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Note 15 - Commitments and Contingencies

12 Months Ended

Aug. 31, 2021

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

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.

Present Value of Leases

		August 31, 2021				August 31, 2020
Right-of-use assets, net		$	376,438			$	658,788

Current portion of lease liability			272,336				386,345
Lease liability, less current portion			104,102				272,443
Total lease liability		$	376,438			$	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			272,336
Fiscal 2023			84,353
Fiscal 2024			26,700
Fiscal 2025			-
Total future minimum lease payments			383,389
Less amount representing interest			(6,951	)
Present value of obligations under operating leases			376,438
Less current portion			(272,336	)
Long-term operating lease obligations		$	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.

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.