the
future. Additionally, the impacts supply chain disruptions have on NTIC’s third-party manufacturers are not within
NTIC’s control. It is not currently possible to predict how long it will take for these supply chain disruptions to cease.
Prolonged supply chain disruptions impacting NTIC and its third-party manufacturers could interrupt product
manufacturing, increase product costs and result in lost sales, which may have a material adverse effect on NTIC’s
business, operating results and financial condition.
Disruptions to the distribution channels for NTIC’s products may negatively impact NTIC’s business, operating
results, and financial condition.
During fiscal 2021, supply chain disruptions began to emerge because of the COVID-19 pandemic, shipping container
shortages, and the changes in global demand. Ocean freight capacity issues continue to persist worldwide as there is
much greater demand for shipping and reduced capacity and equipment, which has resulted in significantly longer
shipping times and significant price increases per shipping container. Shipping companies are charging priority booking
fees to allocate space as they have fewer ships and workers operating. While NTIC continues to manage and evaluate its
freight carriers, there is no indication that these shipping delays and increased shipping container rates will return to
historical levels in the near-term, and these delays and increases could have a material adverse effect on NTIC’s
consolidated results of operations. Furthermore, transportation delays, increases on shipping containers, more extensive
travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in
the affected areas may impact the operations of NTIC’s suppliers, which could in turn adversely affect NTIC, and its
revenues and operating costs. Any of these disruptions may negatively impact NTIC’s business, operating results, and
financial condition.
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
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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. Additionally, the impact of the COVID-19 pandemic has caused supply shortages, which also
could result in NTIC’s inability to produce its Natur-Tec® products. 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. The COVID-19 pandemic has caused
additional shortages in certain raw materials and components, which could adversely affect the cost and/or production
of NTIC’s 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.
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.
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.
There is significant uncertainty about the future relationship between the United States and other countries with respect
to trade policies, taxes, government regulations, and tariffs. The Trump administration had signaled support for
implementing and, in some instances, proposed or took action with respect to major changes to certain trade policies in
an effort to encourage U.S. production. Such changes included 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 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, including changes made by the Biden administration, 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.
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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, 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 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. 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.
Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening
and increasingly competitive labor market. A sustained labor shortage or increased turnover rates within our employee
base, caused by COVID-19 or as a result of general macroeconomic factors, could lead to increased costs, such as
increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively
affect our ability to efficiently operate our manufacturing and distribution facilities and overall business. If we are
unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to
respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative
effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or
labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse
impact on NTIC’s operations, results of operations, liquidity or cash flows.
NTIC faces challenges caused by its aging workforce, and NTIC may not be able to recruit, train and retain
adequate replacements for its qualified and skilled employees.
Many of our employees are approaching retirement age. As these experienced employees retire, we may have difficulty
recruiting new employees with comparable qualifications and experience, and we may be unable to transfer our
employees’ institutional knowledge successfully to new qualified employees. Any such failures would be exacerbated at
times of peak demand. Our failure to recruit and train new employees and to ensure they obtain the adequate
qualifications and experience could result in reduced revenues, loss of customer goodwill and a material negative
impact on our results of operations.
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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.
Risks Related to NTIC’s Joint Ventures
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 in part 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 2021, NTIC
recognized $5,964,260 in fees and $3,665,365 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.
Risks Related to NTIC’s International Business and the Foreign Markets in which NTIC Operates
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
65 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
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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,
Zerust Singapore, Zerust Vietnam 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.” The United Kingdom officially terminated its membership of the European
Union on January 31, 2020 and remained in a transition phase until December 31, 2020. The British government
continues to negotiate 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 has created legal, political and economic uncertainty, which could subject NTIC to heightened risks in that
region, including disruptions to trade and free movement of goods, services, and people to and from the United
Kingdom, and increased foreign exchange volatility with respect to the British pound. 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.
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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, in addition to a few other entities for fiscal 2020. Of the total
equity in income from joint ventures of $7,465,214 during fiscal 2021, NTIC had equity in income from joint ventures
of $4,400,403 attributable to EXCOR. Of the total fee income for services provided to joint ventures of $5,964,260
during fiscal 2021, fees of $920,902 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. While this is also true with respect to the other
joint venture entities of which additional information is provided in NTIC’s consolidated financial statements and in
certain other sections of this report, the significance is not as great as with EXCOR.
NTIC’s recent acquisition of the remaining 50% ownership interest of Harita-NTI and any future similar
acquisitions involve risk.
Effective as of September 1, 2021, NTIC acquired the remaining 50% ownership interest in its Indian joint venture,
Harita-NTI. It is possible that as part of its succession planning efforts with respect to its joint venture partners that
NTIC may complete similar acquisitions in the future. Similar future acquisitions will depend, in part, on the
availability of similar opportunities or other suitable acquisition candidates at acceptable prices, terms, and conditions
and the availability of capital and personnel resources to complete such acquisitions and run and integrate the acquired
business effectively. These acquisitions involve risk and may harm NTIC’s business, reputation, financial condition,
and operating results. For instance, the benefits of the recent Harita-NTI acquisition or any future acquisition may take
more time than expected to develop or integrate into NTIC’s operations, and NTIC cannot guarantee that either the
Harita-NTI or any future acquisitions will, in fact, produce any benefits. Acquisitions, including the recent Harita-NTI
acquisition, involve a number of risks, the occurrence of which could adversely affect NTIC’s business, reputation,
financial condition, and operating results, including:
diversion of management's attention to manage and integrate the acquired business;
disruption to existing operations and plans;
inability to effectively manage the expanded operations;
difficulties or delays, which may be exacerbated by the impact of COVID-19, in integrating and assimilating
information and financial systems, internal controls, operations, manufacturing processes and products of an
acquired business or in realizing projected efficiencies, growth prospects, cost savings, and other synergies;
potential loss of key employees, customers or suppliers of the acquired businesses or adverse effects on
existing business relationships with employees, customers or suppliers;
write-off of significant amounts of goodwill, other intangible assets, and/or long-lived assets as a result of
deterioration in the performance of an acquired business, adverse market conditions, changes in the
competitive landscape, changes in laws or regulations that restrict activities of an acquired business, or as a
result of a variety of other circumstances;
violation of confidentiality, intellectual property, and non-compete obligations or agreements by employees of
an acquired business or lack of or inadequate formal intellectual property protection mechanisms in place at an
acquired business;
adverse impact on overall profitability if NTIC’s expanded operations do not achieve the growth prospects, net
sales, net earnings, cost and/or revenue synergies, or other financial results projected in NTIC’s valuation
models, delays in the realization thereof or costs or charges incurred to achieve any revenue or cost synergies;
reallocation of amounts of capital from other operating initiatives and/or an increase in leverage and debt
service requirements to pay acquisition purchase prices, which could in turn restrict NTIC’s ability to access
additional capital when needed or limit its ability to pursue other important elements of its business strategy;
inaccurate assessment of additional post-acquisition, undisclosed, contingent or other liabilities or problems,
unanticipated costs associated with an acquisition; and
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impacts as a result of purchase accounting adjustments, incorrect estimates made in the accounting for
acquisitions, incurrence of non-recurring charges, or other potential financial accounting or reporting impacts.
In addition, effective internal controls are necessary for NTIC to provide reliable and accurate financial reports and to
effectively prevent fraud. The integration of acquired businesses may result in NTIC’s systems and controls becoming
increasingly complex and more difficult to manage. NTIC devotes significant resources and time to comply with the
internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. However, it cannot be certain
that these measures will ensure that NTIC designs, implements, and maintains adequate control over its financial
processes and reporting in the future, particularly in the context of acquisitions of other businesses. Any difficulties in
the assimilation of acquired businesses into NTIC’s internal control framework could harm its operating results or cause
NTIC to fail to meet its financial reporting obligations. Also, acquisitions require the consent of PNC Bank, National
Association under NTIC’s loan agreement with PNC Bank. NTIC cannot predict whether such approvals would be
forthcoming or the terms on which PNC Bank would approve such acquisitions. These risks, among others, could be
heightened if NTIC completes a large acquisition or multiple transactions within a relatively short period of time.
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.
Local regulations in China related to the recent electric power shortage may adversely affect NTIC China’s operations.
For example, these regulations could result in partial or complete factory shutdowns due to a lack of continuous supply
of electrical power. Additionally, the price of electric power may be increased, and peak-demand periods during which
prices are higher may be extended by local governments. Although NTIC China’s operations have not been significantly
impacted by regulations related to electric power shortages to date, such regulations may in the future decrease or shut
down production or increase product costs, which 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
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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
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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 the impact of the COVID-19 pandemic
and 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.
Risks Related to NTIC’s Products
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 2021, 80.6% 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
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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.
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:
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’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.
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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 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 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
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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. Low global crude oil prices have recently been caused by oversupply, price
wars between Saudi Arabia and Russia and the impact of the COVID-19 pandemic. NTIC believes low global crude oil
prices constrain capital improvement budgets of its existing and prospective customers and may result in personnel
turnover at its oil and gas customers or prospects.
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 2022 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.
Risks Related to Governmental Regulation, Laws, and Compliance
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. These laws, rules, and regulations may be subject to change by
the Biden administration, which has stalled construction of the Keystone XL Pipeline and may in the future take action
to further restrict such activities. Further, 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.
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 or jurisdictional regulations 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.
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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’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.
Risks Related to NTIC’s Intellectual Property
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.
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 2021, the daily trading volume ranged from 400 shares to 100,200 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.
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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 2021, the sale price of NTIC’s common stock ranged from a low of $7.79 per share to a high of $21.50 per
share, and the daily trading volume ranged from 400 shares to 100,200 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 15, 2021, NTIC had 9,187,446 shares of common stock outstanding, 23.5% 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 15, 2021, Inter Alia Holding Company, or Inter Alia, beneficially owned approximately 13.1% 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.
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General Risk Factors
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our
business and operations.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere
may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme
weather and natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires or flooding. Climate change may
also cause water shortages, changes in rainfall and storm patterns, changes in sea levels and other negative weather and
climate patterns. Such weather conditions could pose physical risks to our facilities and disrupt operation of our supply
chain and may impact operational costs.
The increasing global focus on climate change and the need for corporate change also may lead to new regional, federal,
and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. Inconsistency of
regulations in the countries in which we operate may affect the costs of compliance with such legal or regulatory
requirements. Additionally, in the event that such regulation is enacted and is more aggressive than the sustainability
measures that we are currently undertaking to monitor our emissions and improve our energy efficiently, we may be
subject to curtailment or reduced access to resources or experience significant increases in our costs of operation and
delivery. As a result, climate change could negatively affect our business and operations.
In addition, public company stockholders are increasingly sensitive to the climate change impacts and mitigation efforts
of companies, are increasingly seeking enhanced disclosure on the risks, challenges, governance implications, and
financial impacts of climate change faced by companies and are demanding that companies take a proactive approach to
addressing perceived environmental risks, including risks associated with climate change, relating to their operations.
Adverse publicity or climate-related litigation that impacts us could have a negative impact on our business.
Severe weather could have a material adverse effect on our business.
NTIC’s business has been and could in the future 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 have been and could in the future be adversely affected by such hurricanes and other
extreme or seasonal weather conditions. During fiscal year 2021, extreme weather caused supply chain disruptions and
caused delays in receiving base resins. Adverse weather can also directly impede NTIC’s operations. Repercussions of
severe weather conditions may include:
curtailment of services or reduced demand for products;
weather-related damage to facilities and equipment, resulting in suspension of operations;
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.
These constraints could delay NTIC’s operations and materially increase NTIC’s operating and capital costs.
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;
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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 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 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 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
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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’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.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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.
Internationally, NTIC’s subsidiaries in Brazil, India, Mexico, and China all lease office, warehouse, and laboratory
space. In July 2021, NTIC China entered into a purchase agreement to acquire an approximately 21,000 square feet
industrial building and the right to use certain real estate in the Qingpu District of Shanghai, China, which will be used
as China’s new corporate headquarters beginning in February 2022. In addition, as a result of the Hartia-NTI
acquisition, NTIC also leases office, warehouse, and laboratory space in Chennai, India.
Additionally, NTIC has contract warehousing agreements in California and Indiana to hold and release stock products to
customers. NTIC’s management considers its current properties suitable and adequate for its current and foreseeable
needs.
Item 3.
LEGAL PROCEEDINGS
For information regarding NTIC’s legal proceedings, see Note 15 to NTIC’s consolidated financial statements.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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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
On April 23, 2020, the Company announced the temporary suspension of its quarterly cash dividend pending clarity on
the financial impact of COVID-19 on the Company. On January 15, 2021, the Company announced the reinstatement of
its quarterly cash dividend. During fiscal 2021, NTIC’s Board of Directors declared cash dividends on the following
dates in the following amounts to holders of record of the Company’s common stock as of the following record dates:
Declaration Date
January 15, 2021
April 23, 2021
July 21, 2021
Amount
$0.065
$0.065
$0.065
Record Date
February 3, 2021
May 5, 2021
August 4, 2021
Payable Date
February 17, 2021
May 19, 2021
August 18, 2021
On October 20, 2021, NTIC’s Board of Directors declared a cash dividend of $0.07 per share of NTIC’s common stock,
payable on November 17, 2021 to stockholders of record on November 3, 2021. The declaration of future dividends is
not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions then existing, including
NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions, and
other factors, including without limitation the effect of COVID-19 on its business, operating results, and financial
condition.
Number of Record Holders
As of August 31, 2021, there were 165 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 2021.
Issuer Purchases of Equity Securities
NTIC did not purchase any shares of its common stock or other equity securities of NTIC during the fourth quarter of
fiscal 2020. As of August 31, 2021, up to $2,640,548 in shares of NTIC common stock remained available for
repurchase under NTIC’s stock repurchase program.
Item 6.
[RESERVED]
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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.
Impact of the COVID-19 Pandemic. This section provides a brief summary of the impacts to date and
potential future impacts of the COVID-19 pandemic.
Worldwide Supply Chain Disruptions. This section provides a brief summary of the impacts to date and
potential future impacts of worldwide supply chain disruptions.
Financial Overview. This section provides a brief summary of NTIC’s financial results and financial
condition for fiscal 2021 compared to 2020.
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 65 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 45 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.
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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), starting September 1, 2021 its wholly-owned subsidiary in India, Harita-NTI
Ltd., 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), certain majority-owned and wholly-owned
subsidiaries, and joint venture arrangements in North America, Europe, and Asia. NTIC also sells products directly to
its European 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 in
a continuously increasing number of 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 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 and majority-owned subsidiaries in India and Sri Lanka, and through distributors and certain
joint ventures.
NTIC’s Subsidiaries and Joint Venture Network
NTIC has ownership interests in 10 operating subsidiaries in North America, South America, Europe, and Asia, which
are listed in “Part I. Item 1. Business” of this annual report on Form 10-K. The results of these subsidiaries are fully
consolidated in NTIC’s consolidated financial statements, except for Harita-NTI Limited, which will be consolidated
commencing September 1, 2021. On September 21, 2021, NTIC announced that it acquired the remaining 50%
ownership interest in its Indian joint venture, Harita-NTI Limited, for $6.25 million in cash, effective as of September 1,
2021.
NTIC participates in 19 active joint venture arrangements in North America, Europe, and Asia. NTIC has historically
funded its investments in joint ventures with cash generated from operations. 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
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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 as of August 31, 2021. NTIC considers EXCOR, ACOBAL SAS, ZERUST OY, ZERUST SPECIALTY TECH
CO. LTD. and its former joint venture, Harita-NTI Limited, to be individually significant to NTIC’s consolidated assets
and income as of August 31, 2020. Therefore, NTIC provides certain additional information regarding these entities in
the notes to NTIC’s consolidated financial statements and in this section of this report. Additional information related to
NTIC’s joint ventures is available in “Part I. Item 1. Business” of this annual report on Form 10-K.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) outbreak a global
pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and
shipping, created significant volatility and disruption in financial markets and has resulted in an economic recession.
The outbreak and continuing rapid spread of COVID-19 has resulted in a substantial curtailment of business activities
worldwide and is causing weakened economic conditions, both in the United States and abroad.
As part of efforts to contain the spread of COVID-19, federal, state, local and foreign governments imposed various
restrictions on the conduct of business and travel, some of which remain in place in whole or in part and some of which
have been or may be reinstated. Government restrictions, such as stay-at-home orders, quarantines and worker
absenteeism as a result of COVID-19, led to a significant number of business closures and slowdowns. These business
closures and slowdowns adversely impacted and may continue to adversely impact NTIC directly and caused some of
NTIC’s customers and suppliers to operate at a fraction of their capacities or wholly lock down, which disrupted and
may continue to disrupt NTIC’s sales and production.
As the events surrounding the COVID-19 pandemic unfolded, NTIC’s primary focus was, and continues to be, the
health, safety and wellbeing of its employees, customers and suppliers. In order to continue its operations, as permitted
by respective state, local and foreign governments, NTIC has adopted numerous safety measures in accordance with
U.S. Centers for Disease Control and Prevention, World Health Organization, and federal, state, local and foreign
guidance in order to protect its employees, customers and suppliers. These safety measures include, but are not limited
to, adhering to social distancing protocols, enabling the majority of its employees to work from home, suspending non-
essential travel, disinfecting facilities and workspaces extensively and frequently, suspending all non-essential visitors
and requiring employees who must be present at NTIC’s facilities to wear face coverings. NTIC expects to continue
such safety measures for the foreseeable future and may take further actions, or adapt these existing policies, as
government authorities may require or recommend or as it may determine to be in the best interests of its employees,
customers and suppliers.
NTIC has been balancing its safety-focused approach with the needs of its customers. Government mandated measures
resulting in the substantial curtailment of business activities generally have excluded certain essential businesses and
services, including certain manufacturing. With the exception of the temporary closures of NTIC’s facilities in China
and India during the COVID-19 pandemic in 2020 and again sporadically during 2021, NTIC’s manufacturing activities
are generally considered part of the “critical sector” with respect to state and local government orders. This has allowed
NTIC to continue to receive orders and provide uninterrupted order fulfillment to its customers. However, its facilities
have been operating at a reduced capacity in order to abide by local government requirements and recommendations,
such as social distancing practices, and in response to reduced demand. During fiscal 2021, certain of NTIC’s facilities
were impacted by reduced levels of production, manufacturing inefficiencies due to the reconfiguration of certain of its
manufacturing processes in order to implement social distancing protocols and reduced demand. NTIC has engaged and
continues to engage in communications with its suppliers in an attempt to identify and mitigate supply chain risks and
40
shipping delays and proactively manage inventory levels in order to align production with demand. While domestic and
international governmental measures may be modified or extended, NTIC currently expects that its global facilities will
remain operational, although operating at reduced production capacity at certain of its facilities. However, such
expectation is dependent upon future governmental actions and demand for NTIC’s products, the stability of its global
supply chain and the ability of carriers to transport supplies to its facilities and products to its customers.
As a result of the global economic slowdown caused by the COVID-19 pandemic, NTIC experienced softened demand
in various regions and markets during fiscal 2021, which had an adverse effect on NTIC’s operating results and
financial condition. In addition, NTIC has experienced supply shortages and price increase on raw materials which have
adversely affected its margins. NTIC has also experienced increased shipping costs and shipping delays as a result of
freight container shortages. These issues are expected to persist into fiscal 2022. Due to the international reach of
COVID-19, NTIC’s international joint ventures have also been adversely impacted. It is not possible to predict how
long the pandemic will last or the time that it will take for economic activity to return to prior levels for all business
units.
Any of these events could materially adversely affect NTIC’s business, operating results and financial condition.
Worldwide Supply Chain Disruptions
Worldwide supply chain disruptions, which were initially brought about by the impact of the COVID-19 pandemic,
have persisted despite the recovery in the global economy and financial markets, and these issues are expected to
continue in fiscal 2022. In fiscal 2021, NTIC experienced longer lead times for raw materials, was forced to find new
suppliers of certain raw materials, and experienced raw material cost increases compared to prior fiscal years.
Additionally, NTIC experienced significantly longer shipping times and significant price increases per shipping
container compared to prior fiscal years due to ocean freight capacity issues resulting from increased demand for
shipping and reduced capacity and equipment. These and other issues resulting from worldwide supply chain
disruptions are expected to continue in fiscal 2022 and could continue to have a material adverse effect on NTIC’s
business, operating results and financial condition. The precise financial impact and duration, however, cannot be
reasonably estimated at this time.
Financial Overview
NTIC’s management, including its chief executive officer, who is NTIC’s chief operating decision maker, reports and
manages NTIC’s operations in two reportable business segments based on products sold, customer base, and
distribution center: ZERUST® products and services and Natur-Tec® products.
NTIC’s consolidated net sales increased 18.6% during fiscal 2021 compared to fiscal 2020. NTIC’s consolidated net
sales for fiscal 2021 were positively affected by increased demand globally as a result of the recovery from the COVID-
19 pandemic. During fiscal 2021, 80.6% of NTIC’s consolidated net sales were derived from sales of ZERUST®
products and services, which increased 32.1% to $45,554,434 during fiscal 2021 compared to $34,474,535 during fiscal
2020. This increase was due to increased sales to new and existing customers in all countries in addition to the recovery
from the COVID-19 pandemic. During fiscal 2021, 19.4% of NTIC’s consolidated net sales were derived from sales of
Natur-Tec® products compared to 27.6% during fiscal 2020. Net sales of Natur-Tec® products decreased 16.9% to
$10,939,385 during fiscal 2021 compared to fiscal 2020 primarily due to a decrease in finished product sales in North
America and at NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India).
Cost of goods sold as a percentage of net sales decreased to 65.4% during fiscal 2021 compared to 66.4% during fiscal
2020 primarily as a result of a decreased percentage of product sales from Natur-Tec® products, which have lower gross
margins than NTIC’s traditional ZERUST® industrial products and services or its oil and gas products, partially offset
by price increases on raw materials used in NTIC’s products.
NTIC’s equity in income from joint ventures increased 74.8% to $7,465,214 during fiscal 2021 compared to $4,270,327
during fiscal 2020. This increase was primarily due to a corresponding 39.0% increase in net sales at the joint ventures,
which were $120,954,550 during fiscal 2021, compared to $87,030,062 during fiscal 2020. The majority of the increase
in sales at the joint ventures is attributable to the increase in net sales at EXCOR, which were $46,522,688 during fiscal
2021, compared to $32,546,402 during fiscal 2020. The increase in the net sales of NTIC’s joint ventures was due
primarily to increased sales to existing customers as a result of increased demand for existing products.
41
NTIC’s total operating expenses increased $1,355,173, or 5.8%, to $24,679,626 during fiscal 2021 compared to
$23,324,453 during fiscal 2020. These increases were primarily due to increased expenses due to the resumption of
travel and other activities as a result of the recovery associated with COVID-19 pandemic and increased research and
development expenses. NTIC spent $4,400,479 in fiscal 2021 in connection with its research and development
activities, compared to $3,979,455 in fiscal 2020.
NTIC had net income attributable to NTIC of $6,281,238, or $0.64 per diluted common share, for fiscal 2021, compared
to net loss attributable to NTIC of $(1,337,709), or $(0.15) per diluted common share, for fiscal 2020. This increase was
primarily a result of increased demand globally as a result of the recovery from the COVID-19 pandemic, although
NTIC anticipates that its earnings may continue to be somewhat adversely affected by the COVID-19 pandemic during
fiscal 2022. Additionally, NTIC anticipates that its quarterly net income or loss will continue to remain subject to
significant volatility primarily due to the financial performance of its subsidiaries and joint ventures, sales of its
ZERUST® products and services into the oil and gas industry, and sales of its Natur-Tec® bioplastics products, which
fluctuate more on a quarterly basis than the traditional ZERUST® business.
NTIC’s working capital, defined as current assets less current liabilities, was $25,230,893 at August 31, 2021, including
$7,680,641 in cash and cash equivalents and $4,634 in available for sale securities, compared to $27,104,746 at August
31, 2020, including $6,403,032 in cash and cash equivalents and $5,544,722 in available for sale securities. NTIC
expects its working capital to decrease at the end of first quarter of fiscal 2022 as compared to August 31, 2021 due to
the $6.25 million payment by NTIC for the remaining 50% ownership interest in Harita-NTI in September 2021.
During fiscal 2020, NTIC’s Board of Directors declared cash dividends of $0.065 per share during its first and second
quarters. On April 23, 2020, NTIC announced the temporary suspension of its quarterly cash dividend pending clarity
on the financial impact of COVID-19 on NTIC. On January 15, 2021, NTIC announced the reinstatement of its
quarterly cash dividend. During fiscal 2021, NTIC’s Board of Directors declared cash dividends of $0.065 per share
during its second, third and fourth quarters. On October 20, 2021, NTIC’s Board of Directors declared a cash dividend
of $0.07 per share of NTIC’s common stock, payable on November 17, 2021 to stockholders of record on November 3,
2021. The declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in
light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in
financing agreements, business conditions, and other factors, including without limitation the effect of COVID-19 on its
business, operating results, and financial condition.
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.
42
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 ventures. 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 NTIC.
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 asset and 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.
43
Results of Operations
Fiscal Year 2021 Compared to Fiscal Year 2020
The following table sets forth NTIC’s results of operations for fiscal 2021 and fiscal 2020.
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 2021
$ 53,470,623
3,023,196
36,920,814
7,465,214
5,964,260
12,016,974
8,262,173
4,400,479
Fiscal 2020
% of
Net
Sales
94.6% $ 45,666,045
1,972,646
31,609,274
4,270,327
4,612,885
10,656,689
8,688,309
3,979,455
5.4%
65.4%
13.2%
10.6%
21.3%
14.6%
7.8%
% of
Net
Sales
95.9%
4.1%
66.4%
9.0%
9.7%
22.4%
18.2%
8.4%
$
Change
$ 7,804,578
1,050,550
5,311,540
3,194,887
1,351,375
1,360,285
(426,136)
421,024
%
Change
17.1%
53.5%
16.8%
74.8%
29.3%
12.8%
(4.9)%
10.6%
Net Sales. NTIC’s consolidated net sales increased 18.6% to $56,493,819 during fiscal 2021 compared to $47,638,691
during fiscal 2020. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased
17.1% to $53,470,623 during fiscal 2021 compared to $45,666,045 during fiscal 2020. Net sales to joint ventures
increased 53.3% to $3,023,196 during fiscal 2021 compared to $1,972,646 during fiscal 2020. These increases were
primarily a result of increased demand globally as a result of the recovery from the COVID-19 pandemic.
The following table sets forth NTIC’s net sales by product segment for fiscal 2021 and fiscal 2020:
Fiscal 2021
Total ZERUST® sales ....................... $ 45,554,434
Total Natur-Tec® sales .....................
10,939,385
Total net sales ................................... $ 56,493,819
Fiscal 2020
$ 34,474,535
13,164,156
$ 47,638,691
$
Change
$ 11,079,899
(2,224,771)
$ 8,855,128
%
Change
32.1%
(16.9)%
18.6%
During fiscal 2021, 80.6% of NTIC’s consolidated net sales were derived from sales of ZERUST® products and
services, which increased 32.1% to $45,554,434 compared to $34,474,535 during fiscal 2020. 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. Beginning in fiscal 2021, the
automotive industry experienced a microchip shortage that has decreased the production of vehicles. This decreased
production has decreased demand for ZERUST® products and services within the automotive industry. The microchip
shortage and the corresponding decrease in the production of vehicles is anticipated to continue into fiscal 2022. The
increase in NTIC’s consolidated net sales derived from sales of ZERUST® products and services was primarily a result
of increased demand across all geographies, partially offset by decreased demand from the automotive industry.
The following table sets forth NTIC’s net sales of ZERUST® products for fiscal 2021 and fiscal 2020:
ZERUST® industrial net sales ................... $
ZERUST® joint venture net sales ..............
ZERUST® oil & gas net sales ....................
Total ZERUST® net sales ................... $
38,737,771
3,023,196
3,793,467
45,554,434
$
$
29,719,015
1,972,646
2,782,874
34,474,535
Fiscal 2021
Fiscal 2020
$
Change
$ 9,018,756
1,050,551
1,010,592
$ 11,079,899
%
Change
30.3%
53.3%
36.3%
32.1%
NTIC’s total ZERUST® net sales increased during fiscal 2021 compared to fiscal 2020 primarily due to overall
increased demand for ZERUST® industrial products and services. 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.
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ZERUST® oil and gas net sales increased 36.3% during fiscal 2021 compared to fiscal 2020 primarily as a result of new
opportunities with new customers, partially offset by reduced demand as a result of the COVID-19 pandemic. NTIC
anticipates that its sales of ZERUST® products and services into the oil and gas industry will continue to remain subject
to significant volatility from quarter to quarter as sales are recognized, specifically due to the volatility of oil prices.
Demand for oil and gas products around the world depends primarily on market acceptance and the reach of NTIC’s
distribution network. Because of the typical size of individual orders and overall size of NTIC’s net sales derived from
sales of oil and gas products, the timing of one or more orders can materially affect NTIC’s quarterly sales compared to
prior fiscal year quarters.
During fiscal 2021, 19.4% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products, compared
to 27.6% during fiscal 2020. Sales of Natur-Tec® products decreased 16.9% to $10,939,385 during fiscal 2021
compared to $13,164,156 during fiscal 2020. The COVID pandemic has adversely impacted demand for Natur-Tec®
products from across the apparel industry, as well as many large users of bioplastics, including college campuses,
stadiums, arenas, restaurants, and corporate office complexes. NTIC currently expects these customers will be some of
the last businesses to fully re-open, and accordingly, anticipates that the COVID-19 pandemic will continue to
significantly adversely affect sales of Natur-Tec® products during fiscal 2022.
Cost of Goods Sold. Cost of goods sold increased 16.8% in fiscal 2021 compared to fiscal 2020 primarily as a result of
the increase in net sales, as described above. Cost of goods sold as a percentage of net sales decreased to 65.4% during
fiscal 2020 compared to 66.4% during fiscal 2020 primarily due to changes in product mix. Sales from Natur-Tec®
products have lower gross margins than NTIC’s traditional ZERUST® oil and gas products. This decrease was partially
offset by price increases on raw materials used in NTIC’s products.
Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures increased 74.8% to $7,465,214
during fiscal 2021 compared to $4,270,327 during fiscal 2020. This increase was primarily a result of increased
profitability of the joint ventures, which fluctuates based on net sales, during the fiscal 2021. Of the total equity in
income from joint ventures, NTIC had equity in income from joint ventures of $4,400,403 attributable to EXCOR
during fiscal 2021 compared to $2,622,423 attributable to EXCOR during fiscal 2020. NTIC had equity in income of
all other joint ventures of $3,064,811 during fiscal 2021 compared to $1,647,904 during fiscal 2020.
Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of
$5,964,260 during fiscal 2021 compared to $4,612,885 during fiscal 2020, representing an increase of 29.3%, or
$1,351,375. Fee income for services provided to joint ventures is traditionally a function of the sales made by NTIC’s
joint ventures; however, at various joint ventures, the fee income for services is a fixed amount that does not fluctuate
with the increases in sales which was experienced by certain joint ventures during fiscal 2021. Total net sales of
NTIC’s joint ventures increased $33,924,488 to $120,954,550 during fiscal 2021 compared to $87,030,062 during fiscal
2020, representing an increase of 39.0%. 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 $920,902 were attributable to EXCOR during fiscal 2021 compared to $843,752 attributable to
EXCOR during fiscal 2020.
Selling Expenses. NTIC’s selling expenses increased 12.8% in fiscal 2021 compared to fiscal 2020 due primarily to
increased travel expenses and personnel expense compared to the expenses incurred during fiscal 2020. Selling
expenses as a percentage of net sales decreased to 21.3% for fiscal 2021 compared to 22.4% in fiscal 2020 primarily
due to the fluctuations in net sales and selling expenses, as previously described.
General and Administrative Expenses. NTIC’s general and administrative expenses decreased 4.9% in fiscal 2021
compared to fiscal 2020 primarily due to decreased travel expenses and other expenses due to work from home
arrangements necessitated by the COVID-19 pandemic. As a percentage of net sales, general and administrative
expenses decreased to 14.6% for fiscal 2021 from 18.2% for fiscal 2020 primarily due to the decrease in general and
administrative expenses, as well as the increase in net sales, as previously described.
Research and Development Expenses. NTIC’s research and development expenses increased 10.6% in fiscal 2021
compared to fiscal 2020 primarily due to increased personnel and development efforts, partially offset by decreased
travel expenses and other expenses due to work from home arrangements necessitated by the COVID-19 pandemic.
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Interest Income. NTIC earned net interest income of $151,875 in fiscal 2021 compared to $167,733 in fiscal 2020 due
primarily to volatile changes to the invested cash in a conservative bond fund.
Income Before Income Tax Expense. NTIC had income before income tax expense of $8,458,642 for fiscal 2021
compared to income before income tax expense of $1,739,875 for fiscal 2020.
Income Tax Expense. Income tax expense was $1,461,905 during fiscal 2021 compared to $2,674,635 during fiscal
2020 for an effective tax rate of 17.3% and 153.7%, respectively. Income tax expense during fiscal 2020 includes
$1,626,251 related to the impact of a tax valuation allowance recorded with respect to NTIC’s domestic deferred tax
assets during fiscal 2020.
Net Income (Loss) Attributable to NTIC. Net income attributable to NTIC was $6,281,238, or $0.64 per diluted
common share, for fiscal 2021 compared to a net loss attributable to NTIC of $(1,337,709), or $(0.15) per diluted
common share, for fiscal 2020, an increase of $7,618,947 or $0.79 per diluted share. This increase was primarily the
result of increased income from joint venture operations and increased gross profit during fiscal 2021.
NTIC anticipates that its earnings will be adversely affected by the COVID-19 pandemic throughout fiscal 2022 and
that its quarterly net income or loss will continue to remain subject to significant volatility primarily due to the financial
performance of its subsidiaries and joint ventures, sales of its ZERUST® products and services into the oil and gas
industry, and sales of its Natur-Tec® bioplastics products, which fluctuate more on a quarterly basis than the traditional
ZERUST® business.
Other Comprehensive Income – Foreign Currency Translations Adjustment. The changes in the foreign currency
translations adjustment were due to the fluctuation of the U.S. dollar compared to the Euro and other foreign currencies
during fiscal 2021 compared to fiscal 2020.
Liquidity and Capital Resources
Sources of Cash and Working Capital. As of August 31, 2021, NTIC’s working capital, defined as current assets less
current liabilities, was $25,230,893, including $7,680,641 in cash and cash equivalents and $4,634 in available for sale
securities, compared to working capital of $27,104,746, including $6,403,032 in cash and cash equivalents and
$5,544,722 in available for sale securities, as of August 31, 2020. The decrease in NTIC’s working capital is primarily
the result of the purchase of property and equipment partially offset by an increase of dividends received from joint
ventures and the collection of outstanding receivables.
As of August 31, 2021, NTIC has a revolving line of credit with PNC Bank of $5.0 million, which was increased from
$3.0 million effective as of August 31, 2021. No amounts were outstanding under the line of credit as of August 31,
2021. Outstanding advances under the line of credit bear interest at the daily London Interbank Offered Rate (LIBOR)
plus 250 basis points (2.50%). The revolving line of credit matures on February 22, 2022. The line of credit is governed
under an amended and restated 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,
NTIC is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of August 31, 2021, NTIC was in
compliance with all debt covenants. As of August 31, 2021, NTIC did not have any letters of credit outstanding with
respect to the letter of credit sub-facility available under the revolving line of credit with PNC Bank.
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 2022, NTIC expects to
continue to invest directly and through its use of working capital in Harita NTI Limited, NTIC China, Zerust Mexico,
NTI Europe, its joint ventures, 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
46
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 2021 was $2,892,940, which
resulted principally from NTIC’s net income, dividends received from joint ventures, stock-based compensation,
depreciation, amortization and increases in accounts payable and accrued liabilities, partially offset by NTIC’s equity in
income from joint ventures and an increase in accounts receivable and prepaid expenses and other. Net cash provided
by operating activities during fiscal 2020 was $4,912,070, which resulted principally from dividends received from joint
ventures, stock-based compensation, depreciation, amortization and deferred income taxes, partially offset by NTIC’s
net loss, equity in income from joint ventures, and decreases in accrued liabilities and accounts payable.
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 and payables. 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. Key external factors include the availability of primary raw materials
and sub-contractor production lead times. NTIC’s typical contractual terms for trade receivables, excluding joint
ventures, are traditionally 30 days and 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 the 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 an increase in trade receivables and an increase in inventory as of August 31, 2021 compared to
August 31, 2020. Trade receivables, excluding joint ventures, as of August 31, 2021 increased $3,056,593 compared to
August 31, 2020, primarily related to an increase in sales.
Outstanding trade receivables, excluding joint ventures balances, as of August 31, 2021 increased by an average of 11
days to an average of 76 days from balances outstanding from these customers as of August 31, 2020.
Outstanding trade receivables from joint ventures as of August 31, 2021 increased $148,908 compared to August 31,
2020 primarily due to the timing of payments. Outstanding balances from trade receivables from joint ventures
decreased by an average of 13 days as of August 31, 2021 to an average of 75 days from an average of 88 days from
balances outstanding from these customers compared to August 31, 2020. The average days outstanding of trade
receivables from joint ventures as of August 31, 2021 were primarily due to the receivable balances at NTIC’s joint
ventures in Indonesia, Thailand and India.
Outstanding receivables for services provided to joint ventures as of August 31, 2021 increased $577,841 compared to
August 31, 2020, and the average days to pay increased from an average of 73 days to an average of 92 days, compared
to August 31, 2020.
Net cash used in investing activities during fiscal 2021 was $103,316, which was primarily the result of the purchase of
available for sale securities, purchases of property and equipment and investments in patents, partially offset by
47
proceeds from the sale of available for sale securities. Net cash used in investing activities during fiscal 2020 was
$2,784,682, which was primarily the result of the purchase of available for sale securities, purchases of property and
equipment and investments in patents, partially offset by proceeds from the sale of available for sale securities.
Net cash used in financing activities for fiscal 2021 was $1,522,209, which resulted from dividends paid on NTIC
common stock and dividends paid to a non-controlling interest, partially offset by proceeds from NTIC’s employee
stock purchase plan and proceeds from stock option exercises. Net cash used in financing activities for fiscal 2020 was
$1,518,005, which resulted from dividends paid on NTIC common stock and a dividend paid to a non-controlling
interest, partially offset by proceeds from NTIC’s employee stock purchase plan.
Share Repurchase Plan. On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to
$3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited privately
negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors at
any time. As of August 31, 2021, 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 2021 or
fiscal 2020.
Cash Dividends. During fiscal 2021, NTIC’s Board of Directors declared cash dividends on the following dates in the
following amounts to holders of record of NTIC’s common stock as of the following record dates:
Declaration Date
January 15, 2021
April 23, 2021
July 21, 2021
Amount
$0.065
$0.065
$0.065
Record Date
February 3, 2021
May 5, 2021
August 4, 2021
Payable Date
February 17, 2021
May 19, 2021
August 18, 2021
On October 20, 2021, NTIC’s Board of Directors declared a cash dividend of $0.07 per share of NTIC’s common stock,
payable on November 17, 2021 to stockholders of record on November 3, 2021.
During fiscal 2020, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts
to holders of record of NTIC’s common stock as of the following record dates:
Declaration Date
October 22, 2019
January 22, 2020
Amount
$0.065
$0.065
Record Date
November 6, 2019
February 5, 2020
Payable Date
November 20, 2019
February 19, 2020
On April 23, 2020, NTIC announced the temporary suspension of its quarterly cash dividend pending clarity on the
financial impact of COVID-19 on NTIC. Therefore, NTIC’s Board of Directors did not declare a cash dividend during
the quarter ended May 31, 2020, the quarter ended August 31, 2020, or the quarter ended November 30, 2020. On
January 15, 2021, NTIC announced the reinstatement of its quarterly cash dividend.
The declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of
conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing
agreements, business conditions, and other factors, including without limitation the effect of COVID-19 on its business,
operating results, and financial condition.
Capital Expenditures and Commitments. NTIC spent $5,532,750 on capital expenditures during fiscal 2021, which
related primarily to the purchase of real estate, a building and equipment in China. On July 7, 2021, NTIC (Shanghai)
Co., Ltd., a wholly-owned subsidiary of NTIC, entered into a Real Estate Purchase and Sales Contract with Shanghai
FASTO Investment Group Limited Company, pursuant to which NTIC (Shanghai) Co., Ltd. agreed to acquire an
approximately 1,950 square meter industrial building and the right to use certain real estate in the Qingpu District of
Shanghai, China for a purchase price of approximately RMB 32.6 million yuan (approximately USD $5.1 million), not
including approximately RMB 10 million yuan (approximately USD $1.6 million) in anticipated renovation, equipment,
transaction and other costs and expenses. The property will be used as the new corporate headquarters of NTIC
(Shanghai) Co., Ltd.
48
NTIC expects to spend an aggregate of approximately $2,200,000 to $2,500,000 on capital expenditures during fiscal
2022, which it expects will relate primarily to anticipated renovation and equipment costs, as described above.
Contractual Obligations. Set forth below is information concerning NTIC’s known contractual obligations as of
August 31, 2021 that are fixed and determinable by year starting with the twelve months ending August 31, 2022.
Contractual
Obligations
Rent obligations ...
Total ..................
Total
399,334
399,334
$
$
Less than
1 Year
$ 282,966
$ 282,966
1-3 Years
$ 116,368
$ 116,368
3-5 Years
$ ---
$ ---
More than
5 Years
---
---
$
$
Payments Due by Period
Inflation and Seasonality
Inflation in the United States and abroad historically has had little effect on NTIC. Although NTIC’s business
historically has not been seasonal, NTIC believes there is now some seasonality in its business. NTIC believes its net
sales in 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.
Any outstanding advances under NTIC’s $5,000,000 amended and restated revolving line of credit with PNC Bank bear
interest at an annual rate based on daily LIBOR plus 2.50%. As of August 31, 2021, NTIC had no borrowings under the
line of credit. This line of credit was increased from $3,000,000 to $5,000,000 effective as of August 31, 2021.
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 18 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
49
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, which are 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 included in this report
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, Natur-Tec Lanka, Zerust Singapore Pte Ltd (Zerust Singapore) and Zerust Vietnam Co. Ltd
(Zerust Vietnam). NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures.
Effective as of September 1, 2021, Harita-NTI Limited will be consolidated in NTIC’s consolidated financial
statements.
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
50
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 NTIC’s revenue is
contracted with customers through one-time purchase orders and short-term contracts, NTIC 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 NTIC’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 NTIC. 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
51
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 Loss)
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 (loss).
NTIC (excluding NTIC China, Zerust Brazil, Natur-Tec India, Natur-Tec Lanka, NTI Asean, Zerust Singapore, Zerust
Vietnam, 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.
52
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.
Income Taxes
NTIC 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.
NTIC records net deferred tax assets to the extent NTIC believes these assets will more likely than not be realized. In
making such a determination, NTIC 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, including the prior three-year history. In the event NTIC determines that it would be able to realize its
deferred income tax assets in the future in excess of their net recorded amount, NTIC makes an adjustment to the
deferred tax asset valuation allowance, which would reduce the provision for income taxes.
Recent Accounting Pronouncements
See Note 2 to NTIC’s consolidated financial statements for a discussion of recent accounting pronouncements.
53
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.
Any outstanding advances under NTIC’s $5,000,000 amended and restated revolving line of credit with PNC Bank bear
interest at an annual rate based on daily LIBOR plus 2.50%. As of August 31, 2021, NTIC had no borrowings under the
line of credit. This line of credit was increased from $3,000,000 to $5,000,000 effective as of August 31, 2021.
54
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following items are included herein:
56
Report of Independent Registered Public Accounting Firm ....................................................................................
57
Consolidated Balance Sheets as of August 31, 2021 and 2020 ................................................................................
58
Consolidated Statements of Operations for the years ended August 31, 2021 and 2020 .........................................
59
Consolidated Statements of Comprehensive Income (Loss) for the years ended August 31, 2021 and 2020 ..........
60
Consolidated Statements of Equity for the years ended August 31, 2021 and 2020 ................................................
Consolidated Statements of Cash Flows for the years ended August 31, 2021 and 2020 ........................................
61
Notes to Consolidated Financial Statements ............................................................................................................ 62-80
Page
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of
Northern Technologies International Corporation and Subsidiaries:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Northern Technologies International
Corporation and Subsidiaries (the "Company") as of August 31, 2021 and 2020, the related consolidated
statements of operations, comprehensive income (loss), equity, and cash flows, for each of the two years in the
period ended August 31, 2021, and the related notes (collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of August 31, 2021 and 2020, and the results of its operations and its cash
flows for each of the two years in the period ended August 31, 2021, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility
is to express an opinion on the Company's consolidated financial statements 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits 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. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,
or complex judgments. We determined that there are no critical audit matters.
/s/ Baker Tilly US, LLP
We have served as the Company's auditor since 2004.
Minneapolis, Minnesota
November 19, 2021
56
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AUGUST 31, 2021 AND 2020
August 31, 2021
August 31, 2020
$ 7,680,641
4,634
$
6,403,032
5,544,722
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Available for sale securities
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts
of $382,000 as of August 31, 2021 and $90,000 as of August 31, 2020
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
Operating lease right of use asset
Total other assets
Total assets
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Income taxes payable
Accrued liabilities:
Payroll and related benefits
Other
Current portion of operating lease
Total current liabilities
LONG-TERM LIABILITIES:
Operating lease, less current portion
Total long-term 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, 2021 and August 31, 2020;
issued and outstanding 9,184,811 and 9,099,990, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Stockholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
8,072,212
475,900
927,286
19,907
10,961,796
797,495
33,202,350
7,110,789
24,090,826
209,729
802,006
658,788
25,761,349
66,074,488
3,205,241
310,922
1,314,978
880,118
386,345
6,097,604
272,443
272,443
$
$
11,128,805
624,808
1,505,127
386,574
11,114,207
1,302,293
33,747,089
11,821,458
27,623,768
92,554
709,572
376,438
28,802,332
74,370,879
4,290,972
178,923
2,879,468
894,497
272,336
8,516,196
104,102
104,102
$
$
$
—
—
183,696
18,736,268
46,973,092
(3,525,030)
62,368,026
3,382,555
65,750,581
74,370,879
182,000
17,415,043
42,472,810
(3,410,438)
56,659,415
3,045,026
59,704,441
66,074,488
$
See notes to consolidated financial statements.
57
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2021 AND 2020
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
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 (LOSS)
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS
NET INCOME (LOSS) ATTRIBUTABLE TO NTIC
NET INCOME (LOSS) ATTRIBUTABLE TO NTIC PER COMMON
SHARE:
Basic
Diluted
WEIGHTED AVERAGE COMMON SHARES
ASSUMED OUTSTANDING:
Basic
Diluted
$
$
$
$
2021
2020
$
53,470,623
3,023,196
56,493,819
36,920,814
19,573,005
7,465,214
5,964,260
13,429,474
12,016,974
8,262,173
4,400,479
24,679,626
45,666,045
1,972,646
47,638,691
31,609,274
16,029,417
4,270,327
4,612,885
8,883,212
10,656,689
8,688,309
3,979,455
23,324,453
8,322,853
1,588,176
151,875
(16,086)
8,458,642
1,461,905
6,996,737
167,733
(16,034)
1,739,875
2,674,635
(934,760)
715,499
402,949
6,281,238
$
(1,337,709)
0.69
0.64
$
$
(0.15)
(0.15)
9,116,472
9,874,139
9,096,981
9,096,981
CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.20
$
0.13
See notes to consolidated financial statements.
58
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED AUGUST 31, 2021 AND 2020
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS) – FOREIGN
CURRENCY TRANSLATION ADJUSTMENT
COMPREHENSIVE INCOME
2021
6,996,737
$
2020
(934,760)
$
(92,562)
1,150,138
6,904,175
215,378
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO
NON-CONTROLLING INTERESTS
(737,529)
(370,347)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC
$
6,166,646
$
(154,969)
See notes to consolidated financial statements.
59
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED AUGUST 31, 2021 AND 2020
STOCKHOLDERS’ EQUITY
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Non-
Comprehensive
Controlling
Loss
Interests
Total
Equity
BALANCE AT AUGUST 31, 2019
9,086,816
$181,736
$16,013,338
$ 44,992,719
$ (4,593,178)
$ 3,074,679
$ 59,669,294
Stock options exercised
Stock issued for employee stock
purchase plan
Stock option expense
Dividends paid to stockholders
Dividend received by non-controlling
interest
Net income (loss)
Other comprehensive income (loss)
6,823
6,351
—
—
—
—
—
137
127
—
—
—
—
—
(137)
64,068
1,337,774
—
—
—
—
—
—
—
(1,182,200)
—
(1,337,709)
—
—
—
—
—
—
—
1,182,740
—
—
—
—
—
64,195
1,337,774
-
(1,182,200)
(400,000)
402,949
(32,602)
(400,000)
(934,760)
1,150,138
BALANCE AT AUGUST 31, 2020
9,099,990
$182,000
$17,415,043
$ 42,472,810
$ (3,410,438)
$ 3,045,026
$ 59,704,441
Stock options exercised
Stock issued for employee stock
purchase plan
Stock option expense
Dividends paid to stockholders
Dividend received by non-controlling
interest
Net income
Other comprehensive income (loss)
74,950
9,871
—
—
—
—
—
1,499
197
—
—
—
—
—
582,915
74,136
664,174
—
—
—
—
—
—
—
(1,780,956)
—
6,281,238
—
—
—
—
—
—
—
(114,592)
—
—
—
—
584,414
74,333
664,174
-
(1,780,956)
(400,000)
715,499
22,030
(400,000)
6,996,737
(92,562)
BALANCE AT AUGUST 31, 2021
9,184,811
$183,696
$18,736,268
$ 46,973,092
$ (3,525,030)
$ 3,382,555
$ 65,750,581
See notes to consolidated financial statements.
60
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2021 AND 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
2021
2020
$
6,996,737
$
(934,760)
Stock-based compensation
Depreciation expense
Amortization expense
Change in allowance for doubtful accounts
Equity in income from joint ventures
Dividends received from joint ventures
Loss on disposal of property and patents
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:
Proceeds from the sale of property and equipment
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
Dividends paid on NTIC common stock
Proceeds from employee stock purchase plan
Proceeds from exercise of stock options
Net cash used in financing activities
664,174
905,299
203,088
262,000
(7,465,214)
3,665,365
-
114,620
(3,030,655)
(148,908)
(577,841)
(362,438)
58,314
(487,771)
866,597
(160,231)
1,389,804
2,892,940
-
(800,000)
6,340,088
(5,532,750)
(110,654)
(103,316)
(400,000)
(1,780,956)
74,333
584,414
(1,522,209)
1,337,774
836,601
231,624
25,000
(4,270,327)
5,672,099
173,810
1,424,529
1,680,611
348,573
340,714
424,002
(435,712)
279,312
(1,229,510)
302,641
(1,294,911)
4,912,070
2,190
(4,000,000)
2,020,536
(711,412)
(95,996)
(2,784,682)
(400,000)
(1,182,200)
64,195
—
(1,518,005)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
10,194
(63,109)
1,277,609
6,403,032
546,274
5,856,758
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
7,680,641
$
6,403,032
See notes to consolidated financial statements.
61
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 2021 AND 2020
1.
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 65 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 45 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 18 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.
Impact of COVID-19 Pandemic – In March 2020, the World Health Organization declared the novel coronavirus (COVID-
19) outbreak a global pandemic. As a result of the COVID-19 pandemic and related government mandated restrictions on
the Company’s business as well as the businesses of its joint ventures, customers and suppliers, disruption to the
Company’s business and the manufacture and sale of its products and services has occurred and is expected to continue into
fiscal 2022. In fiscal year 2021, the Company was impacted by shipping issues, including freight container shortages,
shipping delays, and increased costs, and supply chain issues, including longer lead times and raw material cost increases.
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), and its wholly owned subsidiaries Zerust Singapore Pte Ltd (Zerust Singapore) and Zerust Vietnam Co. Ltd (Zerust
Vietnam). NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures. Effective as of
September 1, 2021, Harita-NTI Limited (Harita-NTI) will be consolidated in the Company’s consolidated financial
statements since the Company purchased the remaining 50% ownership interest of Harita-NTI effective as of September 1,
2021.
Non-Controlling Interests – The Company owns 75% of Natur-Tec India, 75% of Natur Tec Lanka, 85% of Zerust Brazil,
60% of NTI Asean, 60% of Zerust Singapore Pte Ltd, and 60% of Zerust Vietnam Co. Ltd. The remaining ownership of
the consolidated entities are 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
results 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.
62
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.
When determining recognition of revenue arrangements 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.
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.
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. 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 consolidated 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’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.
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
63
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 $382,000 as of August 31, 2021 and $90,000 as of August 31, 2020. 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
64
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, 2021 or 2020.
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 agreements 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.
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, 2021 and 2020. 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, in
operating activities on the consolidated statements of cash flows.
65
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.
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. The Company
employs a systematic methodology on a quarterly basis that considers available quantitative and qualitative evidence in
evaluating potential impairment of our investments. If the cost of an 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. When evaluating assets
for impairment, the Company groups long-lived assets with other assets and liabilities at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
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 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, Zerust Singapore, Zerust Vietnam, 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, Zerust Singapore, Zerust
Vietnam, 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.
66
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.
2.
ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13,
Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on
financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No.
2019-04 and in May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which amended the
standard. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of
financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to
estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at
amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities,
net investments in leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Entities are required
to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is adopted. The Company is still evaluating the impact of this ASU.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has
adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will
have a material impact on the Company’s consolidated financial position or operating results.
67
3.
INVENTORIES
Inventories consisted of the following:
Production materials
Finished goods
4.
PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
Land
Buildings and improvements
Machinery and equipment
Less accumulated depreciation
5.
PATENTS AND TRADEMARKS, NET
Patents and trademarks, net consisted of the following:
Patents and trademarks
Less accumulated amortization
August 31, 2021
$ 4,453,688
6,660,519
$ 11,114,207
$
August 31, 2020
3,866,791
7,095,005
$ 10,961,796
August 31, 2021
$ 310,365
13,149,258
5,453,679
18,913,302
(7,091,844)
$ 11,821,458
August 31, 2020
310,365
8,167,783
4,940,912
13,419,060
(6,308,271)
7,110,789
$
$
August 31, 2021
$ 3,018,507
(2,308,935)
$ 709,572
August 31, 2020
2,907,852
(2,105,846)
802,006
$
$
Patent and trademark costs are amortized over seven years. Costs incurred related to patents and trademarks are capitalized
until filed and approved, at which time the amounts capitalized to date are amortized, and any further costs, including
maintenance costs, are expensed as incurred. Amortization expense was $203,088 and $231,624 for the years ended
August 31, 2021 and 2020, respectively. Amortization expense is estimated to be $190,000 in each of the next four fiscal
years.
6.
INVESTMENTS IN JOINT VENTURES
The consolidated financial statements of the Company’s foreign joint ventures are initially prepared using the accounting
principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint ventures
reported in the below tables and the accompanying consolidated financial statements have subsequently been adjusted to
conform with accounting principles generally accepted in the United States of America in all material respects. All material
profits on sales recorded that remain on the consolidated balance sheet from the Company to its joint ventures and from
joint ventures to other joint ventures have been eliminated for financial reporting purposes.
The Company considers the Company’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte
GmbH (EXCOR) to be individually significant to the Company’s consolidated assets and income as of August 31, 2021.
The Company considers the Company’s joint venture EXCOR and the following other joint ventures in France, Finland,
India and Thailand, respectively, to be individually significant to the Company’s consolidated assets and income as of
August 31, 2020: ACOBAL SAS, ZERUST OY, HARITA-NTI LIMITED and ZERUST SPECIALTY TECH CO. LTD.
Harita-NTI Limited became a wholly owned subsidiary of the Company effective as of September 1, 2021. Financial
68
information from the audited and unaudited financial statements of EXCOR and the Company’s joint ventures in France,
Finland, India and Thailand, as well as 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
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
As of August 31, 2021
Total
EXCOR
OTHER
$69,394,796 $33,886,655 $35,508,141
73,814,402
36,211,520
37,602,882
16,366,398
5,386,377
10,980,021
1,455,524
-
1,455,524
55,992,480
30,825,144
25,167,336
27,623,768
15,412,574
12,211,194
24,702,778
14,697,490
10,005,288
Fiscal Year Ended August 31, 2021
Total
EXCOR
$120,954,550 $46,522,688 $74,431,862
27,981,629
25,389,981
6,122,536
8,798,995
53,371,610
14,921,531
OTHER
7,465,214
4,400,403
3,064,811
3,665,365
1,809,900
1,855,465
Total
EXCOR
FRANCE FINLAND
INDIA
THAILAND OTHER
As of August 31, 2020
$ 55,825,418 $ 25,742,619 $4,099,160 $1,955,879 $4,010,855 $4,022,399 $15,994,506
4,055,451 16,413,073
4,088,235
332,275
3,062,119 11,992,563
4,873,484 2,261,147 4,242,660
415,496 1,007,529
2,073,710
32,999
—
2,799,774 1,845,651 3,202,132
28,449,772
2,424,565
—
26,025,207
60,295,587
11,002,867
365,274
48,927,446
993,332
—
—
24,090,826
13,012,606
1,399,887
922,814
1,603,013
1,531,060
5,621,446
21,855,747 12,981,701
1,399,887
902,814
738,191
1,429,060
4,404,094
Total
EXCOR
Fiscal Year Ended August 31, 2020
INDIA
FRANCE FINLAND
THAILAND OTHER
$ 87,030,062 $ 32,546,402 $8,133,294 $3,088,865 $5,481,303 $ 6,471,831 $31,308,367
2,046,478 11,271,171
1,184,834
3,061,433 1,916,001 2,498,196
697,349
419,728
18,739,471
5,266,541
39,532,750
8,545,473
473,137
503,884
4,270,327
2,622,423
237,490
209,972
349,218
253,192
598,032
5,672,099
4,675,850
—
325,635
261,220
160,074
249,320
The Company did not make any joint venture investments during fiscal 2021 or fiscal 2020.
69
7.
CORPORATE DEBT
The Company has a revolving line of credit with PNC Bank of $5,000,000 at August 31, 2021. As described in more detail
on Note 18 entitled “Subsequent Events,” this line of credit was increased from $3,000,000 to $5,000,000 effective as of
August 31, 2021. No amounts were outstanding under the line of credit as of August 31, 2021 or 2020. Outstanding
advances under the line of credit bear interest at a rate equal to the daily LIBOR plus 2.50%. The line of credit matures on
February 22, 2022. The line of credit is governed under an amended and restated loan agreement. The loan agreement
contains 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, 2021, the Company was in compliance with all debt covenants. As of August 31, 2021, NTIC did not have
any letters of credit outstanding with respect to the letter of credit sub-facility available under the revolving line of credit
with PNC Bank.
As of August 31, 2021, the Company had $104,363 of letters of credit with JP Morgan Chase Bank that are performance
based and set to expire between 2021 and 2022.
8.
STOCKHOLDERS’ EQUITY
During fiscal 2021, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts to
holders of record of the Company’s common stock as of the following record dates:
Declaration Date
January 15, 2021
April 23, 2021
July 21, 2021
Amount
$0.065
$0.065
$0.065
Record Date
February 3, 2021
May 5, 2021
August 4, 2021
Payable Date
February 17, 2021
May 19, 2021
August 18, 2021
During fiscal 2020, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts to
holders of record of the Company’s common stock as of the following record dates:
Declaration Date
October 22, 2019
January 22, 2020
Amount
$0.065
$0.065
Record Date
November 6, 2019
February 5, 2020
Payable Date
November 20, 2019
February 19, 2020
On April 23, 2020, the Company announced the temporary suspension of its quarterly cash dividend pending clarity on the
financial impact of COVID-19 on the Company. Therefore, NTIC’s Board of Directors did not declare a cash dividend
during the quarter ended May 31, 2020, the quarter ended August 31, 2020, or the quarter ended November 30, 2020. On
January 15, 2021, the Company announced the reinstatement of its quarterly cash dividend.
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, 2021, up
to $2,640,548 of value in shares of common stock remained available for repurchase under the stock repurchase program.
During fiscal 2021, the Company did not repurchase or retire any shares of its common stock. During fiscal 2021, stock
options to purchase an aggregate of 77,645 shares of common stock were exercised at a weighted average exercise price of
$8.18 per share; some of the options were exercised on a cashless basis, resulting in the net issuance of 74,950 shares of
common stock.
During fiscal 2020, the Company did not repurchase or retire any shares of its common stock. During fiscal 2020, stock
options to purchase an aggregate of 11,975 shares of common stock were exercised at a weighted average exercise price of
$5.13 per share; some of the options were exercised on a cashless basis, resulting in the net issuance of 6,823 shares of
common stock.
70
9.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of
common shares outstanding. Diluted net income (loss) per share assumes the exercise of stock options using the treasury
stock method, if dilutive.
The following is a reconciliation of the net income (loss) per share computation for fiscal 2021 and fiscal 2020:
Numerator:
Net income (loss) attributable to NTIC
August 31, 2021
6,281,238
$
August 31, 2020
(1,337,709)
$
Denominator:
Basic-weighted shares outstanding
Weighted shares assumed upon exercise of
stock options
Diluted – weighted shares outstanding
9,116,472
757,667
9,874,139
9,096,981
-
9,096,981
Basic net income (loss) per share:
Diluted net income (loss) per share:
$
$
0.69
0.64
$
$
(0.15)
(0.15)
The dilutive impact summarized above relates to the periods when the average market price of the Company’s common
stock exceeded the exercise price of the potentially dilutive option securities granted. Net income per common share was
based on the weighted average number of common shares outstanding during the periods when computing the basic net
income per share. When dilutive, stock options are included as equivalents using the treasury stock market method when
computing the diluted net income per share. Excluded from the computation of diluted net income per share as of August
31, 2021 were options outstanding to purchase 136,221 shares of common stock. Excluded from the computation of diluted
net income per share as of August 31, 2020 were options outstanding to purchase 1,127,968 shares of common stock due to
the net loss for the period.
10.
STOCK-BASED COMPENSATION
The Company has three stock-based compensation plans under which stock options or other stock-based awards have been
granted: the Northern Technologies International Corporation Amended and Restated 2019 Stock Incentive Plan (the 2019
Plan), the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007
Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the 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. On January 15,
2021, the Company’s stockholders approved certain amendments to the 2019 Plan, including an increase in the number of
shares of common stock available for issuance under the plan by an additional 800,000 shares. Subject to adjustment as
provided in the 2019 Plan, up to a maximum of 1,600,000 shares of the Company’s common stock are issuable under the
2019 Plan. Options granted generally have a term of ten years and become exercisable over a one- or three- year period
beginning on the one-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the
market value of the Company’s common stock on the date of grant. The Company issues new shares upon the exercise of
options. During the fiscal years ended August 31, 2021 and 2020, the Company granted stock options under the 2019 Plan
to purchase an aggregate of 419,874 and 300,770 shares of its common stock to various employees and directors,
respectively. As of August 31, 2021, 879,356 shares of common stock remained available 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
71
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 5,225 and 2,754 shares on March 1, 2021 and 2020,
respectively, and 4,646 and 3,597 shares on September 1, 2020 and 2019, respectively, under the ESPP. As of August 31,
2021, 74,822 shares of common stock remained available for sale under the ESPP.
The fair value of option grants is determined at the date of grant using the Black-Scholes option pricing model with the
assumptions listed below. The 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 $664,174 and $1,337,774 during fiscal 2021 and fiscal 2020, respectively, related to
the options that vested during such time. As of August 31, 2021, the total compensation cost for non-vested options not yet
recognized on the Company’s consolidated statements of operations was $666,667, which is expected to be recognized
during fiscal 2022 and fiscal 2023, based on outstanding options as of August 31, 2021. Future option grants will impact
the compensation expense recognized. Stock-based compensation expense is included in general and administrative
expense on the consolidated statements of operations.
The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model with the
following assumptions and results for the grants:
Dividend yield
Expected volatility
Expected life of option
Weighted average risk-free interest rate
Fiscal Year 2021
1.65%
45.4%
10 years
0.77%
Fiscal Year 2020
2.41%
45.2%
10 years
1.40%
Stock option activity during the periods indicated was as follows:
Outstanding at August 31, 2019
Options granted
Options exercised
Options terminated
Outstanding at August 31, 2020
Options granted
Options exercised
Options terminated
Outstanding at August 31, 2021
Exercisable at August 31, 2021
Number of
Shares (#)
839,173
300,770
(11,975)
—
1,127,968
419,874
(77,645)
(43,546)
1,426,651
1,022,802
Weighted Average
Exercise Price
Aggregate
Intrinsic Value
$
$
$
$
9.13
10.87
5.13
—
9.63
8.24
8.18
9.63
9.30
$ 10,514,418
9.72
$ 7,108,474
The weighted average per share fair value of options granted during fiscal 2021 and fiscal 2020 was $8.24 and $10.87,
respectively. The weighted average remaining contractual life of the options outstanding and exercisable as of August 31,
2021 was 6.20 years and 5.09 years, respectively.
11.
SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s business is organized into
two reportable segments: ZERUST® and Natur-Tec®. The Company has been selling its proprietary ZERUST® rust and
72
corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military, and retail
consumer markets for over 45 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:
ZERUST® net sales
Natur-Tec® net sales
Total net sales
$
Fiscal 2021
45,554,434
10,939,385
$
Fiscal 2020
34,474,535
13,164,156
$
56,493,819
$
47,638,691
The following table sets forth the Company’s cost of goods sold by segment:
Fiscal 2021
Fiscal 2020
Direct cost of goods sold
ZERUST®
$ 26,028,555
Natur-Tec®
7,717,429
Indirect cost of goods sold
3,174,830
Total net cost of goods sold $ 36,920,814
$ 18,717,684
10,168,051
2,723,539
$ 31,609,274
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 for fiscal 2021 and fiscal 2020 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,
2021
22,039,456
$
2020
$
20,218,213
3,023,196
31,431,167
56,493,819
$
1,972,646
25,447,832
47,638,691
$
Net sales by geographic location are based on the location of the customer.
73
Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to
joint ventures, respectively, were as follows:
Germany
Japan
Poland
Sweden
France
Thailand
India
Czech Republic
South Korea
United Kingdom
Finland
Indonesia
Other
Fiscal 2021
$ 920,902
826,403
798,570
528,755
435,032
399,563
392,074
377,395
317,042
316,786
298,663
122,513
230,562
$ 5,964,260
% of Total
Fees for
Services
Provided to
Joint
Ventures
15.4%
13.9%
13.4%
8.9%
7.3%
6.7%
6.6%
6.3%
5.3%
5.3%
5.0%
2.1%
3.8%
100.0%
% of Total
Fees for
Services
Provided to
Joint
Ventures
18.3%
13.6%
12.0%
8.1%
6.7%
7.1%
5.4%
5.9%
5.8%
5.5%
5.6%
2.2%
3.8%
100.0%
Fiscal 2020
$ 843,752
628,889
553,198
372,017
310,661
328,452
250,976
270,032
266,703
255,121
256,375
99,543
177,167
$ 4,612,885
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.
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, 2021
$
5,110,071
453,199
6,258,188
11,821,458
At August 31, 2020
$
$
376,088
172,833
6,561,868
7,110,789
China
Brazil
India
Other
United States
Total net sales
Fiscal Year Ended
August 31, 2021
$ 17,343,623
4,122,781
5,482,989
7,504,970
22,039,456
$ 56,493,819
Fiscal Year Ended
August 31, 2020
13,409,770
2,753,930
5,655,797
5,600,982
20,218,212
47,638,691
$
$
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.
74
All joint venture operations, including equity in income, fees for services and related dividends, are primarily 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 $237,499 and
$234,534 for fiscal 2021 and fiscal 2020, respectively.
13.
RELATED PARTY TRANSACTIONS
During both fiscal 2021 and fiscal 2020, 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
The provision for income taxes for the fiscal years ended August 31, 2021 and 2020 was approximately as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Fiscal Year Ended August 31,
2021
2020
$
— $
39,000
1,307,000
1,346,000
—
—
115,905
115,905
—
23,000
1,226,000
1,249,000
1,501,000
101,000
(176,365)
1,425,635
$
1,461,905 $
2,674,635
Reconciliations of the expected federal income tax at the statutory rate of 21.0% with the provisions for income taxes for
the fiscal years ended August 31, 2021 and 2020 were approximately as follows:
Fiscal Year Ended August 31,
$
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
Expired foreign tax credit
Research and development credit
Valuation allowance
Stock based compensation
Non-controlling interest
Other
$
2021
1,794,000
37,000
(1,560,000)
839,000
—
897,000
(277,000)
(492,000)
75,000
(83,000)
231,905
$
1,461,905
$
75
2020
365,000
23,000
(888,000)
641,000
108,000
—
(368,000)
2,797,000
189,000
(55,000)
(137,365)
2,674,635
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. As a
result of the 2017 tax law changes, U.S. federal income taxes on dividends received from the Company’s foreign
subsidiaries and joint ventures after December 31, 2017 have been generally eliminated. However, the Company continues
to be subject to foreign withholding taxes upon repatriation of any undistributed earnings that are not essentially permanent
in duration. The Company recorded a tax expense of approximately $113,000 and tax benefit of approximately $76,000
during fiscal 2021 and fiscal 2020, respectively, representing changes in the deferred tax liability for 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, 2021 and 2020
was approximately as follows:
Accrued compensation
Inventory costs
Other accrued expenses
Lease liability
Goodwill and other intangible assets
Stock-based compensation
Foreign tax credit carryforward
Other credit and loss carryforwards
Total deferred tax assets
Valuation allowance
Total deferred tax assets after valuation allowance
Property and equipment
Right-of-use asset
Unremitted foreign earnings
Other
Total deferred tax liabilities
Net deferred tax assets
August 31,
2021
539,300
55,100
103,100
84,300
453,000
466,300
4,893,300
5,243,100
11,837,500
(11,447,500)
390,000
(7,300)
(84,300)
(154,900)
(50,900)
(297,400)
92,600
2020
173,500
64,000
74,900
147,500
581,200
397,300
5,790,500
4,824,200
12,053,100
(11,561,700)
491,400
(50,700)
(147,500)
—
(83,400)
(281,600)
209,800
$
$
$
$
As of August 31, 2020, the Company had foreign tax credit carryforwards of $5,790,500 of which $897,000 expired during
August 31, 2021. The remaining $4,893,300 of foreign tax credit carryforwards as of August 31, 2021 will begin to expire
if not utilized prior to August 31, 2022. In addition, the Company had federal and state tax credit carryforwards of
$3,552,500 as of August 31, 2021, which began to expire in fiscal 2022. 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 $1,065,500 for federal net operating loss carryforwards and $377,600 for state net operating loss
carryforwards as of August 31, 2021. The federal net operating loss carryforward has an indefinite carryforward period.
The state net operating loss carryforward will begin to expire if not utilized prior to August 31, 2022. The Company has a
deferred tax asset of $247,500 for foreign net operating loss carryforwards, $223,300 of which has an indefinite
carryforward period.
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 of 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 its domestic deferred tax assets will not be realized due to the absence of objectively verifiable
sources of taxable income. On the basis of this evaluation, the Company has recorded a valuation allowance of $11,447,500
76
and $11,561,700 as of August 31, 2021 and 2020, respectively, to recognize only the portion of the deferred tax assets that
is more likely than not to be realized. The net deferred tax asset as of August 31, 2021 and 2020 relates entirely to non-US
deferred tax assets which are expected to be realized by offset of deferred tax liability for withholding tax on cumulative
undistributed earnings in foreign subsidiaries and joint ventures that the Company determined were not essentially
permanent. The change in the valuation allowance totaled a decrease of $114,000 and an increase of $2,797,000 for the
years ended August 31, 2021 and 2020, respectively.
The following is a tabular reconciliation of the total amounts of approximated unrecognized tax benefits:
Gross unrecognized tax benefits – beginning balance
Gross increases – prior period tax positions
Gross increases – current period tax positions
Gross unrecognized tax benefits – ending balance
Fiscal Year Ended August 31,
2021
278,200
4,400
15,000
297,600
$
$
2020
248,000
15,200
15,000
278,200
$
$
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 related to unrecognized tax benefits and penalties as income tax expense. 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, 2021 and August 31, 2020.
The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions,
as of August 31, 2021, the Company is no longer subject to federal, state, local, or foreign examinations by tax authorities
for years prior to August 31, 2018.
15.
COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company currently has operating leases for various buildings, equipment and vehicles. These leases are under non-
cancelable operating lease agreements with expiration dates between December 31, 2021 and June 30, 2024. The Company
has the option to extend certain leases to five or ten-year term(s) and has the right of first refusal on any sale.
The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time
associated with the lease payments. The Company records its long-term operating leases as right-of-use assets. Upon
initial adoption, using the modified retrospective transition approach, no leases with terms less than 12 months have been
capitalized to the consolidated balance sheet consistent with ASC 842. Instead, these leases are recognized in the
consolidated statement of operations on a straight-line expense throughout the lives of the leases. None of the Company’s
leases contain common area maintenance or security agreements.
The Company has made certain assumptions and judgments when applying ASC 842, the most significant of which is that
the Company elected the package of practical expedients available for transition that allow the Company to not reassess
whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or
existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.
Additionally, the Company did not elect to use hindsight when considering judgments and estimates such as assessments of
lessee options to extend or terminate a lease or purchase the underlying asset. The Company has no contingent rent
agreements.
77
Present Value of Leases
Right-of-use assets, net
Current portion of lease liability
Lease liability, less current portion
Total lease liability
August 31,
2021
$
376,438
272,336
104,102
376,438
$
August 31,
2020
$
658,788
386,345
272,443
658,788
$
As of August 31, 2021, the weighted-average remaining lease term was 1.50 years. The Company’s lease agreements do
not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, as of August
31, 2021, the Company estimates the weighted-average discount rate for its operating leases to be 2.31% to present value
based on the incremental borrowing rate.
Future minimum payments for the next five fiscal years and thereafter as of August 31, 2021 under these long-term
operating leases are as follows (in thousands):
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Total future minimum lease payments
Less amount representing interest
Present value of obligations under operating leases
Less current portion
Long-term operating lease obligations
272,336
84,353
26,700
-
383,389
(6,951)
376,438
(272,336)
$ 104,102
Rent expense under these leases was approximately $386,345 and $131,840 for the years ended August 31, 2021 and 2020.
Annual Bonus Plan
On August 26, 2021, 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, 2022. For fiscal 2022, 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 2022 compared to a pre-established target EBITOI for
fiscal 2022, 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 2022.
On August 27, 2020, the Compensation Committee of the Board of Directors of the Company approved the material terms
of an annual bonus plan for the Company’s executive officers as well as certain officers and employees for the fiscal year
ending August 31, 2021. $2,366,668 was recognized for bonuses for the fiscal year ended August 31, 2021, $266,667 of
the bonus is comprised of stock options granted to management on September 1, 2020 that will be expensed over three
years and $2,100,000 will be paid out in cash and profit sharing subsequent to year end. This is compared to $1,300,000
recognized for bonuses for the fiscal year ended August 31, 2020, $800,000 of the bonus comprised of stock options
granted to management on September 1, 2019 and $500,000 was paid out in cash and profit sharing subsequent to year end.
78
Concentrations
Two joint ventures (consisting of the Company’s joint ventures in the Thailand and Indonesia) accounted for 37.4% of the
Company’s trade joint venture receivables as of August 31, 2021, and five joint ventures (consisting of the Company’s joint
ventures in the United States, Indonesia, Philippines, Russia and India) accounted for 88.2% of the Company’s trade joint
venture receivables as of August 31, 2020.
Legal Matters
From time to time, the Company is subject to various 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, 2021, the
amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the
Company’s consolidated results of operations, financial position, or cash flows.
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
17.
FAIR VALUE MEASUREMENTS
Fiscal Year Ended
August 31,
2021
$ 895,646
16,086
2020
$1,099,635
16,034
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.
79
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, 2021
4,634
Fair value as of
August 31, 2020
5,544,722
Fair Value Measurements
Using Inputs Considered as
Level 1
$
4,634
Level 2
$ —
Level 3
$ —
Fair Value Measurements
Using Inputs Considered as
Level 1
$ 5,544,722
Level 2
$ —
Level 3
$ —
Available for sale securities
$
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, 2021 or August 31, 2020. 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
On October 20, 2021, NTIC’s Board of Directors declared a cash dividend of $0.07 per share of NTIC’s common stock,
payable on November 17, 2021 to stockholders of record on November 3, 2021. 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, including without limitation the
effect of COVID-19 on its business, operating results, and financial condition.
On September 21, 2021, the Company announced that it acquired the remaining 50% ownership interest in its Indian joint
venture, Harita-NTI Limited, for USD $6.25 million in cash, effective as of September 1, 2021. This purchase was funded
with cash available from existing operations.
Also on September 21, 2021, the Company and PNC Bank entered into an Amended and Restated Loan Agreement and
Amended and Restated Security Agreement relating to the Company’s revolving line of credit with PNC Bank and the
Company issued an amended and restated promissory note thereunder, in each case effective as of August 31, 2021, which
together increased the line of credit from $3.0 million to $5.0 million, extended the maturity date to February 22, 2022 and
revised the rate at which amounts outstanding under the line of credit bear interest to equal a per annum rate equal to the
daily LIBOR plus 250 basis points (2.50%). The other material terms of the line of credit, Amended and Restated Loan
Agreement and Amended and Restated Security Agreement with PNC Bank and other related documents were not affected
by these amendments.
80
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’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 NTIC’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, 2021. 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, 2021.
81
This report does not include an attestation report of NTIC’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by NTIC’s independent
registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit NTIC to
provide only management’s report in this report.
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,
2021 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 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
82
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
PART III
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 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 2021, 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.
83
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, 2021. NTIC’s equity compensation plans as of August 31, 2021 were the Northern Technologies International
Corporation Amended and Restated 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 Amended and Restated 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))
1,426,651(1)(2)
—
1,426,651(1)(2)
$9.30
—
$9.30
954,178(3)
—
954,178(3)
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
______________________
(1) Amount includes 706,007 shares of NTIC common stock issuable upon the exercise of stock options outstanding as of
August 31, 2021 under the Northern Technologies International Corporation Amended and Restated 2007 Stock
Incentive Plan and 720,644 shares of NTIC common stock issuable upon the exercise of stock options outstanding as
of August 31, 2021 under the Northern Technologies International Corporation Amended and Restated 2019 Stock
Incentive Plan.
(2) 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 879,356 shares available as of August 31, 2021 for future issuance under Northern Technologies
International Corporation Amended and Restated 2019 Stock Incentive Plan and 74,822 shares available at August 31,
2021 for future issuance under the Northern Technologies International Corporation Employee Stock Purchase Plan.
84
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 ACCOUNTANT FEES AND SERVICES
The information in the “Proposal Three—Ratification of Selection of Independent Registered Public Accounting Firm—
Audit, Audit-Related, Tax and Other Fees” and “Proposal Three—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.
85
PART IV
Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
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)
86
Item No.
4.2
Item
Description of Common Stock of Northern
Technologies International Corporation
10.1
Northern Technologies International Corporation
Amended and Restated 2019 Stock Incentive Plan*
10.2
10.3
Form of Incentive Stock Option Agreement for
Northern Technologies International Corporation
Amended and Restated 2019 Stock Incentive Plan*
Form of Non-Statutory Stock Option Agreement
for Northern Technologies International
Corporation Amended and Restated 2019 Stock
Incentive Plan*
10.4
Northern Technologies International Corporation
Amended and Restated 2007 Stock Incentive Plan*
10.5
10.6
10.7
Form of Incentive Stock Option Agreement for
Northern Technologies International Corporation
Amended and Restated 2007 Stock Incentive Plan*
Form of Non-Statutory Stock Option Agreement
for Northern Technologies International
Corporation Amended and Restated 2007 Stock
Incentive Plan*
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*
Method of Filing
Incorporated by reference to Exhibit 4.2 to
NTIC’s Annual Report on Form 10-K for
the fiscal year ended August 31, 2020 (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 15, 2021 (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)
87
Item No.
10.9
Item
Material Terms of Northern Technologies
International Corporation Annual Bonus Plan*
10.10
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
10.18
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*
Confidential Information, Inventions Assignment,
Noncompetition and Non-Solicitation Agreement
dated as of November 18, 2011 between Northern
Technologies International Corporation and
Matthew C. Wolsfeld*
Amended and Restated Loan Agreement dated as
of August 31, 2021 by and between Northern
Technologies International Corporation and PNC
Bank, National Association
Amended and Restated Revolving Line of Credit
Note dated as of August 31, 2021 issued by
Northern Technologies International Corporation to
PNC Bank, National Association
88
Method of Filing
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)
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 October 23, 2019 (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 10.1 to
NTIC’s Current Report on Form 8-K as
filed with the Securities and Exchange
Commission on September 22, 2021
(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 September 22, 2021
(File No. 001-11038)
Method of Filing
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)
Incorporated by reference to Exhibit 10.1 to
NTIC’s Quarterly Report on Form 8-K as
filed with the Securities and Exchange
Commission on July 8, 2021 (File No. 001-
11038)
Incorporated by reference to Exhibit 10.2 to
NTIC’s Quarterly Report on Form 8-K as
filed with the Securities and Exchange
Commission on July 8, 2021 (File No. 001-
11038)
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)
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished herewith
Furnished herewith
Filed herewith
Item No.
10.19
Item
Consulting Agreement dated January 11, 2017 by
and among Northern Technologies International
Corporation, BioPlastic Polymers LLC, and
Ramani Narayan, Ph.D.
10.20
10.21
Real Estate Purchase and Sales Contract dated July
7, 2021 between NTIC (Shanghai) Co., Ltd. And
Shanghai FASTO Investment Group Limited
Company (Official Chinese Version)
Unofficial English Summary of Real Estate
Purchase and Sales Contract dated July 7, 2021
between NTIC (Shanghai) Co., Ltd. and Shanghai
FASTO Investment Group Limited Company
14.1
Code of Ethics
21.1
Subsidiaries of the Registrant
23.1
Consent of Baker Tilly US, LLP
31.1
31.2
32.1
32.2
101
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
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, 2021, formatted in Inline 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
89
Item No.
104
Item
Cover Page Interactive Data File (formatted as
Inline XBRL and contained in Exhibit 101)
__________________________
*
A management contract or compensatory plan or arrangement.
Method of Filing
Contained in Exhibit 101
Item 16. FORM 10-K SUMMARY
None.
90
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.
SIGNATURES
NORTHERN TECHNOLOGIES INTERNATIONAL
CORPORATION
November 19, 2021
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
/s/ G. Patrick Lynch
G. Patrick Lynch
President and Chief Executive Officer and
Director
(principal executive officer)
November 19, 2021
/s/ Matthew C. Wolsfeld, CPA
Matthew C. Wolsfeld, CPA
Chief Financial Officer and Corporate Secretary
(principal financial and accounting officer)
November 19, 2021
/s/ Richard J. Nigon
Richard J. Nigon
/s/ Nancy E. Calderon
Nancy E. Calderon
/s/ Sarah E. Kemp
Sarah E. Kemp
/s/ Sunggyu Lee, Ph.D.
Sunggyu Lee, Ph.D.
/s/ Ramani Narayan, Ph. D.
Ramani Narayan, Ph.D.
/s/ Konstantin von Falkenhausen
Konstantin von Falkenhausen
Chairman of the Board
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
November 19, 2021
Director
Director
Director
Director
Director
91
Board of Directors
Mr. Richard J. Nigon
Chairman of the Board, NTIC
Senior Vice President, 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
Chief Technologist, Chemtech Innovators LLC
Mr. Konstantin von Falkenhausen
Partner, B Capital Partners AG
Ms. Sarah E. Kemp
Associate Vice President, 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 US, LLP
Minneapolis, MN
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, MN 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
12:00 pm (local time) on Friday, January 21, 2022 at
NTIC’s corporate headquarters:
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:
Northern Technologies International Corporation
4201 Woodland Road
Circle Pines, MN 55014
(763) 225-6600
Broadridge Corporate Issuer Solutions, Inc.
51 Mercedes Way
Edgewood, NY 11717
(855) 588-5049
shareholder@broadridge.com