11.

STOCK-BASED COMPENSATION

The Company has

two

stock-based compensation plans under which stock options and other stock-based awards have been granted, the Northern Technologies International Corporation Amended and Restated

2007

Stock Incentive Plan (the

2007

Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The

2007

Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, stock unit awards, performance awards and stock bonuses to eligible recipients to enable the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company, and to reward those individuals who contribute to the achievement of the Company’s economic objectives. Subject to adjustment as provided in the

2007

Plan, up to a maximum of

800,000

shares of the Company’s common stock are issuable under the

2007

Plan. Options granted under the

2007

Plan generally have a term of

ten

years and become exercisable over a

three

- or

four

-year period beginning on the

one

-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the market value of the Company’s common stock on the date of grant. The Company issues new shares upon the exercise of options. As of

August 31, 2017,

only stock options and stock bonuses had been granted under the

2007

Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is

100,000

shares, subject to adjustment as provided in the ESPP. The ESPP provides for

six

-month offering periods beginning on

September 1

and

March 1

of each year. The purchase price of the shares is

90%

of the lower of the fair market value of common stock at the beginning or end of the offering period. This discount

may

not

exceed the maximum discount rate permitted for plans of this type under Section

423

of the Internal Revenue Code of

1986,

as amended. The ESPP is compensatory for financial reporting purposes. The Company issued

3,029

and

2,438

shares of common stock on

September 1, 2016

and

2015,

respectively, under the ESPP. The Company issued

1,098

and

3,144

shares on

March 1, 2017

and

2016,

respectively, under the ESPP.

The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with the assumptions listed below. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations and the risk-free interest rate is based on U.S. treasury rates appropriate for the expected term. Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of the option is based on the life of the option agreements. Based on these valuations, the Company recognized compensation expense of

$391,664

and

$427,437

during fiscal

2017

and fiscal

2016,

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

August

31,

2017,

the total compensation cost for non-vested options

not

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

$239,400.

Stock-based compensation expense of

$159,600

and

$79,800

is expected to be recognized during fiscal

2018

and

2019,

respectively, based on outstanding options as of

August 31, 2017.

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:

	August 31, 2017			August 31, 2016
Dividend yield		0.00	%		0.00	%
Expected volatility		46.0	%		46.6	%
Expected life of option (years)		10			10
Weighted average risk-free interest rate		1.63	%		1.63	%

Stock option activity during the periods indicated is as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2015		241,734		$	13.72
Options granted		53,447			14.85
Options exercised		0			0.00
Options terminated		(12,000	)		13.38

Outstanding at August 31, 2016		283,181			13.95
Options granted		56,677			13.40
Options exercised		(12,000	)		10.25
Options terminated		(20,000	)		15.21

Outstanding at August 31, 2017		307,858		$	13.93	$	1,238,009

Exercisable at August 31, 2017		221,027		$	13.76	$	942,314

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

2017

and fiscal

2016

was

$7.69

and

$8.48,

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

August 31, 2017

and

2016,

was

6.77

years and

6.46

years, respectively.