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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2022

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) | 41-0857886 (I.R.S. Employer Identification No.)

4201 Woodland Road

P.O. Box 69

Circle Pines, Minnesota 55014

(Address of principal executive offices) (Zip Code)

(763) 225-6600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common stock, par value $0.02 per share | NTIC | Nasdaq Global Market

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ | Accelerated filer ☐
Non-accelerated filer ☒ | Smaller reporting company ☒
| Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 8, 2022, there were 9,232,483 shares of common stock of the registrant outstanding.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

May 31, 2022

TABLE OF CONTENTS

Description |  | Page
PART I—FINANCIAL INFORMATION |
Item 1. | Financial Statements |
| Consolidated Balance Sheets as of May 31, 2022 (unaudited) and August 31, 2021 | 3
| Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended May 31, 2022 and 2021 | 4
| Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended May 31, 2022 and 2021 | 5
| Consolidated Statements of Equity (unaudited) for the Three and Nine Months Ended May 31, 2022 and 2021 | 6
| Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended May 31, 2022 and 2021 | 7
| Notes to Consolidated Financial Statements (unaudited) | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 37
Item 4. | Controls and Procedures | 37
PART II—OTHER INFORMATION |
Item 1. | Legal Proceedings | 38
Item 1A. | Risk Factors | 38
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39
Item 3. | Defaults Upon Senior Securities | 39
Item 4. | Mine Safety Disclosures | 40
Item 5. | Other Information | 40
Item 6. | Exhibits | 40
SIGNATURES | 40

1

This quarterly report on Form 10-Q 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. Financial Information – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements.”

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

As used in this report, references to: (1) “NTIC China” refer to NTIC’s wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd.; (2) “NTI Europe” refer to NTIC’s wholly-owned subsidiary in Germany, NTIC Europe GmbH; (3) “Zerust Mexico” refer to NTIC’s wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V.; (4) “Zerust India” refer to NTIC’s wholly-owned subsidiary in India effective as of September 1, 2021, Harita-NTI Limited; and (5)“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.

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.

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2022 (UNAUDITED)

AND AUGUST 31, 2021 (AUDITED)

|  | May 31, 2022 |  |  | August 31, 2021 |
ASSETS |  |  |  |  |  |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 6,123,269 |  |  | $ | 7,680,641 |
Available for sale securities |  |  | 5,574 |  |  |  | 4,634 |
Receivables: |  |  |  |  |  |  |  |
Trade, excluding joint ventures, less allowance for doubtful accounts of $382,000 as of May 31, 2022 and August 31, 2021 |  |  | 13,834,580 |  |  |  | 11,128,805 |
Trade, joint ventures |  |  | 857,172 |  |  |  | 624,808 |
Fees for services provided to joint ventures |  |  | 1,243,214 |  |  |  | 1,505,127 |
Income taxes |  |  | 418,967 |  |  |  | 386,574 |
Inventories |  |  | 13,866,229 |  |  |  | 11,114,207 |
Prepaid expenses |  |  | 2,619,260 |  |  |  | 1,302,293 |
Total current assets |  |  | 38,968,265 |  |  |  | 33,747,089 |
PROPERTY AND EQUIPMENT, NET |  |  | 12,071,277 |  |  |  | 11,821,458 |
OTHER ASSETS: |  |  |  |  |  |  |  |
Investments in joint ventures |  |  | 22,194,433 |  |  |  | 27,623,768 |
Deferred income taxes |  |  | — |  |  |  | 92,554 |
Patents and trademarks, net |  |  | 717,795 |  |  |  | 709,572 |
Goodwill |  |  | 4,782,376 |  |  |  | — |
Intangible asset, net |  |  | 6,029,650 |  |  |  | — |
Operating lease right of use asset |  |  | 421,601 |  |  |  | 376,438 |
Total other assets |  |  | 34,145,855 |  |  |  | 28,802,332 |
Total assets |  | $ | 85,185,397 |  |  | $ | 74,370,879 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 6,004,897 |  |  | $ | 4,290,972 |
Line of credit |  |  | 4,700,000 |  |  |  | — |
Income taxes payable |  |  | 99,865 |  |  |  | 178,923 |
Accrued liabilities: |  |  |  |  |  |  |  |
Payroll and related benefits |  |  | 2,029,241 |  |  |  | 2,879,468 |
Other |  |  | 1,333,153 |  |  |  | 894,497 |
Current portion of operating lease |  |  | 74,331 |  |  |  | 272,336 |
Total current liabilities |  |  | 14,241,487 |  |  |  | 8,516,196 |
LONG-TERM LIABILITIES: |  |  |  |  |  |  |  |
Deferred income tax, net |  |  | 1,920,970 |  |  |  | — |
Operating lease, less current portion |  |  | 347,270 |  |  |  | 104,102 |
Total long-term liabilities |  |  | 2,268,240 |  |  |  | 104,102 |
COMMITMENTS AND CONTINGENCIES (Note 14) |  |  |  |  |  |  |  |
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 May 31, 2022 and August 31, 2021; issued and outstanding 9,232,483 and 9,184,811, respectively |  |  | 184,650 |  |  |  | 183,696 |
Additional paid-in capital |  |  | 19,706,248 |  |  |  | 18,736,268 |
Retained earnings |  |  | 50,714,961 |  |  |  | 46,973,094 |
Accumulated other comprehensive loss |  |  | (5,383,400 | ) |  |  | (3,525,030 | )
Stockholders’ equity |  |  | 65,222,459 |  |  |  | 62,368,028 |
Non-controlling interests |  |  | 3,453,211 |  |  |  | 3,382,553 |
Total equity |  |  | 68,675,670 |  |  |  | 65,750,581 |
Total liabilities and equity |  | $ | 85,185,397 |  |  | $ | 74,370,879 |

See notes to consolidated financial statements.

3

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
NET SALES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net sales, excluding joint ventures |  | $ | 18,436,253 |  |  | $ | 14,164,604 |  |  | $ | 51,654,355 |  |  | $ | 38,619,353 |
Net sales, to joint ventures |  |  | 528,668 |  |  |  | 1,253,920 |  |  |  | 2,252,618 |  |  |  | 2,361,165 |
Total net sales |  |  | 18,964,921 |  |  |  | 15,418,524 |  |  |  | 53,906,973 |  |  |  | 40,980,518 |
Cost of goods sold |  |  | 12,722,833 |  |  |  | 10,152,582 |  |  |  | 36,977,620 |  |  |  | 26,997,582 |
Gross profit |  |  | 6,242,088 |  |  |  | 5,265,942 |  |  |  | 16,929,353 |  |  |  | 13,982,936 |
JOINT VENTURE OPERATIONS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity in income from joint ventures |  |  | 1,364,597 |  |  |  | 2,033,536 |  |  |  | 3,662,178 |  |  |  | 5,779,260 |
Fees for services provided to joint ventures |  |  | 1,329,988 |  |  |  | 1,589,621 |  |  |  | 3,835,755 |  |  |  | 4,388,866 |
Total joint venture operations |  |  | 2,694,585 |  |  |  | 3,623,157 |  |  |  | 7,497,933 |  |  |  | 10,168,126 |
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling expenses |  |  | 3,450,308 |  |  |  | 3,171,657 |  |  |  | 9,659,457 |  |  |  | 8,745,433 |
General and administrative expenses |  |  | 2,560,487 |  |  |  | 2,072,195 |  |  |  | 7,675,622 |  |  |  | 6,125,151 |
Research and development expenses |  |  | 1,102,942 |  |  |  | 1,066,493 |  |  |  | 3,557,437 |  |  |  | 3,217,410 |
Total operating expenses |  |  | 7,113,737 |  |  |  | 6,310,345 |  |  |  | 20,892,516 |  |  |  | 18,087,994 |
OPERATING INCOME |  |  | 1,822,936 |  |  |  | 2,578,754 |  |  |  | 3,534,770 |  |  |  | 6,063,068 |
REMEASUREMENT GAIN ON ACQUISITION OF EQUITY METHOD INVESTEE |  |  | — |  |  |  | — |  |  |  | 3,951,550 |  |  |  | — |
INTEREST INCOME |  |  | 15,925 |  |  |  | 10,676 |  |  |  | 36,777 |  |  |  | 95,852 |
INTEREST EXPENSE |  |  | (23,784 | ) |  |  | (3,044 | ) |  |  | (34,079 | ) |  |  | (10,661 | )
INCOME BEFORE INCOME TAX EXPENSE |  |  | 1,815,077 |  |  |  | 2,586,386 |  |  |  | 7,489,018 |  |  |  | 6,148,259 |
INCOME TAX EXPENSE |  |  | 604,314 |  |  |  | 276,338 |  |  |  | 1,260,437 |  |  |  | 929,588 |
NET INCOME |  |  | 1,210,763 |  |  |  | 2,310,048 |  |  |  | 6,228,581 |  |  |  | 5,218,671 |
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS |  |  | 210,596 |  |  |  | 256,132 |  |  |  | 551,808 |  |  |  | 589,781 |
NET INCOME ATTRIBUTABLE TO NTIC |  | $ | 1,000,167 |  |  | $ | 2,053,916 |  |  | $ | 5,676,773 |  |  | $ | 4,628,890 |
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.11 |  |  | $ | 0.23 |  |  | $ | 0.62 |  |  | $ | 0.51 |
Diluted |  | $ | 0.11 |  |  | $ | 0.21 |  |  | $ | 0.59 |  |  | $ | 0.47 |
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 9,227,912 |  |  |  | 9,109,861 |  |  |  | 9,216,216 |  |  |  | 9,107,243 |
Diluted |  |  | 9,578,797 |  |  |  | 9,972,000 |  |  |  | 9,682,646 |  |  |  | 9,829,052 |
CASH DIVIDENDS DECLARED PER COMMON SHARE |  | $ | 0.07 |  |  | $ | 0.065 |  |  | $ | 0.21 |  |  | $ | 0.13 |

See notes to consolidated financial statements.

4

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
NET INCOME |  | $ | 1,210,763 |  |  | $ | 2,310,048 |  |  | $ | 6,228,581 |  |  | $ | 5,218,671 |
OTHER COMPREHENSIVE INCOME– FOREIGN CURRENCY TRANSLATION ADJUSTMENT |  |  | (1,554,022 | ) |  |  | 262,267 |  |  |  | (1,936,791 | ) |  |  | 757,273 |
COMPREHENSIVE INCOME |  |  | (343,259 | ) |  |  | 2,572,315 |  |  |  | 4,291,790 |  |  |  | 5,975,944 |
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON- CONTROLLING INTERESTS |  |  | (181,283 | ) |  |  | 266,771 |  |  |  | (473,385 | ) |  |  | 654,551 |
COMPREHENSIVE INCOME ATTRIBUTABLE TO NTIC |  | $ | (161,976 | ) |  | $ | 2,305,544 |  |  | $ | 4,765,175 |  |  | $ | 5,321,393 |

See notes to consolidated financial statements.

5

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021

|  | STOCKHOLDERS’ EQUITY – THREE MONTHS ENDED MAY 31, 2022 AND 2021 |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  | Non- |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Controlling |  |  | Total |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Income (Loss) |  |  | Interests |  |  | Equity |
BALANCE AS OF FEBRUARY 28, 2022 |  |  | 9,221,517 |  |  | $ | 184,430 |  |  | $ | 19,379,032 |  |  | $ | 50,361,068 |  |  | $ | (3,858,689 | ) |  | $ | 3,371,926 |  |  | $ | 69,437,767 |
Stock issued for employee stock purchase plan |  |  | 2,966 |  |  |  | 59 |  |  |  | 35,054 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 35,113 |
Stock options exercised |  |  | 8,000 |  |  |  | 161 |  |  |  | 59,279 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 59,440 |
Stock option expense |  |  | — |  |  |  | — |  |  |  | 232,883 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 232,883 |
Dividends paid to stockholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (646,274 | ) |  |  | — |  |  |  | — |  |  |  | (646,274 | )
Dividend received by non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (100,000 | ) |  |  | (100,000 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,000,167 |  |  |  | — |  |  |  | 210,596 |  |  |  | 1,210,763 |
Other comprehensive gain |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,524,711 | ) |  |  | (29,311 | ) |  |  | (1,554,022 | )
BALANCE AS OF MAY 31, 2022 |  |  | 9,232,483 |  |  | $ | 184,650 |  |  | $ | 19,706,248 |  |  | $ | 50,714,961 |  |  | $ | (5,383,400 | ) |  | $ | 3,453,211 |  |  | $ | 68,675,670 |
BALANCE AS OF FEBRUARY 28, 2021 |  |  | 9,104,636 |  |  | $ | 182,093 |  |  | $ | 17,793,646 |  |  | $ | 44,455,982 |  |  | $ | (2,969,563 | ) |  | $ | 3,232,806 |  |  | $ | 62,694,964 |
Stock issued for employee stock purchase plan |  |  | 5,225 |  |  |  | 104 |  |  |  | 38,038 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 38,142 |
Stock option expense |  |  | — |  |  |  | — |  |  |  | 160,834 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 160,834 |
Dividends paid to stockholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (592,141 | ) |  |  | — |  |  |  | — |  |  |  | (592,141 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,053,916 |  |  |  | — |  |  |  | 256,132 |  |  |  | 2,310,048 |
Other comprehensive gain |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 251,628 |  |  |  | 10,639 |  |  |  | 262,267 |
BALANCE AS OF MAY 31, 2021 |  |  | 9,109,861 |  |  | $ | 182,197 |  |  | $ | 17,992,518 |  |  | $ | 45,917,757 |  |  | $ | (2,717,935 | ) |  | $ | 3,499,577 |  |  | $ | 64,874,114 |

|  | STOCKHOLDERS’ EQUITY – NINE MONTHS ENDED MAY 31, 2022 AND 2021 |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  | Other |  |  | Non- |  |  |  |  |
|  | Common Stock |  |  | Paid-in |  |  | Retained |  |  | Comprehensive |  |  | Controlling |  |  | Total |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Income (Loss) |  |  | Interests |  |  | Equity |
BALANCE AS OF AUGUST 31, 2021 |  |  | 9,184,811 |  |  | $ | 183,696 |  |  | $ | 18,736,268 |  |  | $ | 46,973,094 |  |  | $ | (3,525,030 | ) |  | $ | 3,382,553 |  |  | $ | 65,750,581 |
Stock issued for employee stock purchase plan |  |  | 5,601 |  |  |  | 112 |  |  |  | 73,533 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 73,645 |
Stock options exercised |  |  | 42,071 |  |  |  | 842 |  |  |  | 197,798 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 198,640 |
Stock option expense |  |  | — |  |  |  | — |  |  |  | 698,649 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 698,649 |
Dividends paid to stockholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,934,906 | ) |  |  | — |  |  |  | — |  |  |  | (1,934,906 | )
Dividend received by non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (402,729 | ) |  |  | (402,729 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,676,773 |  |  |  | — |  |  |  | 551,808 |  |  |  | 6,228,581 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,858,370 | ) |  |  | (78,421 | ) |  |  | (1,936,791 | )
BALANCE AS OF MAY 31, 2022 |  |  | 9,232,483 |  |  | $ | 184,650 |  |  | $ | 19,706,248 |  |  | $ | 50,714,961 |  |  | $ | (5,383,400 | ) |  | $ | 3,453,211 |  |  | $ | 68,675,670 |
BALANCE AS OF AUGUST 31, 2020 |  |  | 9,099,990 |  |  | $ | 182,000 |  |  | $ | 17,415,043 |  |  | $ | 42,472,810 |  |  | $ | (3,410,438 | ) |  | $ | 3,045,026 |  |  | $ | 59,704,441 |
Stock issued for employee stock purchase plan |  |  | 9,871 |  |  |  | 197 |  |  |  | 74,137 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 74,334 |
Stock option expense |  |  | — |  |  |  | — |  |  |  | 503,338 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 503,338 |
Dividends paid to stockholders |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,183,943 | ) |  |  | — |  |  |  | — |  |  |  | (1,183,943 | )
Dividend received by non-controlling interest |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (200,000 | ) |  |  | (200,000 | )
Net income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,628,890 |  |  |  | — |  |  |  | 589,781 |  |  |  | 5,218,671 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 692,503 |  |  |  | 64,770 |  |  |  | 757,273 |
BALANCE AS OF MAY 31, 2021 |  |  | 9,109,861 |  |  | $ | 182,197 |  |  | $ | 17,992,518 |  |  | $ | 45,917,757 |  |  | $ | (2,717,935 | ) |  | $ | 3,499,577 |  |  | $ | 64,874,114 |

See notes to consolidated financial statements.

6

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED MAY 31, 2022 AND 2021

|  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net income |  | $ | 6,228,581 |  |  | $ | 5,218,671 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |
Stock-based compensation |  |  | 698,649 |  |  |  | 503,338 |
Change in allowance for doubtful accounts |  |  | — |  |  |  | 30,000 |
Depreciation expense |  |  | 722,443 |  |  |  | 681,484 |
Amortization expense |  |  | 474,121 |  |  |  | 151,710 |
Remeasurement gain on acquisition of equity method investee |  |  | (3,951,550 | ) |  |  | — |
Equity in income from joint ventures |  |  | (3,662,178 | ) |  |  | (5,779,260 | )
Dividends received from joint ventures |  |  | 5,723,176 |  |  |  | 3,505,455 |
Deferred income taxes |  |  | 152,372 |  |  |  | (8,526 | )
Changes in current assets and liabilities: |  |  |  |  |  |  |  |
Receivables: |  |  |  |  |  |  |  |
Trade, excluding joint ventures |  |  | (1,348,254 | ) |  |  | (2,904,707 | )
Trade, joint ventures |  |  | (232,364 | ) |  |  | (564,149 | )
Fees for services provided to joint ventures |  |  | 261,913 |  |  |  | (499,954 | )
Income taxes |  |  | (134,942 | ) |  |  | (223,024 | )
Inventories |  |  | (2,093,668 | ) |  |  | (177,927 | )
Prepaid expenses and other |  |  | (635,478 | ) |  |  | (223,457 | )
Accounts payable |  |  | 908,605 |  |  |  | 703,100 |
Income tax payable |  |  | (420,529 | ) |  |  | (162,615 | )
Accrued liabilities |  |  | (912,803 | ) |  |  | 803,555 |
Net cash provided by operating activities |  |  | 1,778,094 |  |  |  | 1,053,695 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Acquisition of Zerust India business, net of cash acquired (see Note 3) |  |  | (5,062,003 | ) |  |  | — |
Purchase of available for sale securities |  |  | (941 | ) |  |  | (800,000 | )
Proceeds from the sale of available for sale securities |  |  | — |  |  |  | 1,219,670 |
Investment in joint venture |  |  | (341,392 | ) |  |  | — |
Purchases of property and equipment |  |  | (961,704 | ) |  |  | (723,441 | )
Investments in patents |  |  | (164,994 | ) |  |  | (96,009 | )
Net cash used in investing activities |  |  | (6,531,034 | ) |  |  | (399,780 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Dividend received by non-controlling interest |  |  | (402,729 | ) |  |  | (200,000 | )
Proceeds from line of credit |  |  | 4,700,000 |  |  |  | — |
Dividends paid on NTIC common stock |  |  | (1,934,906 | ) |  |  | (1,183,943 | )
Proceeds from the exercise of stock options |  |  | 198,640 |  |  |  | — |
Proceeds from employee stock purchase plan |  |  | 73,645 |  |  |  | 74,334 |
Net cash provided by (used in) financing activities |  |  | 2,634,650 |  |  |  | (1,309,609 | )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |  |  | 560,918 |  |  |  | 133,585 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |  |  | (1,557,372 | ) |  |  | (522,109 | )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |  |  | 7,680,641 |  |  |  | 6,403,032 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD |  | $ | 6,123,269 |  |  | $ | 5,880,923 |

See notes to consolidated financial statements.

7

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. INTERIM FINANCIAL INFORMATION

In the opinion of management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of May 31, 2022 and August 31, 2021, the results of the Company’s operations for the three and nine months ended May 31, 2022 and 2021, the changes in stockholders’ equity for the three and nine months ended May 31, 2022 and 2021, and the Company’s cash flows for the nine months ended May 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2021. These consolidated financial statements also should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section appearing in this report.

Operating results for the three and nine months ended May 31, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2022.

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

Impact of COVID-19 Pandemic

As a result of the novel coronavirus (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 continued to occur during the first nine months of fiscal 2022 and is expected to continue during the remainder of fiscal 2022 and into fiscal 2023. In the first nine months of fiscal 2022, the Company continued to be 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.

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.

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Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial position or operating results.

3. BUSINESS COMBINATION

On September 21, 2021, the Company announced that it acquired the remaining 50% ownership interest in its Indian joint venture, Harita-NTI Limited (Zerust India), for $6,250,000 in cash, effective as of September 1, 2021, the date the Company obtained control. Prior to September 1, 2021, the Company owned 50% of the outstanding capital stock of Zerust India. The Company had historically accounted for this investment under the equity method of accounting. This purchase was funded with cash on hand and borrowings under the Company’s revolving line of credit. The Company undertook the acquisition to enhance its Zerust business in India.

The purchase price of $6,250,000 was funded with cash on hand and borrowings under the Company’s revolving line of credit, which was increased in connection with the transaction to $5,000,000.

Because the Company increased its ownership interest in Zerust India to 100%, the acquisition of Zerust India has been accounted for in accordance with Accounting Standards Codification (ASC) 805, Business Combinations, by using the acquisition method of accounting. Effective September 1, 2021, Zerust India became a consolidated subsidiary within the Company’s financial statements.

The following table summarizes the purchase price allocation that includes the fair values of the separately identifiable assets acquired and liabilities assumed as of September 1, 2021:

Cash and cash equivalents |  | $ | 1,187,997 |
Trade account receivable |  |  | 1,954,769 |
Inventories |  |  | 886,650 |
Prepaid expenses and other |  |  | 396,545 |
Property, plant and equipment |  |  | 219,077 |
Operating lease, right of use asset |  |  | 355,000 |
Customer relationships |  |  | 6,347,000 |
Goodwill |  |  | 4,782,376 |
Current liabilities |  |  | (1,370,314 | )
Deferred tax liability |  |  | (1,904,100 | )
Operating lease liability |  |  | (355,000 | )
| Net assets acquired |  | $ | 12,500,000 |
Less: |  |  |  |  |
| Fair value of previously held equity method investment |  |  | (1,637,362 | )
| Cumulative foreign currency translation |  |  | (661,088 | )
| Gain recognized on acquisition |  |  | (3,951,550 | )
|  |  |  | (6,250,000 | )
Cash paid for acquisition |  | $ | 6,250,000 |

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The excess of the fair value of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The fair values of assets acquired and liabilities assumed may be subject to change as additional information is received.

The fair value of the intangible asset associated with customer relationships was estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable to only the subject intangible asset after deducting contributory asset charges.

The rate used to discount the estimated future net cash flows to their present values for the intangible assets was based upon a weighted average cost of capital calculation. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the assets acquired from Zerust India. The weighted average discount rate used to determine the fair value of the customer relationships was 15.3%.

The amortization period for the intangible assets is 15 years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such asset. Goodwill associated with the acquisition was primarily attributable to the expansion opportunity of the Company’s Zerust business in India.

Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings. As such, since the Company acquired the remaining 50% ownership interest of Zerust India effective September 1, 2021, the Company recognized a gain of $3,951,550 during the nine months ended May 31, 2022. This gain is included in “Remeasurement gain on acquisition of equity method investee” on the Company’s consolidated statements of operations for the nine months ended May 31, 2022.

The Company has included the financial results of Zerust India in the consolidated financial statements from September 1, 2021. Net revenue and net income related to Zerust India since the date of acquisition totaled $7,260,964 and $664,775, respectively. The transaction costs associated with the acquisition were approximately $0 and $115,000, respectively, and are recorded in general and administrative expense as incurred during the three and nine months ended May 31, 2022.

Unaudited consolidated pro forma information assuming the acquisition had occurred on September 1, 2020 for the three and nine months ended May 31, 2021 would have an increase in net sales $2,405,098 and $6,697,005, respectively. Unaudited pro forma net income, assuming the acquisition had occurred on September 1, 2020, for the three and nine months ended May 31, 2021 was not considered material to the Company’s consolidated net income. The unaudited consolidated pro forma combined financial information does not purport to be indicative of the results which would have been obtained had the acquisition been completed as of the beginning of the earliest period presented or of results that may be obtained in the future. In addition, they do not include any benefits that may result from the acquisition due to synergies that may be derived from the elimination of any duplicative costs.

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4. INVENTORIES

Inventories consisted of the following:

|  | May 31, 2022 |  |  | August 31, 2021 |
Production materials |  | $ | 4,946,106 |  |  | $ | 4,453,688 |
Finished goods |  |  | 8,920,123 |  |  |  | 6,660,519 |
|  | $ | 13,866,229 |  |  | $ | 11,114,207 |

5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

|  | May 31, 2022 |  |  | August 31, 2021 |
Land |  | $ | 310,365 |  |  | $ | 310,365 |
Buildings and improvements |  |  | 14,098,634 |  |  |  | 13,149,258 |
Machinery and equipment |  |  | 5,569,711 |  |  |  | 5,453,679 |
|  |  | 19,978,710 |  |  |  | 18,913,302 |
Less accumulated depreciation |  |  | (7,907,433 | ) |  |  | (7,091,844 | )
|  | $ | 12,071,277 |  |  | $ | 11,821,458 |

6. PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

|  | May 31, 2022 |  |  | August 31, 2021 |
Patents and trademarks |  | $ | 3,183,500 |  |  | $ | 3,018,507 |
Less accumulated amortization |  |  | (2,465,705 | ) |  |  | (2,308,935 | )
|  | $ | 717,795 |  |  | $ | 709,572 |

7. INVESTMENTS IN JOINT VENTURES

The consolidated financial statements of the Company’s foreign joint ventures are initially prepared using the accounting principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint ventures reported in the below tables and the accompanying consolidated financial statements have subsequently been adjusted to conform with U.S. GAAP in all material respects. All material profits 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.

Financial information from the audited and unaudited financial statements of the Company’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), and all the Company’s other joint ventures are summarized as follows:

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|  | As of May 31, 2022 |
|  | Total |  |  | EXCOR |  |  | All Other |
Current assets |  | $ | 55,305,950 |  |  | $ | 25,677,287 |  |  | $ | 29,628,663 |
Total assets |  |  | 59,037,744 |  |  |  | 27,727,623 |  |  |  | 31,310,121 |
Current liabilities |  |  | 13,289,392 |  |  |  | 2,978,114 |  |  |  | 10,311,279 |
Noncurrent liabilities |  |  | 1,223,185 |  |  |  | — |  |  |  | 1,223,185 |
Joint ventures’ equity |  |  | 44,601,335 |  |  |  | 24,749,509 |  |  |  | 19,851,826 |
Northern Technologies International Corporation’s share of joint ventures’ equity |  |  | 22,194,433 |  |  |  | 12,374,756 |  |  |  | 9,819,677 |
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings |  |  | 20,844,284 |  |  |  | 12,343,851 |  |  |  | 8,500,433 |

|  | Three Months Ended May 31, 2022 |
|  | Total |  |  | EXCOR |  |  | All Other |
Net sales |  | $ | 26,594,077 |  |  | $ | 10,397,916 |  |  | $ | 16,196,160 |
Gross profit |  |  | 10,626,570 |  |  |  | 4,990,697 |  |  |  | 5,635,873 |
Net income |  |  | 2,714,979 |  |  |  | 1,654,389 |  |  |  | 1,060,590 |
Northern Technologies International Corporation’s share of equity in income from joint ventures |  |  | 1,364,597 |  |  |  | 824,784 |  |  |  | 539,813 |
Northern Technologies International Corporation’s dividends received from joint ventures |  |  | 252,000 |  |  |  | — |  |  |  | 252,000 |

|  | Nine Months Ended May 31, 2022 |
|  | Total |  |  | EXCOR |  |  | All Other |
Net sales |  | $ | 78,218,839 |  |  | $ | 31,010,578 |  |  | $ | 47,208,261 |
Gross profit |  |  | 31,504,531 |  |  |  | 15,118,133 |  |  |  | 16,386,398 |
Net income |  |  | 7,344,175 |  |  |  | 4,646,123 |  |  |  | 2,698,052 |
Northern Technologies International Corporation’s share of equity in income from joint ventures |  |  | 3,662,178 |  |  |  | 2,324,605 |  |  |  | 1,337,572 |
Northern Technologies International Corporation’s dividends received from joint ventures |  |  | 5,723,176 |  |  |  | 4,255,200 |  |  |  | 1,467,976 |

|  | As of August 31, 2021 |
|  | Total |  |  | EXCOR |  |  | All Other(1) |
Current assets |  | $ | 69,394,796 |  |  | $ | 33,886,655 |  |  | $ | 35,508,141 |
Total assets |  |  | 73,814,402 |  |  |  | 36,211,520 |  |  |  | 37,602,882 |
Current liabilities |  |  | 16,366,398 |  |  |  | 5,386,377 |  |  |  | 10,980,021 |
Noncurrent liabilities |  |  | 1,455,524 |  |  |  | — |  |  |  | 1,455,524 |
Joint ventures’ equity |  |  | 55,992,480 |  |  |  | 30,825,144 |  |  |  | 25,167,336 |
Northern Technologies International Corporation’s share of joint ventures’ equity |  |  | 27,623,768 |  |  |  | 15,412,574 |  |  |  | 12,211,194 |
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings |  |  | 24,702,778 |  |  |  | 14,697,490 |  |  |  | 10,005,288 |

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|  | Three Months Ended May 31, 2021 |
|  | Total |  |  | EXCOR |  |  | All Other(1) |
Net sales |  | $ | 31,959,539 |  |  | $ | 12,103,263 |  |  | $ | 19,856,276 |
Gross profit |  |  | 14,280,775 |  |  |  | 6,863,786 |  |  |  | 7,416,989 |
Net income |  |  | 4,051,518 |  |  |  | 2,068,326 |  |  |  | 1,983,192 |
Northern Technologies International Corporation’s share of equity in income from joint ventures |  |  | 2,033,536 |  |  |  | 1,039,576 |  |  |  | 993,960 |
Northern Technologies International Corporation’s dividends received from joint ventures |  |  | 181,952 |  |  |  | — |  |  |  | 181,952 |

|  | Nine Months Ended May 31, 2021 |
|  | Total |  |  | EXCOR |  |  | All Other(1) |
Net sales |  | $ | 87,795,284 |  |  | $ | 32,196,843 |  |  | $ | 55,598,441 |
Gross profit |  |  | 39,802,014 |  |  |  | 18,661,980 |  |  |  | 21,140,034 |
Net income |  |  | 11,540,949 |  |  |  | 6,351,721 |  |  |  | 5,189,228 |
Northern Technologies International Corporation’s share of equity in income from joint ventures |  |  | 5,779,260 |  |  |  | 3,182,691 |  |  |  | 2,596,569 |
Northern Technologies International Corporation’s dividends received from joint ventures |  |  | 3,505,455 |  |  |  | 1,809,900 |  |  |  | 1,695,555 |

__________

(1) Includes Zerust India since Zerust India was not a consolidated subsidiary of the Company as of August 31, 2021 or May 31, 2021. See Note 3 entitled “Business Combination.”

8. INTANGIBLE ASSET, NET

Intangible asset, net consisted of the following as of May 31, 2022:

|  | May 31, 2022 |  |  | August 31, 2021 |
Customer relationships |  | $ | 6,347,000 |  |  | $ | — |
Less accumulated amortization |  |  | (317,350 | ) |  |  | — |
Net Carrying Amount |  | $ | 6,029,650 |  |  | $ | — |

The customer relationships were established as a part of purchase accounting related to our Zerust India acquisition. See Note 3 entitled “Business Combination.” The Company amortizes the intangible asset related to the customer relationships using the straight-line method over the estimated useful lives of the asset, which is 15 years. Total amortization expense was $105,783 and $317,350 for the three and nine months ended May 31, 2022, respectively. Amortization expense is estimated to be $423,000 in each of the next five fiscal years.

9. CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank, National Association (PNC Bank) of $7,000,000 as of May 31, 2022, which will decrease to $5,000,000 effective August 16, 2022. The line of credit has a maturity date of January 7, 2023 and bears interest at an annual rate equal to the daily Bloomberg Short-Term Bank Yield Index plus 250 basis points (2.50%). The line of credit is governed under an Amended and Restated Loan Agreement dated August 31, 2021.

On May 20, 2022, to maintain financial flexibility, the Company issued an Amended and Restated Revolving Line of Credit Note to PNC Bank, which increased the Company’s line of credit from $5,000,000 to $7,000,000 until August 16, 2022, at which time the line of credit will go back to $5,000,000 until its expiration date on January 7, 2023. Additionally, on January 4, 2022, the Company issued an Amended and Restated Revolving Line of Credit Note, which extended the maturity date to January 7, 2023 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 Bloomberg Short-Term Bank Yield Index plus 250 basis points (2.50%). The other material terms of the line of credit were not affected by these amendments or other immaterial amendments that have been executed since the execution of the Amended and Restated Loan Agreement dated August 31, 2021.

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Borrowings of $4,700,000 were outstanding under the line of credit as of May 31, 2022 and no amounts were outstanding as of August 31, 2021. Such outstanding borrowings were used primarily to fund the Company’s acquisition of the remaining ownership interest of Zerust India. The average interest rate during each of the three and nine months ended May 31, 2022 was 2.92% and 2.69%, respectively.

The obligations of the Company under the loan agreement are secured by a lien on all of the Company’s personal property, excepting certain liens consented to in writing by PNC. The loan agreement contains covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio of 1.10:1.00, 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. As of May 31, 2022, the Company was in compliance with all debt covenants.

As of May 31, 2022 and August 31, 2021, the Company 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 May 31, 2022 and August 31, 2021, the Company had $72,418 of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2021 and 2022.

10. STOCKHOLDERS’ EQUITY

During the nine months ended May 31, 2022, the Company’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 |  | Amount |  | Record Date |  | Payable Date
October 20, 2021 |  | $ | 0.07 |  | November 3, 2021 |  | November 17, 2021
January 21, 2022 |  | $ | 0.07 |  | February 2, 2022 |  | February 16, 2022
April 22, 2022 |  | $ | 0.07 |  | May 4, 2022 |  | May 18, 2022

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 the nine months ended May 31, 2021, the Company’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 |  | Amount |  | Record Date |  | Payable Date
January 15, 2021 |  | $ | 0.065 |  | February 3, 2021 |  | February 17, 2021
April 23, 2021 |  | $ | 0.065 |  | May 5, 2021 |  | May 19, 2021

During the nine months ended May 31, 2022 and 2021, the Company repurchased no shares of its common stock.

During the nine months ended May 31, 2022, the Company granted stock options under the Northern Technologies International Corporation 2019 Stock Incentive Plan (as amended, the 2019 Plan) to purchase an aggregate of 174,840 shares of its common stock to various employees and directors. The weighted average per share exercise price of the stock options is $16.97. The exercise price of the stock options is equal to the fair market value of the Company’s common stock on the date of grant. During the nine months ended May 31, 2022, stock options to purchase an aggregate of 51,218 shares of common stock were exercised at a weighted average exercise price of $6.60 per share, resulting in the net issuance of 42,071 shares of common stock since some of the options were exercised on a net cashless exercise basis.

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During the nine months ended May 31, 2021, the Company granted stock options under the 2019 Plan to purchase an aggregate of 419,874 shares of its common stock to various employees and directors. The weighted average per share exercise price of the stock options is $8.24. The exercise price of the stock options is equal to the fair market value of the Company’s common stock on the date of grant. During the nine months ended May 31, 2021, no stock options to purchase common stock were exercised.

The Company issued 2,636 and 4,646 shares of common stock on September 1, 2021 and 2020, respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP). The Company issued 2,966 and 5,225 shares of common stock on March 1, 2022 and 2021, respectively, under the ESPP. The ESPP is compensatory for financial reporting purposes. As of May 31, 2021, 69,220 shares of common stock remained available for sale under the ESPP.

11. NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share assumes the exercise of stock options using the treasury stock method, if dilutive.

The following is a reconciliation of the net income per share computation for the three and nine months ended May 31, 2022 and 2021:

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
Numerator: |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net income attributable to NTIC |  | $ | 1,000,167 |  |  | $ | 2,053,916 |  |  | $ | 5,676,773 |  |  | $ | 4,628,890 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic – weighted shares outstanding |  |  | 9,227,912 |  |  |  | 9,109,861 |  |  |  | 9,216,216 |  |  |  | 9,107,243 |
Weighted shares assumed upon exercise of stock options |  |  | 350,886 |  |  |  | 862,139 |  |  |  | 466,430 |  |  |  | 721,809 |
Diluted – weighted shares outstanding |  |  | 9,578,797 |  |  |  | 9,972,000 |  |  |  | 9,682,646 |  |  |  | 9,829,052 |
Basic net income per share: |  | $ | 0.11 |  |  | $ | 0.23 |  |  | $ | 0.62 |  |  | $ | 0.51 |
Diluted net income per share: |  | $ | 0.11 |  |  | $ | 0.21 |  |  | $ | 0.59 |  |  | $ | 0.47 |

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 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 for the three and nine months ended May 31, 2022 were options outstanding to purchase 327,793 shares of common stock. Excluded from the computation of diluted net income per share for the three and nine months ended May 31, 2021 were options outstanding to purchase 136,221 shares of common stock.

12. 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 Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (2007 Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan. 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.

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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. As of May 31, 2022, options to purchase an aggregate of 895,484 shares of the Company’s common stock were outstanding under the 2019 Plan and 704,516 shares of the Company’s common stock remain available for grant under the 2019 Plan. As of May 31, 2022, options to purchase an aggregate of 654,789 shares of the Company’s common stock were outstanding under the 2007 Plan.

The Company granted options to purchase an aggregate of 174,840 and 419,874 shares of its common stock during the nine months ended May 31, 2022 and 2021, respectively. 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 Company recognized compensation expense of $232,883 and $698,649 during the three and nine months ended May 31, 2022, respectively, and compensation expense of $160,834 and $503,338 during the three and nine months ended May 31, 2021, respectively, related to the options that vested during such time period. As of May 31, 2022, the total compensation cost for non-vested options not yet recognized in the Company’s consolidated statements of operations was $1,242,602. Stock-based compensation expense of $232,883 is expected through the remainder of fiscal 2022 and $671,526 and $338,193 is expected to be recognized during fiscal 2023 and fiscal 2024, respectively, based on outstanding options as of May 31, 2022. Future option grants will impact the compensation expense recognized. Stock-based compensation expense is included in general and administrative expense on the consolidated statements of operations.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions and results for the grants:

|  | Three and Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |
Dividend yield |  |  | 1.65 | % |  |  | 2.37 | %
Expected volatility |  |  | 45.4 | % |  |  | 45.6 | %
Expected life of option (in years) |  |  | 10 |  |  |  | 10 |
Average risk-free interest rate |  |  | 0.77 | % |  |  | 0.28 | %

The weighted average per share fair value of options granted during the nine months ended May 31, 2022 and 2021 was $7.29 and $3.12, respectively. The weighted average remaining contractual life of the options outstanding as of May 31, 2022 and 2021 was 6.02 years and 6.40 years, respectively.

13. 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 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.

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The following table sets forth the Company’s net sales for the three and nine months ended May 31, 2022 and 2021 by segment:

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
ZERUST® net sales |  | $ | 14,446,832 |  |  | $ | 12,378,215 |  |  | $ | 41,988,394 |  |  | $ | 32,882,882 |
Natur-Tec® net sales |  |  | 4,518,089 |  |  |  | 3,040,309 |  |  |  | 11,918,579 |  |  |  | 8,097,636 |
Total net sales |  | $ | 18,964,921 |  |  | $ | 15,418,524 |  |  | $ | 53,906,973 |  |  | $ | 40,980,518 |

The following table sets forth the Company’s cost of goods sold for the three and nine months ended May 31, 2022 and 2021 by segment:

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | % of Product Sales* |  |  | 2021 |  |  | % of Product Sales* |  |  | 2022 |  |  | % of Product Sales* |  |  | 2021 |  |  | % of Product Sales* |
Direct cost of goods sold |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ZERUST® |  | $ | 8,409,392 |  |  |  | 58.2 | % |  | $ | 7,091,220 |  |  |  | 57.3 | % |  | $ | 25,267,333 |  |  |  | 60.2 | % |  | $ | 18,928,272 |  |  |  | 57.6 | %
Natur-Tec® |  |  | 3,432,152 |  |  |  | 76.0 | % |  |  | 2,251,996 |  |  |  | 74.1 | % |  |  | 9,129,686 |  |  |  | 76.6 | % |  |  | 5,703,807 |  |  |  | 70.4 | %
Indirect cost of goods sold |  |  | 881,289 |  |  |  | — |  |  |  | 809,366 |  |  |  | — |  |  |  | 2,580,601 |  |  |  | — |  |  |  | 2,365,503 |  |  |  | — |
Total net cost of goods sold |  | $ | 12,722,833 |  |  |  |  |  |  | $ | 10,152,582 |  |  |  |  |  |  | $ | 36,977,620 |  |  |  |  |  |  | $ | 26,997,582 |  |  |  |  |

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

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

Geographic Information

Net sales by geographic location for the three and nine months ended May 31, 2022 and 2021 were as follows:

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Inside the U.S.A. to unaffiliated customers |  | $ | 6,884,726 |  |  | $ | 6,717,886 |  |  | $ | 18,157,010 |  |  | $ | 16,198,372 |
Outside the U.S.A. to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Joint ventures in which the Company is a shareholder directly and indirectly |  |  | 528,665 |  |  |  | 1,253,919 |  |  |  | 2,252,618 |  |  |  | 2,361,165 |
Unaffiliated customers |  |  | 11,551,530 |  |  |  | 7,446,719 |  |  |  | 33,497,345 |  |  |  | 22,420,981 |
|  | $ | 18,964,921 |  |  | $ | 15,418,524 |  |  | $ | 53,906,973 |  |  | $ | 40,980,518 |

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

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Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to joint ventures during the three and nine months ended May 31, 2022 and 2021 were as follows:

|  | Three Months Ended May 31, |
|  | 2022 |  |  | % of Total Fees for Services Provided to Joint Ventures |  |  | 2021 |  |  | % of Total Fees for Services Provided to Joint Ventures |
Germany |  | $ | 204,316 |  |  |  | 15.4 | % |  | $ | 232,026 |  |  |  | 14.6 | %
Poland |  |  | 171,181 |  |  |  | 12.9 | % |  |  | 226,174 |  |  |  | 14.2 | %
Japan |  |  | 168,075 |  |  |  | 12.6 | % |  |  | 200,270 |  |  |  | 12.6 | %
France |  |  | 123,869 |  |  |  | 9.3 | % |  |  | 119,172 |  |  |  | 7.5 | %
Sweden |  |  | 130,681 |  |  |  | 9.8 | % |  |  | 127,710 |  |  |  | 8.0 | %
United Kingdom |  |  | 89,363 |  |  |  | 6.7 | % |  |  | 113,886 |  |  |  | 7.2 | %
Thailand |  |  | 95,574 |  |  |  | 7.2 | % |  |  | 108,842 |  |  |  | 6.8 | %
Finland |  |  | 92,036 |  |  |  | 6.9 | % |  |  | 75,577 |  |  |  | 4.8 | %
Czech Republic |  |  | 84,797 |  |  |  | 6.4 | % |  |  | 109,680 |  |  |  | 6.9 | %
South Korea |  |  | 78,542 |  |  |  | 5.9 | % |  |  | 78,507 |  |  |  | 4.9 | %
Other |  |  | 91,554 |  |  |  | 6.9 | % |  |  | 197,777 |  |  |  | 12.4 | %
|  | $ | 1,329,988 |  |  |  | 100.0 | % |  | $ | 1,589,621 |  |  |  | 100.0 | %

|  | Nine Months Ended May 31, |
|  | 2022 |  |  | % of Total Fees for Services Provided to Joint Ventures |  |  | 2021 |  |  | % of Total Fees for Services Provided to Joint Ventures |
Germany |  | $ | 639,738 |  |  |  | 16.7 | % |  | $ | 692,770 |  |  |  | 15.8 | %
Poland |  |  | 520,807 |  |  |  | 13.6 | % |  |  | 626,527 |  |  |  | 14.3 | %
Japan |  |  | 486,815 |  |  |  | 12.7 | % |  |  | 561,725 |  |  |  | 12.8 | %
France |  |  | 355,827 |  |  |  | 9.3 | % |  |  | 322,717 |  |  |  | 7.4 | %
Sweden |  |  | 337,929 |  |  |  | 8.8 | % |  |  | 365,095 |  |  |  | 8.3 | %
United Kingdom |  |  | 271,027 |  |  |  | 7.1 | % |  |  | 247,560 |  |  |  | 5.6 | %
Thailand |  |  | 271,046 |  |  |  | 7.1 | % |  |  | 306,151 |  |  |  | 7.0 | %
Finland |  |  | 257,635 |  |  |  | 6.7 | % |  |  | 223,356 |  |  |  | 5.1 | %
Czech Republic |  |  | 224,280 |  |  |  | 5.8 | % |  |  | 268,571 |  |  |  | 6.1 | %
South Korea |  |  | 205,342 |  |  |  | 5.4 | % |  |  | 241,805 |  |  |  | 5.5 | %
Other |  |  | 265,309 |  |  |  | 6.9 | % |  |  | 532,589 |  |  |  | 12.1 | %
|  | $ | 3,835,755 |  |  |  | 100.0 | % |  | $ | 4,388,866 |  |  |  | 100.0 | %

The geographical distribution of total property and equipment and net sales is as follows:

|  | As of May 31, 2022 |  |  | As of August 31, 2021 |
China |  | $ | 5,528,663 |  |  | $ | 5,110,071 |
Other |  |  | 617,674 |  |  |  | 453,199 |
United States |  |  | 6,642,735 |  |  |  | 6,967,761 |
Total property and equipment and patents |  | $ | 12,789,072 |  |  | $ | 12,531,031 |

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|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
China |  | $ | 3,624,396 |  |  | $ | 4,037,493 |  |  | $ | 11,845,989 |  |  |  | 13,025,127 |
Brazil |  |  | 1,554,364 |  |  |  | 1,237,586 |  |  |  | 3,786,670 |  |  |  | 2,756,008 |
India |  |  | 4,824,004 |  |  |  | 1,540,734 |  |  |  | 13,369,769 |  |  |  | 4,036,208 |
Other |  |  | 2,077,431 |  |  |  | 1,884,825 |  |  |  | 6,747,535 |  |  |  | 4,964,803 |
United States |  |  | 6,884,726 |  |  |  | 6,717,886 |  |  |  | 18,157,010 |  |  |  | 16,198,372 |
Total net sales |  | $ | 18,964,921 |  |  | $ | 15,418,524 |  |  | $ | 53,906,973 |  |  | $ | 40,980,518 |

Long-lived assets consist of property and equipment and patents. These assets are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets.

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

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

14. COMMITMENTS AND CONTINGENCIES

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 (EBITOI), 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 the Company’s common stock, the exact amount and percentages of which are 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. There was $1,200,000 recognized for management bonuses for the nine months ended May 31, 2022, compared to $1,800,000 recognized for management bonuses for the nine months ended May 31, 2021.

Concentrations

Three joint ventures (consisting of the Company’s joint ventures in South Korea, Japan and Thailand) accounted for 62.3% of the Company’s trade joint venture receivables as of May 31, 2022, and three joint ventures (consisting of the Company’s joint ventures in India, South Korea and Thailand) accounted for 73.7% of the Company’s trade joint venture receivables as of May 31, 2021.

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Legal Matters

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may have been incurred. In the opinion of management, as of May 31, 2022, 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.

15. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information consisted of:

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Cash paid for interest |  | $ | 23,784 |  |  | $ | 3,044 |  |  | $ | 34,079 |  |  | $ | 10,661 |

16. INCOME TAXES

Income tax expense for the three and nine months ended May 31, 2022 was $604,314 and $1,260,437, respectively, compared to $276,338 and $929,588, respectively, for the three and nine months ended May 31, 2021. The expense was largely due to foreign operations. The Company has federal and state tax credit carry forwards, net operating loss carry forwards and foreign tax carry forwards. The Company has recorded a full valuation allowance against the U.S. deferred tax assets as of May 31, 2022 and August 31, 2021.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess NTIC’s financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements” in this report and under “Part 1. Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended August 31, 2021. The following discussion of the results of the operations and financial condition of NTIC should be read in conjunction with NTIC’s consolidated financial statements and the related notes thereto included under the heading “Part I. Item 1. Financial Statements.”

Business Overview

NTIC develops and markets proprietary, environmentally-beneficial products and services in over 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), starting September 1, 2021 its wholly-owned subsidiary in India, Harita-NTI Ltd. (Zerust India), 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 across several countries either directly, through its subsidiaries, or through its joint venture partners and other strategic partners. The sale of ZERUST® corrosion prevention solutions to customers in the oil and gas industry typically involves long sales cycles, often including multi-year trial periods with each customer and a slow integration process thereafter.

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Natur-Tec® 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.

Acquisition of Zerust India

On September 21, 2021, NTIC announced that it acquired the remaining 50% ownership interest in its Indian joint venture, Zerust India, for $6,250,000 in cash, effective as of September 1, 2021.

As a result of the acquisition of Zerust India, NTIC’s revenues and operating expenses increased and its equity in income from joint ventures decreased during the three and nine months ended May 31, 2022 as compared to the three and nine months ended May 31, 2021, and it is anticipated that the acquisition will continue to have these effects on NTIC’s financial results during the remainder of fiscal 2022.

See Note 3 to NTIC’s consolidated financial statements for a discussion of Zerust India.

Impact of the COVID-19 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 resulted in an economic recession. The outbreak and continuing rapid spread of COVID-19 has resulted in the curtailment of business activities worldwide from time to time and has caused 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.

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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 and 2022, 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 the first nine months of fiscal 2022, certain of NTIC’s facilities continued to be 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 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 the nine months ended May 31, 2022, which had an adverse effect on NTIC’s operating results and financial condition. NTIC expects this softness in sales to continue through at least the fourth quarter of fiscal 2022. In addition, NTIC has experienced supply shortages and price increases on raw materials and increased labor costs, 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 have persisted into the fourth quarter of fiscal 2022 and are expected to persist into fiscal 2023, especially in light of recently increased inflationary pressures. 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 pre-pandemic 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. These issues continued during the first nine months of fiscal 2022 and are expected to continue throughout the remainder of fiscal 2022 and into fiscal 2023. NTIC has experienced longer lead times for raw materials, has been forced to find new suppliers of certain raw materials, and has experienced raw material cost increases compared to prior fiscal quarters. Additionally, NTIC has experienced significantly longer shipping times and significant price increases per shipping container compared to prior fiscal quarters 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 through the remainder of fiscal 2022 and into fiscal 2023 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.

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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.

Highlights of NTIC’s financial results for the three and nine months ended May 31, 2022 include the following with increases or decreases in each case as compared to the respective prior fiscal year period:

| ● | NTIC’s consolidated net sales increased 23.0% and 31.5% during the three and nine months ended May 31, 2022, respectively, compared to the three and nine months ended May 31, 2021. NTIC’s consolidated net sales for the three and nine months ended May 31, 2022 were positively affected by incremental sales as a result of the Zerust India acquisition and increased demand.

| ● | During the three and nine months ended May 31, 2022, 76.2% and 77.9% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 16.7% and 27.7% to $14,446,832 and $41,988,394, respectively, compared to $12,378,215 and $32,882,882 during the three and nine months ended May 31, 2021, respectively. These increases were due to incremental sales as a result of the Zerust India acquisition and increased sales to new and existing customers due to increased global demand compared to the prior fiscal year periods. NTIC’s consolidated net sales for the nine months ended May 31, 2022 included $3,054,918 of sales made to customers in the oil and gas industry compared to $1,947,420 for the nine months ended May 31, 2021.

| ● | Net sales of Natur-Tec® products increased 48.6% and 47.2% during the three and nine months ended May 31, 2022, respectively, compared to the three and nine months ended May 31, 2022 primarily due to an increase in finished product sales in North America and at NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited.

| ● | Cost of goods sold as a percentage of net sales increased to 67.1% and 68.6% during the three and nine months ended May 31, 2022, respectively, compared to 65.8% and 65.9% during the three months ended May 31, 2021, respectively, primarily as a result of price increases on raw materials used in NTIC’s products, as well as increased labor and shipping costs, partially offset by increased net sales.

| ● | NTIC’s equity in income from joint ventures decreased 32.9% and 36.6% during the three and nine months ended May 31, 2022, respectively, to $1,364,597 and $3,662,178, respectively, compared to $2,033,536 and $5,779,260 during the three and nine months ended May 31, 2021, respectively. These decreases were primarily due to the fact that Zerust India is now a consolidated subsidiary within NTIC’s financial statements and an increase in operating expenses and a decrease in gross margins at the joint ventures.

| ● | Net sales at the joint ventures decreased 16.8% and 10.9% to $26,594,077 and $78,218,839 during the three and nine months ended May 31, 2022, respectively, compared to $31,959,539 and $87,795,284 during the three and nine months ended May 31, 2021, respectively. These decreases were primarily a result of decreased demand during the current year periods and the Zerust India acquisition since its sales were included in NTIC’s net sales in the prior fiscal year periods.

| ● | NTIC’s total operating expenses increased 12.7% and 15.5% to $7,113,737 and $20,892,516 during the three and nine months ended May 31, 2022, respectively, compared to $6,310,345 and $18,087,994 for the three and nine months ended May 31, 2021, respectively. These increases were primarily due to $630,874 and $1,710,075 in incremental expenses due to the Zerust India acquisition during the three and nine months ended May 31, 2022, respectively, and increased personnel, travel, and research and development expenses.

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| ● | Since NTIC acquired the remaining 50% ownership interest of Zerust India effective September 1, 2021, NTIC recognized a gain of $3,951,550 during the nine months ended May 31, 2022, which is included in “Remeasurement gain on acquisition of equity method investee” on NTIC’s consolidated statements of operations.

| ● | NTIC incurred net income attributable to NTIC of $1,000,167, or $0.11 per diluted common share, for the three months ended May 31, 2022, compared to $2,053,916, or $0.21 per diluted common share, for the three months ended May 31, 2021. NTIC incurred net income attributable to NTIC of $5,676,773, or $0.59 per diluted common share, for the nine months ended May 31, 2022, compared to $4,628,890, or $0.47 per diluted common share, for the nine months ended May 31, 2021. Of the increase for the nine-month comparison, $3,951,550 was due to the gain from the Zerust India acquisition.

Results of Operations

The following table sets forth NTIC’s results of operations for the three and nine months ended May 31, 2022 and 2021.

|  | Three Months Ended May 31, |
|  | 2022 |  |  | % of Net Sales |  |  | 2021 |  |  | % of Net Sales |  |  | $ Change |  |  | % Change |
Net sales, excluding joint ventures |  | $ | 18,436,253 |  |  |  | 97.2 | % |  | $ | 14,164,604 |  |  |  | 91.9 | % |  | $ | 4,271,649 |  |  |  | 30.2 | %
Net sales, to joint ventures |  |  | 528,668 |  |  |  | 2.8 | % |  |  | 1,253,920 |  |  |  | 8.1 | % |  |  | (725,252 | ) |  |  | -57.8 | %
Cost of goods sold |  |  | 12,722,832 |  |  |  | 67.1 | % |  |  | 10,152,582 |  |  |  | 65.8 | % |  |  | 2,570,250 |  |  |  | 25.3 | %
Equity in income from joint ventures |  |  | 1,364,597 |  |  |  | 7.2 | % |  |  | 2,033,536 |  |  |  | 13.2 | % |  |  | (688,939 | ) |  |  | -32.9 | %
Fees for services provided to joint ventures |  |  | 1,329,988 |  |  |  | 7.0 | % |  |  | 1,589,621 |  |  |  | 10.3 | % |  |  | (259,633 | ) |  |  | -16.3 | %
Selling expenses |  |  | 3,450,308 |  |  |  | 18.2 | % |  |  | 3,171,657 |  |  |  | 20.6 | % |  |  | 278,651 |  |  |  | 8.8 | %
General and administrative expenses |  |  | 2,560,487 |  |  |  | 13.5 | % |  |  | 2,072,195 |  |  |  | 13.4 | % |  |  | 488,292 |  |  |  | 23.6 | %
Research and development expenses |  |  | 1,102,942 |  |  |  | 5.8 | % |  |  | 1,066,493 |  |  |  | 6.9 | % |  |  | 36,449 |  |  |  | 3.4 | %

|  | Nine Months Ended May 31, |
|  | 2022 |  |  | % of Net Sales |  |  | 2021 |  |  | % of Net Sales |  |  | $ Change |  |  | % Change |
Net sales, excluding joint ventures |  | $ | 51,654,355 |  |  |  | 95.8 | % |  | $ | 38,619,353 |  |  |  | 94.2 | % |  | $ | 13,035,002 |  |  |  | 33.8 | %
Net sales, to joint ventures |  |  | 2,252,618 |  |  |  | 4.2 | % |  |  | 2,361,165 |  |  |  | 5.8 | % |  |  | (108,547 | ) |  |  | -4.6 | %
Cost of goods sold |  |  | 36,977,619 |  |  |  | 68.6 | % |  |  | 26,997,582 |  |  |  | 65.9 | % |  |  | 9,980,037 |  |  |  | 37.0 | %
Equity in income from joint ventures |  |  | 3,662,178 |  |  |  | 6.8 | % |  |  | 5,779,260 |  |  |  | 14.1 | % |  |  | (2,117,082 | ) |  |  | -36.6 | %
Fees for services provided to joint ventures |  |  | 3,835,755 |  |  |  | 7.1 | % |  |  | 4,388,866 |  |  |  | 10.7 | % |  |  | (553,111 | ) |  |  | -12.6 | %
Selling expenses |  |  | 9,659,457 |  |  |  | 17.9 | % |  |  | 8,745,433 |  |  |  | 21.3 | % |  |  | 914,024 |  |  |  | 10.5 | %
General and administrative expenses |  |  | 7,675,622 |  |  |  | 14.2 | % |  |  | 6,125,151 |  |  |  | 14.9 | % |  |  | 1,550,471 |  |  |  | 25.3 | %
Research and development expenses |  |  | 3,557,437 |  |  |  | 6.6 | % |  |  | 3,217,410 |  |  |  | 7.9 | % |  |  | 340,027 |  |  |  | 10.6 | %

Net Sales. NTIC’s consolidated net sales increased 23.0% and 31.5% to $18,964,921 and $53,906,973 during the three and nine months ended May 31, 2022, respectively, compared to the three and nine months ended May 31, 2021. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased 30.2% and 33.8% to $18,463,253 and $51,654,355 during the three and nine months ended May 31, 2022, respectively, compared to the same respective periods in fiscal 2021. These increases were primarily a result of $2,580,861 and $7,290,964, respectively, in incremental sales as a result of the Zerust India acquisition during the three and nine months ended May 31, 2022, and increased demand across all market segments.

The following table sets forth NTIC’s net sales by product segment for the three and nine months ended May 31, 2022 and 2021 by segment:

|  | Three Months Ended May 31, |  |  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total ZERUST® sales |  |  | 14,446,832 |  |  | $ | 12,378,215 |  |  |  | 41,988,394 |  |  | $ | 32,882,882 |
Total Natur-Tec® sales |  |  | 4,518,089 |  |  |  | 3,040,309 |  |  |  | 11,918,579 |  |  |  | 8,097,636 |
Total net sales |  | $ | 18,964,921 |  |  | $ | 15,418,524 |  |  | $ | 53,906,973 |  |  | $ | 40,980,518 |

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During the three and nine months ended May 31, 2022, 76.2% and 77.9% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 16.7% and 27.7% to $14,446,832 and $41,988,394, respectively, compared to $12,378,215 and $32,882,882 during the three and nine months ended May 31, 2021, respectively. These increases were due to incremental sales as a result of the Zerust India acquisition and increased sales to new and existing customers due to increased global demand.

The following table sets forth NTIC’s net sales of ZERUST® products for the three and nine months ended May 31, 2022 and 2021:

|  | Three Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | $ Change |  |  | % Change |
ZERUST® industrial net sales |  | $ | 12,412,981 |  |  | $ | 10,100,638 |  |  | $ | 2,312,343 |  |  |  | 22.9 | %
ZERUST® joint venture net sales |  |  | 528,670 |  |  |  | 1,253,920 |  |  |  | (725,250 | ) |  |  | -57.8 | %
ZERUST® oil & gas net sales |  |  | 1,505,181 |  |  |  | 1,023,657 |  |  |  | 481,524 |  |  |  | 47.0 | %
Total ZERUST® net sales |  | $ | 14,446,832 |  |  | $ | 12,378,215 |  |  | $ | 2,068,617 |  |  |  | 12.1 | %

|  | Nine Months Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | $ Change |  |  | % Change |
ZERUST® industrial net sales |  | $ | 36,680,856 |  |  | $ | 28,574,297 |  |  | $ | 8,106,559 |  |  |  | 28.4 | %
ZERUST® joint venture net sales |  |  | 2,252,620 |  |  |  | 2,361,165 |  |  |  | (108,545 | ) |  |  | -4.6 | %
ZERUST® oil & gas net sales |  |  | 3,054,918 |  |  |  | 1,947,420 |  |  |  | 1,107,498 |  |  |  | 56.9 | %
Total ZERUST® net sales |  | $ | 41,988,394 |  |  | $ | 32,882,882 |  |  | $ | 9,105,512 |  |  |  | 80.6 | %

NTIC’s total ZERUST® net sales increased during the three and nine months ended May 31, 2022, compared to the prior fiscal year periods, primarily due to $2,580,861 and $7,290,964, respectively, in incremental sales as a result of the Zerust India acquisition during the three and nine months ended May 31, 2022. Additionally, there was 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.

ZERUST® oil and gas net sales increased 47.0% and 56.9% during the three and nine months ended May 31, 2022 compared to the prior fiscal year periods primarily as a result of new opportunities with new customers compared to the prior fiscal year periods. NTIC anticipates that its sales of ZERUST® products and services into the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized, specifically due to the volatility of oil prices. Demand for oil and gas products around the world depends primarily on market acceptance and the reach of NTIC’s distribution network. Because of the typical size of individual orders and overall size of NTIC’s net sales derived from sales of oil and gas products, the timing of one or more orders can materially affect NTIC’s quarterly sales compared to prior fiscal year quarters.

During the three and nine months ended May 31, 2022, 23.8% and 22.1% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, which increased 48.6% and 47.2% to $4,518,089 and $11,918,579 during the three and nine months ended May 31, 2022, respectively, compared to the three and nine months ended May 31, 2021 as a result of increased global demand. The COVID-19 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 has experienced a recovery in many of these areas to pre-pandemic levels, but still expects some of these customers will be the last businesses to fully re-open and operate at full pre-pandemic capacities, and accordingly, anticipates that the COVID-19 pandemic will continue to adversely affect sales of Natur-Tec® products during the remainder of fiscal 2022 and into fiscal 2023.

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Cost of Goods Sold. Cost of goods sold increased 25.3% and 37.0% for the three and nine months ended May 31, 2022, respectively, compared to the three and nine months ended May 31, 2021 primarily as a result of the increase in net sales, as described above, and price increases on raw materials used in NTIC’s products, as well as increased labor and shipping costs. Cost of goods sold as a percentage of net sales increased to 67.1% and 68.6% during the three and nine months ended May 31, 2022, compared to 65.8% and 65.9% during the three and nine months ended May 31, 2021 primarily due to price increases on raw materials used in NTIC’s products, as well as increased labor and shipping costs, partially offset by the increase in net sales. Although NTIC has taken certain actions to address inflationary pressures and pass on as much of the related cost increases on to its customers as possible, it expects some these inflationary pressures to persist into the fourth quarter of fiscal 2022 and into fiscal 2023 and does not expect to fully realize all the benefits from its actions until the fourth quarter of fiscal 2022. Some improvements in gross margin, however, were realized during the three months ended May 31, 2022.

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures decreased 32.9% and 36.6% to $1,364,597 and $3,662,178 during the three and nine months ended May 31, 2022, respectively, compared to $2,033,536 and $5,779,260 during the three and nine months ended May 31, 2021, respectively. These decreases were primarily due to the fact that Zerust India is now a consolidated subsidiary within NTIC’s financial statements and an increase in operating expenses and a decrease in gross margins at the joint ventures. NTIC’s equity in income from joint ventures fluctuates based on net sales and profitability of the joint ventures during the respective periods. Of the total equity in income from joint ventures, NTIC had equity in income from joint ventures of $2,324,605 attributable to EXCOR during the nine months ended May 31, 2022, compared to $3,182,691 during the nine months ended May 31, 2021. NTIC had equity in income from all other joint ventures of $1,337,572 during the nine months ended May 31, 2022, compared to $2,596,569 during the nine months ended May 31, 2021.

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,329,988 and $3,835,755 during the three and nine months ended May 31, 2022, respectively, compared to $1,589,621 and $4,388,866 during the three and nine months ended May 31, 2021, respectively, representing decreases of 16.3% and 12.6%, respectively. 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 amount of sales experienced by certain joint ventures. Total net sales of NTIC’s joint ventures decreased to $26,594,077 and $78,218,839 during the three and nine months ended May 31, 2022, respectively, compared to $31,959,539 and $87,795,284 during the three and nine months ended May 31, 2021, respectively, representing decreases of 16.8% and 10.9%, respectively. These decreases were primarily a result of decreased demand during the current fiscal year periods and the Zerust India acquisition since its sales were included in NTIC’s net sales in the prior fiscal year periods. 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 $639,738 were attributable to EXCOR during the nine months ended May 31, 2022, compared to $692,770 attributable to EXCOR during the nine months ended May 31, 2021.

Selling Expenses. NTIC’s selling expenses increased 8.8% and 10.5% for the three and nine months ended May 31, 2022, respectively, compared to the same respective periods in fiscal 2021 due primarily to incremental expenses due to the Zerust India acquisition, as well as an increase in travel and personnel expenses compared to the expenses incurred during the three and nine months ended May 31, 2021. Selling expenses as a percentage of net sales decreased to 18.2% and 17.9% for the three and nine months ended May 31, 2022, respectively, from 20.6% and 21.3% for the three and nine months ended May 31, 2021, respectively, primarily due to the net sales increases, and partially offset by the increased selling expenses, as previously described.

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General and Administrative Expenses. NTIC’s general and administrative expenses increased 23.6% and 25.3% for the three and nine months ended May 31, 2022, respectively, compared to the same respective periods in fiscal 2021 primarily due to incremental expenses due to the Zerust India acquisition and transaction expenses incurred to complete the acquisition, as well as increased travel and personnel expenses compared to the expenses incurred during the three and nine months ended May 31, 2021. As a percentage of net sales, general and administrative expenses increased to 13.5% and decreased to 14.2% for the three and nine months ended May 31, 2022, respectively, compared to 13.4% and 14.9% for the same respective periods in fiscal 2021. The increase for the three-month comparison is due to the increase in general and administrative expenses, partially offset by the increase in net sales. The decrease for the six-month comparison is due to the increase in net sales, partially offset by the increase in general and administrative expenses.

Research and Development Expenses. NTIC’s research and development expenses increased 3.4% and 10.6% for the three and nine months ended May 31, 2022, respectively, compared to the same respective periods in fiscal 2021 primarily due to increased personnel and development efforts.

Interest Income. NTIC’s interest income increased to $15,925 and decreased to $36,777 during the three and nine months ended May 31, 2022, respectively, compared to $10,676 and $95,852 during the three and nine months ended May 31, 2021, respectively, primarily due to changes in the invested cash balances.

Interest Expense. NTIC’s interest expense increased to $23,784 and $34,079 during the three and nine months ended May 31, 2022, respectively compared $3,044 and $10,661 during the three and nine months ended May 31, 2021 due primarily to increased outstanding borrowings under the line of credit during the current fiscal year period.

Remeasurement Gain on Acquisition of Equity Method Investee. Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings. As such, since NTIC acquired the remaining 50% ownership interest of Zerust India effective September 1, 2021, NTIC recognized a gain of $3,951,550 during the nine months ended May 31, 2022. This gain is included in “Remeasurement gain on acquisition of equity method investee” on NTIC’s consolidated statements of operations.

Income Before Income Tax Expense. NTIC had income before income tax expense of $1,815,077 and $7,489,018 for the three and nine months ended May 31, 2022, respectively, compared to $2,586,386 and $6,148,259 for the three and nine months ended May 31, 2021, respectively.

Income Tax Expense. Income tax expense was $604,314 and $1,260,437 for the three and nine months ended May 31, 2022, respectively, compared to income tax expense of $276,338 and $929,588 during the three and nine months ended May 31, 2021, respectively. Income tax expense was calculated based on management’s estimate of NTIC’s annual effective income tax rate.

NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outside the United States on the basis of estimates that NTIC’s future domestic cash generation will be sufficient to meet future domestic cash needs. As a result, U.S. income and foreign withholding taxes have not been recognized on the cumulative undistributed earnings of $20,844,284 and $24,702,778 as of May 31, 2022 and August 31, 2021, respectively. To the extent undistributed earnings of NTIC’s joint ventures are distributed in the future, they are not expected to result in any material additional income tax liability after the application of foreign tax credits.

Net Income Attributable to NTIC. Net income attributable to NTIC decreased to $1,000,167, or $0.11 per diluted common share, for the three months ended May 31, 2022, compared to $2,053,916, or $0.21 per diluted common share, for the three months ended May 31, 2021. Net income attributable to NTIC increased to $5,676,773, or $0.59 per diluted common share, for the nine months ended May 31, 2022, compared to $4,628,890, or $0.47 per diluted common share, for the nine months ended May 31, 2021. The decrease for the three-month comparison was primarily due to a significant increase in cost of goods sold, a decrease in joint venture operations and an increase in operating expenses in the current fiscal year period. The increase for the nine-month comparison was primarily due to the remeasurement gain related to the acquisition of Zerust India of $3,951,550 included in “Remeasurement gain on acquisition of equity method investee” on NTIC’s consolidated statements of operations, which was partially offset by a significant increase in cost of goods sold, a decrease in joint venture operations and an increase in operating expenses in the current fiscal year period.

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NTIC anticipates that its earnings for the remainder of fiscal 2022 will continue to be adversely affected by both the COVID-19 pandemic and worldwide supply disruptions, among other factors. Additionally, NTIC anticipates that its quarterly net income 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 sales 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 the three and nine months ended May 31, 2022 compared to the same periods in fiscal 2021.

Liquidity and Capital Resources

Sources of Cash and Working Capital. NTIC’s working capital, defined as current assets less current liabilities, was $24,726,778 as of May 31, 2022, including $6,123,269 in cash and cash equivalents and $5,574 in available for sale securities, compared to $25,230,893 as of August 31, 2021, including $7,680,641 in cash and cash equivalents and $4,634 in available for sale securities.

NTIC has a revolving line of credit with PNC Bank of $7,000,000, which was increased from $5,000,000 effective as of May 20, 2022 to allow for financial flexibility, and will be decreased back to $5,000,000 effective as of August 16, 2022. As of May 31, 2022, $4,700,000 was outstanding under the revolving line of credit, compared to no borrowings outstanding as of August 31, 2021. Such outstanding borrowings were used primarily to fund the Company’s acquisition of the remaining ownership interest of Zerust India. Outstanding advances under the line of credit bear interest at the daily Bloomberg Short-Term Bank Yield Index rate plus 250 basis points (2.50%). The line of credit is scheduled to mature on January 7, 2023. The line of credit is governed under an Amended and Restated Loan Agreement dated August 31, 2021. 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 May 31, 2022, NTIC was in compliance with all debt covenants under the Amended and Restated Loan Agreement. As of May 31, 2022, 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 the remainder of fiscal 2022 and in fiscal 2023, NTIC expects to continue to invest directly and through its use of working capital in Zerust India, 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.

NTIC also expects to use some of its capital resources to continue to transition some of its joint ventures as needed or appropriate, which may include additional acquisitions by NTIC of the remaining ownership interests of joint ventures not owned by NTIC or dissolutions or liquidations of one or more of its joint ventures, including in particular its joint venture in Russia, which NTIC terminated in May 2022. The termination of its joint venture in Russia did not have a material adverse effect on NTIC’s results of operations or financial condition or its joint venture operations given the immateriality of the operations of this joint venture.

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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.

In order to take advantage of new product and market opportunities to expand its business and increase its revenues and assist with joint venture transitions, NTIC may decide to finance such opportunities by additional borrowings 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.

Uses of Cash and Cash Flows. Net cash provided by operating activities during the nine months ended May 31, 2022 was $1,778,094, which resulted principally from NTIC’s net income, dividends received from joint ventures, depreciation and amortization expense, stock-based compensation and deferred income tax, partially offset by the remeasurement gain on acquisition of equity method investee and equity in income from joint ventures. Net cash provided by operating activities during the nine months ended May 31, 2021 was $1,053,695, which resulted principally from NTIC’s net income, dividends received from joint ventures, stock-based compensation, depreciation, amortization and decreases in accounts payable and accrued liabilities, partially offset by NTIC’s equity in income from joint ventures and an increase in inventory, accounts receivable and prepaid expenses and other.

NTIC’s cash flows from operations are impacted by significant changes in certain components of NTIC’s working capital, including inventory turnover and changes in receivables 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 inventory as of May 31, 2022, compared to August 31, 2021. Trade receivables, excluding joint ventures, as of May 31, 2022, increased $2,705,775, compared to August 31, 2021, primarily related to an increase in sales.

Outstanding trade receivables, excluding joint ventures balances, as of May 31, 2022 remained the same at 69 days from balances outstanding from these customers as of August 31, 2021.

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Outstanding trade receivables from joint ventures as of May 31, 2022 increased $232,364, compared to August 31, 2021, primarily due to the timing of payments. Outstanding balances from trade receivables from joint ventures increased an average of 62 days to an average of 86 days from balances outstanding from these customers compared to August 31, 2021. The average days outstanding of trade receivables from joint ventures as of May 31, 2022 were primarily due to the receivables balances at various NTIC’s joint ventures.

Outstanding receivables for services provided to joint ventures as of May 31, 2022 decreased $261,913, compared to August 31, 2021, and the average days to pay decreased an average of 2 days to an average of 86 days compared to August 31, 2021.

Net cash used in investing activities for the nine months ended May 31, 2022 was $6,531,034, which was primarily the result of the purchase of the remaining 50% ownership interest in Zerust India, purchases of property and equipment, investment in joint venture and investments in patents. Net cash used in investing activities for the nine months ended May 31, 2021 was $399,780, which was primarily the result of purchase of available for sale securities, purchases of property and equipment, and investments in patents, partially offset by the proceeds from the sale of available for sale securities.

Net cash provided by financing activities for the nine months ended May 31, 2022 was $2,634,650, which resulted from borrowings under the line of credit and proceeds from the exercise of stock options and NTIC’s employee stock purchase plan, partially offset by dividends paid on NTIC common stock and dividends received by non-controlling interest. Net cash used in financing activities for the nine months ended May 31, 2021 was $1,309,609, which resulted from dividends paid on NTIC common stock and dividends received by 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. No repurchases occurred during the nine months ended May 31, 2022. As of May 31, 2022, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Cash Dividends. During the nine months ended May 31, 2022, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts to holders of record of NTIC common stock as of the following record dates:

Declaration Date |  | Amount |  | Record Date |  | Payable Date
October 20, 2021 |  | $ | 0.07 |  | November 3, 2021 |  | November 17, 2021
January 21, 2022 |  | $ | 0.07 |  | February 2, 2022 |  | February 16, 2022
April 22, 2022 |  | $ | 0.07 |  | May 4, 2022 |  | May 18, 2022

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 the nine months ended May 31, 2021, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts to holders of record of NTIC common stock as of the following record dates:

Declaration Date |  | Amount |  | Record Date |  | Payable Date
January 15, 2021 |  | $ | 0.065 |  | February 3, 2021 |  | February 17, 2021
April 23, 2021 |  | $ | 0.065 |  | May 5, 2021 |  | May 19, 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 NTIC’s business, operating results and financial condition.

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Capital Expenditures and Commitments. NTIC spent $961,704 on capital expenditures during the nine months ended May 31, 2022, which related primarily to the purchase of new equipment and facility improvements. 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 in connection with the new corporate headquarters of NTIC China.

Contractual Obligations

There has been no material change to NTIC’s contractual obligations as provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations,” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2021.

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.

Inflation and Seasonality

Although inflation in the United States and abroad historically has had little effect on NTIC, inflationary pressures adversely affected NTIC’s gross margins during the first nine months of fiscal 2022 and are expected to persist into at least the fourth quarter of fiscal 2022 and into fiscal 2023. NTIC believes there is some seasonality in its business. NTIC’s 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 revolving line of credit with PNC Bank bear interest at an annual rate based on daily LIBOR plus 2.50%. As of May 31, 2022, NTIC had borrowings of $4,700,000 under the line of credit that existed as of that date.

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Critical Accounting Policies and Estimates

There have been no material changes to NTIC’s critical accounting policies and estimates from the information provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2021, other than the new critical accounting policy below in light of NTIC’s Zerust India acquisition.

Business Combinations

When applicable, NTIC accounts for the acquisition of a business in accordance with the accounting standards codification guidance for business combinations, whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.

Assigning estimated fair values to the net assets acquired requires the use of significant estimates, judgments, inputs, and assumptions regarding the fair value of intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment. While the ultimate responsibility for determining estimated fair values of the acquired net assets resides with management, for material acquisitions, NTIC may retain the services of certified valuation specialists to assist with assigning estimated fair values to certain acquired assets and assumed liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment. Estimated fair values of acquired intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment are generally based on available historical information, future expectations, available market data, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, technological obsolescence, the useful life of the acquired assets, and other factors. These significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on the nature of the respective asset, such as the income approach, the market or sales comparison approach, or the cost approach; estimating future cash flows based on projected revenues and/or margins that NTIC expects to generate subsequent to the acquisition; applying an appropriate discount rate to estimate the present value of those projected cash flows NTIC expects to generate; selecting an appropriate terminal growth rate and/or royalty rate or estimating a customer attrition or technological obsolescence factor where necessary and appropriate given the nature of the respective asset; assigning an appropriate contributory asset charge where needed; determining an appropriate useful life and the related depreciation or amortization method for the respective asset; and assessing the accuracy and completeness of other historical financial metrics of the acquiree used as standalone inputs or as the basis for determining estimated projected inputs such as margins, customer attrition, and costs to hold and sell product.

In determining the estimated fair value of intangible assets that are separately identifiable from goodwill, NTIC typically utilizes the income approach, which discounts the projected future cash flows using a discount rate that appropriately reflects the risks associated with the projected cash flows. Generally, NTIC estimates the fair value of acquired customer relationships using the relief from royalty method under the income approach, which is based on the hypothetical royalty stream that would be received if NTIC were to license the acquired trade name. For most other acquired intangible assets, NTIC estimates fair value using the excess earnings method under the income approach, which is typically applied when cash flows are not directly generated by the asset, but rather, by an operating group that includes the particular asset. In certain instances, particularly in relation to developed technology or patents, NTIC may utilize the cost approach depending on the nature of the respective intangible asset and the recency of the development or procurement of such technology. The useful lives and amortization methods for the acquired intangible assets that are separately identifiable from goodwill are generally determined based on the period of expected cash flows used to measure the fair value of the acquired intangible assets and the nature of the use of the respective acquired intangible asset, adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors such as customer attrition rates and product or order lifecycles that may limit the useful life of the respective acquired intangible asset. In determining the estimated fair value of acquired inventory, NTIC typically utilizes the cost approach for raw materials and the sales comparison approach for work in process, finished goods, and service parts. In determining the estimated fair value of acquired property, plant, and equipment, NTIC typically utilizes the sales comparison approach or the cost approach depending on the nature of the respective asset and the recency of the construction or procurement of such asset.

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NTIC may refine the estimated fair values of assets acquired and liabilities assumed, if necessary, over a period not to exceed one year from the date of acquisition by taking into consideration new information that, if known as of the date of acquisition, would have affected the estimated fair values ascribed to the assets acquired and liabilities assumed. The judgments made in determining the estimated fair value assigned to assets acquired and liabilities assumed, as well as the estimated useful life and depreciation or amortization method of each asset, can materially impact the net earnings of the periods subsequent to an acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. During the measurement period, any purchase price allocation changes that impact the carrying value of goodwill will affect any measurement of goodwill impairment taken during the measurement period, if applicable. If necessary, purchase price allocation revisions that occur outside of the measurement period are recorded within cost of sales, selling expenses or general and administrative expenses within NTIC’s consolidated statements of operations depending on the nature of the adjustment.

Recent Accounting Pronouncements

See Note 2 to NTIC’s consolidated financial statements for a discussion of recent accounting pronouncements.

Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, NTIC’s financial condition, results of operations and business, the anticipated effect of COVID-19 and its recent acquisition of Zerust India on NTIC’s business, operating results and financial condition, and 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,” or “continue” or the negative of these words or other words and terms of similar meaning. The use of future dates is also an indication of a forward-looking statement. Forward-looking statements may be contained in the notes to NTIC’s consolidated financial statements and elsewhere in this report, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on current expectations about future events affecting NTIC and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to NTIC. These uncertainties and factors are difficult to predict, and many of them are beyond NTIC’s control. The following are some of the uncertainties and factors known to us that could cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements:

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| ● | 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 through the remainder of fiscal 2022 and into fiscal 2023, 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, including in particular as a result of the ongoing conflict between Russia and Ukraine;

| ● | 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 acquisition of the remaining 50% ownership interest in its Indian joint venture, Zerust India;

| ● | 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;

| ● | 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;

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| ● | 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, and which may be impacted by the action of Russian military forces in Ukraine;

| ● | 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 NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2021 under the heading “Part I. Item 1A. Risk Factors.”

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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 Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NTIC is exposed to some market risk stemming from changes in foreign currency exchange rates, commodity prices and interest rates.

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese Yen, 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 revolving line of credit with PNC Bank bear interest at an annual rate based on daily LIBOR plus 2.50%. As of May 31, 2022, NTIC had borrowings of $4,700,000 under the line of credit that existed as of that date.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

NTIC maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed by NTIC in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to NTIC’s management, including NTIC’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. NTIC’s management evaluated, with the participation of its Chief Executive Officer and its Chief Financial Officer, the effectiveness of the design and operation of NTIC’s disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, NTIC’s Chief Executive Officer and Chief Financial Officer concluded that NTIC’s disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in the reports that NTIC files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to NTIC’s management, including NTIC’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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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 May 31, 2022 that has materially affected or is reasonably likely to materially affect NTIC’s internal control over financial reporting, other than changes implemented to continue integrating Zerust India’s internal controls with NTIC’s internal controls.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 14 to NTIC’s consolidated financial statements in Part I. Item 1. Financial Statements of this report.

ITEM 1A. RISK FACTORS

Although Item 1A. is inapplicable to NTIC as a smaller reporting company, NTIC hereby discloses the following additional risks to NTIC’s risk factors described in its annual report on Form 10-K for the fiscal year ended August 31, 2021:

The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations.

Given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including geopolitical risks such as the current conflict between Russia and Ukraine, may adversely affect our business and results of operations. We have limited operations in Russia and Ukraine, which have been adversely affected by the ongoing conflict between Russia and Ukraine, though these losses are not expected to have a material impact on our operating results. We terminated our joint venture in Russia in May 2022, which we believe will not have an adverse effect on our results of operations or financial condition given the immateriality of the joint venture. The broader consequences of this conflict, which may include additional international sanctions, embargoes, regional instability, and geopolitical shifts; increased tensions between the United States and countries in which we operate; and the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.

To the extent the current conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening many other risks disclosed in our annual report on Form 10-K for the fiscal year ended August 31, 2021, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation, demand for our products and potential recessionary economic conditions; increased cyber security threats; adverse changes in trade policies, taxes, government regulations, and tariffs; our ability to maintain or increase our prices in response to rising shipping costs; our ability to implement and execute our business strategy, particularly with regard to our joint ventures; disruptions in global supply chains; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets.

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

In the past, NTIC has experienced some seasonality with respect to the sale of its ZERUST® rust and corrosion inhibiting products into the oil and gas industry, with sales during parts of the second and third fiscal quarters being adversely affected by winter in the United States. Although the price of crude oil is close to an all-time high, the sale of NTIC’s ZERUST® rust and corrosion inhibiting products into the oil and gas industry, particularly in the United States, has historically been hampered by low global crude oil prices. Low global crude oil prices have been and may continue to be 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 ongoing conflict between Russia and Ukraine has escalated tensions between Russia and other countries, some of which have imposed sanctions and taken other economic actions that have contributed to, and are expected to continue to contribute to, rising global crude oil prices, which prices had already risen substantially due to ongoing inflationary pressures. Additional international sanctions against Russia may be imposed, which could further increase these costs. NTIC believes the ongoing conflict between Russia and Ukraine and the continued impact of high rates of inflation may create uncertainty among its existing and prospective customers, which may cause them to halt oil and gas projects or elect to decrease capital improvement budgets, either of which could harm NTIC’s ability to sell its products into the oil and gas industry.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Equity Securities

During the three months ended May 31, 2022, NTIC did not issue any shares of its common stock or other equity securities of NTIC that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table shows NTIC’s third quarter of fiscal 2022 stock repurchase activity.

Period |  | Total Number of Shares (or Units) Purchased |  |  | Average Price Paid Per Share (or Unit) |  |  | Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs |  |  | Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
March 1, 2022 through March 31, 2022 |  |  | 0 |  |  | $ | 0 |  |  |  | 0 |  |  |  | (1 | )
April 1, 2022 through April 30, 2022 |  |  | 0 |  |  | $ | 0 |  |  |  | 0 |  |  |  | (1 | )
May 1, 2022 through May 31, 2022 |  |  | 0 |  |  | $ | 0 |  |  |  | 0 |  |  |  | (1 | )
Total |  |  | 0 |  |  | $ | 0 |  |  |  | 0 |  |  |  | (1 | )(2)

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

(2) | As of May 31, 2022, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On May 20, 2022, to maintain financial flexibility, the Company issued an Amended and Restated Revolving Line of Credit Note to PNC Bank, National Association, which increased the Company’s line of credit from $5,000,000 to $7,000,000 until August 16, 2022, at which time the line of credit will go back to $5,000,000 until its expiration date on January 7, 2023.

The foregoing description of the Amended and Restated Revolving Line of Credit Note is qualified in its entirety by reference to the Amended and Restated Revolving Line of Credit Note, which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and incorporated by reference herein.

ITEM 6. EXHIBITS

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

Exhibit No. |  | Description |  | Method of Filing
10.1 |  | Amended and Restated Revolving Line of Credit Note dated as of March 1, 2022 issued by Northern Technologies International Corporation to PNC Bank, National Association |  | Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2022 (File No. 001-11038).
10.2 |  | Amended and Restated Revolving Line of Credit Note dated as of May 20, 2022 issued by Northern Technologies International Corporation to PNC Bank, National Association |  | Filed herewith
31.1 |  | 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 |  | Filed herewith
31.2 |  | 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 |  | Filed herewith
32.1 |  | Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Furnished herewith
32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Furnished herewith

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Exhibit No. |  | Description |  | Method of Filing
101 |  | The following materials from NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Comprehensive Income, (iv) the unaudited Consolidated Statements of Equity, (v) the unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements |  | Filed herewith
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |  | Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
| /s/ Matthew C. Wolsfeld
Date: July 8, 2022 | Matthew C. Wolsfeld, CPA
| Chief Financial Officer
| (Principal Financial and Accounting Officer and Duly Authorized to Sign on Behalf of the Registrant)

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