NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION 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 endedAugust 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. InNorth 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 inChina ,NTIC (Shanghai) Co., Ltd. (NTIC China), startingSeptember 1, 2021 its wholly-owned subsidiary inIndia ,Harita-NTI Ltd. (Zerust India), its majority-owned joint venture holding company for NTIC's joint venture investments in theAssociation of Southeast Asian Nations (ASEAN) region,NTI Asean LLC (NTI Asean), certain majority-owned and wholly-owned subsidiaries, and joint venture arrangements inNorth America ,Europe , andAsia . NTIC also sells products directly to its European joint venture partners through its wholly-owned subsidiary inGermany ,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. 18 -------------------------------------------------------------------------------- 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. InNorth 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 inChina and majority-owned subsidiaries inIndia andSri Lanka , and through distributors and certain joint ventures.
Recent Acquisition of Zerust India
OnSeptember 21, 2021 , NTIC announced that it acquired the remaining 50% ownership interest in its Indian joint venture, Zerust India, for$6.25 million in cash, effective as ofSeptember 1, 2021 . Prior toSeptember 1, 2021 , NTIC owned 50% of the outstanding capital stock of Zerust India. NTIC had historically accounted for this investment under the equity method of accounting. The purchase price of$6.25 million 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$5.0 million . Because NTIC 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. EffectiveSeptember 1, 2021 , Zerust India is now a consolidated subsidiary within NTIC's financial statements. Net sales and net income related to Zerust India since the date of acquisition totaled$2,452,812 and$292,528 , respectively. The transaction costs associated with the acquisition were approximately$50,000 and are recorded in general and administrative expense as incurred during the three months endedNovember 30, 2021 . 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 effectiveSeptember 1, 2021 , NTIC recognized a gain of$3,951,550 during the three months endedNovember 30, 2021 . This gain is included in "Remeasurement gain on acquisition of equity method investee" on NTIC's consolidated statements of operations. 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 months endedNovember 30, 2021 as compared to the three months endedNovember 30, 2020 and it is anticipated that the acquisition will continue to have these effects on NTIC's financial results during the remainder of fiscal 2022. 19
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NTIC's Subsidiaries and Joint Venture Network
NTIC has ownership interests in 10 operating subsidiaries in
NTIC
Subsidiary Name Country Percent (%) Ownership
NTIC (Shanghai) Co., Ltd China 100%
NTI Asean LLC United States 60%
Zerust Prevenção de Corrosão S.A. Brazil 85%
ZERUST-EXCORMEXICO , S. de R.L. de C.VMexico
100%
Harita-NTI Limited India
100%
Natur-Tec India Private Limited India 75% Natur Tec Lanka (Pvt) Ltd Sri Lanka(1) 75% NTIC Europe GmbH Germany 100% Zerust Singapore Pte Ltd Singapore(2) 60% Zerust Vietnam Co. Ltd Vietnam(2) 60% __________________
(1)
and, therefore, indirectly owned by NTIC.
(2)
Asean LLC and, therefore, indirectly owned by NTIC. The results of these subsidiaries are fully consolidated in NTIC's consolidated financial statements, including Zerust India, which has been consolidated sinceSeptember 1, 2021 . NTIC participates in 17 active joint venture arrangements inNorth America ,Europe andAsia . Each of these joint ventures generally manufactures and markets products in the geographic territory to which it is assigned. While most of NTIC's joint ventures exclusively sell rust and corrosion inhibiting products, some of the joint ventures also sell NTIC's Natur-Tec® resin compounds. NTIC has historically funded its investments in joint ventures with cash generated from operations.
The following table sets forth a list of NTIC's operating joint ventures as of
NTIC
Joint Venture Name Country Percent (%) Ownership
TAIYONIC LTD. Japan 50%
ACOBAL SAS France 50%
EXCOR KORROSIONSSCHUTZ - TECHNOLOGIEN Germany 50%
UND PRODUKTE GMBH
ZERUST AB Sweden 50%
MOSTNIC-ZERUST Russia 50%
ZERUST OY Finland 50%
ZERUST (U.K.) LTD. United Kingdom 50%
EXCOR-ZERUST S.R.O. Czech Republic 50%
EXCOR SP. Z.O.O. Poland 50%
ZERUST A.?. Turkey 50%
ZERUST CONSUMER PRODUCTS, LLC United States 50%
ZERUST - DNEPR Ukraine 50%
KOREA ZERUST CO., LTD. South Korea (1) 30%
ZERUST-NIC (TAIWAN) CORP. Taiwan (1) 30%
PT. CHEMINDO - NTIA Indonesia (1) 30%
ZERUST SPECIALTY TECH CO. LTD. Thailand (1) 30%
CHONG WAH-NTIA SDN. BHD. Malaysia (1) 30%
____________________
(1) Indirect ownership interest through NTI Asean.
NTIC receives funds from its joint ventures as fees received for services that NTIC provides to its joint ventures and as dividend distributions. The fees for services provided to joint ventures are determined based on either a flat fee or a percentage of sales depending on local laws and tax regulations. With respect to NTIC's joint venture inGermany (EXCOR), NTIC recognizes an agreed upon quarterly fee for services. NTIC recognizes equity income from each joint venture based on the overall profitability of the joint venture. Such profitability is subject to variability from quarter to quarter, which, in turn, subjects NTIC's earnings to variability from quarter to quarter. The profits of each joint venture are shared by the respective joint venture owners in accordance with their respective ownership percentages. NTIC typically directly or indirectly owns 50% or less of each of its joint venture entities and, thus, does not control the decisions of these entities regarding whether dividends are paid and, if so, what amount is paid in a given year. The payment of a dividend by an entity is determined by a joint vote of the owners and is not at the sole discretion of NTIC. 20
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NTIC accounts for the investments and financial results of its joint ventures in its financial statements utilizing the equity method of accounting.
NTIC considers EXCOR to be individually significant to NTIC's consolidated
assets and income as of
Impact of the COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the novel coronavirus (COVID-19) outbreak a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and shipping, created significant volatility and disruption in financial markets and has resulted in an economic recession. The outbreak and continuing rapid spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and is causing weakened economic conditions, both inthe 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 withU.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 employeeswho must be present at NTIC's facilities to wear face coverings. NTIC expects to continue such safety measures for the foreseeable future and may take further actions, or adapt these existing policies, as government authorities may require or recommend or as it may determine to be in the best interests of its employees, customers and suppliers. NTIC has been balancing its safety-focused approach with the needs of its customers. Government mandated measures resulting in the substantial curtailment of business activities generally have excluded certain essential businesses and services, including certain manufacturing. With the exception of the temporary closures of NTIC's facilities inChina andIndia during the COVID-19 pandemic in 2020 and again sporadically during 2021, NTIC's manufacturing activities are generally considered part of the "critical sector" with respect to state and local government orders. This has allowed NTIC to continue to receive orders and provide uninterrupted order fulfillment to its customers. However, its facilities have been operating at a reduced capacity in order to abide by local government requirements and recommendations, such as social distancing practices, and in response to reduced demand. During the first quarter of fiscal 2022, certain of NTIC's facilities were impacted by reduced levels of production, manufacturing inefficiencies due to the reconfiguration of certain of its manufacturing processes in order to implement social distancing protocols and reduced demand. NTIC has engaged and continues to engage in communications with its suppliers in an attempt to identify and mitigate supply chain risks and 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. 21 -------------------------------------------------------------------------------- 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 three months endedNovember 30, 2021 , 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 second 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 second quarter of fiscal 2022 and are expected to continue to persist throughout fiscal 2022. Due to the international reach of COVID-19, NTIC's international joint ventures have also been adversely impacted. It is not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels for all business units.
Any of these events could materially adversely affect NTIC's business, operating results and financial condition.
Worldwide Supply Chain Disruptions
Worldwide supply chain disruptions, which were initially brought about by the impact of the COVID-19 pandemic, have persisted despite the recovery in the global economy and financial markets. These issues have continued into the second quarter of fiscal 2022 and are expected to continue throughout fiscal 2022. 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 throughout fiscal 2022 and could continue to have a material adverse effect on NTIC's business, operating results and financial condition. The precise financial impact and duration, however, cannot be reasonably estimated at this time. Financial Overview
NTIC's management, including its chief executive officer,
Highlights of our second quarter of fiscal 2022 financial results include:
? NTIC's consolidated net sales increased 42.4% during the three months ended
consolidated net sales for the three months ended
positively affected by incremental sales as a result of the Zerust India
acquisition and to a lesser extent increased demand, partially offset by
softened demand in certain regions and markets due to the COVID-19 pandemic.
NTIC expects this softness in sales as a result of the pandemic to continue
through at least the second quarter of fiscal 2022.
? During the three months ended
net sales were derived from sales of ZERUST® products and services, which
increased 41.1% to
ended
result of the Zerust India acquisition and increased sales to new and existing
customers due to increased global demand.. NTIC's consolidated net sales for
the three months ended
customers in the oil and gas industry compared to
months ended November 30, 2020 .
22--------------------------------------------------------------------------------
? Net sales of Natur-Tec® products increased 47.3% during the three months ended
primarily due to an increase in finished product sales in
NTIC's majority-owned subsidiary in
? Cost of goods sold as a percentage of net sales increased to 68.7% during the
three months ended
months ended
materials used in NTIC's products, as well as increased labor costs.
? NTIC's equity in income from joint ventures decreased 24.7% to
during the three months ended
the three months ended
the fact that Zerust India is now a consolidated subsidiary within NTIC's
financial statements and to a lesser extent an increase in operating expenses
and a decrease in gross margins at the joint ventures.
? Net sales at the joint ventures increased 0.9% to
months ended
ended
ventures was due primarily to increased sales to existing customers as a
result of increased global demand for existing products, partially offset by a
decrease in net sales at the joint ventures as a result of the Zerust India
acquisition and its sales being included in NTIC's net sales.
? NTIC's total operating expenses increased 19.6% to
months ended
ended November 30, 2020 . This increase was primarily due to $558,337 in
incremental expenses due to the Zerust India acquisition and increased
personnel, travel and research and development expenses.
? Since NTIC acquired the remaining 50% ownership interest of Zerust India
effective
three months ended
on acquisition of equity method investee" on NTIC's consolidated statements of
operations.
23--------------------------------------------------------------------------------
? NTIC incurred net income attributable to NTIC of
diluted common share, for the three months ended
Zerust India acquisition.
Results of Operations
The following table sets forth NTIC's results of operations for the three months
ended
Three Months Ended
November 30, % of November 30, % of $ %
2021 Net Sales 2020 Net Sales Change Change
Net sales, excluding
joint ventures $ 17,352,974 95.4 % $ 12,198,808 95.5 % 5,154,166 42.3 %
Net sales, to joint
ventures 840,439 4.6 % 580,304 4.5 % 260,135 44.8 %
Cost of goods sold 12,490,483 68.7 % 8,313,321 65.1 % 4,177,162 50.2 %
Equity in income from joint ventures 1,374,749 n/a 1,825,712 n/a (450,963 ) (24.7 )% Fees for services provided to joint ventures 1,258,858 n/a 1,336,561 n/a (77,703 ) (5.8 )% Selling expenses 3,237,758 17.8 % 2,741,768 21.5 % 495,990 18.1 % General and administrative expenses 2,596,347 14.3 % 2,093,982 16.4 % 502,365 24.0 % Research and development expenses 1,235,821 6.8 % 1,075,737 8.4 % 160,084 14.9 %Net Sales . NTIC's consolidated net sales increased 42.4% to$18,193,413 during the three months endedNovember 30, 2021 compared to the three months endedNovember 30, 2020 . NTIC's consolidated net sales to unaffiliated customers excluding NTIC's joint ventures increased 42.3% to$17,352,974 during the three months endedNovember 30, 2021 compared to the same period in fiscal 2021. These increases were primarily a result of$2,452,812 in incremental sales as a result of the Zerust India acquisition and increased demand, partially offset by softened demand in certain regions and markets due to the COVID-19 pandemic. NTIC expects this softness in sales as a result of the pandemic to continue through at least the second quarter of fiscal 2022.
The following table sets forth NTIC's net sales by product segment for the three
months ended
Three Months Ended
November 30, November 30, $ %
2021 2020 Change Change
Total ZERUST® sales
41.1 % Total Natur-Tec® sales 3,769,628 2,558,561 1,211,067 47.3 % Total net sales$ 18,193,413 $ 12,779,112 $ 5,414,301 42.4 % During the three months endedNovember 30, 2021 , 79.3% of NTIC's consolidated net sales were derived from sales of ZERUST® products and services, which increased 41.1% to$14,423,785 during the three months endedNovember 30, 2021 compared to$10,220,551 during the three months endedNovember 30, 2020 . This increase was primarily a result of incremental sales as a result of the ZerustIndia acquisition and increased demand inNorth America . 24 --------------------------------------------------------------------------------
The following table sets forth NTIC's net sales of ZERUST® products for the
three months ended
Three Months Ended
November 30, November 30, $ %
2021 2020 Change Change
ZERUST® industrial net sales $ 12,611,530 $ 9,077,554 $ 3,533,976 38.9 %
ZERUST® joint venture net sales 840,439 580,304 260,135 44.8 %
ZERUST® oil & gas net sales 971,816 562,693 409,123 72.7 %
Total ZERUST® net sales $ 14,423,785 $ 10,220,551 $ 4,203,234 41.1 %
NTIC's total ZERUST® net sales increased during the three months ended November
30, 2021 , compared to the prior fiscal year period, primarily due to overall
increased demand for ZERUST® industrial products and services. Overall demand
for ZERUST® products and services depends heavily on the overall health of the
markets in which NTIC sells its products, including the automotive, oil and gas,
agriculture, and mining markets in particular.
ZERUST® oil and gas net sales increased 72.7% during the three months ended
November 30, 2021 compared to the same period last fiscal year primarily as a
result of new opportunities with new customers compared to the prior fiscal year
period. 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 months ended November 30, 2021 , 20.7% of NTIC's consolidated
net sales were derived from sales of Natur-Tec® products, compared to 20.0%
during the three months ended November 30, 2020 . Sales of Natur-Tec® products
increased 47.3% to $3,769,628 during the three months ended November 30, 2021
compared to $2,558,561 during the three months ended November 30, 2020 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 still expects these customers
will be some of the last businesses to fully re-open, and accordingly,
anticipates that the COVID-19 pandemic will continue to adversely affect sales
of Natur-Tec® products during the remainder of fiscal 2022.
Cost of Goods Sold. Cost of goods sold increased 50.2% for the three months
ended November 30, 2021 compared to the three months ended November 30, 2020
primarily as a result of the increase in net sales, as described above. Cost of
goods sold as a percentage of net sales increased to 68.7% for the three months
ended November 30, 2021 compared to 65.1% for the three months ended November
30, 2020 primarily due to price increases on raw materials used in NTIC's
products, as well as increased labor costs. Although NTIC intends to take
certain actions to address inflationary pressures, it expects these inflationary
pressures to persist into at least the second quarter of fiscal 2022 and does
not expect to realize benefits from its actions until the second half of fiscal
2022.
Equity in Income from Joint Ventures. NTIC's equity in income from joint
ventures decreased 24.7% to $1,374,749 during the three months ended November
30, 2021 compared to $1,825,712 during the three months ended November 30, 2020 .
This decrease was primarily due to the fact that Zerust India is now a
consolidated subsidiary within NTIC's financial statements and to a lesser
extent 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 $910,773 attributable to EXCOR during the three months
ended November 30, 2021 compared to $1,010,537 during the three months ended
November 30, 2020 . NTIC had equity in income from all other joint ventures of
$463,976 during the three months ended November 30, 2021 , compared to $815,175
during the three months ended November 30, 2020 .
25
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Fees for Services Provided to Joint Ventures. NTIC recognized fee income for
services provided to joint ventures of $1,258,858 during the three months ended
November 30, 2021 compared to $1,336,561 during the three months ended November
30, 2020 , representing a decrease of $77,703 , or 5.8%. 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 increase in sales
which was experienced by certain joint ventures during the three months ended
November 30, 2021 . Total net sales of NTIC's joint ventures increased 0.9% to
$27,022,995 during the three months ended November 30, 2021 compared to
$26,777,343 for the three months ended November 30, 2020 due to increased global
demand, partially offset by Zerust India previously being included in the net
sales of NTIC's joint ventures. 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 $218,430 were attributable to EXCOR during the three months
ended November 30, 2021 compared to $228,826 attributable to EXCOR during the
three months ended November 30, 2020 .
Selling Expenses. NTIC's selling expenses increased 18.1% for the three months
ended November 30, 2021 compared to the same period 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 months ended November 30, 2020 . Selling expenses as a
percentage of net sales decreased to 17.8% for the three months ended November
30, 2021 from 21.5% during the three months ended November 30, 2020 primarily
due to the fluctuations in net sales and selling expenses, as previously
described.
General and Administrative Expenses. NTIC's general and administrative expenses
increased 24.0% for the three months ended November 30, 2021 compared to the
same period in fiscal 2021 due primarily to incremental expenses due to the
Zerust India acquisition, as well as increased travel and personnel expenses
compared to the expenses incurred during the three months ended November 30,
2020 . As a percentage of net sales, general and administrative expenses
decreased to 14.3% for the three months ended November 30, 2021 from 16.4% for
the three months ended November 30, 2020 primarily due to the increase in net
sales, as previously described.
Research and Development Expenses. NTIC's research and development expenses
increased 14.9% for the three months ended
Interest Income. NTIC's interest income decreased to$10,943 during the three months endedNovember 30, 2021 compared to$69,538 during the three months endedNovember 30, 2020 due primarily to changes in the invested cash balances. Interest Expense. NTIC's interest expense increased to$2,891 during the three months endedNovember 30, 2021 compared to$2,368 during the three months endedNovember 30, 2020 due primarily to 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 effectiveSeptember 1, 2021 , NTIC recognized a gain of$3,951,550 during the three months endedNovember 30, 2021 . This gain is included in "Remeasurement gain on acquisition of equity method investee" on NTIC's consolidated statements of operations. 26 -------------------------------------------------------------------------------- Income Before Income Tax Expense. NTIC had income before income tax expense of$5,226,213 for the three months endedNovember 30, 2021 compared to$1,783,747 for the three months endedNovember 30, 2020 .
Income Tax Expense. Income tax expense was
NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outsidethe 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$19,142,941 and$24,702,778 as ofNovember 30, 2021 andAugust 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 increased$3,231,360 to$4,493,759 , or$0.46 per diluted common share, for the three months endedNovember 30, 2021 compared to$1,262,399 , or$0.13 per diluted common share, for the three months endedNovember 30, 2020 . This increase was primarily due to the remeasurement gain related to the acquisition of ZerustIndia of$3,951,550 during the three months endedNovember 30, 2021 included in "Remeasurement gain on acquisition of equity method investee" on NTIC's consolidated statements of operations, as well as increased gross profit, partially offset by a decrease in joint venture operations and increased operating expenses during the three months endedNovember 30, 2021 . NTIC anticipates that its earnings for the remainder of fiscal 2022 will continue to be somewhat adversely affected by the COVID-19 pandemic. 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 theU.S. dollar compared to the Euro and other foreign currencies during the three months endedNovember 30, 2021 compared to the same period in fiscal 2021.
Liquidity and Capital Resources
Sources ofCash and Working Capital . NTIC's working capital, defined as current assets less current liabilities, was$25,875,362 as ofNovember 30, 2021 , including$8,047,565 in cash and cash equivalents and$4,634 in available for sale securities, compared to$25,230,893 as ofAugust 31, 2021 , including$7,680,641 in cash and cash equivalents and$4,634 in available for sale securities. As ofNovember 30, 2021 , NTIC has a revolving line of credit with PNC Bank of$5.0 million , which was increased from$3.0 million effective as ofAugust 31, 2021 .$2,500,000 was outstanding under the line of credit as ofNovember 30, 2021 . Outstanding advances under the line of credit bear interest at the daily BSBY rate plus 250 basis points (2.50%). The revolving line of credit matures onFebruary 22, 2022 . The line of credit is governed under an amended and restated loan agreement. The loan agreement contains standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, NTIC is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As ofNovember 30, 2021 , NTIC was in compliance with all debt covenants. As ofNovember 30, 2021 , NTIC did not have any letters of credit outstanding with respect to the letter of credit sub-facility available under the revolving line of credit with PNC Bank. 27
-------------------------------------------------------------------------------- OnJanuary 4, 2022 ,NTIC and PNC Bank entered into an Amended and Restated Revolving Line of Credit Note, which extended the maturity date toJanuary 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%). Additionally, beginningFebruary 23, 2022 and throughJanuary 7, 2023 , the line of credit will be decreased from$5.0 million to$3.0 million . The other material terms of the line of credit were not affected by this amendment. 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, 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. In order to take advantage of such new product and market opportunities to expand its business and increase its revenues, NTIC may decide to finance such opportunities by borrowing under its revolving line of credit or raising additional financing through the issuance of debt or equity securities. There is no assurance that any financing transaction will be available on terms acceptable to NTIC or at all or that any financing transaction will not be dilutive to NTIC's current stockholders. NTIC traditionally has used the cash generated from its operations, distributions of earnings from joint ventures and fees for services provided to its joint ventures to fund NTIC's new technology investments and capital contributions to new and existing subsidiaries and joint ventures. NTIC's joint ventures traditionally have operated with little or no debt and have been self-financed with minimal initial capital investment and minimal additional capital investment from their respective owners. Therefore, NTIC believes there is limited exposure by NTIC's joint ventures that could materially impact their respective operations and/or liquidity.
Uses of Cash and Cash Flows. Net cash provided by operating activities during
the three months ended
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.
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NTIC experienced an increase in trade receivables and inventory as of November
30, 2021 compared to August 31, 2021 . Trade receivables excluding joint ventures
as of November 30, 2021 increased $1,978,321 compared to August 31, 2021 ,
primarily related to an increase in sales.
Outstanding trade receivables, excluding joint ventures balances, as of November
30, 2021 remained comparable to an average of 69 days from balances outstanding
from these customers as of August 31, 2021 .
Outstanding trade receivables from joint ventures as of November 30, 2021
increased $166,438 compared to August 31, 2021 primarily due to the timing of
payments. Outstanding balances from trade receivables from joint ventures
decreased an average of 1 day from an average of 87 days from balances
outstanding from these customers compared to August 31, 2021 . The average days
outstanding of trade receivables from joint ventures as of November 30, 2021
were primarily due to the receivables balances at NTIC's joint ventures in the
United States , South Korea and Japan .
Outstanding receivables for services provided to joint ventures as of November
30, 2021 decreased $304,258 compared to August 31, 2021 and the average days to
pay decreased an average of 1 day from an average of 88 days to an average of 87
days, compared to August 31, 2021 .
Net cash used in investing activities for the three months ended November 30,
2021 was $5,429,590 , which was primarily the result of the purchase of the
remaining 50% ownership interest in Zerust India, purchases of property and
equipment, and investments in patents. Net cash used in investing activities
for the three months ended November 30, 2020 was $1,177,869 , which was primarily
the result of the purchase of available for sale securities, purchases of
property and equipment, and investments in patents.
Net cash provided by financing activities for the three months ended November
30, 2021 was $1,834,611 , which resulted from borrowings under the line of credit
and proceeds from NTIC's employee stock purchase plan and the exercise of stock
options, partially offset by dividends paid to shareholders and dividends
received by non-controlling interests. Net cash provided by financing activities
for the three months ended November 30, 2020 was $36,192 , which resulted from
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 three months ended
November 30, 2021 . As of November 30, 2021 , up to $2,640,548 in shares of NTIC
common stock remained available for repurchase under NTIC's stock repurchase
program.
Cash Dividends. On April 23, 2020 , the Company announced the temporary
suspension of its quarterly cash dividend pending clarity on the financial
impact of COVID-19 on the Company. Therefore, the Company did not declare a cash
dividend during the three months ended November 30, 2020 . However, on January
15, 2021 , the Company announced the reinstatement of its quarterly cash
dividend. On October 20, 2021 , the Company's Board of Directors declared a cash
dividend of $0.07 per share of NTIC's common stock on, payable on November 17,
2021 to stockholders of record on November 3, 2021 . The declaration of future
dividends is not guaranteed and will be determined by NTIC's Board of Directors
in light of conditions then existing, including NTIC's earnings, financial
condition, cash requirements, restrictions in financing agreements, business
conditions and other factors, including without limitation the effect of
COVID-19 on NTIC's business, operating results and financial condition.
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Capital Expenditures and Commitments. NTIC spent
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 endedAugust 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 inthe United States and abroad historically has had little effect on NTIC, inflationary pressures adversely affected NTIC's gross margins during the first quarter of fiscal 2022 and are expected to persist into at least the second quarter of fiscal 2022. Although NTIC's business historically has not been seasonal, NTIC believes there is some seasonality in its business. NTIC anticipates its net sales in the second fiscal quarter may be adversely affected by the longChinese 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 theU.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.
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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 November
30, 2021 , NTIC had borrowings of $2,500,000 under the line of credit that
existed as of that date.
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 endedAugust 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. 31
-------------------------------------------------------------------------------- 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, the
outcome of contingencies, such as legal proceedings. NTIC has identified some of
these forward-looking statements in this report with words like "believe,"
"can," "may," "could," "would," "might," "forecast," "possible," "potential,"
"project," "will," "should," "expect," "intend," "plan," "predict,"
"anticipate," "estimate," "approximate," "outlook," or "continue" or the
negative of these words or other words and terms of similar meaning. The use of
future dates is also an indication of a forward-looking statement.
Forward-looking statements may be contained in the notes to NTIC's consolidated
financial statements and elsewhere in this report, including under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
32-------------------------------------------------------------------------------- Forward-looking statements are based on current expectations about future events affecting NTIC and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to NTIC. These uncertainties and factors are difficult to predict, and many of them are beyond NTIC's control. The following are some of the uncertainties and factors known to us that could cause NTIC's actual results to differ materially from what NTIC has anticipated in its forward-looking statements:
? The effect of COVID-19 on NTIC's business, operating results and financial
condition, including disruption to our customers, suppliers and
subcontractors, as well as the global economy and financial markets;
? The effect of worldwide disruption in supply issues on NTIC's business,
operating results and financial condition, which will likely continue
throughout fiscal year 2022, regardless of the status of the COVID-19
pandemic;
? The effect of current worldwide economic conditions and any turmoil anddisruption in the global credit and financial markets on NTIC's business;
? Variability in NTIC's sales of ZERUST® products and services to the oil and
gas industry and Natur-Tec® products and NTIC's equity income of joint
ventures, which variability in sales and equity in income from joint ventures,
in turn, subject NTIC's earnings to quarterly fluctuations;
? Risks associated with NTIC's international operations and exposure tofluctuations in foreign currency exchange rates, import duties, taxes, and
tariffs;
? The effect of the
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
? NTIC's dependence on the success of its joint ventures and fees and dividend
distributions that NTIC receives from them;
? Risks associated with NTIC's recent acquisition of the remaining 50% ownership
interest in its Indian joint venture, 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 andservices 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;
? 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 endedAugust 31, 2021 under the heading "Part I. Item 1A. Risk Factors." All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. NTIC wishes to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results due to the uncertainties and factors described above and others that NTIC may consider immaterial or does not anticipate at this time. Although NTIC believes that the expectations reflected in its forward-looking statements are reasonable, NTIC does not know whether its expectations will prove correct. NTIC's expectations reflected in its forward-looking statements can be affected by inaccurate assumptions NTIC might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive, and further information concerning NTIC and its business, including factors that potentially could materially affect its financial results or condition, may emerge from time to time. NTIC assumes no obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. NTIC advises you, however, to consult any further disclosures NTIC makes on related subjects in its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K that NTIC files with or furnishes to theSecurities and Exchange Commission . 34
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