Northern Technologies International Corporation Annual Report 2017

FY2017 Annual Report · Northern Technologies International Corporation

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Northern Technologies
International Corporation
Fiscal 2017 Annual Report

Northern Technologies International Corporation
Northern Technologies International Corporation

• Notice of 2018 Annual Meeting
• Notice of 2018 Annual Meeting
• Proxy Statement
• Proxy Statement
• Annual Report on Form 10-K - August 31, 2017
• Annual Report on Form 10-K - August 31, 2017

Our Mission:

Our Environment:

Our business model of commercializing clean and green
technologies depends heavily on the talents, perseverance and
integrity of both our employees and our worldwide federation of
joint venture partners. We believe that our responsibilities are
first to our worldwide customers, then to our people, next to our
communities and finally to our shareholders. Therefore we must:

• Exercise honor, humanity and disciplined management

in our actions.

• See a unified world through the global perspectives

of our people.

• Ensure that the environment becomes a better place because

of what we do.

• Invest continuously in our future.

NTIC uses advanced technologies to care for the world we live in,
give back to society and strive to set an example for environmental
leadership and responsibility.

At NTIC, we believe that there is no alternative to doing
environmentally sustainable business while working to grow the
bottom line.

We encourage our employees, joint venture partners, distributors,
affiliates and suppliers
to carry out our environmental
commitments at the individual level through:

• Daily environmentally responsible business practices.
• Advanced R&D processes that promote the use of

environmentally responsible raw materials such as bio-based or
wind-powered sourced.

• Selecting components and manufacturing processes that reduce

waste and an impact on the environment.

• Education and programs to raise awareness about

our technologies and how they can help solve current
environmental challenges.

• Each NTIC employee is expected to practice an individual

commitment to sustainability and environmental responsibility
in the workplace.

Through our individual commitments to lessen our environmental
footprint and our advanced technologies which allow others to
practice sustainability, we have the power to benefit ourselves
as individuals, our federation of NTIC joint ventures and our
environment for many generations to come.

Our Technology Platforms:

ZERUST®/EXCOR® business unit manufactures and markets corrosion
inhibiting
technologies that provide customers with advanced solutions for corrosion across their
production facilities and supply chains. The technology uses proprietary chemical systems
to create invisible molecular corrosion shields on metal surfaces. The ZERUST®/EXCOR®
teams support clients globally in a broad range of industries including automotive,
electrical, electronic, medical, machine fabrications, steel production, military and
marine. ZERUST®/EXCOR® products and services allow customers to achieve substantial
cost savings as well as reduce the negative environmental impact caused by traditional
corrosion prevention methods and the waste caused by the corrosion of metal assets.

Zerust® Oil and Gas business unit provides advanced corrosion control technologies and
services to the petrochemical industry. Zerust® Oil and Gas products and services utilize
Zerust® proprietary corrosion inhibitors in combination with advanced cathodic protection
systems to dramatically enhance the corrosion protection of capital assets. These assets
include above-ground storage tanks, various pieces of process equipment, buried and
submerged pipelines, mothballed large capital equipment, pipeline flanges, valves, and
welded joints. Zerust® Oil & Gas technologies are currently implemented in refineries,
offshore oil rigs, tank farms and retail gas stations in several countries.

Natur-Tec® business unit engineers and manufactures biobased and biodegradable
plastic resins intended to replace conventional, petroleum-based plastics. Natur-Tec®
has a broad bioplastics portfolio which spans flexible film, foam, rigid injection molded
materials and engineered plastics. These applications allow for the production of 100%
certified compostable finished products, such as bags, food service products, and product
packaging. Natur-Tec® products are renewable resource based and do not contain
conventional plastic materials. Natur-Tec® products provide sustainable alternatives to
conventional plastics and enable industry and consumers to move closer to a carbon
neutral footprint.

To the Shareholders of Northern Technologies International Corporation (NTIC),

The positive business momentum of fiscal 2017, demonstrated the strength of NTIC’s corrosion inhibiting
products and solutions, as well as that of the investments we have been making towards expanding both our
markets and technologies. This solid foundation helped the company achieve record sales for fiscal 2017 and
significantly improved profitability. We anticipate that these same strong fundamentals will drive significant
business and financial growth in fiscal 2018 and beyond.

NTIC’s consolidated net sales for fiscal 2017 increased 20%, to a record $39,569,000, as sales of ZERUST® industrial
products increased nearly 19% to an annual $32,789,000 and sales of Natur-Tec® products jumped approximately
27% to $6,780,000, compared to fiscal 2016. At the same time, sales of ZERUST® Oil & Gas products and services
declined about 1% to $1,720,000 as NTIC continues to gradually extend its sales reach into this large market.

For quite some time, we have been reinvesting the healthy operating cash flows generated by NTIC’s strong core
ZERUST® business, into emerging businesses, including NTIC China, Zerust Oil & Gas, and Natur-Tec. Fiscal 2017
proved to be the defining turning point for both NTIC China and Natur-Tec, as both of these segments began
producing income. Achieving profitability at these two businesses was a significant milestone for the company,
and will help produce additional value through incremental sales growth.

NTIC’s litigation against Cortec Corporation was a key factor negatively impacting profitability for the past two
years. We incurred legal expenses related to this matter of $849,000 and $568,000 during fiscal 2017 and fiscal
2016, respectively. In September 2017, the United States District Court for the Northern District of Ohio dismissed
with prejudice all claims asserted by NTIC against Cortec Corporation. While we believe we had a strong case
and are disappointed by the Court’s position, for the time being, NTIC does not plan to take further legal actions
at this time against Cortec Corporation. NTIC intends to always assert its global intellectual property rights when
challenged, but we anticipate that during fiscal 2018, our total legal expenses will be significantly lower than
fiscal 2017.

With the transformation of NTIC China and Natur-Tec to profitable business segments, and the cessation of the
litigation against Cortec Corporation, NTIC is well positioned to further improve earnings as it enters the new
year. As a result of NTIC’s improved profitability, strong financial position, and favorable business outlook, the
company’s Board of Directors recently approved a $0.10 quarterly cash dividend payable on December 21, 2017
to stockholders of record on December 8, 2017.

NTIC is committed to maintaining a strong balance sheet and capital structure, which enables the company
to self-finance growth-generating initiatives while also enhancing stockholder value through active dividend
and share repurchase programs. At the end of fiscal 2017, NTIC had $9,684,000 of cash, cash equivalents,
and available for sale securities, compared to $5,639,000 at the end of fiscal 2016. In addition, NTIC has over
$11,000,000 of additional cash at our joint ventures.

ZERUST® Industrial Corrosion Prevention
Worldwide sales of ZERUST® Industrial products continued to rebound during fiscal 2017 from the market
challenges created by the transition of our former Chinese joint venture to a wholly-owned subsidiary. The
improvement in ZERUST® Industrial product sales during fiscal 2017 was driven by strong global demand for our
products and solutions, improved market share, and the significant contribution of NTIC China.

Sales by our joint ventures increased approximately 12% to over $101,000,000 during fiscal 2017, compared to
nearly $91,000,000 last fiscal year. Sales from NTIC to its joint ventures also ended the fiscal year on a strong
note, as sales increased over 15% for the fourth quarter ended August 31, 2017, compared to the prior fiscal
year period. We are optimistic that the trends across our global joint venture network will remain strong in fiscal
2018, driven by growing market share, improving performance, and better global economic growth.

Sales at NTIC China were $7,226,000 for fiscal 2017, an increase of nearly 76% from the prior fiscal year. Higher
sales reduced the impact of NTIC China’s start-up and operating expenses, and as a result, NTIC China’s operating
loss went from $3,410,000 last fiscal year, which included the full impairment of our $1,130,000 investment
in Tianjin Zerust, to a loss of [ ] in fiscal 2017. Most importantly, during the fourth quarter of fiscal 2017,
NTIC China sales increased over 36% to $2,234,000, which positioned the emerging business to close out the
fiscal year with its first full quarter of operating profit. NTIC China has the infrastructure to take advantage of
significant opportunities throughout the Chinese market, and we are optimistic favorable sales and profitability
trends will continue.

ZERUST® in the Oil & Gas industry
The oil & gas industry remains compelling and it is important for NTIC to continue to invest growing its market
presence. While it is taking longer than expected, we believe we have a strong portfolio of solutions that will,
ultimately, be broadly adopted.

Unfortunately, continued oil & gas market volatility limited our results. Nevertheless, the market’s interest in
NTIC’s solutions remains very high and the company is actively pursuing a growing number of opportunities in
North America, Europe, the Middle East and Southeast Asia.

Natur-Tec® Bioplastics
Sales of Natur-Tec® products grew to a record $6,780,000 during fiscal 2017, representing a 27% increase over
fiscal 2016. With this increase, Natur-Tec® represented approximately 17% of NTIC’s consolidated net sales for
fiscal 2017. Favorable regulations continue to positively influence demand for Natur-Tec® bioplastics products.
This trend is expected to continue for the foreseeable future, as local and state governments around the world
enact zero-waste regulations and waste management initiatives. We continue to experience strong demand for
finished products, such as compostable bags and cutlery in North America, and anticipate broader adoption of
our product lines by customers throughout Europe, Asia and North America during fiscal 2018.

Closing
In closing, I want to thank all the members of NTIC’s global family of employees, joint venture partners, friends
and colleagues for their hard work and dedication during a successful year. Our fiscal 2017 results demonstrate
the strength of our business strategies and compelling financial model. Based on current trends, we expect
fiscal 2018 will enjoy record sales and improved profitability and we look forward to sharing our successes with
stockholders throughout the new year.

Sincerely,

G. Patrick Lynch
President & CEO, NTIC

G. Patrick Lynch

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

January 12, 2018

The Annual Meeting of Stockholders of Northern Technologies International Corporation, a Delaware corporation,
will be held at NTIC’s corporate executive offices located at 4201 Woodland Road, Circle Pines, Minnesota 55014,
beginning at 2:00 p.m., Central Standard Time, on Friday, January 12, 2018, for the following purposes:

1. To elect seven persons to serve as directors until our next annual meeting of stockholders or until their

respective successors are elected and qualified.

2. To approve, on an advisory basis, the compensation of our named executive officers, as disclosed in

the accompanying proxy statement.

3. To ratify the selection of Baker Tilly Virchow Krause, LLP as our independent registered public

accounting firm for the fiscal year ending August 31, 2018.

4. To approve an amendment to our Restated Certificate of Incorporation to increase the number of

authorized shares of common stock from 10,000,000 to 15,000,000.

5. To transact such other business as may properly come before the meeting or any adjournment of the

meeting.

Only stockholders of record at the close of business on November 17, 2017 will be entitled to notice of, and to vote
at, the meeting and any adjournments thereof. A stockholder list will be available at our corporate offices
beginning January 2, 2018 during normal business hours for examination by any stockholder registered on NTIC’s
stock ledger as of the record date, November 17, 2017, for any purpose germane to the Annual Meeting.

We are pleased again this year to use the “Notice and Access” method of providing proxy materials to our
stockholders via the Internet. We believe that this process expedites your receipt of our proxy materials, lowers the
costs of our Annual Meeting and reduces the environmental impact of our meeting.

By Order of the Board of Directors,

Matthew C. Wolsfeld
Corporate Secretary

November 28, 2017
Circle Pines, Minnesota

Important: Whether or not you expect to attend the meeting in person, please vote by the Internet or
telephone, or request a paper proxy card to sign, date and return by mail so that your shares may be
voted. A prompt response is helpful and your cooperation is appreciated.

TABLE OF CONTENTS

________________

Page

INTERNET AVAILABILITY OF PROXY MATERIALS ........................................................................ iii
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING ................................. 1
Date, Time, Place and Purposes of Meeting ............................................................................................. 1
Who Can Vote .......................................................................................................................................... 1
How You Can Vote .................................................................................................................................. 1
How Does the Board Recommend that You Vote .................................................................................... 3
How You May Change Your Vote or Revoke Your Proxy ...................................................................... 3
Quorum Requirement ............................................................................................................................... 3
Vote Required ........................................................................................................................................... 3
Other Business .......................................................................................................................................... 4
Procedures at the Annual Meeting ............................................................................................................ 4
Householding of Annual Meeting Materials ............................................................................................ 5
Proxy Solicitation Costs ........................................................................................................................... 5
PROPOSAL ONE—ELECTION OF DIRECTORS .................................................................................... 6
Number of Directors ................................................................................................................................. 6
Nominees for Director .............................................................................................................................. 6
Information about Current Directors and Board Nominees ...................................................................... 6
Additional Information about Current Directors and Board Nominees.................................................... 7
Board Recommendation ........................................................................................................................... 9
PROPOSAL TWO—ADVISORY VOTE ON EXECUTIVE COMPENSATION ................................... 10
Introduction ............................................................................................................................................ 10
Board Recommendation ......................................................................................................................... 11

PROPOSAL THREE—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM ............................................................................................................ 12
Selection of Independent Registered Public Accounting Firm ............................................................... 12
Audit, Audit-Related, Tax and Other Fees ............................................................................................. 12
Audit Committee Pre-Approval Policies and Procedures....................................................................... 12
Board Recommendation ......................................................................................................................... 13

PROPOSAL FOUR—APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF

INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK .................. 14
Text of the Proposed Amendment .......................................................................................................... 14
Purpose of the Proposed Amendment..................................................................................................... 14
Potential Effects of the Proposed Amendment ....................................................................................... 15
Timing of the Proposed Amendment ...................................................................................................... 16
Board Recommendation ......................................................................................................................... 16
STOCK OWNERSHIP ............................................................................................................................... 17
Beneficial Ownership of Significant Stockholders and Management .................................................... 17
Section 16(a) Beneficial Ownership Reporting Compliance .................................................................. 19
CORPORATE GOVERNANCE ................................................................................................................ 20
Corporate Governance Guidelines .......................................................................................................... 20
Board Leadership Structure .................................................................................................................... 20
Director Independence ............................................................................................................................ 21
Board Meetings and Attendance ............................................................................................................. 21
Board Committees .................................................................................................................................. 21
Audit Committee .................................................................................................................................... 22
Compensation Committee ...................................................................................................................... 24

TABLE OF CONTENTS

________________

Page

Nominating and Corporate Governance Committee .............................................................................. 25
Director Nominations Process ................................................................................................................ 26
Board Oversight of Risk ......................................................................................................................... 28
Code of Ethics ........................................................................................................................................ 28
Policy Regarding Director Attendance at Annual Meetings of Stockholders ........................................ 29
Complaint Procedures ............................................................................................................................. 29
Process Regarding Stockholder Communications with Board of Directors ........................................... 29
Compensation Committee Interlocks and Insider Participation ............................................................. 29
DIRECTOR COMPENSATION ................................................................................................................ 30
Summary of Cash and Other Compensation .......................................................................................... 30
Non-Employee Director Compensation Program ................................................................................... 31
Consulting Arrangement ......................................................................................................................... 32
Indemnification Agreements .................................................................................................................. 33
EXECUTIVE COMPENSATION .............................................................................................................. 34
Compensation Discussion and Analysis ................................................................................................. 34
Compensation Committee Report .......................................................................................................... 43
Summary of Cash and Other Compensation .......................................................................................... 43
Grants of Plan-Based Awards ................................................................................................................. 44
Outstanding Equity Awards at Fiscal Year End ..................................................................................... 45
Option Exercises for Fiscal 2017 ............................................................................................................ 46
Stock Incentive Plan ............................................................................................................................... 46
Post-Termination Severance and Change in Control Arrangements ...................................................... 48
Indemnification Agreements .................................................................................................................. 50
Risk Assessment of Compensation Policies, Practices and Programs .................................................... 50
RELATED PERSON RELATIONSHIPS AND TRANSACTIONS ......................................................... 51
Introduction ............................................................................................................................................ 51
Procedures Regarding Approval of Related Party Transactions ............................................................ 51
Description of Related Party Transactions ............................................................................................. 52

STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR 2019 ANNUAL

MEETING OF STOCKHOLDERS ........................................................................................................ 53
Stockholder Proposals for 2019 Annual Meeting ................................................................................... 53
Director Nominations for 2019 Annual Meeting .................................................................................... 53
COPIES OF FISCAL 2017 ANNUAL REPORT ....................................................................................... 54

________________

INTERNET AVAILABILITY OF PROXY MATERIALS
________________

Instead of mailing a printed copy of our proxy materials, including our Annual Report to Stockholders, to
each stockholder of record, we have provided access to these materials in a fast and efficient manner via
the Internet. We believe that this process expedites your receipt of our proxy materials, lowers the costs
of our Annual Meeting and reduces the environmental impact of our meeting. On November 28, 2017,
we began mailing a Notice of Internet Availability of Proxy Materials to stockholders of record as of
November 17, 2017, and we posted our proxy materials on the website referenced in the Notice of
Internet Availability of Proxy Materials (www.proxyvote.com). As more fully described in the Notice of
Internet Availability of Proxy Materials, stockholders may choose to access our proxy materials at
www.proxyvote.com or may request proxy materials in printed or electronic form. In addition, the Notice
of Internet Availability of Proxy Materials and website provide information regarding how you may
request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.
For those who previously requested printed proxy materials or electronic materials on an ongoing basis,
you will receive those materials as you requested.

Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to be Held on January 12, 2018:
The Notice of Annual Meeting of Stockholders and Proxy Statement and
Annual Report to Stockholders, including our Annual Report on Form 10-K
for the fiscal year ended August 31, 2017, are available at www.proxyvote.com.

iii

4201 Woodland Road, Circle Pines, Minnesota 55014

PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
January 12, 2018

The Board of Directors of Northern Technologies International Corporation is soliciting your proxy for
use at the 2018 Annual Meeting of Stockholders to be held on Friday, January 12, 2018. The Board of
Directors expects to make available to our stockholders beginning on or about November 28, 2017 the
Notice of Annual Meeting of Stockholders, this proxy statement and a form of proxy on the Internet or
has sent these materials to stockholders of NTIC upon their request.

GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
________________

Date, Time, Place and Purposes of Meeting

The Annual Meeting of Stockholders of Northern Technologies International Corporation (sometimes
referred to as “NTIC,” “we,” “our” or “us” in this proxy statement) will be held on Friday, January 12,
2018, at 2:00 p.m., Central Standard Time, at the principal executive offices of Northern Technologies
International Corporation located at 4201 Woodland Road, Circle Pines, Minnesota 55014, for the
purposes set forth in the Notice of Annual Meeting of Stockholders.

Who Can Vote

Stockholders of record at the close of business on November 17, 2017 will be entitled to notice of and to
vote at the meeting or any adjournment of the meeting. As of that date, there were 4,537,408 shares of
our common stock outstanding. Each share of our common stock is entitled to one vote on each matter to
be voted on at the Annual Meeting. Stockholders are not entitled to cumulate voting rights.

How You Can Vote

Your vote is important. Whether you hold shares directly as a stockholder of record or beneficially in
“street name” (through a broker, bank or other nominee), you may vote your shares without attending the
Annual Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting
voting instructions to your broker, bank or other nominee.

If you are a registered stockholder whose shares are registered in your name, you may vote your shares in
person at the meeting or by one of the three following methods:

• Vote by Internet, by going to the website address http://www.proxyvote.com and following the

instructions for Internet voting shown on the Notice of Internet Availability of Proxy Materials or
on your proxy card.

• Vote by Telephone, by dialing 1-800-690-6903 and following the instructions for telephone
voting shown on the Notice of Internet Availability of Proxy Materials or on your proxy card.

• Vote by Proxy Card, by completing, signing, dating and mailing the enclosed proxy card in the

envelope provided if you received a paper copy of these proxy materials.

If you vote by Internet or telephone, please do not mail your proxy card.

If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a
separate voting instruction form with this proxy statement or you may need to contact your broker, bank
or other nominee to determine whether you will be able to vote electronically using the Internet or
telephone.

The deadline for voting by telephone or by using the Internet is 11:59 p.m., Eastern Standard Time
(10:59 p.m., Central Standard Time), on the day before the date of the Annual Meeting or any
adjournments thereof. Please see the Notice of Internet Availability of Proxy Materials, your proxy card
or the information your bank, broker, or other holder of record provided to you for more information on
your options for voting.

If you return your signed proxy card or use Internet or telephone voting before the Annual Meeting, the
named proxies will vote your shares as you direct. You have three choices on each matter to be voted on.

For Proposal One—Election of Directors, you may:

• Vote FOR all seven nominees for director,

• WITHHOLD your vote from all seven nominees for director or

• WITHHOLD your vote from one or more of the seven nominees for director.

For Proposal Two—Advisory Vote on Executive Compensation, Proposal Three—Ratification of
Selection of Independent Registered Public Accounting Firm and Proposal Four—Approval of
Amendment to our Restated Certificate of Incorporation, you may:

• Vote FOR the proposal,

• Vote AGAINST the proposal or

• ABSTAIN from voting on the proposal.

If you send in your proxy card or use Internet or telephone voting, but do not specify how you want to
vote your shares, the proxies will vote your shares FOR all seven of the nominees for election to the
Board of Directors in Proposal One—Election of Directors, FOR Proposal Two—Advisory Vote on
Executive Compensation, FOR Proposal Three—Ratification of Selection of Independent Registered

Public Accounting Firm and FOR Proposal Four—Approval of Amendment to our Restated Certificate of
Incorporation.

How Does the Board Recommend that You Vote

The Board of Directors unanimously recommends that you vote:

• FOR all seven of the nominees for election to the Board of Directors in Proposal One—Election

of Directors;

• FOR Proposal Two—Advisory Vote on Executive Compensation;

• FOR Proposal Three—Ratification of Selection of Independent Registered Public Accounting

Firm; and

• FOR Proposal Four— Approval of Amendment to our Restated Certificate of Incorporation.

How You May Change Your Vote or Revoke Your Proxy

If you are a stockholder whose shares are registered in your name, you may revoke your proxy at any time
before it is voted by one of the following methods:

• Submitting another proper proxy with a more recent date than that of the proxy first given by
following the Internet or telephone voting instructions or completing, signing, dating and
returning a proxy card to us;

• Sending written notice of your revocation to our Corporate Secretary; or

• Attending the Annual Meeting and voting by ballot.

Quorum Requirement

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority (2,268,705
shares) of the outstanding shares of our common stock as of the record date will constitute a quorum for
the transaction of business at the Annual Meeting. In general, shares of our common stock represented by
proxies marked “For,” “Against,” “Abstain” or “Withheld” are counted in determining whether a quorum
is present. In addition, a “broker non-vote” is counted in determining whether a quorum is present. A
“broker non-vote” is a proxy returned by a broker on behalf of its beneficial owner customer that is not
voted on a particular matter because voting instructions have not been received by the broker from the
customer, and the broker has no discretionary authority to vote on behalf of such customer on such
matter.

Vote Required

Proposal One—Election of Directors will be decided by the affirmative vote of a plurality of shares of our
common stock present in person or represented by proxy and entitled to vote at the Annual Meeting. A
“plurality” for Proposal One means the individuals who receive the greatest number of votes cast “For”
are elected as directors.

Proposal Two—Advisory Vote on Executive Compensation will be decided by the affirmative vote of a
majority of shares of our common stock present in person or represented by proxy and entitled to vote at
the Annual Meeting. Although this is a non-binding, advisory vote, the Compensation Committee and

Board of Directors expect to take into account the outcome of the vote when considering future executive
compensation decisions.

Proposal Three—Ratification of Selection of Independent Registered Public Accounting Firm will be
decided by the affirmative vote of a majority of shares of our common stock present in person or
represented by proxy and entitled to vote at the Annual Meeting.

Proposal Four—Approval of Amendment to our Restated Certificate of Incorporation will be decided by
the affirmative vote of a majority of shares of our common stock outstanding as of the record date for the
Annual Meeting.

If your shares are held in “street name” and you do not indicate how you wish to vote, your broker is
permitted to exercise its discretion to vote your shares only on certain “routine” matters. Proposal One—
Election of Directors, Proposal Two—Advisory Vote on Executive Compensation and Proposal Four—
Approval of Amendment to our Restated Certificate of Incorporation are not “routine” matters.
Accordingly, if you do not direct your broker how to vote, your broker may not exercise discretion and
may not vote your shares on either of these three proposals. This is called a “broker non-vote” and
although your shares will be considered to be represented by proxy at the meeting, they will not be
considered to be shares “entitled to vote” at the meeting and will not be counted as having been voted on
the applicable proposal. Proposal Three—Ratification of Selection of Independent Registered Public
Accounting Firm is a “routine” matter and, as such, your broker is permitted to exercise its discretion to
vote your shares for or against the proposal in the absence of your instruction. Proxies marked “Withheld”
on Proposal One—Election of Directors or “Abstain” on Proposal Two—Advisory Vote on Executive
Compensation, Proposal Three—Ratification of Section of Independent Registered Public Accounting
Firm or Proposal Four—Approval of Amendment to our Restated Certificate of Incorporation will be
counted in determining the total number of shares “entitled to vote” on such proposal and will have the
effect of a vote “Against” a director or a proposal.

Other Business

Our management does not intend to present other items of business and knows of no items of business
that are likely to be brought before the Annual Meeting, except those described in this proxy statement.
However, if any other matters should properly come before the Annual Meeting, the persons named in the
enclosed proxy will have discretionary authority to vote such proxy in accordance with their best
judgment on the matters.

Procedures at the Annual Meeting

The presiding officer at the Annual Meeting will determine how business at the meeting will be
conducted. Only matters brought before the Annual Meeting in accordance with our Bylaws will be
considered.

Only a natural person present at the Annual Meeting who is either one of our stockholders, or is acting on
behalf of one of our stockholders, may make a motion or second a motion. A person acting on behalf of a
stockholder must present a written statement executed by the stockholder or the duly-authorized
representative of the stockholder on whose behalf the person purports to act.

Householding of Annual Meeting Materials

Some banks, brokers and other nominee record holders may be participating in the practice of
“householding” proxy statements, annual reports and the Notice of Internet Availability of Proxy
Materials. This means that only one copy of this proxy statement, our Annual Report to Stockholders or
the Notice of Internet Availability of Proxy Materials may have been sent to multiple stockholders in each
household. We will promptly deliver a separate copy of any of these documents to any stockholder upon
written or oral request to our Stockholder Information Department, Northern Technologies International
Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014, telephone: (763) 225-6637. Any
stockholder who wants to receive separate copies of this proxy statement, our Annual Report to
Stockholders or the Notice of Internet Availability of Proxy Materials in the future, or any stockholder
who is receiving multiple copies and would like to receive only one copy per household, should contact
the stockholder’s bank, broker or other nominee record holder, or the stockholder may contact us at the
above address and phone number.

Proxy Solicitation Costs

The cost of soliciting proxies, including the preparation, assembly, electronic availability and mailing of
proxies and soliciting material, as well as the cost of making available or forwarding this material to the
beneficial owners of our common stock will be borne by NTIC. Our directors, officers and regular
employees may, without compensation other than their regular compensation, solicit proxies by
telephone, e-mail, facsimile or personal conversation. We may reimburse brokerage firms and others for
expenses in making available or forwarding solicitation materials to the beneficial owners of our common
stock.

PROPOSAL ONE—ELECTION OF DIRECTORS
________________

Number of Directors

Our Bylaws provide that the Board of Directors will consist of at least one member or such other number
as may be determined by the Board of Directors from time to time or by the stockholders at an annual
meeting. The Board of Directors has fixed the number of directors at seven.

Nominees for Director

The Board of Directors has nominated the following seven individuals to serve as our directors until the
next annual meeting of stockholders or until their successors are elected and qualified. All of the
nominees named below are current members of the Board of Directors.

• Barbara D. Colwell
• Soo-Keong Koh
• Sunggyu Lee, Ph.D.
• G. Patrick Lynch

• Ramani Narayan, Ph.D.
• Richard J. Nigon
• Konstantin von Falkenhausen

Proxies can only be voted for the number of persons named as nominees in this proxy statement, which is
seven.

Information about Current Directors and Board Nominees

The following table sets forth as of November 25, 2017 the name, age and principal occupation of each
current director and each individual who has been nominated by the Board of Directors to serve as a
director of our company, as well as how long each individual has served as a director of NTIC.

Name
Barbara D. Colwell(1)(2)

Age Principal Occupation
72 Director of NTIC and Certain Other Companies and

Organizations

Soo-Keong Koh(2)
Sunggyu Lee, Ph.D.(3)

G. Patrick Lynch
Ramani Narayan, Ph.D.

66 Managing Director of EcoSave Pte Ltd.
65 Russ Ohio Research Scholar in Syngas Utilization
and Professor of Chemical and Biomolecular
Engineering at Ohio University
President and Chief Executive Officer of NTIC

50
68 Distinguished Professor in the Department of
Chemical Engineering & Materials Science at
Michigan State University
Senior Vice President of Cedar Point Capital, Inc.
Partner of B Capital Partners AG

Richard J. Nigon(1)(2)(3)
Konstantin von Falkenhausen(1)(3)
_________________________
(1) Member of the Audit Committee
(2) Member of the Nominating and Corporate Governance Committee
(3) Member of the Compensation Committee

69
50

Director
Since
2013

2008
2004

2004
2004

2010
2012

Additional Information about Current Directors and Board Nominees

The following paragraphs provide information about each current director and nominee for director,
including all positions he or she holds, his or her principal occupation and business experience for the past
five years, and the names of other publicly-held companies of which the director or nominee currently
serves as a director or has served as a director during the past five years. We believe that all of our
directors and nominees display personal and professional integrity; satisfactory levels of education and/or
business experience; broad-based business acumen; an appropriate level of understanding of our business
and its industry and other industries relevant to our business; the ability and willingness to devote
adequate time to the work of the Board of Directors and its committees; a fit of skills and personality with
those of our other directors that helps build a board that is effective, collegial and responsive to the needs
of our company; strategic thinking and a willingness to share ideas; a diversity of experiences, expertise
and background; and the ability to represent the interests of all of our stockholders. The information
presented below regarding each director and nominee also sets forth specific experience, qualifications,
attributes and skills that led the Board of Directors to the conclusion that such individual should serve as a
director in light of our business and structure.

Barbara D. Colwell has been a director of NTIC since November 2013. Ms. Colwell is a member of the
board of directors or advisory board of several non-profit organizations and private and mutual
companies, including most notably, the Publishers Clearing House, LLC, Triumph Oil & Gas Operating
Company, LLC, IPTAR (Institute for Psychoanalytic Training and Research), the Belizean Grove and
POBA: where the arts live. We believe Ms. Colwell’s qualifications to sit on the Board of Directors
include her current and prior experience on the boards of directors of other organizations and companies
and, in particular, her experience serving on the audit committee, governance committee and
compensation committee of Publishers Clearing House, LLC, as well as her former experience serving on
the audit committee and compensation committee of Mutual Trust Financial Group.

Soo-Keong Koh has been a director of NTIC since May 2008. Mr. Koh is the Managing Director of
Ecosave Pte Ltd., a company whose business is focused on environmental biotech and energy
conservation technologies, a position he has held since April 2007. From January 1986 to April 2007,
Mr. Koh served as Chief Executive Officer and President of Toll Asia Pte Ltd formerly SembCorp
Logistics Ltd (SembLog), a Singapore public listed company, which was acquired by Toll in May 2006.
Mr. Koh has over 20 years of experience in the logistics industry. Mr. Koh holds a Bachelor of
Engineering, a Master of Business Administration and a Postgraduate Diploma in Business Law from the
University of Singapore (now known as the National University of Singapore). We believe Mr. Koh’s
qualifications to sit on the Board of Directors include his experience on other public company boards of
directors and his significant executive experience with companies including those focused on
environmental awareness, which has become a focus of NTIC during the past several years, especially in
light of NTIC’s Natur-Tec® bioplastics business. Mr. Koh’s previous board of director experience is
helpful in guiding NTIC with respect to corporate governance matters, particularly in his role as Chair of
the Nominating and Corporate Governance Committee. Additionally, Mr. Koh has specific executive
experience with companies located in Asia, which is where several of NTIC’s joint ventures and NTIC’s
Chinese subsidiary are located.

Sunggyu Lee, Ph.D. was elected a director of NTIC in January 2004. Dr. Lee is Russ Ohio Research
Scholar in Syngas Utilization and Professor of Chemical and Biomolecular Engineering, Ohio University,
Athens, Ohio. Previously, he held positions of Professor of Chemical and Biologic Engineering, Missouri
University of Science and Technology, Rolla, Missouri from 2005 to 2010, C.W. LaPierre Professor and
Chairman of Chemical Engineering at University of Missouri-Columbia from 1997 to 2005, and Robert
Iredell Professor and Head of Chemical Engineering Department at the University of Akron, Akron, Ohio
from 1988 to 1996. He has authored 12 books and over 550 archival publications and received 35 U.S.

patents in a variety of chemical and polymer processes and products. He is currently serving as Editor of
Encyclopedia of Chemical Processing, Taylor & Francis, New York, New York and also as Book Series
Editor of Green Chemistry and Chemical Engineering, CRC Press, Boca Raton, Florida. Throughout his
career, he has served as consultant and technical advisor to a number of national and international
companies in the fields of polymers, petrochemicals and energy. He received his Ph.D. from Case
Western Reserve University, Cleveland, Ohio in 1980. We believe Dr. Lee’s qualifications to sit on the
Board of Directors include his significant technical and industrial expertise with chemical and polymer
processes and products. Such expertise is particularly helpful with respect to assessing and operating
NTIC’s Natur-Tec® bioplastics business.

G. Patrick Lynch, an employee of NTIC since 1995, has been President since July 2005 and Chief
Executive Officer since January 2006 and was appointed a director of NTIC in February 2004.
Mr. Lynch served as President of North American Operations of NTIC from May 2004 to July 2005.
Prior to May 2004, Mr. Lynch held various positions with NTIC, including Vice President of Strategic
Planning, Corporate Secretary and Project Manager. Mr. Lynch is also an officer and director of Inter
Alia Holding Company, which is a significant stockholder of NTIC. Prior to joining NTIC, Mr. Lynch
held positions in sales management for Fuji Electric Co., Ltd. in Tokyo, Japan, and programming project
management for BMW AG in Munich, Germany. Mr. Lynch received a Master of Business
Administration degree from the University of Michigan Ross School of Business. We believe
Mr. Lynch’s qualifications to sit on the Board of Directors include his depth of knowledge of our
company and its day-to-day operations in light of his position as Chief Executive Officer of NTIC, as well
as his affiliation with a significant stockholder of NTIC, which the Board of Directors believes generally
helps align management’s interests with those of our stockholders.

Ramani Narayan, Ph.D. has been a director of NTIC since November 2004. He is a Distinguished
Professor at Michigan State University in the Department of Chemical Engineering & Materials Science,
where he has 105 refereed publications in leading journals to his credit, 18 patents, edited three books and
one expert dossier in the area of bio-based polymeric materials. His research encompasses design and
engineering of sustainable, biobased products, biodegradable plastics and polymers, biofiber reinforced
composites, reactive extrusion polymerization and processing, studies in plastic end-of-life options like
biodegradation and composting. He conducts carbon footprint calculations for plastics and products. He
also performs LCA (Life Cycle Assessment) for reporting a product’s environmental footprint. He serves
as Scientific Chair and board member of the Biodegradable Products Institute (BPI), North America. He
serves on the Technical Advisory Board of Tate & Lyle. He served on the Board of Directors of ASTM
International, an international standards setting organization and currently chairs the committee on
Environmentally Degradable Plastics and Biobased Products (D20.96) and the Plastics Terminology
Committee (D20.92). Dr. Narayan is also the technical expert for the United States on ISO (International
Standards Organization) TC 61 on Plastics—specifically for Terminology, and Biodegradable Plastics.
He has won numerous awards, including the Named MSU University Distinguished Professor in 2007;
the Governors University Award for commercialization excellence; Michigan State University
Distinguished Faculty Award, 2006, 2005 Withrow Distinguished Scholar award, Fulbright
Distinguished Lectureship Chair in Science & Technology Management & Commercialization
(University of Lisbon; Portugal); First recipient of the William N. Findley Award, The James Hammer
Memorial Lifetime Achievement Award, and Research and Commercialization Award sponsored by ICI
Americas, Inc. & the National Corn Growers Association. We believe Dr. Narayan’s qualifications to sit
on the Board of Directors include his significant technical expertise in the bioplastics area which has been
helpful to NTIC’s management in assessing and operating NTIC’s Natur-Tec® bioplastics business.

Richard J. Nigon has been a director of NTIC since February 2010 and non-executive Chairman of the
Board since November 2012. Mr. Nigon is the Senior Vice President of Cedar Point Capital, Inc., a
private company that raises capital for early stage companies. From February 2001 until May 2007,

Mr. Nigon was a Director of Equity Corporate Finance for Miller Johnson Steichen Kinnard (MJSK), a
privately held investment firm. In December 2006, MJSK was acquired by Stifel Nicolaus, and
Mr. Nigon was a Managing Director of Private Placements at Stifel Nicolaus. From February 2000 to
February 2001, Mr. Nigon served as the Chief Financial Officer of Dantis, Inc., a web hosting company.
Prior to joining Dantis, Mr. Nigon was employed by Ernst & Young, LLP from 1970 to 2000, where he
served as a partner from 1981 to 2000. While at Ernst & Young, Mr. Nigon served as the Director of
Ernst & Young’s Twin Cities Entrepreneurial Services Group and was the coordinating partner on several
publicly-traded companies in the consumer retailing and manufacturing sectors. Mr. Nigon also currently
serves as President of NorthStar Education Finance, Inc., a non-profit organization formed to foster, aid,
encourage and assist the pursuit of higher education. In addition to NTIC, Mr. Nigon also serves on the
board of directors of Tactile Systems Technology, Inc. and as chairperson of its audit committee, on the
board of directors of Celcuity Inc. and as chairperson of its audit committee and serves on the board of
directors of a number of privately-held companies. Mr. Nigon previously served on the board of directors
of Virtual Radiologic Corporation and Vascular Solutions, Inc. until its acquisition by Teleflex
Incorporated in February 2017. Through his 30 years of service at Ernst & Young, LLP, Mr. Nigon
brings to NTIC’s Board of Directors, and in particular the Audit Committee, extensive public accounting
and auditing experience. The Board of Directors believes Mr. Nigon’s strong background in financial
controls and reporting, financial management, financial analysis and Securities and Exchange
Commission reporting requirements is critical to the Board’s oversight responsibilities. In addition,
Mr. Nigon’s strategic planning expertise and other experiences gained through his management and
leadership roles at private investment firms that have invested in early stage companies, is helpful to the
Board of Directors in assessing and operating NTIC’s newer businesses.

Konstantin von Falkenhausen has been a director of NTIC since November 2012. Mr. von Falkenhausen
is currently a Partner of B Capital Partners AG, an independent investment advisory boutique focused on
infrastructure, public private partnerships and clean energy. From February 2004 to March 2008,
Mr. von Falkenhausen served as a Partner of capiton AG, a private equity firm. From March 2003 to
February 2004, he served as interim Chief Financial Officer of Neon Products GmbH, a privately held
neon lighting company. From May 1999 to February 2003, Mr. von Falkenhausen served as an
investment manager of West Private Equity Ltd. and an investment director of its German affiliate West
Private Capital GmbH. Prior to May 1999, Mr. von Falkenhausen served in several positions with
BankBoston Robertson Stephens International Ltd., an investment banking firm. Mr. von Falkenhausen
is a citizen of Germany. He has a Master’s degree in economics (lic. oec) from the University of Fribourg
(Switzerland) and a Masters of Business Administration from the University of Chicago. We believe
Mr. von Falkenhausen’s qualifications to sit on the Board of Directors include his experience with several
private investment and equity firms that have invested in early stage companies, which the Board of
Directors believes is helpful in assessing and operating NTIC’s newer businesses, and his financial
expertise, which the Board of Directors believes is helpful in analyzing NTIC’s financial performance.

Board Recommendation

The Board of Directors unanimously recommends a vote FOR the election of all of the seven nominees
named above.

If prior to the Annual Meeting, the Board of Directors should learn that any nominee will be unable to
serve for any reason, the proxies that otherwise would have been voted for this nominee will be voted for
a substitute nominee as selected by the Board. Alternatively, the proxies, at the Board’s discretion, may
be voted for that fewer number of nominees as results from the inability of any nominee to serve. The
Board of Directors has no reason to believe that any of the nominees will be unable to serve.

PROPOSAL TWO—ADVISORY VOTE ON EXECUTIVE COMPENSATION
________________

Introduction

The Board of Directors is providing stockholders with an advisory vote on executive compensation
pursuant to the Dodd-Frank Wall Street Consumer Protection Act and Section 14A of the Securities
Exchange Act of 1934. This advisory vote, commonly known as a “say-on-pay” vote, is a non-binding
vote on the compensation paid to our named executive officers as set forth in the “Executive
Compensation” section of this proxy statement beginning on page 34. At the 2017 Annual Meeting of
Stockholders held on January 13, 2017, 99% of the votes cast by our stockholders were in favor of our
say-on-pay vote. The Compensation Committee generally believes that such results affirmed stockholder
support of our approach to executive compensation.

Our executive compensation program is generally designed to attract, retain, motivate and reward highly
qualified and talented executive officers. The underlying core principle of our executive compensation
program is to link pay to performance and align the interests of our executives with those of our
stockholders by providing compensation opportunities that are tied directly to the achievement of
financial and other performance goals and long-term stock price performance. The “Executive
Compensation” section of this proxy statement, which begins on page 34, describes our executive
compensation program and the executive compensation decisions made by the Compensation Committee
and Board of Directors for fiscal 2017 in more detail. Important considerations include:

• A significant portion of the compensation paid or awarded to our named executive officers in
fiscal 2017 was “performance-based” or “at-risk” compensation that is tied directly to the
achievement of financial and other performance goals or long-term stock price performance.

• Equity-based compensation granted to our named executive officers is in the form of stock

options that are subject to three-year vesting and aligns the long-term interests of our executives
with the long-term interests of our stockholders.

• Our executive officers receive only modest perquisites and have modest severance and change-in-

control arrangements.

• We do not provide any tax “gross-up” payments.

We believe that our executive compensation program and related decisions link pay to performance. For
example, our fiscal 2017 total net sales increased over 20% to $39,569,123 during fiscal 2017 compared
to fiscal 2016, and our net income attributable to NTIC increased to $3,422,126, or $0.75 per diluted
common share, for fiscal 2017 compared to $(867,514) or $(0.19) per diluted common share, for fiscal
2016. Accordingly, total compensation for our named executive officers for fiscal 2017 increased
approximately 30% compared to fiscal 2016.

Accordingly, the Board of Directors recommends that our stockholders vote in favor of the say-on-pay
vote as set forth in the following resolution:

RESOLVED, that our stockholders approve, on an advisory basis, the compensation paid to our

named executive officers, as disclosed in this proxy statement.

Stockholders are not ultimately voting to approve or disapprove the recommendation of the Board of
Directors. As this is an advisory vote, the outcome of the vote is not binding on us with respect to future
executive compensation decisions, including those relating to our named executive officers, or otherwise.
The Compensation Committee and Board of Directors expect to take into account the outcome of this
advisory vote when considering future executive compensation decisions.

In accordance with the result of the advisory vote on the frequency of the say-on-pay vote, which was
conducted at our 2014 Annual Meeting of Stockholders, the Board of Directors has determined that we
will conduct an executive compensation advisory vote on an annual basis. Accordingly, after this Annual
Meeting, the next say-on-pay vote will occur at our next Annual Meeting of Stockholders anticipated to
be held in January 2019. We anticipate that the next say-on-frequency vote will occur at our 2020 Annual
Meeting of Stockholders.

Board Recommendation

The Board of Directors unanimously recommends a vote FOR approval, on an advisory basis, of the
compensation paid to our named executive officers, as disclosed in this proxy statement.

PROPOSAL THREE—RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
_________________

Selection of Independent Registered Public Accounting Firm

The Audit Committee of the Board of Directors selects our independent registered public accounting firm.
In this regard, the Audit Committee evaluates the qualifications, performance and independence of our
independent registered public accounting firm and determines whether to re-engage our current
independent registered public accounting firm. As part of its evaluation, the Audit Committee considers,
among other factors, the quality and efficiency of the services provided by the firm, including the
performance, technical expertise, and industry knowledge of the lead audit partner and the audit team
assigned to our account; the overall strength and reputation of the firm; its global capabilities relative to
our business; and its knowledge of our operations. Upon consideration of these and other factors, the
Audit Committee has selected Baker Tilly Virchow Krause, LLP to serve as our independent registered
public accounting firm for the fiscal year ending August 31, 2018.

Although it is not required to do so, the Board of Directors is asking our stockholders to ratify the Audit
Committee’s selection of Baker Tilly Virchow Krause, LLP. If our stockholders do not ratify the
selection of Baker Tilly Virchow Krause, LLP, another independent registered public accounting firm
will be considered by the Audit Committee. Even if the selection is ratified by our stockholders, the
Audit Committee in its discretion may change the appointment at any time during the year, if it determines
that such a change would be in the best interests of NTIC and our stockholders.

Representatives of Baker Tilly Virchow Krause, LLP will be present at the Annual Meeting to respond to
appropriate questions. They also will have the opportunity to make a statement if they wish to do so.

Audit, Audit-Related, Tax and Other Fees

The following table presents the aggregate fees billed to us by Baker Tilly Virchow Krause, LLP for the
fiscal years ended August 31, 2017 and August 31, 2016.

Audit Fees(1) .........................................................
Audit-Related Fees ...............................................
Tax Fees ...............................................................
All Other Fees ......................................................
__________________________

Aggregate Amount Billed by
Baker Tilly Virchow Krause, LLP ($)
Fiscal 2016
$ 305,997

$ 326,404

Fiscal 2017

—
—
—

(1) These fees consisted of the audit of our annual financial statements by year, review of financial statements
included in our quarterly reports on Form 10-Q and other services normally provided in connection with
statutory and regulatory filings or engagements.

Audit Committee Pre-Approval Policies and Procedures

All services rendered by Baker Tilly Virchow Krause, LLP to NTIC were permissible under applicable
laws and regulations and all services provided to NTIC, other than de minimis non-audit services allowed
under applicable law, were approved in advance by the Audit Committee. The Audit Committee has not
adopted any formal pre-approval policies and procedures.

Board Recommendation

The Board of Directors unanimously recommends that stockholders vote FOR ratification of the selection
of Baker Tilly Virchow Krause, LLP, as our independent registered public accounting firm for the fiscal
year ending August 31, 2018.

PROPOSAL FOUR—APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
________________

Our Restated Certificate of Incorporation currently authorizes the issuance of 10,000,000 shares of
common stock, par value $0.02 per share. On November 15, 2017, the Board of Directors unanimously
adopted a resolution approving, and recommending that our stockholders approve, an amendment to
Article IV of our Restated Certificate of Incorporation to increase the total number of shares of common
stock that we are authorized to issue to 15,000,000, and also to increase the total number of shares of
capital stock that we are authorized to issue to reflect such increase in our authorized common stock.

The Board of Directors believes that it is advisable and it is in the best interests of our company and our
stockholders to increase the total number of authorized shares of common stock in order to give us greater
flexibility in considering and planning for potential future corporate needs.

As of November 17, 2017, there were 4,537,408 shares of our common stock outstanding. In addition,
542,639 shares of common stock have been reserved for future issuance under our equity compensation
plans. Accordingly, 4,919,953 of the 10,000,000 of common stock currently authorized remain available
for issuance or reserved for issuance.

Text of the Proposed Amendment

We propose to amend Article IV of our Restated Certification of Incorporation so that it would state in its
entirety as follows:

“The Corporation shall have the authority to issue Fifteen Million Ten Thousand (15,010,000)
shares of stock divided into Fifteen Million (15,000,000) shares of Two Cent ($.02) par value
common stock and Ten Thousand (10,000) shares of no par value preferred stock.”

Purpose of the Proposed Amendment

The Board of Directors believes that additional authorized shares of common stock would provide us with
the necessary flexibility to issue shares in the future for various corporate purposes and enable us to take
timely advantage of market conditions and opportunities without the delay and expense associated with
convening a special stockholders’ meeting for such purpose, except as otherwise required by law and the
rules of the NASDAQ Stock Market. These corporate purposes, include, but are not limited to, future
stock splits and stock dividends; capital-raising or financing transactions; potential strategic transactions,
including mergers, acquisitions, and other business combinations; grants and awards under equity
compensation plans; and other general corporate purpose transactions.

In the past, we have used authorized but unissued shares in connection with equity financings and for
issuance pursuant to equity compensation plans. Although the Board of Directors has discussed from
time to time a possible stock split effected in the form of a share dividend, the Board of Directors has not
approved such a split. The increase in the number of authorized shares would allow for a sufficient
authorized but unissued share amount to accommodate a future stock split effected in the form of a share
dividend if the Board of Directors determines to proceed with such a split. Other than shares of our
common stock that have been reserved for future issuance under our equity compensation plans and these
discussions regarding a possible future stock split effected in the form of a share dividend, we currently
do not have any plans, commitments, arrangements, understandings or agreements to issue any currently
authorized and unissued shares of our common stock, or any of the additional shares of common stock
that would be authorized by the proposed amendment.

All of the additional shares resulting from the increase in our authorized common stock would be of the
same class with the same dividend, voting, liquidation and similar rights as the shares of common stock
presently outstanding. The shares would be unreserved and available for issuance. No further
authorization for the issuance of common stock by stockholder vote is required under our existing
Restated Certificate of Incorporation, and none would be required prior to the issuance of the additional
shares of common stock by NTIC. Stockholders have no preemptive rights to acquire any shares issued
by NTIC under its existing Restated Certificate of Incorporation, and stockholders would not acquire any
such rights with respect to any additional shares under the proposed amendment to its Restated Certificate
of Incorporation.

Potential Effects of the Proposed Amendment

The Board of Directors is required to make any determination to issue shares of our common stock based
on its judgment regarding the best interests of our company and our stockholders. Future issuances of
shares of our common stock or securities convertible into shares of our common stock could have a
dilutive effect on our earnings per share, book value per share and the voting interest and power of our
current stockholders since holders of our common stock are not entitled to preemptive rights. In addition,
although we have not proposed the increase in the total number of authorized shares of common stock
with the intent of using the additional shares to prevent or discourage any actual or threatened takeover of
our company, under certain circumstances, such shares could have an anti-takeover effect. The additional
shares could be issued to dilute the stock ownership or voting rights of persons seeking to obtain control
of our company or could be issued to persons allied with the Board of Directors or management and
thereby having the effect of making it more difficult to remove directors or members of management by
diluting the stock ownership or voting rights of persons seeking to effect such a removal. The additional
shares also could be issued in private placements and without stockholder approval or further action by
our stockholders, subject to applicable law or the rules of any stock exchange on which our common
stock is then listed. Accordingly, if the proposed amendment is approved, the additional shares of
authorized common stock may render more difficult or discourage a merger, tender offer or proxy contest,
the assumption of control by a holder of a large block of our common stock, or the replacement or
removal of our Board of Directors or management.

SEC rules require disclosure of charter and bylaw provisions that could have an anti-takeover effect. The
following other provisions of our Restated Certificate of Incorporation and Amended and Restated
Bylaws may have the anti-takeover effect of preventing, discouraging or delaying any change in the
control of our company:

• Blank Check Preferred Stock. Our Restated Certificate of Incorporation authorizes unissued
shares of preferred stock, also known as “blank check” preferred stock. The existence of
authorized but unissued shares of preferred stock may enable our Board of Directors to render
more difficult or to discourage an attempt to obtain control of NTIC by means of a merger, tender
offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations,
our Board of Directors were to determine that a takeover proposal is not in the best interests of
NTIC, our Board of Directors could cause shares of preferred stock to be issued without
stockholder approval in one or more private offerings or other transactions that might dilute the
voting or other rights of the proposed acquiror or insurgent stockholder or stockholder group. In
this regard, our Restated Certificate of Incorporation grants our Board of Directors broad power
to establish the rights and preferences of authorized and unissued shares of preferred stock. The
issuance may also adversely affect the rights and powers, including voting rights, of such holders
and may have the effect of delaying, deterring or preventing a change in control of NTIC.

• Stockholder Action; Special Meeting of Stockholders. Our Amended and Restated Bylaws provide
that any action required to be taken at any annual or special meeting of stockholders, or any
action which may be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted, so long as prompt notice is
given to non-consenting stockholders. Our Amended and Restated Bylaws also provide that
special meetings of stockholders may only be called by the chairman of the board, the chief
executive officer or the president and shall be called by the president or secretary at the request in
writing of stockholders owning a majority in the amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote.

• Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our

Amended and Restated Bylaws provide that stockholders who desire to nominate a person for
election to our Board of Directors must comply with specified notice and information provisions.
Our Amended and Restated Bylaws contain similar advance notice provisions for stockholder
proposals for action at stockholder meetings. These provisions prevent stockholders from making
nominations for directors and stockholder proposals from the floor at any stockholder meeting
and require any stockholder making a nomination or proposal to submit the name of the nominees
for board seats or the stockholder proposal, together with specified information about the
nominee or any stockholder proposal, prior to the meeting at which directors are to be elected or
action is to be taken. These provisions ensure that stockholders have adequate time to consider
nominations and proposals before action is required, and they may also have the effect of
delaying stockholder action.

Timing of the Proposed Amendment

If the proposed amendment to increase the number of authorized shares of our common stock is approved
by our stockholders, it will become effective immediately upon the filing of a Certificate of Amendment
to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, which we
expect to file promptly after the Annual Meeting. If the proposed amendment is not approved by our
stockholders, the number of authorized shares of common stock will remain unchanged.

Board Recommendation

The Board of Directors unanimously recommends a vote FOR the approval of the amendment to our
Restated Certificate of Incorporation to increase the total number of authorized shares of common stock
from 10,000,000 to 15,000,000.

STOCK OWNERSHIP
________________

Beneficial Ownership of Significant Stockholders and Management

The following table sets forth information known to us with respect to the beneficial ownership of our
common stock as of November 15, 2017, the record date for the Annual Meeting, for:

•

•
•

•

each person known by us to beneficially own more than five percent of the outstanding shares of
our common stock;
each of our directors;
each of the executive officers named in the Summary Compensation Table included later in this
proxy statement under “Executive Compensation” and
all of our current directors and executive officers as a group.

The number of shares beneficially owned by a person includes shares subject to options held by that
person that are currently exercisable or that become exercisable within 60 days of November 15, 2017.
Percentage calculations assume, for each person and group, that all shares that may be acquired by such
person or group pursuant to options currently exercisable or that become exercisable within 60 days of
November 15, 2017 are outstanding for the purpose of computing the percentage of common stock owned
by such person or group. However, such unissued shares of common stock described above are not
deemed to be outstanding for calculating the percentage of common stock owned by any other person.

Except as otherwise indicated, the persons in the table below have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them, subject to community
property laws where applicable and subject to the information contained in the notes to the table.

Title of Class

Name and Address of Beneficial Owner(1)

Directors and Officers:
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock

Barbara D. Colwell
Soo-Keong Koh
Sunggyu Lee, Ph.D.
G. Patrick Lynch(3)
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen
Matthew C. Wolsfeld
All current directors and executive officers as a
group (8 persons)(4)

Significant Beneficial Owners:
Common Stock

Common Stock

Inter Alia Holding Company(5)
23205 Mercantile Road
Beachwood, Ohio 44122
Rutabaga Capital Management(6)
64 Broad Street, 3rd Floor
Boston, Massachusetts 02109

Amount and
Nature of
Beneficial
Ownership(2)

16,500
32,666
4,000
675,718
35,500
39,300
19,600
94,446

Percent of
Class

*
*
*
14.8%
*
*
*
2.1%

917,730

19.5%

601,668

13.3%

283,206

6.2%

Title of Class
Common Stock

Name and Address of Beneficial Owner(1)
Perritt Capital Management, Inc. and
Perritt Funds, Inc.(7)
300 South Wacker Drive, Suite 2880
Chicago, Illinois 60606

* Represents beneficial ownership of less than one percent.

Amount and
Nature of
Beneficial
Ownership(2)

259,500

Percent of
Class
5.7%

(1)

(2)

The business address for each of the directors and officers of NTIC is c/o Northern Technologies
International Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014.

Includes for the persons listed below the following shares of common stock subject to options held by such
persons that are currently exercisable or become exercisable within 60 days of November 15, 2017:

Name
Directors
Barbara D. Colwell .........................................................................
Soo-Keong Koh .............................................................................
Sunggyu Lee, Ph.D. .......................................................................
G. Patrick Lynch ...................................................................................
Ramani Narayan, Ph.D..........................................................................
Richard J. Nigon ...................................................................................
Konstantin von Falkenhausen ...............................................................
Named Executive Officers
G. Patrick Lynch ......................................................................................
Matthew C. Wolsfeld ...............................................................................
All current directors and executive officers as a group (8 persons) ........

Shares of Common Stock
Underlying
Stock Options

15,000
16,000
4,000
36,998
16,000
24,000
19,000

36,998
27,346
158,344

(3) Includes 601,668 shares held by Inter Alia Holding Company. See note (5) below.

(4) The amount beneficially owned by all current directors and executive officers as a group includes 601,668

shares held of record by Inter Alia Holding Company. See notes (3) above and (5) below.

(5) According to a Schedule 13D/A filed with the Securities and Exchange Commission on December 2, 2011, Inter
Alia Holding Company is an entity of which G. Patrick Lynch, our President and Chief Executive Officer, is a
25% stockholder. G. Patrick Lynch shares equal voting and dispositive power over such shares with three other
members of his family. Inter Alia Holding Company’s address is 23205 Mercantile Road, Beachwood, Ohio
44122.

(6) According to a Schedule 13G/A filed with the Securities and Exchange Commission on February 15, 2017,

Rutabaga Capital Management has sole voting power with respect to 197,750 shares, shared voting power with
respect to 85,456 shares and sole dispositive power with respect to 283,206 shares

(7) According to a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2017,

Perritt Capital Management, Inc., in its capacity as investment adviser, may be deemed the beneficial owner of
259,500 shares, which are owned by investment advisory client(s). Perritt Capital Management, Inc. has sole
voting power and sole dispositive power over 21,500 shares and has shared voting power and shared dispositive
power over 238,000 shares with Perritt Funds, Inc., an investment company.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive
officers and all persons who beneficially own more than 10% of the outstanding shares of our common
stock to file with the Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of our common stock. Executive officers, directors and greater than 10% beneficial
owners are also required to furnish NTIC with copies of all Section 16(a) forms they file. To our
knowledge, based upon a review of the copies of such reports furnished to us and written representations
that no other reports were required, during the fiscal year ended August 31, 2017, none of our directors or
executive officers or beneficial owners of greater than 10% of our common stock failed to file on a timely
basis the forms required by Section 16 of the Exchange Act.

CORPORATE GOVERNANCE
________________

Corporate Governance Guidelines

The Board of Directors has adopted Corporate Governance Guidelines. A copy of these Corporate
Governance Guidelines can be found on the “Investor Relations—Corporate Governance” section of our
corporate website www.ntic.com. Among the topics addressed in our Corporate Governance Guidelines
are:

• Board size, composition and qualifications;
• Selection of directors;
• Board leadership;
• Board committees;
• Board and committee meetings;
• Executive sessions of independent directors;
• Meeting attendance by directors and non-directors;
• Appropriate information and access;
• Ability to retain advisors;
• Conflicts of interest and director independence;
• Board interaction with corporate constituencies;
• Change of principal occupation and board memberships;
• Retirement and term limits;
• Retirement and resignation policy;
• Board compensation;
• Stock ownership by directors and executive officers;
• Loans to directors and executive officers;
• CEO evaluation;
• Board and committee evaluation;
• Director continuing education;
• Succession planning;
• Related person transactions; and
• Communications with directors.

Board Leadership Structure

Under our Corporate Governance Guidelines, the office of Chairman of the Board and Chief Executive
Officer may or may not be held by one person. The Board of Directors believes it is best not to have a
fixed policy on this issue and that it should be free to make this determination based on what it believes is
best under the circumstances. However, the Board of Directors strongly endorses the concept of an
independent director being in a position of leadership. Under our Corporate Governance Guidelines, if at
any time the Chief Executive Officer and Chairman of the Board positions are held by the same person,
the Board of Directors will elect an independent director as a lead independent director.

G. Patrick Lynch currently serves as our President and Chief Executive Officer and Richard J. Nigon
serves as our non-executive Chairman of the Board. Because the Chief Executive Officer and Chairman
of the Board positions currently are not held by the same person, we do not have a lead independent
director. We currently believe this leadership structure is in the best interests of our company and our
stockholders and strikes the appropriate balance between the Chief Executive Officer’s responsibility for
the strategic direction, day-to-day-leadership and performance of our company and the Chairman’s

responsibility to provide oversight of our company’s corporate governance and guidance to our Chief
Executive Officer and to set the agenda for and preside over Board of Directors meetings.

At each regular Board of Directors meeting, our independent directors meet in executive session with no
company management or non-independent directors present during a portion of the meeting. After each
such executive session, our Chairman of the Board provides our Chief Executive Officer with any
actionable feedback from our independent directors.

Director Independence

The Board of Directors has affirmatively determined that five of NTIC’s current seven directors are
“independent directors” under the Listing Rules of the NASDAQ Stock Market: Barbara D. Colwell,
Soo-Keong Koh, Sunggyu Lee, Ph.D., Richard J. Nigon and Konstantin von Falkenhausen.

In making these affirmative determinations that such individuals are “independent directors,” the Board of
Directors reviewed and discussed information provided by the directors and by NTIC with regard to each
director’s business and personal activities as they may relate to NTIC and NTIC’s management.

Board Meetings and Attendance

The Board of Directors met four times during the fiscal year ended August 31, 2017. Each of the
directors attended at least 75% of the aggregate of the total number of meetings of the Board and the total
number of meetings held by all Board committees on which the director served.

Board Committees

The Board of Directors has a standing Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee, each of which has the composition and responsibilities described
below. The Board of Directors from time to time may establish other committees to facilitate the
management of our company and may change the composition and responsibilities of our existing
committees. Each of the Audit Committee, Compensation Committee and Nominating and Corporate
Governance Committee operates under a written charter adopted by the Board of Directors, which can be
found on the “Investor Relations—Corporate Governance” section of our corporate website
www.ntic.com.

The following table summarizes the current membership of each of our three Board committees.

Director
Barbara D. Colwell
Soo-Keong Koh
Sunggyu Lee, Ph.D.
G. Patrick Lynch
Ramani Narayan, Ph.D.
Richard J. Nigon
Konstantin von Falkenhausen

Audit
√
—
—
—
—
Chair
√

Compensation
—
—
√
—
—
√
Chair

Nominating and
Corporate Governance
√
Chair
—
—
—
√
—

Audit Committee

Responsibilities. The Audit Committee provides assistance to the Board of Directors in fulfilling its
responsibilities for oversight, for quality and integrity of the accounting, auditing, reporting practices,
systems of internal accounting and financial controls, the annual independent audit of our financial
statements, and the legal compliance and ethics programs of NTIC as established by management. The
Audit Committee’s primary responsibilities include:

• Overseeing our financial reporting process, internal control over financial reporting and

disclosure controls and procedures on behalf of the Board of Directors;

• Having sole authority to appoint, retain and oversee the work of our independent registered public

accounting firm and establish the compensation to be paid to the firm;

• Reviewing and pre-approving all audit services and permissible non-audit services to be provided

to NTIC by our independent registered public accounting firm;

• Establishing procedures for the receipt, retention and treatment of complaints regarding

accounting, internal accounting controls or auditing matters and for the confidential, anonymous
submission by our employees of concerns regarding questionable accounting or auditing matters;
and

• Overseeing the establishment and administration of (including the grant of any waiver from) a
written code of ethics applicable to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions.

The Audit Committee has the authority to engage the services of outside experts and advisors as it deems
necessary or appropriate to carry out its duties and responsibilities.

Composition. The current members of the Audit Committee are Ms. Colwell, Mr. Nigon and Mr. von
Falkenhausen. Mr. Nigon is the chair of the Audit Committee.

Each current member of the Audit Committee qualifies as “independent” for purposes of membership on
audit committees pursuant to the Listing Rules of the NASDAQ Stock Market and the rules and
regulations of the Securities and Exchange Commission and is “financially literate” as required by the
Listing Rules of the NASDAQ Stock Market. In addition, the Board of Directors has determined that
Mr. Nigon qualifies as an “audit committee financial expert” as defined by the rules and regulations of the
Securities and Exchange Commission and meets the qualifications of “financial sophistication” under the
Listing Rules of the NASDAQ Stock Market as a result of his extensive financial background and various
financial positions he has held throughout his career. Stockholders should understand that these
designations related to our Audit Committee members’ experience and understanding with respect to
certain accounting and auditing matters do not impose upon any of them any duties, obligations or
liabilities that are greater than those generally imposed on a member of the Audit Committee or of the
Board of Directors.

Meetings. The Audit Committee met four times during fiscal 2017, once in executive session with Baker
Tilly Virchow Krause, LLP, our independent registered public accounting firm.

Audit Committee Report. This report is furnished by the Audit Committee of the Board of Directors with
respect to NTIC’s financial statements for the fiscal year ended August 31, 2017.

One of the purposes of the Audit Committee is to oversee NTIC’s accounting and financial reporting
processes and the audit of NTIC’s annual financial statements. NTIC’s management is responsible for the
preparation and presentation of complete and accurate financial statements. NTIC’s independent
registered public accounting firm, Baker Tilly Virchow Krause, LLP, is responsible for performing an
independent audit of NTIC’s financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and for issuing a report on their audit.

In performing its oversight role, the Audit Committee has reviewed and discussed NTIC’s audited
financial statements for the fiscal year ended August 31, 2017 with NTIC’s management. Management
represented to the Audit Committee that NTIC’s financial statements were prepared in accordance with
generally accepted accounting principles. The Audit Committee has discussed with Baker Tilly Virchow
Krause, LLP, NTIC’s independent registered public accounting firm, the matters required to be discussed
under Public Company Accounting Oversight Board standards. The Audit Committee has received the
written disclosures and the letter from Baker Tilly Virchow Krause, LLP required by applicable
requirements of the Public Company Accounting Oversight Board regarding Baker Tilly Virchow Krause,
LLP’s communications with the Audit Committee concerning independence. The Audit Committee has
discussed with Baker Tilly Virchow Krause, LLP its independence and concluded that the independent
registered public accounting firm is independent from NTIC and NTIC’s management.

Based on the review and discussions of the Audit Committee described above, in reliance on the
unqualified opinion of Baker Tilly Virchow Krause, LLP regarding NTIC’s audited financial statements,
and subject to the limitations on the role and responsibilities of the Audit Committee discussed above and
in the Audit Committee’s charter, the Audit Committee recommended to the Board of Directors that
NTIC’s audited financial statements for the fiscal year ended August 31, 2017 be included in its Annual
Report on Form 10-K for the fiscal year ended August 31, 2017 for filing with the Securities and
Exchange Commission.

This report is dated as of November 14, 2017.

Audit Committee

Richard J. Nigon, Chair
Barbara D. Colwell
Konstantin von Falkenhausen

Other Information. Additional information regarding the Audit Committee and our independent
registered public accounting firm is disclosed under the “Proposal Three—Ratification of Selection of
Independent Registered Public Accounting Firm” section of this proxy statement.

Compensation Committee

Responsibilities. The Compensation Committee provides assistance to the Board of Directors in fulfilling
its oversight responsibility relating to compensation of our Chief Executive Officer and other executive
officers and administers our equity compensation plans. The Compensation Committee’s primary
responsibilities include:

•

recommending to the Board of Directors for its determination, the annual salaries, incentive
compensation, long-term compensation and any and all other compensation applicable to our
executive officers;

establishing, and from time to time, reviewing and revising, corporate goals and objectives with
respect to compensation for our executive officers and establishing and leading a process for the
full Board of Directors to evaluate the performance of our executive officers in light of those
goals and objectives;

administering our equity compensation plans and recommending to the Board of Directors for its
determination grants of options or other equity-based awards for executive officers, employees
and independent consultants under our equity compensation plans;

reviewing our policies with respect to employee benefit plans; and

establishing, and from time to time, reviewing and revising processes and procedures for the
consideration and determination of executive compensation.

The Compensation Committee has the authority to engage the services of outside experts and advisors as
it deems necessary or appropriate to carry out its duties and responsibilities, and prior to doing so,
assesses the independence of such experts and advisors from management.

Composition. The current members of the Compensation Committee are Dr. Lee, Mr. Nigon and Mr. von
Falkenhausen. Mr. von Falkenhausen is the current Chair of the Compensation Committee and Mr.
Nigon was the Chair of the Compensation Committee during fiscal 2017 and through November 15,
2017. The Board of Directors has determined that each of the members of the Compensation Committee
is considered an “independent director” under the Listing Rules of the NASDAQ Stock Market, a “non-
employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended, and otherwise independent under the rules and regulations of the Securities and
Exchange Commission.

Processes and Procedures for Consideration and Determination of Executive Compensation. As
described in more detail above under “—Responsibilities,” the Board of Directors has delegated to the
Compensation Committee the responsibility, among other things, to recommend to the Board of Directors
any and all compensation payable to our executive officers, including annual salaries, incentive
compensation and long-term incentive compensation, and to administer our equity and incentive
compensation plans applicable to our executive officers. Decisions regarding executive compensation
made by the Compensation Committee are not considered final and are subject to final review and
approval by the entire Board of Directors. Under the terms of its formal written charter, the
Compensation Committee has the power and authority, to the extent permitted by our Bylaws and
applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the
Compensation Committee. The Compensation Committee has not generally delegated any of its duties
and responsibilities to subcommittees, but rather has taken such actions as a committee, as a whole.

Our President and Chief Executive Officer and our Chief Financial Officer assist the Compensation
Committee in gathering compensation related data regarding our executive officers and making
recommendations to the Compensation Committee regarding the form and amount of compensation to be
paid to each executive officer. In making final recommendations to the Board of Directors regarding
compensation to be paid to our executive officers, the Compensation Committee considers the
recommendations of our President and Chief Executive Officer and our Chief Financial Officer, but also
considers other factors, such as its own views as to the form and amount of compensation to be paid, the
achievement by the company of pre-established performance objectives, the general performance of the
company and the individual officers, the performance of the company’s stock price and other factors that
may be relevant. Neither management nor the Compensation Committee engaged a compensation
consultant.

Final deliberations and decisions by the Compensation Committee regarding its recommendations to the
Board of Directors of the form and amount of compensation to be paid to our executive officers are made
by the Compensation Committee, without the presence of any executive officer of our company. In
making final decisions regarding compensation to be paid to our executive officers, the Board of
Directors considers the same factors and gives considerable weight to the recommendations of the
Compensation Committee.

Meetings. The Compensation Committee met three times during fiscal 2017.

Nominating and Corporate Governance Committee

Responsibilities. The primary responsibilities of the Nominating and Corporate Governance Committee
include:

•

identifying individuals qualified to become members of the Board of Directors;

recommending director nominees for each annual meeting of our stockholders and director
nominees to fill any vacancies that may occur between meetings of stockholders;

• being aware of best practices in corporate governance matters;

• developing and overseeing an annual Board of Directors and Board committee evaluation

process; and

•

establishing and leading a process for determination of the compensation applicable to the non-
employee directors on the Board.

The Nominating and Corporate Governance Committee has the authority to engage the services of outside
experts and advisors as it deems necessary or appropriate to carry out its duties and responsibilities.

Composition. The current members of the Nominating and Corporate Governance Committee are
Mr. Koh, Ms. Colwell and Mr. Nigon. Mr. Koh is the chair of the Nominating and Corporate Governance
Committee. The Board of Directors has determined that each of the members of the Nominating and
Corporate Governance Committee is considered an “independent director” under the Listing Rules of the
NASDAQ Stock Market.

Processes and Procedures for Consideration and Determination of Director Compensation. As
mentioned above under “—Responsibilities,” the Board of Directors has delegated to the Nominating and
Corporate Governance Committee the responsibility, among other things, to review and make

recommendations to the Board of Directors concerning compensation for non-employee members of the
Board of Directors, including but not limited to retainers, meeting fees, committee chair and member
retainers and equity compensation. Decisions regarding director compensation made by the Nominating
and Corporate Governance Committee are not considered final and are subject to final review and
approval by the entire Board of Directors. Under the terms of its formal written charter, the Nominating
and Corporate Governance Committee has the power and authority, to the extent permitted by our Bylaws
and applicable law, to delegate all or a portion of its duties and responsibilities to a subcommittee of the
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance
Committee has not generally delegated any of its duties and responsibilities to subcommittees, but rather
has taken such actions as a committee, as a whole.

In making recommendations to the Board of Directors regarding compensation to be paid to our non-
employee directors, the Nominating and Corporate Governance Committee considers fees and other
compensation paid to directors of comparable public companies, the number of board and committee
meetings that our directors are expected to attend, and other factors that may be relevant. In making final
decisions regarding non-employee director compensation, the Board of Directors considers the same
factors and the recommendation of the Nominating and Corporate Governance Committee.

Meetings. The Nominating and Corporate Governance Committee met twice during fiscal 2017.

Director Nominations Process

Pursuant to a Director Nominations Process adopted by the Board of Directors, in selecting nominees for
the Board of Directors, the Nominating and Corporate Governance Committee first determines whether
the incumbent directors are qualified to serve, and wish to continue to serve, on the Board. The
Nominating and Corporate Governance Committee believes that NTIC and its stockholders benefit from
the continued service of qualified incumbent directors because those directors have familiarity with and
insight into NTIC’s affairs that they have accumulated during their tenure with the company. Appropriate
continuity of Board membership also contributes to the Board’s ability to work as a collective body.
Accordingly, it is the practice of the Nominating and Corporate Governance Committee, in general, to re-
nominate an incumbent director if the director wishes to continue his or her service with the Board, the
director continues to satisfy the criteria for membership on the Board that the Nominating and Corporate
Governance Committee generally views as relevant and considers in deciding whether to re-nominate an
incumbent director or nominate a new director, the Nominating and Corporate Governance Committee
believes the director continues to make important contributions to the Board, and there are no special,
countervailing considerations against re-nomination of the director.

Pursuant to a Director Nominations Process adopted by the Board of Directors, in identifying and
evaluating new candidates for election to the Board, the Nominating and Corporate Governance
Committee solicits recommendations for nominees from persons whom the Nominating and Corporate
Governance Committee believes are likely to be familiar with qualified candidates having the
qualifications, skills and characteristics required for Board nominees from time to time. Such persons
may include members of the Board of Directors and our senior management and advisors to our company.
In addition, from time to time, if appropriate, the Nominating and Corporate Governance Committee may
engage a search firm to assist it in identifying and evaluating qualified candidates.

The Nominating and Corporate Governance Committee reviews and evaluates each candidate whom it
believes merits serious consideration, taking into account available information concerning the candidate,
any qualifications or criteria for Board membership established by the Nominating and Corporate
Governance Committee, the existing composition of the Board, and other factors that it deems relevant.
In conducting its review and evaluation, the Nominating and Corporate Governance Committee solicits

the views of our management, other Board members, and other individuals it believes may have insight
into a candidate. The Nominating and Corporate Governance Committee may designate one or more of
its members and/or other Board members to interview any proposed candidate.

The Nominating and Corporate Governance Committee will consider recommendations for the
nomination of directors submitted by our stockholders. For more information, see the information set
forth under “Stockholder Proposals and Director Nominations for the 2019 Annual Meeting of
Stockholders ─ Director Nominations for 2019 Annual Meeting.” The Nominating and Corporate
Governance Committee will evaluate candidates recommended by stockholders in the same manner as
those recommended as stated above.

There are no formal requirements or minimum qualifications that a candidate must meet in order for the
Nominating and Corporate Governance Committee to recommend the candidate to the Board. The
Nominating and Corporate Governance Committee believes that each nominee should be evaluated based
on his or her merits as an individual, taking into account the needs of our company and the Board of
Directors. However, in evaluating candidates, there are a number of criteria that the Nominating and
Corporate Governance Committee generally views as relevant and is likely to consider. Some of these
factors include whether the candidate is an “independent director” under the Listing Rules of the
NASDAQ Stock Market and meets any other applicable independence tests under the federal securities
laws and rules and regulations of the Securities and Exchange Commission; whether the candidate is
“financially literate” and otherwise meets the requirements for serving as a member of an audit committee
under the Listing Rules of the NASDAQ Stock Market; whether the candidate is “financially
sophisticated” under the Listing Rules of the NASDAQ Stock Market and an “audit committee financial
expert” under the federal securities laws and the rules and regulations of the Securities and Exchange
Commission; the needs of our company with respect to the particular talents and experience of its
directors; the personal and professional integrity and reputation of the candidate; the candidate’s level of
education and business experience; the candidate’s broad-based business acumen; the candidate’s level of
understanding of our business and its industry; the candidate’s ability and willingness to devote adequate
time to work of the Board and its committees; the fit of the candidate’s skills and personality with those
of other directors and potential directors in building a board that is effective, collegial and responsive to
the needs of our company; whether the candidate possesses strategic thinking and a willingness to share
ideas; the candidate’s diversity of experiences, expertise and background; and the candidate’s ability to
represent the interests of all stockholders and not a particular interest group.

We do not have a formal stand-alone diversity policy in considering whether to recommend any director
nominee, including candidates recommended by stockholders. As discussed above, the Nominating and
Corporate Governance Committee will consider the factors described above, including the candidate’s
diversity of experiences, expertise and background. The Nominating and Corporate Governance
Committee seeks nominees with a broad diversity of experience, expertise and backgrounds. The
Nominating and Corporate Governance Committee does not assign specific weights to particular criteria
and no particular criterion is necessarily applicable to all prospective nominees. The Board of Directors
believes that the backgrounds and qualifications of directors, considered as a group, should provide a
significant mix of experience, knowledge and abilities that will allow the Board of Directors to fulfill its
responsibilities. While the Nominating and Corporate Governance Committee focuses on obtaining a
diversity of experiences, expertise and background on the Board of Directors rather than a diversity of
personal characteristics, it recognizes the desirability of racial, ethnic, gender, age and other personal
diversity and considers it an additional benefit when a new director can also increase the personal
diversity of the Board of Directors as a whole. The Nominating and Corporate Governance Committee
evaluates its effectiveness in achieving diversity in a broad sense on the Board of Directors through its
annual review of Board member composition prior to recommending nominees for election each year.

Board Oversight of Risk

The Board of Directors as a whole has responsibility for risk oversight, with more in-depth reviews of
certain areas of risk being conducted by the relevant Board committees that report on their deliberations
to the full Board of Directors. The oversight responsibility of the Board and its committees is enabled by
management reporting processes that are designed to provide information to the Board about the
identification, assessment and management of critical risks and management’s risk mitigation strategies.
The areas of risk that we focus on include operational, financial (accounting, credit, liquidity and tax),
legal, compensation, competitive, health, safety, environmental, economic, political and reputational
risks.

The standing committees of the Board of Directors oversee risks associated with their respective principal
areas of focus. The Audit Committee’s role includes a particular focus on the qualitative aspects of
financial reporting, on our processes for the management of business and financial risk, our financial
reporting obligations and for compliance with significant applicable legal, ethical and regulatory
requirements. The Audit Committee, along with management, is also responsible for developing and
participating in a process for review of important financial and operating topics that present potential
significant risk to our company. The Compensation Committee is responsible for overseeing risks and
exposures associated with our executive compensation programs and arrangements and management
succession planning. The Nominating and Corporate Governance Committee oversees risks relating to
our corporate governance matters, director compensation programs and director succession planning.

We recognize that a fundamental part of risk management is understanding not only the risks a company
faces and what steps management is taking to manage those risks, but also understanding what level of
risk is appropriate for the company. The involvement of the full Board of Directors each year in
establishing our key corporate business strategies and annual fiscal budget is a key part of the Board’s
assessment of management’s appetite for risk and also a determination of what constitutes an appropriate
level of risk for our company.

We believe our current Board leadership structure is appropriate and helps ensure proper risk oversight
for our company for a number of reasons, including: (1) general risk oversight by the full Board of
Directors in connection with its role in reviewing our key business strategies and monitoring on an on-
going basis the implementation of our key business strategies; (2) more detailed oversight by our standing
Board committees that are currently comprised of and chaired by our independent directors, and (3) the
focus of our Chairman of the Board on allocating appropriate Board agenda time for discussion regarding
the implementation of our key business strategies and specifically risk management.

Code of Ethics

The Board of Directors has adopted a Code of Ethics, which applies to all of our directors, executive
officers, including our Chief Executive Officer and Chief Financial Officer, and other employees, and
meets the requirements of the Securities and Exchange Commission and the NASDAQ Stock Market. A
copy of our Code of Ethics is available on the “Investor Relations—Corporate Governance” section of
our corporate website www.ntic.com.

Policy Regarding Director Attendance at Annual Meetings of Stockholders

Although a regular Board of Directors meeting is generally held on the day of each annual meeting of
stockholders, this meeting may be held by telephone. It is the policy of the Board of Directors that if a
regular Board of Directors meeting occurs on the day of the annual meeting of stockholders and if
directors standing for re-election attend this Board of Directors meeting in person, such directors should
attend our annual meeting of stockholders, if their schedules permit. The only directors that attended the
2017 Annual Meeting of Stockholders were Mr. Nigon and Mr. Lynch.

Complaint Procedures

The Audit Committee has established procedures for the receipt, retention and treatment of complaints
received by NTIC regarding accounting, internal accounting controls or auditing matters, and the
submission by our employees, on a confidential and anonymous basis, of concerns regarding questionable
accounting or auditing matters. Our personnel with such concerns are encouraged to discuss their
concerns with our outside legal counsel, who in turn will be responsible for informing the Audit
Committee.

Process Regarding Stockholder Communications with Board of Directors

Stockholders may communicate with the Board or any one particular director by sending correspondence,
addressed to NTIC’s Corporate Secretary, Northern Technologies International Corporation, 4201
Woodland Road, Circle Pines, MN 55014 with an instruction to forward the communication to the Board
or one or more particular directors. NTIC’s Corporate Secretary will promptly forward all such
stockholder communications to the Board or the one or more particular directors, with the exception of
any advertisements, solicitations for periodical or other subscriptions and other similar communications.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee has served as one of our officers or employees at any time.
Except as otherwise disclosed in this proxy statement, no member of our compensation committee has
had any relationship with NTIC requiring disclosure under Item 404 of Regulation S-K under the
Exchange Act. None of our executive officers has served as a director, or member of the compensation
committee (or other committee serving an equivalent function), of an organization that has an executive
officer also serving as a member of our board of directors or compensation committee.

Summary of Cash and Other Compensation

DIRECTOR COMPENSATION
________________

The table below provides summary information concerning the compensation of each individual who
served as a director of our company during the fiscal year ended August 31, 2017, other than G. Patrick
Lynch, our President and Chief Executive Officer, who was not compensated separately for serving on
the Board of Directors during fiscal 2017. His compensation during fiscal 2017 for serving as an
executive officer of our company is set forth under “Executive Compensation” included elsewhere in this
proxy statement.

DIRECTOR COMPENSATION – FISCAL 2017

Name
Barbara D. Colwell .................
Soo-Keong Koh ......................
Sunggyu Lee, Ph.D. ................
Ramani Narayan, Ph.D. ..........
Richard J. Nigon .....................
Konstantin von Falkenhausen .

Fees Earned or
Paid in Cash ($)
$ 28,000
21,000
21,000
19,000
43,000
28,000

Option
Awards ($)(1)(2)

All Other
Compensation ($)(3)

Total ($)

$ 30,760
30,760
0
30,760
46,140
30,760

$ -
-
-
147,829
-
-

$ 58,760
51,760
21,000
197,589
89,140
58,760

(1) The amounts in this column do not reflect compensation actually received by the directors nor do they reflect
the actual value that will be recognized by the directors. Instead, the amounts reflect the grant date fair value
for option grants made by us in fiscal 2017, as calculated in accordance with Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) Topic 718.

On September 1, 2016, each then current director, other than Dr. Lee and Mr. Lynch, received a stock option to
purchase 4,000 shares of our common stock at an exercise price of $13.40 per share granted under the Northern
Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan, the material terms of
which are described in more detail under “Executive Compensation—Stock Incentive Plan.” These options
vested in full on September 1, 2017 and will expire on August 31, 2026 or earlier in the case of a director whose
service as a director is terminated prior to such date. In addition, on September 1, 2016, Mr. Nigon received an
additional stock option to purchase 2,000 shares of our common stock in consideration for his service as
Chairman of the Board. The terms of this stock option are identical to the other director stock options granted
on that date. See “—Non-Employee Director Compensation Program—Stock Options.” The grant date fair
value associated with these awards and as calculated in accordance with FASB ASC Topic 718 is determined
based on our Black-Scholes option pricing model. The grant date fair value per share for the options granted on
September 1, 2016 was $7.69 and was determined using the following specific assumptions: risk free interest
rate: 1.63%; expected life: 10.0 years; expected volatility: 46.4%; and expected dividend yield: 0%.

(2) The table below provides information regarding the aggregate number of options to purchase shares of our
common stock outstanding at August 31, 2017 and held by each of the directors listed in the Director
Compensation Table. Note that because of the grant date, neither the Director Compensation Table nor the table
below reflects option grants on September 1, 2017. See “—Non-Employee Director Compensation Program—
Stock Options.”

Name
Barbara D. Colwell ..................
Soo-Keong Koh .......................
Sunggyu Lee, Ph.D. .................
Ramani Narayan, Ph.D. ...........

Aggregate Number
Of Securities
Underlying Options

15,000
16,000
4,000
16,000

Exercisable/
Unexercisable
11,000/4,000
12,000/4,000
4,000/0
12,000/4,000

Exercise
Price(s)
$13.40 – 20.10
$13.40 – 20.10
$14.70
$13.40 – 20.10

Expiration
Date(s)
11/18/2023 – 8/31/2026
08/31/2023 – 8/31/2026
8/31/2023
08/31/2023 – 8/31/2026

Name
Richard J. Nigon ......................
Konstantin von Falkenhausen ..

Aggregate Number
Of Securities
Underlying Options

25,500
19,000

Exercisable/
Unexercisable
19,500/6,000
15,000/4,000

Exercise
Price(s)
$10.25 – 20.10
$10.25 – 20.10

Expiration
Date(s)
11/15/2022 – 8/31/2026
11/15/2022 – 8/31/2026

(3) We do not provide perquisites or other personal benefits to our directors. The amounts reflected for

Dr. Narayan reflects consulting fees and royalties paid during the fiscal year ended August 31, 2017 as
described in more detail below under “—Consulting Arrangement.”

Non-Employee Director Compensation Program

Overview. Our non-employee directors for purposes of our director compensation program currently
consist of Barbara D. Colwell, Soo-Keong Koh, Sunggyu Lee, Ph.D., Ramani Narayan, Ph.D., Richard J.
Nigon and Konstantin von Falkenhausen.

We use a combination of cash and long-term equity-based incentive compensation in the form of annual
stock option grants to attract and retain qualified candidates to serve on the Board of Directors. In setting
non-employee director compensation, we follow the process and procedures described under “Corporate
Governance—Nominating and Corporate Governance Committee—Processes and Procedures for the
Determination of Director Compensation.”

Cash Retainers and Meeting Fees. Each of our non-employee directors receives annual cash retainers and
meeting fees. The following table sets forth the annual cash retainers paid to our non-employee directors
during fiscal 2017:

Description
Chairman of the Board ..............................................................................................................
Board Member ..........................................................................................................................
Audit Committee Chair .............................................................................................................
Audit Committee Member (including Chair) ............................................................................

Annual Cash
Retainer
15,000
15,000
1,000
4,000

Effective January 1, 2018, the annual cash retainer paid to our non-employee directors will be increased
to $20,000. Each of our non-employee directors also receives $1,000 for each Board, Board committee
and strategy review meeting attended. No director, however, earns more than $1,000 per day in Board,
Board committee and strategy review meeting fees.

Stock Options. Each of our non-employee directors, other than Dr. Sunggyu Lee and a director who will
not stand for re-election at the next annual meeting of stockholders, is automatically granted a ten-year
non-qualified option to purchase 4,000 shares of our common stock on the first day of each fiscal year in
consideration for his or her service as a director of NTIC and the Chairman of the Board is automatically
granted an additional ten-year non-qualified option to purchase 2,000 shares of our common stock on the
first day of each fiscal year in consideration for his services as Chairman. In addition, each new non-
employee director is automatically granted a ten-year non-qualified option to purchase a pro rata portion
of 4,000 shares of our common stock calculated by dividing the number of months remaining in the fiscal
year at the time of election or appointment by 12 on the date the director is first elected or appointed as a
director of NTIC. Each automatically granted option becomes exercisable, on a cumulative basis, on the
one-year anniversary of the date of its grant. The exercise price of such options is equal to the fair market
value of a share of our common stock on the date of grant. Since 2014, Dr. Sunggyu Lee has rejected
option grants to directors in connection with his services as a director of NTIC.

Under the terms of our stock incentive plan, unless otherwise provided in a separate agreement or
modified in connection with the termination of a director’s service, if a director’s service with our
company terminates for any reason, the unvested portion of options then held by the director will
immediately terminate and the director’s right to exercise the then vested portion will:

•

immediately terminate if the director’s service relationship with our company terminated for
“cause”;
continue for a period of 12 months if the director’s service relationship with our company
terminates as a result of the director’s death, disability or retirement; or
continue for a period of three months if the director’s service relationship with our company
terminates for any reason, other than for cause or upon the director’s death, disability or
retirement.

We refer you to note (1) to the Director Compensation Table for a summary of all option grants to our
non-employee directors during the fiscal year ended August 31, 2017 and note (2) to the Director
Compensation Table for a summary of all options to purchase shares of our common stock held by our
non-employee directors as of August 31, 2017.

Reimbursement of Expenses. All of our directors are reimbursed for travel expenses for attending
meetings and other miscellaneous out-of-pocket expenses incurred in performing their Board functions.

Consulting Arrangement

As previously disclosed, we previously paid consulting fees to Bioplastic Polymers LLC which is owned
by Ramani Narayan, Ph.D., one of our directors, in exchange for consulting services rendered by
Bioplastic Polymers LLC related to research and development associated with various new technologies
and the royalty fees were paid pursuant to an oral agreement pursuant to which we agreed to pay
Bioplastic Polymers LLC and Dr. Narayan certain royalties on net sales of products incorporating the
biodegradable polymer technology transferred to us by Bioplastic Polymers LLC and Dr. Narayan in
consideration of the transfer and assignment of such technology to us.

On January 11, 2017, NTIC, Bioplastic Polymers LLC and Dr. Narayan entered into a consulting
agreement which supersedes and replaces the oral agreements described above. Under the terms of the
consulting agreement, Dr. Narayan must personally provide certain consulting services to us relating to
our Natur-Tec® business and bioplastics program. The consulting agreement sets out terms for clear
separation between Dr. Narayan’s work at Michigan State University (“University”) and any related
University inventions and his work with us and any related our inventions. In exchange for the consulting
services, we agreed to pay Dr. Narayan $12,000 per month. The term of the consulting agreement is five
years, and unless earlier terminated by the parties, will terminate on January 11, 2022. Either party may
terminate the consulting agreement earlier upon 30 days prior written notice. The consulting agreement
will terminate automatically upon the death of Dr. Narayan or in the event of his disability that prevents
him from performing the consulting services under the agreement.

We paid consulting fees to Bioplastic Polymers LLC which is owned by Ramani Narayan, Ph.D. in the
aggregate amount of $137,666 and commissions in the amount of $10,163 during the fiscal year ended
August 31, 2017 pursuant to the oral agreement and after January 11, 2017 the written consulting
agreement.

Indemnification Agreements

We have entered into agreements with all of our directors under which we are required to indemnify them
against expenses, judgments, penalties, fines, settlements and other amounts actually and reasonably
incurred, including expenses of a derivative action, in connection with an actual or threatened proceeding
if any of them may be made a party because he or she is or was one of our directors. We will be obligated
to pay these amounts only if the director acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to our best interests. With respect to any criminal proceeding, we will be
obligated to pay these amounts only if the director had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth procedures that will apply in the event of a
claim for indemnification.

EXECUTIVE COMPENSATION
________________

Compensation Discussion and Analysis

In this Compensation Discussion and Analysis (“CD&A”), we describe the key principles and approaches
we use to determine elements of compensation paid to, awarded to and earned by G. Patrick Lynch, who
serves as our President and Chief Executive Officer (“CEO”), and Matthew C. Wolsfeld, who serves as
our Chief Financial Officer (“CFO”). Their compensation is set forth in the Summary Compensation
Table found later in this proxy statement. The CEO and CFO are the only two individuals who have been
designated by our Board of Directors as “executive officers” of NTIC within the meaning of the federal
securities laws. This CD&A should be read in conjunction with the accompanying compensation tables,
corresponding notes and narrative discussion, as they provide additional information and context to our
compensation disclosures. We refer to the CEO and CFO in this proxy statement as our “named
executive officers” or “executives.”

Executive Summary

One of our key executive compensation objectives is to link pay to performance by aligning the financial
interests of our executives with those of our stockholders and by emphasizing pay for performance in our
compensation programs. We believe we accomplish this objective primarily through our annual bonus
plan, which compensates executives for achieving annual corporate financial goals and individual goals.

Our fiscal 2017 total net sales increased over 20% to $39,569,123 during fiscal 2017 compared to fiscal
2016, and our net income was $3,422,126, or $0.75 per diluted common share, for fiscal 2017 compared
to ($867,514) or ($0.19) per diluted common share, for fiscal 2016. Accordingly, total compensation for
our named executive officers for fiscal 2017 increased approximately 30% compared to fiscal 2016, as a
result of increased bonuses under our annual bonus plan.

Compensation Highlights and Best Practices

Our compensation practices include many best pay practices that support our executive compensation
objectives and principles and benefit our stockholders, such as the following:

• Pay for performance. We tie compensation directly to financial performance. Our annual
bonus plan pays out only if a certain minimum adjusted earnings threshold is met and the
payouts are completely dependent upon our actual adjusted earnings.

• At-risk pay. A significant portion of executives’ compensation is “performance-based” or “at
risk.” For fiscal 2017, 36.7% of total compensation for our named executive officers was
performance-based, assuming grant date fair values for equity awards.

• Equity-based pay. A significant portion of executives’ compensation is “equity-based” and in
the form of stock-based incentive awards. For fiscal 2017, 10.5% of total compensation for
our named executive officers was equity-based, assuming grant date fair values for equity
awards.

• Three-year vesting. Value received under our long-term equity-based incentive awards,
which is comprised solely of stock options, is tied to three-year vesting and any value
received is contingent upon our long-term stock price performance since stock options have
value only if the market value of our common stock exceeds the exercise price of the options.

• Clawback policy. Our stock incentive plan and related award agreements include a

“clawback” mechanism to recoup incentive compensation if it is determined that executives
engaged in certain conduct adverse to our interests.

• No tax gross-ups. We do not provide tax “gross-up” payments in connection with any

compensation, benefits or perquisites provided to our executives.

• Limited perquisites. We provide only limited perquisites to our executives.

• No hedging or pledging. We prohibit our executives from engaging in hedging transactions,
such as short sales, transactions in publicly traded options, such as puts, calls and other
derivatives, and pledging our common stock in any significant respect.

Say-on-Pay Vote

At our 2017 annual meeting of stockholders, our stockholders had the opportunity to provide an advisory
vote on the compensation paid to our named executive officers, or a “say-on-pay” vote. Of the votes cast
by our stockholders, 99% were in favor of our “say-on-pay” proposal. Accordingly, the Compensation
Committee generally believes that these results affirmed stockholder support of our approach to executive
compensation and did not believe it was necessary to make; and therefore, has not made, any changes to
our executive pay program solely in response to that vote. In accordance with the result of the advisory
vote on the frequency of the say-on-pay vote, which was conducted at our 2014 annual meeting of
stockholders, our board of directors has determined that we will conduct an executive compensation
advisory vote every year. Accordingly, the next say-on-pay vote will occur at our 2019 Annual Meeting
of stockholders. Our next vote on the frequency of the say-on-pay vote will occur at our 2020 annual
meeting of stockholders.

Executive Compensation Objectives

Our guiding compensation philosophy is to maintain an executive compensation program that allows us
to attract, retain, motivate and reward qualified and talented executives that will enable us to grow our
business, achieve our annual, long-term and strategic goals and drive long-term stockholder value.

The following core principles provide a framework for our executive compensation program:

• Align interests of our executives with stockholder interests;

•

Integrate compensation with our business plans and strategic goals;

• Link amount of compensation to both company and individual performance; and

• Provide fair and competitive compensation opportunities that attract and retain executives.

How We Make Compensation Decisions

There are several elements to our executive compensation decision-making, which we believe allow us to
most effectively implement our compensation philosophy. Each of these elements and their roles are
described briefly below.

Role of the Compensation Committee. The Compensation Committee, which is comprised solely of
independent directors, oversees our executive compensation program. Within its duties, the Compensation
Committee recommends compensation for the CEO and CFO. In doing so, the Compensation Committee:

• Approves and recommends that the Board approve the total executive compensation package
for each executive, including his base salary, annual bonus payout and annual stock option
awards;

• Approves and recommends that the Board approve the terms of our annual bonus plan;

• Approves and recommends that the Board approve annual stock option grants;

• Evaluates market competitiveness of our executive compensation program; and

• Evaluates proposed significant changes to all other elements of our executive compensation

program.

In setting or recommending executive compensation for our executives, the Compensation Committee
considers the following primary factors:

•

each executive’s position within the company and the level of responsibility;

the ability of the executive to impact key business initiatives;

the executive’s individual experience and qualifications;

company performance, as compared to specific pre-established objectives;

individual performance, generally and as compared to specific pre-established objectives;

the executive’s current and historical compensation levels;

advancement potential and succession planning considerations;

an assessment of the risk that the executive would leave NTIC and the harm to our business
initiatives if the executive left;

the retention value of executive equity holdings, including outstanding stock options;

the dilutive effect on the interests of our stockholders of long-term equity-based incentive
awards; and

anticipated share-based compensation expense as determined under applicable accounting
rules.

The Compensation Committee also considers the recommendations of the CEO with respect to executive
compensation to be paid to other executives and employees. The significance of any individual factor
described above in setting executive compensation will vary from year to year and may vary among our
executives. In making its final decision regarding the form and amount of compensation to be paid to our
named executive officers (other than the CEO), the Compensation Committee considers and gives great
weight to the recommendations of the CEO recognizing that due to his reporting and otherwise close

relationship with each executive and employee, the CEO often is in a better position than the
Compensation Committee to evaluate the performance of each executive (other than himself). In making
its final decision regarding the form and amount of compensation to be paid to the CEO, the
Compensation Committee considers the results of the CEO’s self-review and his individual annual
performance review by the Compensation Committee and the recommendations of our non-employee
directors. The CEO’s compensation is approved by the Board of Directors (with the CEO abstaining),
upon recommendation of the Compensation Committee.

Role of Management. Management’s role is to provide current compensation information to the
Compensation Committee and provide analysis and recommendations on executive compensation to the
Compensation Committee based on the executive’s level of professional experience; the executive’s
duties and responsibilities; individual performance; tenure; and historic corporate performance. None of
our executives, including the CEO, provides input or recommendations with respect to his own
compensation.

Use of Market Data. Since there are no public companies of which NTIC is aware that are substantially
similar to NTIC, in terms of its business, industry and corporate profile, the Compensation Committee has
not used market data to review and evaluate executive compensation in any material respect. However,
the Compensation Committee has recently used a group of peer companies with a market capitalization
similar to NTIC and either in a similar industry or located in Minnesota.

Elements of Our Executive Compensation Program

Our executive compensation program for the fiscal year ended August 31, 2017 consisted of the following
key elements:

• Base salary;
• Annual incentive compensation;
• Long-term equity-based incentive compensation, in the form of stock options; and
• All other compensation, including health and welfare benefits, retirement plans and

perquisites.

The table below provides some of the key characteristics of and purpose for each element along with
some key actions taken during fiscal 2017.

Element
Base Salary A fixed amount, paid in cash

Key Characteristics

and reviewed annually and,
if appropriate, adjusted.

Purpose

Provide a source of fixed income
that is competitive and reflects
scope and responsibility of the
position held.

Annual
Incentive

A variable, short-term
element of compensation that
is typically payable in cash
and is based on Adjusted
EBITDOI and individual
performance goals.

Motivate and reward our executives
for achievement of annual business
results intended to drive overall
company performance.

Key Fiscal 2017 Actions
Our named executive officers
received 5% increases to annual
base salaries, effective as of
September 1, 2016, the first day
of fiscal 2017.

No significant changes were
made.

Element
Long-Term
Equity-
Based
Incentive

Health and
Welfare
Benefits
Retirement
Plans

Perquisites

Key Characteristics
A variable, long-term element
of compensation that is
provided in the form of stock
options. Stock options are
time-based and vest annually
over three years.
Includes health, dental and
life insurance.

Includes a 401(k) plan.
We do not provide pension
arrangements or post-
retirement health coverage for
our executives or employees.
We also do not provide any
nonqualified defined
contribution or other deferred
compensation plans.

Includes use of a company-
owned automobile. We do not
provide any other perquisites
to our executives.

Purpose
Align the interests of our executives
with the long-term interests of our
stockholders; promote stock
ownership and create significant
incentives for executive retention.

Key Fiscal 2017 Actions

No significant changes were
made.

Provide competitive health and
welfare benefits at a reasonable cost
and promote employee health.
Provide an opportunity for
employees to save and prepare
financially for retirement.

No significant changes were
made.

Assist in the attraction and retention
of executives.

No significant changes were
made.

We describe each key element of our executive compensation program in more detail in the following
pages, along with the compensation decisions made in fiscal 2017.

Base Salary. We provide a base salary for our named executive officers, which, unlike some of the other
elements of our executive compensation program, is not subject to company or individual performance
risk. We recognize the need for most executives to receive at least a portion of their total compensation in
the form of a guaranteed base salary that is paid in cash regularly throughout the year.

We initially fix base salaries for our executives at a level that we believe enables us to hire and retain
them in a competitive environment and to reward satisfactory individual performance and a satisfactory
level of contribution to our overall business objectives. The Compensation Committee reviews base
salaries for our named executive officers each year typically in July and generally recommends to the
Board of Directors any increases for the following fiscal year in July or August or as soon as practicable
thereafter. Regardless of when the final decision regarding base salaries for a fiscal year is made by the
Board of Directors, any increases in base salaries are effective as of September 1 of that year, which
depending upon the timing of the final decision could result in a retroactive payment to the executive
shortly after the final decision is made.

The Compensation Committee’s recommendations to the Board of Directors regarding the base salaries of
our named executive officers are based on a number of factors, including: the executive’s level of
responsibility, prior experience and base salary for the prior year, the skills and experiences required by
the position, length of service with our company, past individual performance, cost of living increases and
other considerations the Compensation Committee deems relevant. The Compensation Committee also
recognizes that in addition to the typical responsibilities and duties held by our executives, by virtue of
their positions, our executives, due to the small number of our executives and employees, often possess
additional responsibilities and perform additional duties that would be typically delegated to others in
most organizations with additional personnel and resources.

Annualized base salary rates for fiscal 2016 and fiscal 2017 for our named executive officers were as
follows:

Name
G. Patrick Lynch ......................
Matthew C. Wolsfeld ................

Fiscal
2016

$ 340,726
251,841

Fiscal
2017

$ 357,763
264,433

% Change From
Fiscal 2016
5.0%
5.0%

An increase of 5% was determined appropriate in light of the increased responsibilities taken on by our
executives and performance during fiscal 2016. The Board of Directors, upon recommendation of the
Compensation Committee, recently set base salaries for fiscal 2018. Mr. Lynch’s base salary for fiscal
2018 is $389,962, and Mr. Wolsfeld’s base salary for fiscal 2018 is $288,232, representing base salary
increases of 9% over their respective base salaries for fiscal 2017.

Annual Incentive Compensation. In addition to base compensation, we provide our named executive
officers the opportunity to earn annual incentive compensation based on the achievement of certain
company and individual related performance goals. Our annual bonus program directly aligns the
interests of our executive officers and stockholders by providing an incentive for the achievement of key
corporate and individual performance measures that are critical to the success of our company and linking
a significant portion of each executive’s annual compensation to the achievement of such measures.

Under the annual bonus plan for fiscal 2017, the total amount available under the bonus plan for all plan
participants, including executives, as in past years, was a percent of NTIC’s earnings before interest, taxes
and other income, as adjusted to take into account amounts to be paid under the bonus plan and certain
other adjustments (“Adjusted EBITOI”). For fiscal 2017, the other adjustments included amounts paid
under NTIC’s sales and management bonus plan and profit sharing plan. For each named executive
officer participant, 75% of the amount of their individual bonus payout was determined based upon their
individual allocation percentage of the total amount available under the bonus plan and 25% of their
individual payout was determined based upon their achievement of certain pre-established but more
qualitative individual performance objectives.

A plan participant’s individual allocation percentage of the total amount available under the bonus plan
was based on the number of plan participants, the individual’s annual base salary and the individual’s
position and level of responsibility within the company. Mr. Lynch’s individual allocation percentage for
fiscal 2017 was 20.3% and Mr. Wolsfeld’s individual allocation percentage for fiscal 2017 was 15%.

Mr. Lynch’s individual performance objectives for fiscal 2017 related primarily to NTIC’s operations in
China, management of pending litigation, the improvement and maintenance of key joint venture
relationships, improvement and maintenance of investors relations and retention and improvement of key
personnel. Mr. Wolsfeld’s individual performance objectives for fiscal 2017 related primarily to financial
oversight of NTIC’s subsidiary in China, integration of NTIC’s ZERUST® Oil & Gas business
operations into NTIC’s operations in Circle Pines, financial benchmarking of joint ventures and
improvement and maintenance of investor relations and internal controls. In the case of both Mr. Lynch
and Mr. Wolsfeld, the Compensation Committee determined each executive achieved his individual
performance objectives at a 100% achievement level.

Mr. Lynch received a total bonus of $154,057 for fiscal 2017 and Mr. Wolsfeld received a total bonus of
$113,868 for fiscal 2017. The Board of Directors, upon recommendation of the Compensation
Committee, determined to pay all bonuses in cash as opposed to a mix of cash and NTIC common stock
in light of our cash and cash equivalent balance which is higher than in past years and the implementation
of a long-term incentive plan component to our executive compensation, payable in annual stock option
grants, as described in more detail below.

The structure and material terms of our annual bonus plan for fiscal 2017 are similar to the annual bonus
plan for fiscal 2016. As in past years, the payment of bonuses under the plan will be discretionary and
may be paid to participants in cash and/or shares of NTIC common stock.

Long-Term Equity-Based Incentive Compensation. In November 2012, we adopted and began to
implement a long-term equity-based incentive compensation component to our executive compensation
program. The long-term equity-based incentive compensation component consists of annual option
grants to our executives and certain other employees, which options vest on an annual basis over a three-
year period. The stock options are typically granted on the first business day of each fiscal year.

Accordingly, on September 1, 2016, NTIC granted Mr. Lynch an option to purchase 8,036 shares of
common stock and Mr. Wolsfeld an option to purchase 5,940 shares of common stock. More recently, on
September 1, 2017, NTIC granted Mr. Lynch an option to purchase 5,852 shares of common stock and
Mr. Wolsfeld an option to purchase 4,325 shares of common stock. In determining the number of stock
options to grant to our executives and other employees, the Board of Directors, upon recommendation of
the Compensation Committee, considered the total amount of stock-based compensation expense
budgeted for such options and divided that amount by the grant date fair value per share to obtain a total
option pool. Of the total option pool, the number of options to be granted to each executive and employee
receiving options was then determined based on the individual’s base salary as a percentage of the total
aggregate base salaries of all executive and employees receiving option grants.

The Compensation Committee’s primary objectives with respect to long-term equity-based incentive
compensation are to align the interests of our executives with the long-term interests of our stockholders,
promote stock ownership and create significant incentives for executive retention. Long-term equity-
based incentives are intended to comprise a significant portion of each executive’s compensation package,
consistent with our executive compensation objective to align the interests of our executives with the
interests of our stockholders. For fiscal 2017, equity-based compensation comprised 10.5% of the total
compensation for Mr. Lynch and Mr. Wolsfeld, assuming grant date fair value for equity awards. All
equity-based compensation granted to our executives and other employees is granted under the Northern
Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan, which was
approved by the Board of Directors and our stockholders.

The Compensation Committee uses stock options as opposed to other equity-based incentive awards since
the Compensation Committee believes that options effectively incentivize executives to maximize
company performance, as the value of awards is directly tied to an appreciation in the value of our
common stock. Stock options also provide an effective retention mechanism because of vesting
provisions. An important objective of our long-term equity-based incentive program is to strengthen the
relationship between the long-term value of our common stock and the potential financial gain for our
executives. Stock options provide recipients with the opportunity to purchase our common stock at a
price fixed on the grant date regardless of future market price. The vesting of our stock options is time-
based – annually over a three-year period. Our policy is to grant options only with an exercise price equal
to or more than the fair market value of our common stock on the grant date. Under the terms of our
incentive plan, fair market value is defined as the mean between the reported high and low sale prices of
our common stock as of the grant date during the regular daily trading session, as reported on the
NASDAQ Global Market. Because stock options become valuable only if the share price increases above
the exercise price and the option holder remains employed during the period required for the option to
vest, they provide an incentive for an executive to remain employed. In addition, stock options link a
portion of an employee’s compensation to the interests of our stockholders by providing an incentive to
achieve corporate goals and increase the market price of our common stock over the three-year vesting
period.

Although we do not have any stock retention or ownership guidelines, the Board of Directors encourages
our executives to have a financial stake in our company in order to align the interests of our executives
with the interests of our stockholders. Through the grant of stock options, we seek to align the long-term
interests of our executives with the long-term interests of our stockholders by creating a strong and direct
linkage between compensation and long-term stockholder return. When our executives deliver returns to
our stockholders, in the form of increases in our stock price or otherwise, stock options permit an increase
in their compensation. We also believe that stock options enable our executives to achieve a meaningful
equity ownership in our company and enable us to attract, retain and motivate our executives by
maintaining competitive levels of total compensation. As described in more detail below, under the terms
of our insider trading policy, our executives are prohibited from engaging in any hedging or significant
pledging of their shares of our common stock.

All Other Compensation. It is generally our policy not to extend significant perquisites to our executives
that are not available to our employees generally. The only significant perquisite that we provide to our
executives is the personal use of a company-owned vehicle. Our executives also receive benefits, which
are also received by our other employees, including participation in the Northern Technologies
International Corporation 401(k) Plan and health, dental and life insurance benefits. Under the 401(k)
plan, all eligible participants, including our executives, may voluntarily request that we reduce his or her
pre-tax compensation by up to 10% (subject to certain special limitations) and contribute such amounts to
a trust. We typically contribute an amount equal to 50% of the first 7% of the amount that each
participant contributed under this plan. We do not provide pension arrangements or post-retirement
health coverage for our executives or employees. We also do not provide any nonqualified defined
contribution or other deferred compensation plans.

Change in Control and Post-Termination Severance Arrangements

Change in Control Arrangements. To encourage continuity, stability and retention when considering the
potential disruptive impact of an actual or potential corporate transaction, we have established change in
control arrangements, including provisions in our stock incentive plan and written employment
agreements with our executives. These arrangements are designed to incentivize our executives to remain
with NTIC in the event of a change in control or potential change in control.

Under the terms of our stock incentive plan and the individual award documents provided to recipients of
awards under that plan, all stock options become immediately vested and exercisable upon the completion
of a change in control of NTIC. For more information, see “—Potential Payments Upon Termination or
Change in Control—Change in Control Arrangements.” Thus, the immediate vesting of stock options is
triggered by the change in control, itself, and thus is known as a “single trigger” change in control
arrangement. We believe these “single trigger” equity acceleration change in control arrangements
provide important retention incentives during what can often be an uncertain time for executives. They
also provide executives with additional monetary motivation to focus on and complete a transaction that
the Board of Directors believes is in the best interests of our stockholders rather than to seek new
employment opportunities. If an executive were to leave before the completion of the change in control,
non-vested options held by the executive would terminate.

In addition, we have entered into employment agreements with our named executive officers to provide
certain payments and benefits in the event of a change in control, which are payable only in the event
their employment is terminated in connection with the change in control (“double-trigger” provisions).
These change in control protections provide consideration to executives for certain restrictive covenants
that apply following termination of employment and provide continuity of management in connection
with a threatened or actual change in control transaction. If an executive’s employment is terminated
without “cause” or by the executive for “good reason” (as defined in the employment agreements) within

24 months following a change in control, the executive will be entitled to receive a lump sum payment
equal to two times, in the case of the CEO, and one and one-half times, in the case of the CFO, his
average total annual compensation for the two most recently completed fiscal years, plus a pro rata
portion of the target bonus that the executive otherwise would have been eligible to receive under our
bonus plan for the fiscal year during which the executive’s employment is terminated, with such pro rata
portion based on the number of completed months during the fiscal year that the executive was employed
with our company. These arrangements, and a quantification of the payment and benefits provided under
these arrangements, are described in more detail under “—Potential Payments Upon Termination or
Change in Control—Change in Control Arrangements.” Other than the immediate acceleration of equity-
based awards which we believe aligns our executives’ interests with those of our stockholders by
allowing executives to participate fully in the benefits of a change in control as to all of their equity, in
order for a named executive officer to receive any other payments or benefits as a result of a change in
control of NTIC, there must be a termination of the executive’s employment, either by us without cause
or by the executive for good reason. The termination of the executive’s employment by the executive
without good reason will not give rise to additional payments or benefits either in a change in control
situation or otherwise. Thus, these additional payments and benefits will not just be triggered by a change
in control, but also will require a termination event not within the control of the executive, and thus are
known as “double trigger” change in control arrangements. As opposed to the immediate acceleration of
stock options, we believe that other change in control payments and benefits should properly be tied to
termination following a change in control, given the intent that these amounts provide economic security
to ease in the executive’s transition to new employment.

We believe these change in control arrangements are an important part of our executive compensation
program in part because they mitigate some of the risk for executives working in a smaller company
where there is a meaningful risk that the company may be acquired. Change in control benefits are
intended to attract and retain qualified executives who, absent these arrangements and in anticipation of a
possible change in control of NTIC, might consider seeking employment alternatives to be less risky than
remaining with NTIC through the transaction. We believe that relative to our company’s overall value,
our potential change in control benefits are relatively small. We also believe that the form and amount of
these change in control benefits are fair and reasonable to both our company and our executives. The
Compensation Committee reviews our change of control arrangements periodically to ensure that they
remain necessary and appropriate.

Other Severance Arrangements. Each of our named executive officers is entitled to receive severance
benefits upon certain other qualifying terminations of employment, other than a change in control,
pursuant to the provisions of such executive’s employment agreement. These severance arrangements are
primarily intended to retain our executives and provide consideration to those executives for certain
restrictive covenants that apply following termination of employment. Additionally, we entered into the
employment agreements because they provide us valuable protection by subjecting the executives to
restrictive covenants that prohibit the disclosure of confidential information during and following their
employment and limit their ability to engage in competition with us or otherwise interfere with our
business relationships following their termination of employment. For more information on our
employment agreements and severance arrangements with our named executive officers, see the
discussions below under “—Summary Compensation—Employment Agreements” and “—Potential
Payments Upon a Termination or Change in Control.”

We believe that the form and amount of these severance benefits are fair and reasonable to both our
company and our executives. The Compensation Committee reviews our severance arrangements
periodically to ensure that they remain necessary and appropriate.

Hedging and Pledging

Our insider trading policy prohibits officers and directors from purchasing NTIC securities on margin,
borrowing against any account in which NTIC securities are held, or pledging NTIC securities in any
significant respect as collateral for a loan. In addition, our insider trading policy prohibits employees
(including executive officers) and directors from purchasing any financial instruments (including, without
limitation, prepaid variable forward contracts, equity swaps, collars and exchange funds) that are designed
to hedge or offset any decrease in the market value of NTIC securities.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis”
with management and, based on such review and discussion, the Compensation Committee recommended
to the Board that the “Compensation Discussion and Analysis” be included in this proxy statement and in
our Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

This report is dated November 14, 2017.

Compensation Committee:
Richard J. Nigon (Chair)
Dr. Sunggyu Lee
Konstantin von Falkenhausen

Summary of Cash and Other Compensation

The table below provides summary information concerning all compensation awarded to, earned by or
paid to named executive officers. G. Patrick Lynch, our President and Chief Executive Officer who serves
as our principal executive officer, and Matthew C. Wolsfeld, our Chief Financial Officer and Corporate
Secretary who serves as our principal financial officer. Mr. Lynch and Mr. Wolsfeld are the only two
individuals who have been designated by our Board of Directors as “executive officers” of our company.

SUMMARY COMPENSATION TABLE – FISCAL 2017

Name and Principal
Position
G. Patrick Lynch ..............
President and Chief
Executive Officer

Fiscal
Year
2017
2016
2015

Matthew C. Wolsfeld .......
Chief Financial Officer
and Corporate
Secretary

2017
2016
2015

Salary
$ 357,763
340,727
324,501

264,433
251,842
239,850

Option
Awards(1)
61,796
61,796
60,623

45,675
45,676
44,808

Non-Equity
Incentive Plan
Compensation(2)
153,998
$
30,295
64,981

All Other
Compensation(3)
$

13,102
13,102
13,102

113,824
30,295
48,029

12,875
12,875
12,875

Total
$ 586,659
445,920
463,207

436,807
340,688
345,562

(1) On September 1, 2016, each of the named executive officers was granted a stock option under the Northern

Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan. We refer you to the
information under the heading “Compensation Discussion and Analysis—Elements of Our Executive
Compensation Program—Long-Term Equity-Based Incentive Compensation” for a discussion of the option
grants and their terms. The amounts reflected in the column entitled “Option Awards” for each officer represent
the aggregate grant date fair value for the option awards, as computed in accordance with FASB ASC Topic
718. The grant date fair value is determined based on a Black-Scholes option pricing model. The grant date
fair value per share for the options granted on September 1, 2016 was $7.69 and was determined using the

following specific assumptions: risk free interest rate: 1.63%; expected life: 10.0 years; expected volatility:
46.0%; and expected dividend yield: 0%.

(2) The amounts reflected in the column entitled “Non-Equity Incentive Plan Compensation” reflect the cash
amount of bonus earned by each of the officers in consideration for their fiscal 2017, 2016 and 2015
performance, respectively, but paid to such officers during fiscal 2018, 2017 and 2016, respectively. We refer
you to the information under “Compensation Discussion and Analysis—Elements of Our Executive
Compensation Program—Annual Incentive Compensation” for a discussion of the factors taken into
consideration by the Board of Directors, upon recommendation of the Compensation Committee, in determining
the amount of bonus paid to each named executive officer.

(3) The amounts shown in the column entitled “All Other Compensation” for fiscal 2017 include the following with

respect to each named executive officer:

Name
G. Patrick Lynch ................................................
Matthew C. Wolsfeld .........................................

401(k) Match
$ 8,750
8,750

Personal Use
of Auto
$ 4,352
4,125

Grants of Plan-Based Awards

The table below provides information concerning grants of plan-based awards to each of our named
executive officers during the year ended August 31, 2017. The option awards were granted to our named
executive officers under the Northern Technologies International Corporation Amended and Restated
2007 Stock Incentive Plan, which was approved by the Board of Directors and our stockholders and the
non-equity incentive plan awards were granted under the Northern Technologies International
Corporation Performance Incentive Plan. The material terms of these awards and the material plan
provisions relevant to these awards are described in the notes to the table below or in the narrative
following the table below. During the year ended August 31, 2017, we did not grant any equity incentive
plan awards or stock awards, in each case, within the meaning of the SEC rules.

GRANTS OF PLAN-BASED AWARDS - 2017

Grant
date

Board
approval
date(1)

Name

G. Patrick Lynch
Non-equity incentive

plan award....................

09/01/16
Stock option ................... 09/01/16
Matthew C. Wolsfeld
Non-equity incentive

plan award....................

09/01/16
Stock option ................... 09/01/16

08/26/16
08/26/16

Estimated future payouts under non-
equity incentive plan awards(2)
Target
($)

Threshold
($)

Maximum
($)

All other
option
awards:
number of
securities
underlying
options(3)
(#)

Exercise
or base
price of
option
awards
($/Sh)

Grant date
fair value
stock and
option
awards(4)
($)

—

$154,057

—

8,036

$13.40

$61,796

—

$113,868

—

5,940

$13.40

$45,676

(1) The grant date with respect to the non-equity incentive awards is September 1, 2016, the first day of the
performance period. The grant date with respect to the option awards is the date on which the Board of
Directors met to approve the option grant.

(2) Represents target amounts payable under the NTIC’s annual bonus plan for fiscal 2017, assuming 100% target
performance. The annual bonus plan was approved by our Board of Directors on August 26, 2016. The actual

amounts paid under the bonus plan are reflected in the “Non-equity incentive compensation” column of the
Summary Compensation Table.

(3) Represents an option granted under the Northern Technologies International Corporation Amended and

Restated 2007 Stock Incentive Plan, the material terms of which are described in more detail below under “—
Stock Incentive Plan.” The option has a ten-year term and vests over a three-year period, with one-third of the
underlying shares vesting on each of September 1, 2017, September 1, 2018 and September 1, 2019, so long as
the individual remains an employee of our company as of such date.

(4) We refer you to note (2) to the Summary Compensation Table for a discussion of the assumptions made in

calculating the grant date fair value of the option awards.

Outstanding Equity Awards at Fiscal Year End

The table set forth below provides information regarding stock options for each of our named executive
officers that remained outstanding at August 31, 2017. Note that because of the grant date, the table set
forth below does not reflect option grants on September 1, 2017. We did not have any equity incentive
plan awards or stock awards outstanding at August 31, 2017.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END—FISCAL 2017

Name
G. Patrick Lynch ....................

Matthew C. Wolsfeld .............

Number of Securities
Underlying Unexercised
Options (#)
Exercisable
3,362
6,725
8,325
5,805
3,496
2,429
0

2,485
4,971
6,153
4,291
2,584
1,795
0

Option Awards
Number of Securities
Underlying Unexercised
Options (#)
Unexercisable(1)
0
0
0
0)

1,748(2)
4,858(3)
8,036(4)

0
0
0
0)

1,292(2)
3,591(3)
5,940(4)

Option
Exercise
Price ($)
$ 10.25
10.25
10.25
14.70
20.10
14.85
13.40

10.25
10.25
10.25
14.70
20.10
14.85
13.40

Option
Expiration Date
11/15/2022
11/15/2022
11/15/2022
08/31/2023
08/31/2024
08/31/2025
08/31/2026

11/15/2022
11/15/2022
11/15/2022
08/31/2023
08/31/2024
08/31/2025
08/31/2026

(1) All options described in this table were granted under the Northern Technologies International Corporation

Amended and Restated 2007 Stock Incentive Plan. Under the plan, upon the occurrence of a change in control,
the unvested and unexercisable options will be accelerated and become fully vested and immediately
exercisable as of the date of the change in control. For more information, we refer you to the discussion below
under “—Stock Incentive Plan.”

(2) These options vest over a three-year period, with one-third of the underlying shares vesting on each of

September 1, 2015, 2016 and 2017 so long as the individual remains an employee of NTIC as of such date.

(3) These options vest over a three-year period, with one-third of the underlying shares vesting on each of

September 1, 2016, 2017 and 2018 so long as the individual remains an employee of NTIC as of such date.

(4) These options vest over a three-year period, with one-third of the underlying shares vesting on each of

September 1, 2017, 2018 and 2019 so long as the individual remains an employee of NTIC as of such date.

Option Exercises for Fiscal 2017

Neither of the named executive officers exercised any stock options during fiscal 2017 and we did not
have any stock awards outstanding within the meaning of the SEC rules.

Stock Incentive Plan

We have only one stock incentive plan under which stock options are currently outstanding and future
stock incentive awards may be granted – the Northern Technologies International Corporation Amended
and Restated 2007 Stock Incentive Plan. Under the terms of the 2007 plan, our named executive officers,
in addition to other employees and individuals, are eligible to receive stock-based compensation awards,
such as stock options, stock appreciation rights, restricted stock awards, stock bonuses and performance
awards. To date, only incentive and non-statutory stock options and stock bonuses have been granted
under the plan. The plan contains both an overall limit on the number of shares of our common stock that
may be issued, as well as individual and other grant limits.

Incentive stock options must be granted with a per share exercise price equal to at least the fair market
value of a share of our common stock on the date of grant. For purposes of the plan, the fair market value
of our common stock is the mean between the reported high and low sale price of our common stock, as
reported by the NASDAQ Global Market. We generally set the per share exercise price of all stock
options granted under the plan at an amount equal to the fair market value of a share of our common stock
on the date of grant.

Except in connection with certain specified changes in our corporate structure or shares, the Board of
Directors or Compensation Committee may not, without prior approval of our stockholders, seek to effect
any re-pricing of any previously granted, “underwater” option or stock appreciation right by amending or
modifying the terms of the underwater option or stock appreciation right to lower the exercise price,
cancelling the underwater option or stock appreciation right in exchange for cash, replacement options or
stock appreciation rights having a lower exercise price, or other incentive awards, or repurchasing the
underwater options or stock appreciation rights and granting new incentive awards under the plan. For
purposes of the plan, an option or stock appreciation right is deemed to be “underwater” at any time when
the fair market value of our common stock is less than the exercise price.

We generally provide for the vesting of stock options in equal annual installments over a three-year
period commencing on the one-year anniversary of the date of grant for employees and in full on the one-
year anniversary of the date of grant for directors. We generally provide for option terms of ten years.

Optionees may pay the exercise price of stock options in cash, except that the Compensation Committee
may allow payment to be made (in whole or in part) by (1) using a broker-assisted cashless exercise
procedure pursuant to which the optionee, upon exercise of an option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares of our common stock or loan a sufficient amount of money to
pay all or a portion of the exercise price of the option and/or any related withholding tax obligations and
remit such sums to us and directs us to deliver stock certificates to be issued upon such exercise directly
to such broker or dealer; or (2) using a cashless exercise procedure pursuant to which the optionee
surrenders to us shares of our common stock either underlying the option or that are otherwise held by the
optionee.

Under the terms of the plan, unless otherwise provided in a separate agreement or amended in connection
with an optionee’s termination of employment, if a named executive officer’s employment or service with
our company terminates for any reason, the unvested portion of the options held by such officer will
immediately terminate and the executive’s right to exercise the then vested portion of the options will:

•

immediately terminate if the executive’s employment or service relationship with our
company terminated for “cause”;
continue for a period of 12 months if the executive’s employment or service relationship with
our company terminates as a result of the executive’s death, disability or retirement; or
continue for a period of three months if the executive’s employment or service relationship
with our company terminates for any reason, other than for cause or upon death, disability or
retirement.

As set forth in the plan, the term “cause” is as defined in any employment or other agreement or policy
applicable to the named executive officer or, if no such agreement or policy exists, means (i) dishonesty,
fraud, misrepresentation, embezzlement or other act of dishonesty with respect to us or any subsidiary,
(ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a
duty or duties that, individually or in the aggregate, are material in relation to the overall duties, or
(iv) any material breach of any employment, service, confidentiality or non-compete agreement entered
into with us or any subsidiary.

Under the terms of the plan, if a participant is determined by the committee to have taken any action that
would constitute “cause” or an “adverse action” during or within one year after the termination of the
participant’s employment or other service with our company, all rights of the participant under the plan
and any agreements evidencing an award then held by the participant will terminate and be forfeited and
the committee may require the participant to surrender and return to us any shares received, and/or to
disgorge any profits or any other economic value made or realized by the participant in connection with
any awards or any shares issued upon the exercise or vesting of any awards during or within one year
after the termination of the participant’s employment or other service. Additionally, as applicable, we
may defer the exercise of any option or stock appreciation right for a period of up to six months after
receipt of a participant’s written notice of exercise or the issuance of share certificates upon the vesting of
any incentive award for a period of up to six months after the date of such vesting in order for the
committee to make any determination as to the existence of cause or an adverse action. An “adverse
action” includes any of the following actions or conduct that the committee determines to be injurious,
detrimental, prejudicial or adverse to our interests: (i) disclosing any confidential information of our
company or any subsidiary to any person not authorized to receive it; (ii) engaging, directly or indirectly,
in any commercial activity that in the judgment of the committee competes with our business or the
business of any of our subsidiaries; or (iii) interfering with our relationships or the relationships of our
subsidiaries and our and their respective employees, independent contractors, customers, prospective
customers and vendors.

As described in more detail under “—Post-Termination Severance and Change in Control Arrangements”
if there is a change in control of our company, then, under the terms of agreements evidencing options
granted to our named executive officers and other employees under the plan, all outstanding options will
become immediately exercisable in full and will remain exercisable for the remainder of their terms,
regardless of whether the executive to whom such options have been granted remains in the employ or
service of us or any of our subsidiaries.

Post-Termination Severance and Change in Control Arrangements

We have entered into employment agreements with G. Patrick Lynch, NTIC’s President and Chief
Executive Officer, and Matthew C. Wolsfeld, NTIC’s Chief Financial Officer and Corporate Secretary.
Although each of the executive’s employment with our company remains “at will,” the employment
agreements provide each of the executive’s certain severance benefits in the event the executive’s
employment is terminated by us without “cause” or by the executive for “good reason” and the executive
executes and does not revoke a separation agreement and a release of all claims.

If an executive’s employment is terminated by us without “cause” or by the executive for “good reason,”
in addition to any accrued but unpaid salary and benefits through the date of termination, the executive
will be entitled to a severance cash payment from us in an amount equal to two times (one and one-half
times, in the case of Mr. Wolsfeld) the executive’s average total annual compensation for the two most
recently completed fiscal years, plus a pro rata portion of the target bonus that the executive otherwise
would have been eligible to receive under our bonus plan for the fiscal year during which the executive’s
employment is terminated, with such pro rata portion based on the number of complete months during the
fiscal year that the executive was employed with our company. The severance payment will be paid in
several installments in the form of salary continuation in accordance with our normal payroll practices
over a 24-month period (18-month period, in the case of Mr. Wolsfeld). If, however, the termination
event occurs within 24 months after a change in control of our company, the severance payment will be
paid in one lump sum. If the executive is eligible for and timely elects continued coverage under our
group medical plan, group dental plan and/or group vision plan pursuant to Section 4980B of the Internal
Revenue Code of 1986, as amended (“COBRA”), for each of the first 18 months of the COBRA
continuation period, we also will reimburse the executive in an amount equal to the difference between
the amount the executive pays for such COBRA continuation coverage each month and the amount paid
by a full-time active employee each month for the same level of coverage elected by the executive. In
addition, all outstanding and unvested options to purchase shares of our common stock and other stock
incentive awards granted to the executive under our stock incentive plan will become immediately vested
and exercisable.

Under the employment agreements, “cause” is defined as (i) the executive’s material breach of any of the
executive’s obligations under the employment agreement, or the executive’s willful and continued failure
or refusal to perform his duties, responsibilities and obligations as an executive officer of our company,
for reasons other than the executive’s disability, to the satisfaction of the Board of Directors; (ii) the
executive’s commission of an act of dishonesty, fraud, embezzlement, misappropriation, or intentional
and deliberate injury or material breach of fiduciary duty, or material breach of the duty of loyalty related
to or against us or our business, or any unlawful or criminal activity of a serious nature involving any
felony, or conviction by a court of competent jurisdiction of, or pleading guilty or nolo contendere to, any
felony or any crime involving moral turpitude; or (iii) the existence of any court order or settlement
agreement prohibiting the executive’s continued employment with our company. “Good reason” is
defined as (i) a material diminution in the executive’s authority, duties or responsibilities; (ii) a material
diminution in the executive’s annual base salary; (iii) a material change in the geographic location at
which we require the executive to provide services, except for travel reasonably required in the
performance of the executive’s responsibilities; or (iv) any action or inaction that constitutes a material
breach by us of the employment agreement. “Change in control” has the meaning assigned to such term
in our stock incentive plan as in effect from time to time to the extent such change in control is a “change
of control event” as defined under Code Section 409A and applicable Internal Revenue Service
regulations. Under the terms of our stock incentive plan, a “change in control” means:

•

the sale, lease, exchange or other transfer of all or substantially all of our assets to a corporation
that is not controlled by us;

the approval by our stockholders of any plan or proposal for our liquidation or dissolution;
certain merger or business combination transactions;

•
•
• more than 40% of our outstanding voting shares are acquired by any person or group of persons

who did not own any shares of common stock on the effective date of the plan; and
certain changes in the composition of our Board of Directors.

•

If a change in control of our company had occurred on August 31, 2017, the number of options indicated
in the table below held by each of our named executive officers would have been automatically
accelerated and exercisable. The estimated value of the automatic acceleration of the vesting of unvested
stock options held by a named executive officer as of August 31, 2017 is also indicated in the table below
and is based on the difference between: (i) the market price of the shares of our common stock underlying
the unvested stock options held by such officer as of August 31, 2017 (based on the closing sale price of
our common stock on August 31, 2017 — $17.60), and (ii) the exercise price of the options.

Executive Officer
G. Patrick Lynch .............
Matthew C. Wolsfeld ......

Number of Unvested Options
Subject to Automatic Acceleration
14,642
10,823

Estimated Value of Automatic
Acceleration of Vesting

$ 47,111
34,823

If the employment of our named executive officers was terminated as of August 31, 2017, they would
have been entitled to the following compensation and benefits, depending upon the applicable triggering
event:

Executive Officer
G. Patrick Lynch ..........

Type of Payment

Cash severance(1)
Benefits continuation(2)
Equity acceleration(3)
Total:

Triggering Event

Involuntary
Termination
without
Cause
$ 882,842
29,940
47,111
$ 959,893

Qualifying
Change in
Control
Termination
$ 882,842
29,940
47,111
$ 959,893

Voluntary/
For Cause
Termination
0
$
0
0
0

Matthew C. Wolsfeld...

Cash severance(1)
Benefits continuation(2)
Equity acceleration(3)
Total:

0
0
0
0

$ 495,328
29,940
34,823
$ 560,091

Death

0
0
0
0

Disability
0
$
0
0
0

0
0
0
0

(1)

(2)

(3)

Includes the value of two times (one and one-half times, in the case of Mr. Wolsfeld) the executive’s
average total annual compensation for the two most recently completed fiscal years plus a pro rata portion
of the target bonus that the executive otherwise would have been eligible to receive under our bonus plan
for the fiscal year during which the executive’s employment is terminated, which in this case in light of the
assumed termination date of August 31, 2017, the last day of the fiscal year, represents the value of the full
target bonus for the entire year.

Includes the value of medical, dental and vision benefit continuation for each executive and their family for
18 months following the executive’s termination.

Includes the value of acceleration of all unvested shares that are subject to options, based on a closing sale
price of $17.60 per share as of August 31, 2017.

Indemnification Agreements

We have entered into agreements with all of our executive officers under which we are required to
indemnify them against expenses, judgments, penalties, fines, settlements and other amounts actually and
reasonably incurred, including expenses of a derivative action, in connection with an actual or threatened
proceeding if any of them may be made a party because he or she is or was one of our executive officers.
We will be obligated to pay these amounts only if the executive officer acted in good faith and in a
manner that he or she reasonably believed to be in or not opposed to our best interests. With respect to
any criminal proceeding, we will be obligated to pay these amounts only if the executive officer had no
reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set
forth procedures that will apply in the event of a claim for indemnification.

Risk Assessment of Compensation Policies, Practices and Programs

As a result of our annual assessment on risk in our compensation programs, we concluded that our
compensation policies, practices and programs and related compensation governance structure work
together in a manner so as to encourage our employees, including our named executive officers, to pursue
growth strategies that emphasize shareholder value creation, but not to take unnecessary or excessive
risks that could threaten the value of our company. As part of our assessment, we noted in particular the
following:

•

annual base salaries for employees are not subject to performance risk and, for most non-
executive employees, constitute the largest part of their total compensation;

• while performance-based, or at risk, compensation constitutes a significant percentage of the
overall total compensation of many of our employees, including in particular our named
executive officers, and thereby we believe motivates our employees to help fulfill our
business goals and strategies, including specific and focused company performance goals,
the non-performance based compensation for most employees for most years is also a
sufficiently high percentage of their overall total compensation that we do not believe that
unnecessary or excessive risk taking is encouraged by the performance-based compensation;

•

a significant portion of performance-based compensation of our employees is in the form of
stock options which do not encourage unnecessary or excessive risk because they generally
vest over a three-year period of time thereby focusing our employees on our long-term
interests; and

performance-based or variable compensation awarded to our employees, which for our
higher-level employees, including our named executive officers, constitutes the largest part
of their total compensation, is appropriately balanced between annual and long-term
performance and cash and equity compensation, and utilizes several different performance
measures and goals that are drivers of long-term success for NTIC and our stockholders.

As a matter of best practice, we will continue to monitor our compensation policies, practices and
programs to ensure that they continue to align the interest of our employees, including in particular our
executive officers, with those of our long-term stockholders while avoiding unnecessary or excessive risk.

RELATED PERSON RELATIONSHIPS AND TRANSACTIONS
________________

Introduction

Below under “—Description of Related Party Transactions” is a description of transactions that have
occurred during the past fiscal year, or any currently proposed transactions, to which we were or are a
participant and in which:

•

the amounts involved exceeded or will exceed $120,000; and

a related person (including any director, director nominee, executive officer, holder of more
than 5% of our common stock or any member of their immediate family) had or will have a
direct or indirect material interest.

These transactions are referred to as “related party transactions.”

Procedures Regarding Approval of Related Party Transactions

As provided in our Corporate Governance Guidelines, the Audit Committee will review, approve or ratify
reportable related party transactions by use of the following procedures:

• NTIC’s Chief Financial Officer, with the assistance of NTIC’s legal counsel, will evaluate
the disclosures provided in the director and officer questionnaires and from data obtained
from NTIC’s records for potential related person transactions.

• Management will periodically, but no less than annually, report to the Audit Committee on

all related person transactions that occurred since the beginning of the prior fiscal year or
that it believes will occur in the next year. Such report should include information as to
(i) the related person’s relationship to NTIC and interest in the transaction; (ii) the material
facts of the transaction; (iii) the benefits to NTIC of the transaction; and (iv) an assessment
of whether the transaction is (to the extent applicable) in the ordinary course of business, at
arm’s length, at prices and on terms customarily available to unrelated third party vendors or
customers generally, and whether the related party had any direct or indirect personal
interest in, or received any personal benefit from, such transaction.

• Taking into account the factors listed above, and such other factors and information as the
Audit Committee may deem appropriate, the Audit Committee will determine whether or
not to approve or ratify (as the case may be) each related party transaction so identified.

• Transactions in the ordinary course of business, between NTIC and an unaffiliated

corporation of which a non-employee director of NTIC serves as an officer, that are:

o at arm’s length,

o at prices and on terms customarily available to unrelated third party vendors or

customers generally,

in which the non-employee director had no direct or indirect personal interest,
nor received any personal benefit, and

in amounts that are not material to NTIC’s business or the business of such
unaffiliated corporation,

are deemed conclusively pre-approved.

Description of Related Party Transactions

Please see “Director Compensation” and “Executive Compensation” for information regarding a
consulting arrangement we have with one of our current directors and the other compensation
arrangements with our directors and executive officers.

G. Patrick Lynch is the President and Chief Executive Officer of NTIC. Inter Alia Holding Company
owns 13.3% of the total voting power of NTIC. According to a Schedule 13D/A filed with the Securities
and Exchange Commission on December 2, 2011, Inter Alia Holding Company is an entity of which
Mr. Lynch is a 25% stockholder. Mr. Lynch shares equal voting and dispositive power over such shares
with three other members of his family. Inter Alia Holding Company’s address is 23205 Mercantile
Road, Beachwood, Ohio 44122.

NTIC has not identified any arrangements or agreements relating to compensation provided by a third
party to NTIC’s directors or director nominees in connection with their candidacy or board service as
required to be disclosed pursuant to NASDAQ Rule 5250(b)(3).

STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR
2019 ANNUAL MEETING OF STOCKHOLDERS
________________

Stockholder Proposals for 2019 Annual Meeting

Stockholders who, in accordance with Rule 14a-8 under the Exchange Act, wish to present proposals for
inclusion in the proxy materials relating to the 2019 Annual Meeting of Stockholders must submit their
proposals so that they are received by us at our principal executive offices no later than the close of
business on July 30, 2018, unless the date of the meeting is delayed by more than 30 calendar days. The
proposals must satisfy the requirements of the proxy rules promulgated by the Securities and Exchange
Commission and as the rules of the Securities and Exchange Commission make clear, simply submitting a
proposal does not guarantee that it will be included.

Any other stockholder proposals to be presented at the 2019 Annual Meeting of Stockholders (other than
a matter brought pursuant to SEC Rule 14a-8) must be given in writing to our Corporate Secretary and
must be delivered to or mailed and received at our principal executive offices, not less than 90 days nor
more than 120 days prior to the anniversary date of the 2019 Annual Meeting of Stockholders; provided,
however, that in the event that the 2019 Annual Meeting of Stockholders is not held within 30 days before
or after such anniversary date, notice by the stockholder to be timely must be received not later than the
close of business on the 10th day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made, whichever first occurs. The proposal must contain
specific information required by our Amended and Restated Bylaws, a copy of which may be obtained by
writing to our Corporate Secretary. If a proposal is not timely and properly made in accordance with the
procedures set forth in our Amended and Restated Bylaws, it will be defective and may not be brought
before the meeting. If the proposal is nonetheless brought before the meeting and the Chairman of the
meeting does not exercise the power and duty to declare the proposal defective, the persons named in the
proxy may use their discretionary voting with respect to the proposal.

Director Nominations for 2019 Annual Meeting

In accordance with procedures set forth in our Bylaws, NTIC stockholders may propose nominees for
election to the Board of Directors only after providing timely written notice to our Corporate Secretary.
To be timely, a stockholder’s notice to the Corporate Secretary must be delivered to or mailed and
received at NTIC’s principal executive offices not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting; provided, however, that in the event that
the annual meeting with respect to which such notice is to be tendered is not held within 30 days before or
after such anniversary date, notice by the stockholder to be timely must be received not later than the
close of business on the 10th day following the day on which such notice of the date of the meeting was
mailed or public disclosure was made, whichever first occurs. The notice must set forth, among other
things:

•

the nominee’s name, age, business address, residence address and record address;

the nominee’s principal occupation or employment;

the class and number of shares of NTIC capital stock which are beneficially owned by the
nominee;

•

signed consent to serve as a director of NTIC; and

•

any other information concerning the nominee required under the rules of the Securities and
Exchange Commission in a proxy statement soliciting proxies for the election of directors.

Submissions must be made by mail, courier or personal delivery. E-mailed submissions will not be
considered. The Nominating and Corporate Governance Committee will consider only those stockholder
recommendations whose submissions comply with the procedural requirements set forth in NTIC’s
Bylaws. The Nominating and Corporate Governance Committee will evaluate candidates recommended
by stockholders in the same manner as those recommended by others.

COPIES OF FISCAL 2017 ANNUAL REPORT
________________

We have sent or made electronically available to each of our stockholders a copy of our annual
report on Form 10-K (without exhibits) for the fiscal year ended August 31, 2017. The exhibits to
our Form 10-K are available by accessing the Securities and Exchange Commission’s EDGAR
filing database at www.sec.gov. We will furnish a copy of any exhibit to our Form 10-K upon
receipt from any such person of a written request for such exhibits upon the payment of our
reasonable expenses in furnishing the exhibits. This request should be sent to: Northern
Technologies International Corporation, 4201 Woodland Road, Circle Pines, Minnesota 55014,
Attention: Stockholder Information.

_________________________

Your vote is important. Whether or not you plan to attend the Annual Meeting in person, vote your
shares of NTIC common stock by the Internet or telephone, or request a paper proxy card to sign, date
and return by mail so that your shares may be voted.

By Order of the Board of Directors

Richard J. Nigon
Chairman of the Board

November 28, 2017
Circle Pines, Minnesota

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-K

(Mark one)

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

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

For the transition period from ________________ to __________________.

For the fiscal year ended August 31, 2017

Commission file number 001-11038
____________________

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
4201 Woodland Road
P.O. Box 69
Circle Pines, Minnesota
(Address of principal executive offices)

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

55014
(Zip Code)

(763) 225-6600
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Act:

Title of each class
Common Stock, par value $0.02 per share

Name of each exchange on which registered
The Nasdaq Stock Market LLC
(Nasdaq Global Market)

Securities registered under Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  NO 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  NO 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. YES  NO 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). YES  NO 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act). (Check one):

Large accelerated filer 

Accelerated filer 

Emerging growth company 

Non-accelerated filer 
(Do not check if a smaller reporting company)

Smaller reporting 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 registrant is a shell company (as defined in Rule 12b-2 of the Act). YES  NO 

The aggregate market value of the registrant’s common stock, excluding shares beneficially owned by affiliates, computed by reference to the closing sales price at
which the common stock was last sold as of February 28, 2017 (the last business day of the registrant’s second fiscal quarter) as reported by the Nasdaq Global Market
on that date was $58.6 million.

As of November 20, 2017, 4,537,408 shares of common stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant’s Proxy

Statement for its 2018 Annual Meeting of Stockholders to be held January 12, 2018.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED AUGUST 31, 2017

TABLE OF CONTENTS

Page

PART I ........................................................................................................................................................................ 1

Item 1.

BUSINESS ........................................................................................................................................ 1

Item 1A. RISK FACTORS ............................................................................................................................. 15

Item 1B. UNRESOLVED STAFF COMMENTS .......................................................................................... 31

Item 2.

PROPERTIES .................................................................................................................................. 31

Item 3.

LEGAL PROCEEDINGS ................................................................................................................ 32

Item 4. MINE SAFETY DISCLOSURES ................................................................................................... 32

Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT....................................................................... 32

PART II .................................................................................................................................................................... 34

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ......................................... 34

Item 6.

SELECTED FINANCIAL DATA ................................................................................................... 36

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS ........................................................................................................ 38

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................ 55

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................................................ 56

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .......................................................................................................... 83

Item 9A. CONTROLS AND PROCEDURES................................................................................................ 83

Item 9B. OTHER INFORMATION ............................................................................................................... 83

PART III .................................................................................................................................................................. 84

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ........................ 84

Item 11.

EXECUTIVE COMPENSATION ................................................................................................... 84

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS ........................................................................... 85

Page

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE ........................................................................................................................... 86

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES ................................................................. 86

PART IV ................................................................................................................................................................... 87

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES ............................................................... 87

SIGNATURES ......................................................................................................................................................... 88

_______________

This annual report on Form 10-K contains certain 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,
and are subject to the safe harbor created by those sections. For more information, see “Part I. Item 1. Business
– Forward-Looking Statements.”

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

As used in this report, references to: (1) “NTIC China” refer to NTIC’s wholly-owned subsidiary in China, NTIC
(Shanghai) Co., Ltd.; (2) “NTI Europe” refer to NTIC’s wholly-owned subsidiary in Germany, NTIC Europe
GmbH; (3) “Zerust Mexico” refer to NTIC’s wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S.
de R.L. de C.V; (4) “Zerust Brazil” refer to NTIC’s majority-owned Brazilian subsidiary, Zerust Prevenção de
Corrosão S.A.; (5) “Natur-Tec India” refer to NTIC’s majority-owned subsidiary in India, Natur-Tec India
Private Limited; and (6) “NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean
LLC, which is a holding company that holds investments in seven entities that operate in the Association of
Southeast Asian Nations (ASEAN) region, including the following countries: Indonesia, South Korea, Malaysia,
Philippines, Singapore, Taiwan and Thailand.

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.

As used in this report, references to “Tianjin Zerust” refer to NTIC’s former joint venture in China, Tianjin-
Zerust Anticorrosion Co., Ltd.

All trademarks, trade names or service marks referred to in this report are the property of their respective
owners.

Item 1. BUSINESS

Overview

PART I

Northern Technologies International Corporation (NTIC) develops and markets proprietary environmentally
beneficial products and services in over 60 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 40 years,
and, more recently, has targeted and expanded into the oil and gas industry. NTIC also markets and sells a
portfolio of biobased and certified compostable (fully biodegradable) polymer resin compounds and finished
products under the Natur-Tec® brand. These products are intended to reduce NTIC’s customers’ carbon
footprint and provide environmentally sound waste disposal options.

NTIC’s ZERUST® rust and corrosion inhibiting products include plastic and paper packaging, liquids,
coatings, rust removers, cleaners and diffusers, as well as engineered solutions designed specifically for the
oil and gas industry. NTIC also offers worldwide on-site technical consulting for rust and corrosion
prevention issues. NTIC’s technical service consultants work directly with the end users of NTIC’s
ZERUST® rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet
their performance requirements. In North America, NTIC sells its ZERUST® corrosion prevention solutions
through a network of independent distributors and agents supported by a direct sales force. Internationally,
NTIC sells its ZERUST® corrosion prevention solutions through its wholly-owned subsidiary in China,
NTIC (Shanghai) Co., Ltd. (NTIC China), its majority-owned joint venture holding company for NTIC’s
joint venture investments in the Association of Southeast Asian Nations (ASEAN) region, NTI Asean LLC
(NTI Asean), its majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil),
and its wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V (Zerust
Mexico), and joint venture arrangements in North America, Europe and Asia. NTIC also sells products
directly to its 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 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 that industry’s infrastructure consists primarily of 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 its service life, and reduce the
risk of environmental pollution caused to corrosion-related leaks.

NTIC markets and sells its ZERUST® rust and corrosion prevention solutions to customers in the oil and gas
industry in several countries either directly, through its subsidiaries, or indirectly, through its joint venture
partners and third parties. The sale of ZERUST® corrosion prevention solutions to customers in the oil and
gas industry typically involves a very long sales cycle, often including multi-year trial periods with each
customer, and then followed by a slow integration process thereafter.

Natur-Tec® biobased and compostable plastics are manufactured using NTIC’s patented and/or proprietary
technologies and are intended to replace conventional 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, pet waste collection bags,
cutlery 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 majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec
India), and through distributors and certain joint ventures.

NTIC’s Subsidiaries

NTIC has ownership interests in six subsidiaries in North America, South America, Europe and Asia. The
following table sets forth a list of NTIC’s operating subsidiaries as of November 15, 2017, the country in
which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:

Subsidiary Name

NTIC (Shanghai) Co., Ltd
NTI Asean LLC
Zerust Prevenção de Corrosão S.A.
ZERUST-EXCOR MEXICO, S. de R.L. de C.V
Natur-Tec India Private Limited
NTIC Europe GmbH

Country
China
United States
Brazil
Mexico
India
Germany

NTIC
Percent (%)
Ownership
100%
60%
85%
100%
90%
100%

The operating results of these subsidiaries are fully consolidated in NTIC’s consolidated financial statements.

NTIC’s Joint Venture Network

NTIC participates in a total of 20 active joint venture arrangements located across North America, Europe
and Asia. Each of these joint ventures generally manufactures and markets products for the geographic
territory to which it is assigned. While most of NTIC’s joint ventures exclusively sell rust and corrosion
inhibiting products, some of the joint ventures also sell NTIC’s Natur-Tec® resin compounds. NTIC has
historically funded its investments in joint ventures with cash generated from operations.

The following table sets forth a list of NTIC’s operating joint ventures as of November 15, 2017, the country
in which the joint venture is organized and NTIC’s ownership percentage in each joint venture:

Joint Venture Name

TAIYONIC LTD.
ACOBAL SAS
ZERUST-NIC (TAIWAN) CORP.
EXCOR KORROSIONSSCHUTZ – TECHNOLOGIEN UND
PRODUKTE GMBH
ZERUST SINGAPORE PTE. LTD
ZERUST AB
MOSTNIC-ZERUST
KOREA ZERUST CO., LTD.
ZERUST OY
HARITA-NTI LTD
ZERUST (U.K.) LTD.
EXCOR-ZERUST S.R.O.
EXCOR SP. Z.O.O.
ZERUST SPECIALTY TECH CO. LTD.
CHONG WAH-NTIA SDN. BHD.
NTIA ZERUST PHILIPPINES, INC.

Country
Japan
France
Taiwan (1)

Germany
Singapore (1)
Sweden
Russia
South Korea (1)
Finland
India
United Kingdom
Czech Republic
Poland
Thailand (1)
Malaysia (1)
Philippines (1)

NTIC
Percent (%)
Ownership
50%
50%
30%

50%
60%
50%
50%
30%
50%
50%
50%
50%
50%
30%
30%
30%

Joint Venture Name

ZERUST A.Ş.
ZERUST CONSUMER PRODUCTS, LLC
ZERUST – DNEPR
PT. CHEMINDO – NTIA

____________________

(1)

Indirect ownership interest through NTI Asean.

Country
Turkey
United States
Ukraine
Indonesia (1)

NTIC
Percent (%)
Ownership
50%
50%
50%
30%

NTIC receives funds from its joint ventures as fees received for services that NTIC provides and as dividend
distributions. The fees for services provided to joint ventures are determined based on either a flat fee or a
percentage of sales depending on local laws and tax regulations. With respect to NTIC’s joint venture in
Germany (EXCOR), NTIC recognizes an agreed upon quarterly fee for services. NTIC recognizes equity
income from each joint venture based on the overall profitability of the joint venture. Such profitability is
subject to variability from quarter to quarter which, in turn, subjects NTIC’s earnings to variability from
quarter to quarter. The profits of each joint venture are shared by the respective joint venture owners in
accordance with their respective ownership percentages. NTIC typically directly or indirectly owns 50% or
less of each of its joint venture entities and thus does not control the decisions of these entities regarding
whether to pay dividends and, if paid, what amount is paid in a given year. The payment of a dividend by an
entity is determined by a joint vote of the owners and is not at the sole discretion of NTIC.

NTIC accounts for the investments and financial results of its joint ventures in its financial statements
utilizing the equity method of accounting.

NTIC considers EXCOR to be individually significant to NTIC’s consolidated assets and income, and
therefore, provides certain additional information regarding it in the notes to NTIC’s consolidated financial
statements and in this section of this report.

For more information regarding NTIC’s joint ventures and their effect on NTIC’s operating results, see
NTIC’s consolidated financial statements in “Part II. Item 8. Financial Statements and Supplementary Data”
and “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this report.

On January 2, 2015, NTIC announced that, effective as of December 31, 2014, it is selling its ZERUST®
products and services in China through the wholly-owned subsidiary, NTIC (Shanghai) Co., Ltd., and has
terminated its joint venture agreements with Tianjin-Zerust Anticorrosion Co., Ltd. (Tianjin Zerust). NTIC
and NTI Asean have filed a lawsuit in China against Mr. Tao Meng, the former joint venture entity’s other
shareholder, and his spouse, seeking, among other things, an orderly liquidation of Tianjin Zerust. NTIC
indirectly has a 30% ownership interest in Tianjin Zerust through its 60% owned holding company
subsidiary, NTI Asean. NTIC’s historical operating results have been volatile as a result of the ongoing
transition of Chinese operations.

Products

NTIC derives revenues directly and/or indirectly through its subsidiaries and joint ventures from two
reportable business segments based on products sold, customer base and distribution center: ZERUST®
corrosion prevention solutions and Natur-Tec® resin compounds and finished products.

ZERUST® Corrosion Prevention Solutions. In fiscal 2017, 82.9% of NTIC’s consolidated net sales were
derived from developing, manufacturing and marketing ZERUST® rust and corrosion inhibiting products and
services. NTIC’s consolidated net sales in fiscal 2017 included $32,789,283 in sales of ZERUST® rust and
corrosion inhibiting products and services, an increase of 18.9% over such sales in fiscal 2016. Corrosion

not only damages the appearance of metal products and components but also negatively impacts their
mechanical performance. This applies to the rusting of ferrous metals (iron and steel) and the deterioration
by oxidation of nonferrous metals (aluminum, copper, brass, etc.). NTIC’s ZERUST® corrosion prevention
solutions include plastic and paper packaging, powders, liquids, coatings, rust removers, cleaners, diffusers
and engineered solutions for the oil and gas industry, as well as technical corrosion management and
consulting services.

Plastic and Paper Packaging. NTIC’s ZERUST® packaging products contain proprietary chemical
formulations that continuously release an invisible and odorless, corrosion inhibiting vapor that passivates
metal surfaces and thereby inhibits rust and corrosion. The corrosion-inhibiting protection is maintained as
long as the metal products to be protected remain enclosed within the ZERUST® packaging. Electron
scanning shows that once the contents are removed from the ZERUST® package, the ZERUST® protection
dissipates from the contents’ surfaces within two hours, leaving a clean, dry and corrosion-free metal
component. This mechanism of corrosion protection enables NTIC’s customers to easily package metal
objects for rust-free shipment and/or long-term storage. Furthermore, by eliminating costly greasing and
degreasing processes and/or significantly reducing the use of certain coatings to inhibit corrosion, NTIC’s
ZERUST® corrosion prevention solutions provide customers significant savings in labor, material and capital
expenditures for equipment to apply, remove and dispose of oils and greases, as well as the attendant
environmental problems, as compared to traditional methods of corrosion prevention.

NTIC was first to develop the means of infusing volatile corrosion inhibiting chemical systems (VCIs) into
polyethylene and polypropylene resins. Combining ZERUST® chemical systems with polyethylene and
polypropylene resins permitted NTIC to introduce a line of plastic packaging products in the form of low and
high-density polyethylene bags and shroud film, including stretch, shrink, skin and bubble cushioning film,
thereby giving packaging engineers an opportunity to ship and store ferrous, nonferrous and mixed-metal
products in a clean, dry and corrosion-free condition, with an attendant overall savings in total process
costs. In addition to plastic packaging, NTIC has developed additives to imbue kraft paper, corrugated
cardboard, solid fiber and chipboard packaging materials with corrosion protection properties. NTIC’s
ZERUST® plastic and paper packaging products come in various thicknesses, strength enhancements,
protection types, shapes and sizes. This product line also includes items such as ZERUST® gun cases, car
covers and tool-drawer liners, which are targeted at retail consumers.

Liquids and Coatings. NTIC’s corrosion prevention solutions include a line of metal surface treatment
liquids and coatings, which are oil, water or bio-solvent based, and are marketed under brand names
including Axxatec™, Axxanol™ and Z-Maxx™. These liquids and coatings provide powerful corrosion
protection in aggressive environments, such as salt air, high humidity and/or high temperatures. Products are
formulated for most metal types and protection levels. For exceptionally harsh environments, customers may
choose to use a combination of NTIC’s liquids and coatings with ZERUST® plastic and/or paper products to
achieve robust corrosion protection during manufacturing, shipping and warehousing stages.

Rust Removers and Cleaners. NTIC also sells rust removal and cleaning products designed to restore rusty
parts to a usable condition by replacing labor-intensive, abrasive cleaners that damage surfaces and
commonly fail to remove rust from complex metal surfaces like the teeth of small gears under the
Axxaclean™ brand name.

Diffusers. NTIC’s corrosion prevention solutions include a line of corrosion inhibiting vapor diffusers, such
as ZERUST® ActivPak®, ZERUST® ICT® Vapor Capsules, ZERUST® ICT® Plastabs® and ZERUST® ICT®
Cor-Tabs®, ZERUST® ICT® Pipe Strip and ZERUST® ICT® Tube Strip. These diffusers are designed to
protect metals within enclosures, like switch gearboxes and electronic cabinets, or can be used as added
protection to ZERUST® packaging products. Diffusers work by permeating the interior air of an enclosure
with an invisible and odorless corrosion inhibiting vapor that protects nearby metal surfaces that are within a
specific “radius of protection” for a period of one or two years depending on the model. This invisible and

dry protective layer revaporizes upon removal of the capsule from the enclosure, leaving all surfaces clean,
dry, residue-free and corrosion-free.

Z-CIS® Technical Services. As an on-going effort to help NTIC’s customers improve and control their
processes in terms of corrosion management, NTIC markets and offers unique corrosion management and
consulting services to target customers. This ZERUST® corrosion inhibition system (known as Z-CIS®)
leverages NTIC’s global network to dispatch highly-trained technical service engineers to customer sites to
solve complex corrosion problems. Services and consulting are billed according to work done on the
customer’s behalf to improve the customer’s internal and external corrosion control systems. Several major
automotive companies and their automotive parts suppliers have used NTIC’s Z-CIS® system.

ZERUST® Corrosion Prevention Solutions Designed Specifically for the Oil and Gas Industry. NTIC has
developed proprietary engineered corrosion inhibiting solutions specifically for the mitigation of corrosion of
the types of capital assets used in the petroleum and chemical process industries and has targeted the sale of
these ZERUST® corrosion solutions to potential customers in the oil and gas industry. NTIC’s consolidated
net sales in fiscal 2017 included $1,720,162 in sales made to customers in the oil and gas industry, a slight
decrease of 1.1% over such sales in fiscal 2016. This decrease is set against volatile crude oil prices in the
past 18 months that have negatively affected client budgets. The infrastructure that supports the oil and gas
industry is predominantly constructed using metals that are highly susceptible to corrosion. The industrial
environment at these facilities usually contains compounds, including sulfides and chlorides, which cause
aggressive corrosion. This problem affects pipelines, petroleum storage tanks, spare parts in long-term
storage, processing and other critical equipment. In addition to the costs associated with the replacement of
parts and structures, maintenance and repairs, and product loss, there are significant economic losses
associated with critical infrastructure being down for repair and maintenance. Furthermore, there are also
considerable health, safety and environmental risks caused by corrosion that can greatly increase economic
losses. NTIC believes that its ZERUST® oil and gas corrosion prevention solutions 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’s rust and corrosion inhibiting products for the oil and gas industry include ZERUST® Flange Savers®
ZERUST® ReCAST-R VCI Dispensers, Zerust ReCAST-SSB solutions and ZERUST® chemicals, including
Zerion chemicals, in addition to many of the standard industrial ZERUST® rust and corrosion inhibiting
products previously described.

ZERUST® Flange Savers® are specially designed covers that have been impregnated with a proprietary
ZERUST® inhibitor formulation to provide corrosion protection for flanges, valves and welded joints. Oil
and gas pipeline segments are connected by flanges and welded joints of varying sizes, designs and
materials. These connection points often corrode under aggressive industrial environments and harsh
operating conditions, thereby causing costly maintenance, operational and safety problems. ZERUST®
Flange Savers® are available in various sizes to accommodate different pipe diameters, pressure ratings and
international standards for pipeline valves and flanges.

ZERUST® ReCAST-R VCI Dispensers protect the interior surfaces of aboveground storage tank roofs by
delivering proprietary inhibitor formulations into the vapor space between the surface of the product and the
tank roof. Certain grades of oil contain sulphur and emit corrosive acid gas vapors that destroy the internal
surfaces of aboveground storage tank roofs and their support structures above the stored product. Each
system is tailored to a customer’s requirements, depending upon specific environmental conditions, product
stored, tank diameter and type of metal and can be applied on both new and existing tank roofs.

ZERUST® ReCAST-SSB solutions protect the Soil Side Bottoms (SSB) of aboveground storage tanks
through a variety of unique and highly effective delivery systems designed by the Zerust Oil & Gas team to
deliver proprietary Zerion FVS corrosion inhibitor to tank bottom spaces that are susceptible to significant

corrosion. Tank bottoms are typically made of steel plates which are in direct contact with the foundation
surface that may be concrete, sand/soil and asphalt/bitumen. It is typically not possible to protect this
underside surface with traditional coatings. Cathodic protection (CP) systems can only provide partial
protection, but also have significant limitations that cause failures well ahead of the expected service life of a
tank. The ZERUST® solutions provide effective protection even to areas that cannot be addressed with CP.
This is an engineered solution where each system is tailored to a customer’s requirements depending on
factors including the tank foundation design, specific environmental conditions, and tank diameter.

ZERUST® Zerion line of powder based inhibitor solutions include:

• Zerion FVS is a unique inhibitor blend that is used in the SSB Solutions. This “best-in-class” product
has been successfully deployed at multiple client sites in the North and South America as well as
parts of Asia.

• AutoFog is a revolutionary product that allows for the quick VCI saturation of large volume spaces
without the need for mechanical “fogging” equipment. This rapid self-diffusing capability is good
for sealed void spaces, protection of large/complex assets like heat exchangers and heater-treaters.

• Sol-V C-Series is designed to provide corrosion prevention in voids and enclosures especially when
there is either stagnant water, or the potential for water seepages and/or accumulation of water over
time. ZERUST® Sol-V™ C-Series packaging allows VCIs to release while conserving a Sol-V
proprietary blend of soluble corrosion inhibitors (SCIs) until water enters the system. Typical
applications of ZERUST® Sol-V™ C-Series packaging include offshore platform leg voids, vessels
and tanks mothballed in tropical environments, ship blocks being fabricated in areas of high
humidity, piping systems and heat exchangers.

Natur-Tec® Resin Compounds and Finished Products. NTIC manufactures and sells a range of biobased
and compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec®
brand. NTIC’s consolidated net sales in fiscal 2017 included $6,779,840 in sales of Natur-Tec® resins and
finished products, an increase of 26.6% over such sales in fiscal 2016. Market drivers such as volatile
petroleum prices, reduced dependence on foreign oil, reduced carbon footprints, and environmentally
responsible end-of-life solutions have increased interest in using sustainable, biobased and renewable plant-
biomass resources for the manufacture of plastics and industrial products. Plastics that are fully
biodegradable in composting or anaerobic digestor systems allow the safe and effective conversion of these
plastics to carbon dioxide, water and fertilizer at the end of their service life. Increased environmental and
sustainability awareness at the corporate and consumer level, improved technical properties and product
functionality, as well as recent foreign, state and local governmental regulations banning the use of
conventional plastics or mandating the use of certain biodegradable or compostable products, have also
fueled this interest in biobased and biodegradable-compostable plastics. The term “bio-plastics”
encompasses a broad category of plastics that are either bio-based, which means derived from renewable
resources such as corn or cellulosic/plant material or blends thereof, or are engineered to be fully
compostable, or both.

Resin Compounds. Natur-Tec® resin compounds are produced by blending commercially available base
resins, such as Ecoflex® from BASF, Ingeo® PLA from NatureWorks LLC, with organic and inorganic
fillers, and proprietary polymer modifiers and compatabilizers, using NTIC’s proprietary and patented ReX
Process. In this process, biodegradable polymers, natural polymers made from renewable, plant-biomass
resources, and organic and inorganic materials are reactively blended in the presence of proprietary
compatibilizers and polymer modifiers to produce biobased and/or compostable polymer resin formulations
that exhibit unique and stable morphology. Natur-Tec® resin compounds are engineered for high
performance, ease of processing and reduced cost compared to most other bio-plastic materials, and can be
processed by converters using conventional plastic manufacturing processes and equipment.

Natur-Tec® resin compounds are available in several grades tailored for a variety of applications, such as
blown-film extrusion, extrusion coating and injection molding.

Natur-Tec® flexible film resin compounds are fully compostable and meet the requirements of international
standards for compostable plastics such as ASTM (American Society for Testing and Materials) D6400
(U.S.), EN 13432 (European standards for products and services by European Committee for
Standardization) and ISO (International Organization for Standardization) 17088, and are certified as 100%
compostable by organizations including the BPI (Biodegradable Products Institute) in the United States and
Vincotte in Europe. Natur-Tec® film resin compounds can be used to produce film for applications, such as
bags, including compost bags, lawn and leaf bags, pet waste bags and carry-out bags, agricultural film and
consumer and industrial packaging.

The Natur-Tec® compostable extrusion coating resin compounds are biobased and biodegradable and are
designed to replace conventional plastic materials for extrusion coating applications. Natur-Tec® extrusion
coating resin compounds are manufactured using sustainable and renewable resources, per the ASTM D6866
standard, which allows industry and consumers the opportunity to reduce or neutralize their carbon footprint,
and are designed to meet the requirements of international standards for compostable plastics, such as ASTM
D6400. Natur-Tec® extrusion coating resin compounds provide good adhesion to paper, an excellent print
surface and good heat seal strength and the coating material is suitable for food contact applications
including both hot and cold applications. Natur-Tec® extrusion coating resin compounds can be used for
coating paper and paperboards for the manufacture of disposable cups, plates and other food service ware
items.

The Natur-Tec® compostable injection molding resin compounds are biobased and compostable and are
designed to replace conventional plastic materials for injection molded plastic applications. Natur-Tec®
compostable injection molding resin compounds are manufactured using sustainable and renewable
resources, per the ASTM D6866 standard and are designed to meet the requirements of international
standards for compostable plastics, such as ASTM D6400 and EN 13432. Natur-Tec® compostable injection
molding resin compounds can be used for injection molded plastic applications, such as cutlery, pens,
hangers, containers and packaging. Natur-Tec® biobased injection molding resin compounds are made with
at least 90% of biobased/renewable resource-based materials per the ASTM D6866 standard and are meant to
enhance sustainability by replacing petroleum-based plastics. Natur-Tec® biobased injection molding resin
compounds exhibit the same properties as conventional plastic materials and can be used in applications,
such as automotive components, consumer goods, electronics, medical products, furniture and packaging.

Finished Products. Natur-Tec® finished products include totally biodegradable and compostable trash bags,
agricultural film and other single-use disposable products, such as compostable cutlery and food and
consumer goods packaging that are currently marketed under the Natur-Bag® or Natur-Ware® brands.

The Natur-Bag® product line offers 15 different compostable trash bag sizes, from 3-gallon to 96-
gallon. The bags are available in various SKU configurations from retail packs that are sold to the consumer
either through retail outlets or through online stores, and industrial case packs that are sold to commercial
and industrial customers primarily through wholesalers and distributors. The Natur-Bag® products are
manufactured from the Natur-Tec® flexible film resin compounds and thus are fully biodegradable and
compostable.

The Natur-Ware® product line consists of biobased and compostable cutlery made from the Natur-Tec®
compostable injection molding resin compounds. Natur-Ware® cutlery can be composted along with food
scraps in zero-waste programs.

Both Natur-Bag® and Natur-Ware® products are fully certified compostable, and carry the BPI Compostable
logo in the United States and the Vincotte OK Compost logo in Europe. Furthermore, these products were

also independently tested and approved for use in organic waste diversion systems by Cedar Grove, one of
the largest compost operators in the United States.

Sales, Marketing and Distribution

ZERUST® Corrosion Prevention Solutions. In the United States, NTIC markets its ZERUST® rust and
corrosion inhibiting products and services, including its products designed for the oil and gas industry,
principally to industrial users in the automotive, electronics, electrical, mechanical, military, retail consumer
and oil and gas markets by a direct sales force and through a network of independent distributors,
manufacturer’s sales representatives and strategic partners. NTIC’s technical service consultants work
directly with the end users of NTIC’s ZERUST® products to analyze their specific corrosion prevention
needs and develop systems to meet their performance requirements.

Internationally, NTIC has entered into a series of joint ventures with foreign partners (either directly or
through a holding company). NTIC receives fees for providing technical support, marketing assistance and
other services to its joint ventures based primarily on the net sales of the individual joint ventures in
accordance with the terms of the joint venture arrangements. Such services include consulting, legal,
insurance, technical and marketing services. In China, NTIC sells its products and services through NTIC
China. NTIC has formed a wholly-owned subsidiary in Mexico to conduct its business there.

With respect to the sales and marketing of ZERUST® rust and corrosion inhibiting products and services to
the oil and gas industry, NTIC uses a combination of direct sales personnel, independent sales agents and its
joint venture network. In addition, in an attempt to penetrate the oil and gas industry within certain markets
more quickly, NTIC has entered into certain sales and marketing agency agreements with specific
organizations that have existing long term relationships with key oil and gas industry clients. NTIC also
engages in certain direct marketing activities to build its brand within the oil and gas industry, such as
traditional advertising and direct mail campaigns and presence and participation at selected key trade shows
and technical forums. NTIC continues to believe the sale of its ZERUST® corrosion prevention solutions to
customers in the oil and gas industry will involve long sales cycles, likely including multi-year trial periods
with each customer and a slow integration process thereafter.

Natur-Tec® Resin Compounds and Finished Products. In the United States, NTIC markets its Natur-Tec®
resin compounds and finished products through a network of national and regional distributors and
independent manufacturer’s sales representatives and three NTIC direct sales employees as of August 31,
2017. Target customers for Natur-Tec® finished products include individual consumers and commercial and
institutional organizations such as corporations and government agencies, and educational organizations such
as universities and school districts. NTIC is also targeting key national and regional retailers utilizing
independent sales agents. Target customers for Natur-Tec® resin compounds include film extruders and
injection molders who would purchase Natur-Tec® resin compounds to manufacture and sell their own
finished biobased and compostable end products, such as film, bags and cutlery.

Internationally, NTIC uses Natur-Tec India, and its joint ventures and a network of international distributors
to market its Natur-Tec® resin compounds and finished products. In November 2014, NTIC entered into an
agreement with NatureWorks LLC for joint marketing and sales of Ingeo® based packaging solutions to
customers in India. With recent Indian government mandates banning the use of non-biodegradable plastics
in certain types of food and consumer packaging, NTIC expects the market in India for bioplastic packaging
solutions to continue to grow substantially.

Competition

ZERUST® Corrosion Prevention Solutions. While NTIC is unaware of any third parties with which NTIC
competes on a worldwide basis with respect to its corrosion prevention solutions, NTIC does compete with
several third parties on a regional basis. NTIC evaluates competing rust and corrosion inhibiting products on
an ongoing basis. Some of NTIC’s competitors are established companies that may have financial,
marketing, distribution networks and other resources substantially greater than those of NTIC. As a result,
they may be able to adapt more quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the promotion and sale of their products than NTIC. With
respect to its rust and corrosion inhibiting products, NTIC competes on the basis of product innovation,
quality and reliability, product support, customer service, reputation, as well as price. Some of NTIC’s
competitors may have achieved significant market acceptance of their competing products and brand
recognition. NTIC, however, believes it has an advantage over most of its competitors as a result of NTIC’s
technical innovation and its value-added services. NTIC attempts to provide its customers with the highest
level of technical service and applications engineering in addition to ZERUST® rust and corrosion inhibiting
products. Nonetheless, the commoditization of certain of NTIC’s ZERUST® rust and corrosion inhibiting
products have led and may continue to lead to lower prices and lower margins on such products. In addition,
because certain barriers to entry are low, additional competitors may emerge, which likely would lead to the
further commoditization of NTIC’s rust and corrosion inhibiting products.

With respect to NTIC’s corrosion prevention solutions for use in the oil and gas industry, NTIC’s primary
barrier to entry is a combination of conservatism, complacency, and confidence in old approaches, as well as
the complexity of the buying organizations. Some of NTIC’s competitors with respect to its traditional
ZERUST® rust and corrosion inhibiting products also compete in the oil and gas industry. NTIC also faces
competition from new suppliers who provide alternative approaches to corrosion prevention, some of which
have a significant market presence and more years of experience and credibility in the oil and gas industry.
Original equipment manufacturer (OEM) suppliers to the oil and gas industry present a new market vertical
for NTIC’s traditional industrial ZERUST® products.

Natur-Tec® Resin Compounds and Finished Products. With respect to NTIC’s Natur-Tec® resin
compounds and finished products, NTIC competes with several established companies that have been
producing and selling similar products for a significantly longer time period, and have significantly more
sales, more extensive and effective distribution networks and better brand recognition than NTIC. Most of
these companies also have substantially more financial and other resources than NTIC. NTIC competes on
the basis of performance, brand awareness, distribution network, product availability, product offering, shelf
life, place of manufacture and price. Because of price competition, NTIC’s margins on its Natur-Tec® resin
compounds and finished products are lower than its margins on its ZERUST® corrosion prevention
solutions. NTIC also could face supply constraints for the base resins used to manufacture NTIC’s Natur-
Tec® resin compounds and finished products since there are a limited number of suppliers of such base resins
and limited capacity for their production.

Research and Development

NTIC’s research and development activities are directed at improving existing products, developing new
products, reducing costs and improving quality assurance through improved testing of NTIC’s products.
NTIC’s internal research and development activities are conducted at its facilities located in Circle Pines,
Minnesota; Beachwood, Ohio; and Dresden, Germany under the direction of internationally known scientists
and research institutes under exclusive contract to NTIC with respect to the subject of their respective
research efforts. EXCOR has established a wholly-owned subsidiary, Excor Korrosionsforschung GmbH, to
conduct research into new fields of corrosion inhibiting packaging and the applications engineering of such
products in conjunction with NTIC’s domestic research and development operations. With respect to
NTIC’s Natur-Tec® resin compounds and finished products, Ramani Narayan, Ph.D., a current director of

NTIC and Distinguished Professor in the Department of Chemical Engineering & Materials Science at
Michigan State University, provides his expertise and technical support to NTIC.

NTIC spent $2,912,393 in fiscal 2017 relating to its research and development activities, compared to
$4,724,596 in fiscal 2016. NTIC anticipates that it will spend between $2,500,000 and $3,000,000 in fiscal
2018 on research and development activities.

Intellectual Property Rights

NTIC’s success depends and will continue to depend in part upon its ability to maintain patent and trademark
protection for its products and processes, to preserve its proprietary information and trade secrets and to
operate without infringing the proprietary rights of third parties. NTIC’s policy is to attempt to protect its
technology by, among other things, filing patent applications and trademark applications and vigorously
preserving the trade secrets covering its technology and other intellectual property rights.

In 1980, NTIC developed and patented the first polyolefin (plastic) based industrial corrosion inhibiting
packing material in the world. The U.S. patent granted under this patent application became the most
important intellectual property right in NTIC’s history. This patent expired in 2000. NTIC has since filed
for 12 letters of patents in the United States covering various corrosion inhibiting technologies, systems and
applications, and now owns several patents in these areas. These patents, as well as patent applications, have
been extended to the countries of strategic relevance to NTIC including, such countries as Australia, Brazil,
Canada, China, Europe, Japan, India, Korea, Mexico, Russia, and Taiwan. In addition, EXCOR owns
several patents in the area covering various corrosion inhibiting technologies and has also applied for new
patents on proprietary new corrosion inhibiting technologies. NTIC is also seeking additional patent
protection covering various host materials into which its corrosion inhibiting additives and other protective
features can be incorporated, proprietary new process technologies, and chemical formulations outside the
area of corrosion protection. NTIC owns several patents outside the area of corrosion protection both in the
United States and in countries of strategic relevance to NTIC including the above-noted countries.

In addition to seeking patent protection, NTIC maintains an extensive portfolio of trademarks in countries
where NTIC has a presence directly or through its subsidiaries and joint ventures. NTIC continuously
pursues new trademark applications of strategic interest worldwide. NTIC owns the following U.S.
registered trademarks: NTI®, NTI & Globe Design, ZERUST®, EXCOR®, ICT®, Z-CIS®, COR TAB®,
PLASTABS®, NATUR-TEC®, NATUR-TEC & Design®, NATUR-BAG® and NATUR-WARE®,
ZERION®, AUTOFOG®, FLANGE SAVER®, ACTIVPAK®. NTIC also has a registered trademark on
the use of the Color Yellow with respect to corrosion inhibiting packaging. Furthermore, NTI®, ZERUST®,
EXCOR®, the Color Yellow® and NTI ASEAN®, as well as other marks have been registered in the
European Union with several new applications pending.

NTIC requires its employees, consultants and advisors having access to its confidential information,
including trade secrets, to execute confidentiality agreements upon commencement of their employment or
consulting relationships with NTIC. These agreements generally provide that all confidential information
NTIC develops or makes known to the individual during the course of the individual’s employment or
consulting relationship with NTIC must be kept confidential by the individual and not disclosed to any third
parties. NTIC also requires all of its employees and consultants who perform research and development for
NTIC to execute agreements that generally provide that all inventions developed by these individuals during
their employment by or service arrangement with NTIC will fall under NTIC’s proprietary intellectual
property rights.

Manufacturing

NTIC’s ZERUST® rust and corrosion inhibiting products are manufactured according to NTIC’s
specifications primarily by selected independent sub-contractors under trade secrecy agreements and/or
license agreements. In addition, NTIC manufactures select ZERUST® rust and corrosion inhibiting products,
consisting primarily of liquids and powders, in-house at its corporate headquarters location in Circle Pines,
Minnesota.

NTIC’s Natur-Tec® resin compounds and finished products are produced at facilities in India, China,
Malaysia and California, USA. NTIC’s Natur-Tec® resin compounds can be shipped to any manufacturing
facility around the world where they then can be converted into finished products, such as a bag or piece of
cutlery. NTIC’s Natur-Tec® finished products are manufactured using NTIC’s Natur-Tec® resin compounds
by selected sub-contractors.

NTIC is ISO 9001 certified with respect to the manufacturing of its products. NTIC believes that the process
of ISO 9001 certification serves as an excellent total quality management tool, enabling NTIC to ensure
consistency in the performance of its products. In addition, because potential customers may prefer or
require manufacturers to have achieved ISO certification, such ISO certifications may provide NTIC with
certain competitive advantages.

Availability of Raw Materials

NTIC does not typically carry excess quantities of raw materials because of widespread availability for such
materials from various suppliers. However, with respect to its Natur-Tec® resin compounds and finished
products, there are a limited number of suppliers of the base resins used to manufacture the resin compounds
and finished products, and in the past NTIC has experienced some delay in obtaining such base resins. In
addition, a few raw materials and purchased parts used in NTIC’s rust and corrosion inhibiting products and
Natur-Tec® finished products are sourced from suppliers who currently serve as NTIC’s sole source of
supply for these materials and parts. Although NTIC believes it can obtain these raw materials and parts
from other sources of supply, an unexpected loss of supply over a short period of time may not allow NTIC
time to replace these sources in the ordinary course of business.

Backlog

NTIC had an order backlog of $668,000 as of August 31, 2017, compared to $1,106,000 as of August 31,
2016, which was generally across all business units and which these sales will be realized during first quarter
of fiscal 2018. These are orders that are held by NTIC pending release instructions from the customers to be
used in just-in-time production. Customers generally place orders on an “as needed” basis and expect
delivery within a relatively short period of time.

Governmental Regulation

The U.S. Food and Drug Administration (FDA) has indicated to NTIC that it has no objection to the use of
ZERUST® ICT® packaging products in protecting metal food containers and processing equipment. In
addition, the manufacture, sale and use of NTIC’s Natur-Tec® resin compounds and finished products are
subject to regulation in the United States by the FDA. The FDA’s regulations are concerned with substances
used in food packaging materials. Thus, food and beverage containers are in compliance with FDA
regulations if the components used in the food and beverage containers are approved by the FDA as indirect
food additives for their intended uses and comply with the applicable FDA indirect food additive regulations,
or are generally recognized as safe for their intended uses and are of suitable purity for those intended uses.
NTIC believes that its resin compounds are in compliance with all FDA requirements and do not require
further FDA approval prior to the sale of its products.

Employees

As of August 31, 2017, NTIC had 71 full-time employees located in North America, consisting of 26 in sales
and marketing, 25 in research and development and lab, 14 in administration and 6 in production. As of
August 31, 2017, NTIC’s wholly-owned subsidiary in China had 31 full-time employees, its majority-owned
subsidiary in Brazil had 20 full-time employees, its majority-owned subsidiary in India had 6 full-time
employees, its wholly owned subsidiary in Mexico had no employees and its holding company, NTI Asean,
had no full-time employees. There are no unions representing NTIC’s employees and NTIC believes that its
relations with its employees are good.

Available Information

NTIC is a Delaware corporation that was originally organized as a Minnesota corporation in 1970. NTIC’s
principal executive office is located at 4201 Woodland Road, Circle Pines, Minnesota 55014, and its
telephone number is (763) 225-6600. NTIC’s website is located at www.ntic.com. References to NTIC’s
website addressed in this report are provided as a convenience and as an inactive textual reference only. The
information on NTIC’s website or any other website is not incorporated by reference into, and not considered
a part of, this report.

NTIC makes available, free of charge and through its Internet web site, its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to any such reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon
as reasonably practicable after NTIC electronically files such material with, or furnishes it to, the Securities
and Exchange Commission (SEC). Reports filed with the SEC may be viewed at www.sec.gov or obtained at
the SEC Public Reference Room in Washington, D.C. Information regarding the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Forward-Looking Statements

This report on Form 10-K 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, and 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 outcome of
contingencies such as legal proceedings and the effect of the liquidation of Tianjin Zerust and the operations
of NTIC China. 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.”

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 current worldwide economic conditions and any turmoil and disruption in the global

credit and financial markets on NTIC’s business;

• The variability in NTIC’s sales of ZERUST® products and services into oil and gas industry and
Natur-Tec® products and NTIC’s equity income of joint ventures, which variability in sales and
equity in income of joint venture 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 and import duties and taxes;

• The effect of the referendum vote of the United Kingdom 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 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;

• NTIC’s relationships with its joint ventures and its ability to maintain those relationships,

especially in light of anticipated succession planning issues;

• Fluctuations in the cost and availability of raw materials, including resins and other commodities;

• The success of and risks associated with NTIC’s emerging 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 into 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;

• 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 into the oil and gas

industry;

• NTIC’s operations in China, the termination of the joint venture agreements with Tianjin Zerust,
and the anticipated liquidation of Tianjin Zerust and the effect of all these events on NTIC’s
business and future operating results;

• 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;

• Effect of extreme weather conditions on NTIC’s operating results, including most recently

Hurricanes Harvey, Irma and Maria; and

• NTIC’s reliance upon its management information systems.

For more information regarding these and other uncertainties and factors that could cause NTIC’s actual
results to differ materially from what NTIC has anticipated in its forward-looking statements or otherwise
could materially adversely affect its business, financial condition or operating results, see “Part I. Item 1A.
Risk Factors.”

All forward-looking statements included in this report are expressly qualified in their entirety by the
foregoing cautionary statements. NTIC wishes to caution readers not to place undue reliance on any
forward-looking statement that speaks only as of the date made and to recognize that forward-looking
statements are predictions of future results, which may not occur as anticipated. Actual results could differ
materially from those anticipated in the forward-looking statements and from historical results, due to the
uncertainties and factors described above, as well as 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 NTIC
files with or furnishes to the Securities and Exchange Commission.

Item 1A. RISK FACTORS

The following are the most significant factors known to NTIC that could materially adversely affect its
business, operating results or financial condition.

Any weakness in the global economy, and in particular in the United States, Europe and China, and in the
automotive industry, may negatively impact NTIC’s business, operating results and financial condition.

The U.S. and world economies may suffer from uncertainty, volatility, disruption and other adverse
conditions, and those conditions may adversely impact the business community and the financial markets.
Adverse economic and financial market conditions may negatively affect NTIC’s customers and its markets,
and thus negatively impact its business and operating results. For example, weak market conditions could
extend the length of NTIC’s sales cycle and cause potential customers to delay, defer or decline to make
purchases of NTIC’s products and services due to uncertainties surrounding the future performance of their
businesses, limitations on their capital expenditures due to internal budget constraints, the inability to obtain
financing in the capital markets, and the adverse effects of the economy on their business and financial
condition. As a result, if economic and financial market conditions continue to be weak or even deteriorate,
then NTIC’s business, financial condition and operating results, including its ability to grow and expand its
business and operations, could be materially and adversely affected.

NTIC’s operating results are especially dependent upon the economic health of the economies in the United
States, Europe and China. Since a significant portion of NTIC’s ZERUST® rust and corrosion inhibiting
products and services are sold to customers in the automotive industry, adverse economic conditions
affecting the automotive industry, in particular, may result in another adverse effect on NTIC’s net sales and
its other operating results. Accordingly, any weakness in the global economy, and in particular in the United
States, Europe and China, and in the automotive industry, may negatively impact NTIC’s business, operating
results and financial condition.

Global credit and financial markets in the past have experienced disruptions, including diminished
liquidity and credit availability and rapid fluctuations in market valuations, which if they happen again,
could negatively impact NTIC’s business, operating results and financial condition.

Any tightening of the credit and financial markets could negatively impact the ability of companies to
borrow money from their existing lenders, obtain credit from other sources or raise financing to fund their
operations. This could negatively impact the ability of NTIC’s customers and the customers of NTIC’s joint
ventures to purchase NTIC’s products, suppliers’ ability to provide NTIC and its joint ventures with
materials and components and the ability of NTIC and its joint ventures, distributors and sales
representatives to finance operations, if needed, on commercially reasonable terms, or at all. Any or all of
these events could negatively impact NTIC’s business, operating results and financial condition. Although
NTIC maintains allowances for doubtful accounts for estimated losses resulting from the inability of its
customers, distributors and joint ventures to make required payments and such losses historically have been
within NTIC’s expectations and the provisions established, NTIC cannot guarantee that it will continue to
experience the same loss rates that it has in the past, especially if there are weaknesses in the worldwide

economy. A significant change in the liquidity or financial condition of NTIC’s customers, distributors or
joint ventures could cause unfavorable trends in NTIC’s receivable collections and additional allowances
may be required, which could adversely affect NTIC’s operating results. In addition, weaknesses in the
worldwide economy may adversely impact the ability of suppliers to provide NTIC with materials and
components, which could adversely affect NTIC’s business and operating results, and it is not known how
the recent withdrawal by the United States from the Trans-Pacific Partnership trade agreement may also
affect NTIC’s suppliers. NTIC is unable to predict the prospects for a global economic recovery, but the
longer the duration of such adverse and uncertain economic conditions, the greater the risks NTIC faces in
operating its business.

NTIC’s liquidity and financial position rely on the receipt of fees for services provided to its joint ventures
and dividend distributions from its joint ventures. No assurance can be provided that NTIC will continue
to receive such fees and dividend distributions in amounts NTIC historically has received or anticipates
receiving.

NTIC conducts business, either directly or indirectly through several joint venture arrangements that operate
in North America, Europe and Asia. Each of these joint ventures manufactures, markets and sells finished
products in the geographic territory that it is assigned. NTIC’s receipt of funds as a result of sales by its joint
ventures is dependent upon NTIC’s receipt of fees for services that NTIC provides to its joint ventures based
primarily on the net sales of the individual joint ventures and NTIC’s receipt of dividend distributions from
its joint ventures based on the profitability of its joint ventures. NTIC’s liquidity and financial position rely
on NTIC’s receipt of fees for services that NTIC provides to its joint ventures and dividend distributions
from its joint ventures. During fiscal 2017, NTIC recognized $5,452,687 in fees and $6,377,054 in dividend
distributions from its joint ventures. Because NTIC owns 50% or less of each of its joint venture entities,
NTIC does not control the decisions of these entities regarding whether to pay dividends and, if paid, how
much they should be in any given year. Thus, NTIC cannot guarantee that any of its joint ventures will pay
dividends in any given year. The failure of NTIC’s joint ventures to declare dividends or the failure of NTIC
to receive fees for services provided to joint ventures in amounts typically expected by NTIC could adversely
affect NTIC’s liquidity and financial position.

Since a significant portion of NTIC’s earnings results from NTIC’s equity income from joint ventures and
since NTIC’s equity income from joint ventures varies from quarter to quarter, NTIC’s earnings are
subject to quarterly fluctuations.

A significant portion of NTIC’s earnings results from NTIC’s equity income from its joint ventures. NTIC’s
equity in income from joint ventures consists of NTIC’s share of equity in income from its joint ventures
based on the overall profitability of the joint ventures. Such profitability varies from quarter to quarter. Since
NTIC’s management typically receives quarterly joint venture financial information after the completion of
each fiscal quarter, it is impossible for NTIC’s management to cut costs and expenses to make up for any
unanticipated shortfall in NTIC’s equity income from joint ventures. Accordingly, the variability in NTIC’s
equity income from joint ventures, in turn, subjects NTIC’s earnings to quarterly fluctuations.

Out of NTIC’s joint ventures, NTIC’s joint venture in Germany is the most significant in terms of assets
and income to NTIC. If sales of NTIC’s products and services by this joint venture were to decline
significantly or if NTIC’s relationships with this joint venture were to deteriorate significantly, NTIC’s
operating results likely would be adversely affected.

NTIC considers its joint venture in Germany (EXCOR) to be individually significant to NTIC’s consolidated
assets and income, and therefore, provides certain additional information regarding EXCOR in the notes to
NTIC’s consolidated financial statements and in certain sections of this report. Of the total equity in income
from joint ventures of $5,898,908 during fiscal 2017, NTIC had equity in income from joint ventures of
$4,185,988 attributable to EXCOR. Of the total fee income for services provided to joint ventures of

$5,452,687 during fiscal 2017, fees of $838,628 was attributable to EXCOR. Accordingly, if sales of
NTIC’s products and services by this joint venture were to decline significantly or if NTIC’s relationships
with this joint venture were to deteriorate significantly such that it terminated or were not motivated to sell
NTIC’s products and services, NTIC’s operating results likely would be adversely affected.

The termination of NTIC’s joint venture agreements with Tianjin Zerust and the operations of NTIC
China have had a material adverse effect on NTIC’s operating results.

Effective as of December 31, 2014, NTIC terminated its joint venture agreements with Tianjin Zerust,
initiated the process to liquidate the joint venture entity and established a wholly-owned subsidiary to
conduct business in China. NTIC’s consolidated financial statements include the financial results of NTIC
China beginning with the second quarter of fiscal 2015. Tianjin Zerust was individually significant to
NTIC’s consolidated assets and income. Accordingly, the termination of NTIC’s joint venture agreements
with Tianjin Zerust have adversely affected NTIC’s operating results, including in particular, its equity in
income, fee income for services provided to joint ventures, and operating expenses.

NTIC’s prior and ongoing litigation is expensive and has had an adverse effect on NTIC’s business and
operating results.

Litigation is expensive and often uncertain. NTIC commenced litigation against Cortec Corporation
alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual
commitments owed to NTIC and NTI Asean related to Tianjin Zerust. NTIC incurred significant expenses in
connection with this litigation until September 20, 2017, when the United States District Court for the
Northern District of Ohio dismissed with prejudice all claims asserted by NTIC in the lawsuit. NTIC chose
not to appeal the Court’s dismissal of the case; and accordingly, anticipates that this litigation will no longer
adversely affect its operating results after the first quarter of fiscal 2018. Although NTIC has also
commenced litigation against Mr. Tao Meng, Tianjin Zerust’s other shareholder, and his spouse in order to
force the liquidation of Tianjin Zerust, NTIC does not anticipate that the expenses in connection with this
ongoing litigation will be significant. However, no assurance can be provided that such expenses will remain
insignificant.

NTIC’s international business, which is conducted primarily through its subsidiaries and joint ventures,
requires management attention and financial resources and exposes NTIC to difficulties and risks
presented by international economic, political, legal, accounting and business factors.

NTIC sells products and services directly, through its wholly-owned and majority-owned subsidiaries, and
indirectly via a network of joint ventures, independent distributors, manufacturer’s sales representatives and
agents in over 60 countries, including countries in North America, South America, Europe, Asia and the
Middle East. One of NTIC’s strategic objectives is the continued expansion of its international operations.
The expansion of NTIC’s existing international operations and entry into additional international markets
requires management attention and financial resources.

The sale and shipping of products and services across international borders subjects NTIC to extensive U.S.
and foreign governmental trade regulations. Compliance with such regulations is costly and exposes NTIC
to penalties for non-compliance. Other laws and regulations that can significantly impact NTIC include
various anti-bribery laws, including the U.S. Foreign Corrupt Practices Act, laws restricting business with
suspected terrorists and anti-boycott laws. Any failure to comply with applicable legal and regulatory
obligations could impact NTIC in a variety of ways that include, but are not limited to, significant criminal,
civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of
export privileges, seizure of shipments and restrictions on certain business activities. Also, the failure to
comply with applicable legal and regulatory obligations could result in the disruption of NTIC’s shipping and
sales activities.

Several factors, including the implications of “Brexit” as described below, implications of withdrawal by the
U.S. from, or revision to, international trade agreements, including the potential withdrawal from NAFTA,
foreign policy changes between the U.S. and other countries, weakened international economic conditions or
the impact of sovereign debt defaults by certain European countries, could adversely affect our international
net sales. Additionally, the expansion of our existing international operations and entry into additional
international markets require significant management attention and financial resources. Many of the
countries in which NTIC sells its products directly or indirectly through NTIC China, Zerust Brazil, Natur-
Tec India, Zerust Mexico, NTI Asean, its joint ventures, distributors, representatives and agents are, to some
degree, subject to political, economic and/or social instability. NTIC’s international operations expose NTIC
and its joint venture partners, distributors, representatives and agents to risks inherent in operating in foreign
jurisdictions. These risks include:

• difficulties in managing and staffing international operations and the required infrastructure costs

•

including legal, tax, accounting and information technology;
the imposition of additional U.S. and foreign governmental controls or regulations, new trade
restrictions and restrictions on the activities of foreign agents, representatives and distributors, the
imposition of costly and lengthy export licensing requirements and changes in duties and tariffs,
license obligations and other non-tariff barriers to trade;
the imposition of U.S. and/or international sanctions against a country, company, person or entity
with whom NTIC does business that would restrict or prohibit continued business with the
sanctioned country, company, person or entity;

• pricing pressure that NTIC or its joint ventures, distributors, representatives and agents may

•
•
•

experience internationally;
laws and business practices favoring local companies;
adverse currency exchange rate fluctuations;
longer payment cycles and difficulties in enforcing agreements and collecting receivables through
certain foreign legal systems;

• national and international conflicts, including foreign policy changes or terrorist acts;
• difficulties in enforcing or defending intellectual property rights;
• multiple, changing and often inconsistent enforcement of laws and regulations; and
•

the potential payment of U.S. income taxes on certain earnings of joint ventures upon repatriation.

Furthermore, in June 2016, the United Kingdom held a referendum in which voters approved an exit from the
European Union, commonly referred to as “Brexit.” As a result of the referendum, negotiations have
commenced to determine the future terms of the United Kingdom’s relationship with the European Union,
including the terms of trade between the United Kingdom and the European Union either during a
transitional period or more permanently. Although it is unknown what those terms will be, it is possible that
there will be greater restrictions on the movement of goods and people between the United Kingdom and
European Union countries and increased regulatory complexities, which could affect NTIC’s ability to sell its
products in certain European Union countries. Brexit could lead to legal uncertainty and potentially divergent
national laws and regulations as the United Kingdom determines which European Union laws to replace or
replicate. Brexit could adversely affect European and worldwide economic and market conditions and could
contribute to instability in global financial and foreign exchange markets, including volatility in the value of
the British pound and Euro. In addition, other European countries may seek to conduct referenda with respect
to continuing membership with the European Union. NTIC does not know to what extent these changes will
impact its business. Any of these effects of Brexit, and others that NTIC cannot anticipate, could adversely
affect its business, operations and financial results.

Failure to comply with the U.S. Foreign Corrupt Practices Act could subject NTIC to, among other things,
penalties and legal expenses that could harm its reputation and have a material adverse effect on its
business, financial condition and results of operations.

NTIC is subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits covered
entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign
officials for the purpose of obtaining or retaining business or other benefits. In addition, the FCPA imposes
accounting standards and requirements on U.S. publicly-traded corporations and their foreign affiliates,
which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper
payments, and to prevent the establishment of “off books” slush funds from which such improper payments
can be made. NTIC also is subject to similar anticorruption legislation implemented in Europe under the
Organization for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign
Public Officials in International Business Transactions. NTIC and its joint ventures, distributors,
independent representatives and agents operate in a number of jurisdictions that pose a high risk of potential
violations of the FCPA and other anticorruption laws, based on measurements such as Transparency
International’s Corruption Perception Index, and NTIC utilizes a number of joint ventures, distributors,
independent representatives and agents for whose actions NTIC could be held liable under the FCPA. NTIC
informs its personnel, joint ventures, distributors, independent representatives and agents of the requirements
of the FCPA and other anticorruption laws, including, but not limited to their reporting requirements. NTIC
also has developed and will continue to develop and implement systems for formalizing its contracting
processes, performing due diligence on agents and improving its recordkeeping and auditing practices
regarding these regulations. However, there is no guarantee that NTIC’s employees, joint ventures,
distributors, independent representatives or other agents have not or will not engage in conduct undetected by
NTIC’s processes and for which NTIC might be held responsible under the FCPA or other anticorruption
laws.

If NTIC’s employees, joint ventures, distributors, third-party sales representatives or other agents are found
to have engaged in such practices, NTIC could suffer severe penalties, including criminal and civil penalties,
disgorgement and other remedial measures, including further changes or enhancements to its procedures,
policies and controls, as well as potential personnel changes and disciplinary actions.

Certain private and foreign companies, including some of NTIC’s competitors, are not subject to prohibitions
as strict as those under the FCPA or, even if subjected to strict prohibitions, such prohibitions may be laxly
enforced in practice. If NTIC’s competitors engage in corruption, extortion, bribery, pay-offs, theft or other
fraudulent practices, they may receive preferential treatment from personnel of some companies or from
government officials, giving NTIC’s competitors an advantage in securing business and which would put
NTIC at a disadvantage.

Fluctuations in foreign currency exchange rates could result in declines in NTIC’s earnings and changes
in NTIC’s foreign currency translation adjustments.

Because the functional currency of NTIC’s foreign operations is the applicable local currency, NTIC is
exposed to foreign currency exchange rate risk arising from transactions in the normal course of business.
NTIC’s principal exchange rate exposure is with the Euro, the Japanese Yen, Indian Rupee, Chinese
Renminbi, South Korean Won and the English Pound against the U.S. dollar. NTIC’s fees for services
provided to its joint ventures and dividend distributions from these foreign entities are paid in foreign
currencies; and thus, fluctuations in foreign currency exchange rates could result in declines in NTIC’s
earnings. Any changes in foreign currency exchange rates would be reflected as a foreign currency
translation adjustment and would not change NTIC’s equity in income from joint ventures reflected in its
consolidated statements of operations. NTIC does not hedge against its foreign currency exchange rate risk.

Economic uncertainty in developing markets could adversely affect NTIC’s revenue and earnings.

NTIC conducts business, or is contemplating expansion, in developing markets with economies that tend to
be more volatile than those in the United States and Western Europe. The risk of doing business in
developing markets such as China, Brazil, India, Russia, the United Arab Emirates, Mexico and other
economically volatile areas could adversely affect NTIC’s operations and earnings. Such risks include the
financial instability among customers in these regions, political instability, fraud or corruption and other non-
economic factors such as irregular trade flows that need to be managed successfully with the help of the local
governments. In addition, commercial laws in some developing countries can be vague, inconsistently
administered and retroactively applied. If NTIC is deemed not to be in compliance with applicable laws in
developing countries where NTIC conducts business, its prospects and business in those countries could be
harmed, which could then have a material adverse impact on NTIC’s operating results and financial position.
NTIC’s failure to successfully manage economic, political and other risks relating to doing business in
developing countries and economically and politically volatile areas could adversely affect its business.

NTIC faces intense competition in almost all of its product lines, including from competitors that have
substantially greater resources than NTIC does. No assurance can be provided that NTIC will be able to
compete effectively, which would harm its business and operating results.

NTIC’s products are sold in intense competitive markets throughout the world. This intense competition
could result in pricing pressures, lower sales, reduced margins and lower market share. The principal
competitive factors in NTIC’s corrosion prevention solutions markets are pricing, product innovation, quality
and reliability, product support, customer service and reputation. Additional competitive factors present in
NTIC’s bioplastics business are brand awareness, distribution network, product availability, product offering,
shelf life and place of manufacture. NTIC often competes with numerous manufacturers, many of which
have substantially greater financial, marketing, and other resources than NTIC. As a result, they may be able
to adapt more quickly than NTIC to new or emerging technologies, industry trends, and changes in customer
requirements, or to devote greater resources to the promotion and sale of their products than NTIC. In
addition, competition could increase if new companies enter the markets in which NTIC competes, especially
when the barriers to entry are low, which may be true with respect to NTIC’s rust and corrosion prevention
business, or if existing competitors expand their product lines or intensify efforts within existing product
lines. NTIC’s current products, products under development and its ability to develop new and improved
products may be insufficient to enable NTIC to compete effectively with its competitors. No assurance can
be provided that NTIC will be able to compete effectively, which would harm its business and operating
results. In particular, NTIC has experienced more intense competition with respect to many of its traditional
ZERUST® rust and corrosion inhibiting products and services, which has led to decreased pricing and
smaller margins for NTIC. Recently, NTIC has experienced lower margins on its contracts with Chinese
automotive customers. NTIC anticipates that such intense competition likely will continue and that new
competitors may emerge, including plastic extrusion companies, which would continue to adversely affect
NTIC’s operating results.

NTIC’s ZERUST® rust and corrosion inhibiting products and services generate a significant portion of
NTIC’s net sales and the net sales of NTIC’s joint ventures. Accordingly, if sales of these products and
services were to decline, NTIC’s operating results would be adversely affected.

NTIC’s ZERUST® rust and corrosion inhibiting products and services generate a significant portion of
NTIC’s net sales and the net sales of NTIC’s joint ventures. During fiscal 2017, 82.9% of NTIC’s
consolidated net sales were derived from sales of ZERUST® rust and corrosion inhibiting products and
services. While the net sales of NTIC’s joint ventures are not included in NTIC’s net sales on NTIC’s
consolidated financial statements, NTIC’s receipt of fees for services that NTIC provides to its joint ventures
and NTIC’s receipt of dividend distributions from its joint ventures is based primarily on the revenues and
profitability of the joint ventures. Accordingly, if sales of these products and services were to decline due to

increased competition, the introduction of a new disruptive technology or otherwise, NTIC’s operating
results would be adversely affected.

If NTIC is unable to continue to enhance its existing products and develop and market new products that
respond to customer needs and achieve market acceptance, NTIC may experience a decrease in demand
for its products, and its business could suffer.

One of NTIC’s strategies is to enhance its existing products and develop and market new products that
respond to customer needs. NTIC may not be able to compete effectively with its competitors unless NTIC
can keep up with existing or new products or alternative technologies in the markets in which it competes.
Product development requires significant research and development, financial and other resources. Although
in the past NTIC has implemented lean manufacturing and other productivity improvement initiatives to
provide investment funding for new products, no assurance can be provided that NTIC will be able to
continue to do so in the future. Product improvements and new product introductions also require significant
planning, design, development and testing at the technological, product, and manufacturing process levels
and NTIC may not be able to timely develop product improvements or new products. NTIC’s competitors’
new products may beat NTIC’s products to market, may be more effective or less expensive than NTIC’s
products or render NTIC’s products obsolete. Any new products that NTIC may develop may not receive
market acceptance or otherwise generate any meaningful net sales or profits for NTIC relative to its
expectations, based on, among other things, existing and anticipated investments in manufacturing capacity
and commitments to fund advertising, marketing, promotional programs, and research and development.

NTIC has invested and intends to continue to invest additional research and development and marketing
efforts and resources into the application of its corrosion prevention solutions into the oil and gas industry
and the continued launch of its Natur-Tec® resin compounds and finished products. No assurance can be
provided, however, that NTIC’s investments in these new markets and products will be successful and
result in additional revenue to NTIC.

In an effort to increase net sales, NTIC has expanded the marketing of its corrosion prevention solutions into
the oil and gas industry and its Natur-Tec® resin compounds and finished products. The majority of NTIC’s
research and development expense in fiscal 2017 was spent in connection with research and development
activities related to these two strategic initiatives. NTIC expects to continue to invest additional research and
development and marketing efforts and resources into these strategic initiatives. No assurance can be
provided, however, that such strategic initiatives will be successful or that NTIC will be successful in
obtaining additional revenue as a result of them. The introduction of new products into new markets takes
significant resources and there can be no assurance that NTIC is dedicating a sufficient amount of resources
to ensure the success of these strategic initiatives. The sale of NTIC’s ZERUST® rust and corrosion
inhibiting products and services into the oil and gas industry, in particular, typically involves a long sales
cycle, often including a one- to multi-year trial period with each customer and a slow integration process
thereafter. This long sales cycle may cause NTIC’s management, stockholders and investors to lose faith in
the business opportunities for NTIC’s ZERUST® rust and corrosion inhibiting products and services in the
oil and gas industry.

The expansion of NTIC’s corrosion prevention solutions into the oil and gas industry and the continued
launch of NTIC’s Natur-Tec® resin compounds and finished products may require additional capital in
the future, which may not be available or may be available only on unfavorable terms. In addition, any
equity financings may be dilutive to NTIC’s stockholders.

The expansion of NTIC’s corrosion prevention solutions into the oil and gas industry and the continued
launch of NTIC’s Natur-Tec® resin compounds and finished products will continue to require significant
resources during fiscal 2018 and beyond. To the extent that NTIC’s existing capital, including amounts
available under its revolving line of credit, is insufficient to meet these requirements, NTIC may raise

additional capital through financings or additional borrowings. Any equity or debt financing, if available at
all, may be on terms that are not favorable to NTIC and any equity financings could result in dilution to
NTIC’s stockholders.

NTIC’s strategy of expanding its corrosion prevention solutions into the oil and gas industry and
continuing its launch of its Natur-Tec® bioplastics resin compounds and finished products is risky and
may not prove to be successful, which could harm NTIC’s operating results and financial condition.

NTIC’s strategy of expanding its corrosion prevention solutions into the oil and gas industry and continuing
its launch of its Natur-Tec® bioplastics resin compounds and finished products, either directly or indirectly
through joint ventures and independent distributors and agents, is risky and subject to all of the risks inherent
in the establishment of a new business enterprise, including:

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•

•

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•

the absence of a significant operating history;
the lack of commercialized products;
the lack of market acceptance of new products;
expected substantial and continual losses for such businesses for the foreseeable future;
the lack of manufacturing experience and limited marketing experience;
an expected reliance on third parties for the manufacture and commercialization of some of the
products;
a competitive environment characterized by numerous, well-established and well-capitalized
competitors;
insufficient capital and other resources; and
reliance on key personnel.

NTIC relies on others for its production and any interruptions of these arrangements could disrupt
NTIC’s ability to fill its customers’ orders.

NTIC utilizes contract manufacturers for a significant portion of its production requirements. The majority
of NTIC’s manufacturing is conducted in the United States by contract manufacturers that also perform
services for numerous other companies. NTIC does not have a guaranteed level of production capacity with
any of its contract manufacturers. Qualifying new contract manufacturers is time consuming and might
result in unforeseen manufacturing and operations problems. The loss of NTIC’s relationships with its
contract manufacturers or their inability to conduct their manufacturing and assembly services for NTIC as
anticipated in terms of capacity, cost, quality and timeliness could adversely affect NTIC’s ability to fill
customer orders in accordance with required delivery, quality, and performance requirements, and thus
adversely affect NTIC’s net sales and other operating results.

NTIC’s dependence on manufacturing and logistical services provided by contractors could give rise to
product defect or warranty liability.

NTIC uses certain third party manufacturers to produce some of its products. In addition, NTIC relies upon
certain contractors for logistical services. Although NTIC’s arrangements with its contract manufacturers and
contractors may contain provisions for warranty expense reimbursement, NTIC may remain responsible to its
customers for warranty service in the event of product defects and could experience an unanticipated product
defect or warranty liability. In addition, products defects could harm NTIC’s reputation amongst its
customers.

NTIC’s dependence on key suppliers puts NTIC at risk of interruptions in the availability of its products,
which could reduce its net sales and adversely affect its operating results and harm its reputation.

NTIC relies on suppliers for certain raw materials and components used in its products. For reasons of
quality assurance, cost effectiveness or availability, NTIC procures certain raw materials and components
from sole or limited source suppliers. NTIC generally acquires such raw materials and components through
purchase orders placed in the ordinary course of business, and as a result, NTIC does not have a significant
inventory of these materials and components and does not have any guaranteed or contractual supply
arrangements with many of these suppliers for these materials and components. NTIC’s dependence on
third-party suppliers involves several risks, including limited control over pricing, availability, quality and
delivery schedules, as well as manufacturing yields and costs. Suppliers of such raw materials and
components may decide, or be required, for reasons beyond NTIC’s control to cease supplying such raw
materials and components to NTIC or to raise their prices.

Shortages of raw materials, quality control problems, production capacity constraints or delays by suppliers
could negatively affect NTIC’s ability to meet its production obligations and result in increased prices for
affected parts. Any such shortage, constraint or delay may result in delays in shipments of products or
components, which could adversely affect NTIC’s net sales and other operating results, and its reputation.
From time to time, materials and components used in NTIC’s products are subject to allocation because of
shortages of these materials and components.

Increases in prices for raw materials and components used in NTIC’s products could adversely affect
NTIC’s operating results.

NTIC uses certain raw materials and components in its products, including in particular plastic resins, which
are subject to price increases. Changes to international trade agreements could result in additional tariffs,
duties or other charges on raw materials or components we import into the U.S. Increases in prices for raw
materials and components used in NTIC’s products could adversely affect NTIC’s gross margins and other
operating results.

The commercial success of NTIC’s Natur-Tec® resin compounds and finished products depends on the
widespread market acceptance of products manufactured with biobased and biodegradable resins.

Although there is a developed market for petroleum-based plastics, the market for “bio-plastics” which are
plastics produced with biobased resins, which are derived from renewable resources such as corn or
cellulosic/plant material or blends thereof, or plastics that are engineered to be fully biodegradable or both, is
still developing. The commercial success of NTIC’s Natur-Tec® resin compounds and finished products
depends on the widespread market acceptance of products manufactured with biobased and biodegradable
resins. It is currently difficult to assess or predict with any assurance the potential size, timing and viability
of market opportunities for NTIC’s Natur-Tec® resin compounds and finished products. The traditional
plastics market sector is well-established with entrenched competitors with whom NTIC competes. Pricing
for traditional plastics has been highly volatile in recent years, which drive, to some extent, the commercial
and other support for bioplastics. While NTIC expects to be able to command a premium price for its Natur-
Tec® resin compounds and finished products, a widening gap in the pricing for bioplastics versus petroleum-
based plastics may reduce the size of the addressable market for NTIC’s Natur-Tec® resin compounds and
finished products. In addition, the growth of the market will create some pressure on price for applications
today considered commodities, including in particular NTIC’s current Natur-Tec® finished products.

NTIC’s business, properties and products are subject to governmental regulation and taxes, compliance
with which may require NTIC to incur expenses or modify its products or operations, and which may
expose NTIC to penalties for non-compliance. Governmental regulation also may adversely affect the
demand for some of NTIC’s products and its operating results.

NTIC’s business, properties and products are subject to a wide variety of international, federal, state and
local laws, rules, taxes and regulations relating to the protection of the environment, natural resources, and
worker health and safety and the use, management, storage, and disposal of hazardous substances, wastes and
other regulated materials. These laws, rules and regulations may affect the way NTIC conducts its
operations, and the failure to comply with these regulations could lead to fines and other penalties. Because
NTIC owns and operates real property, various environmental laws also may impose liability on NTIC for
the costs of cleaning up and responding to hazardous substances that may have been released on NTIC’s
property, including releases unknown to NTIC. These environmental laws and regulations also could require
NTIC to pay for environmental remediation and response costs at third-party locations where NTIC disposed
of or recycled hazardous substances. NTIC’s future costs of complying with the various environmental
requirements, as they now exist or may be altered in the future, could adversely affect NTIC’s financial
condition and operating results. NTIC is also subject to other international, federal and state laws, rules and
regulations, the future non-compliance with which may harm NTIC’s business or may adversely affect the
demand for some of its products. Changes in laws and regulations, including changes in accounting
standards and taxation changes, including tax rate changes, new tax laws, revised tax law interpretations, also
may adversely affect NTIC’s operating results.

Fluctuations in NTIC’s effective tax rate could have a significant impact on NTIC’s financial position,
results of operations or cash flows.

The mix of pre-tax income or loss among the tax jurisdictions in which NTIC operates that have varying tax
rates could impact NTIC’s effective tax rate. NTIC is subject to income taxes as well as non-income based
taxes, in both the United States and various foreign jurisdictions. Judgment is required in determining the
worldwide provision for income taxes, other tax liabilities, interest and penalties. Future events could
change management’s assessment. NTIC operates within multiple taxing jurisdictions and is subject to tax
audits in these jurisdictions. These audits can involve complex issues, which may require an extended period
of time to resolve. NTIC also has made assumptions about the realization of deferred tax assets. Changes in
these assumptions could result in a valuation allowance for these assets. Final determination of tax audits or
tax disputes may be different from what is currently reflected by NTIC’s income tax provisions and accruals.

NTIC may grow its business through additional joint ventures, alliances and acquisitions, which could be
risky and harm its business.

One of NTIC’s growth strategies may be to expand its business by entering into additional joint ventures and
alliances and acquiring businesses, technologies and products that complement or augment NTIC’s existing
products. The benefits of a joint venture, alliance or acquisition may take more time than expected to
develop, and NTIC cannot guarantee that any future joint ventures, alliances or acquisitions will in fact
produce the intended benefits. In addition, joint ventures, alliances and acquisitions involve a number of
risks, including:

• diversion of management’s attention;
• difficulties in assimilating the operations and products of a new joint venture or acquired business or

in realizing projected efficiencies, cost savings and revenue synergies;

• potential loss of key employees or customers of the new joint venture or acquired business or

•

adverse effects on existing business relationships with suppliers and customers;
adverse impact on overall profitability if the new joint venture or acquired business does not achieve
the financial results projected in NTIC’s valuation models;

•

reallocation of amounts of capital from other operating initiatives and/or an increase in NTIC’s
leverage and debt service requirements to pay the joint venture capital contribution or the acquisition
purchase price, which could in turn restrict NTIC’s ability to access additional capital when needed
or to pursue other important elements of NTIC’s business strategy;
inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated
costs associated with the new joint venture or acquisition; and
incorrect estimates made in the accounting for acquisitions, occurrence of non-recurring charges and
write-off of significant amounts of goodwill that could adversely affect NTIC’s operating results.

NTIC’s ability to grow through joint ventures, alliances and acquisitions will depend, in part, on the
availability of suitable opportunities at an acceptable cost, NTIC’s ability to compete effectively for these
opportunities and the availability of capital to complete such transactions.

NTIC relies on its joint ventures, distributors, manufacturer’s sales representatives and other agents to
market and sell its products.

In addition to its direct sales force, NTIC relies on its joint ventures, distributors, manufacturer’s sales
representatives and other agents to market and sell its products in the United States and internationally.
NTIC’s joint ventures, distributors, manufacturer’s sales representatives and other agents might terminate
their relationship with NTIC, or devote insufficient sales efforts to NTIC’s products. NTIC does not control
its joint ventures, distributors, manufacturer’s sales representatives and other agents and they may not be
successful in implementing NTIC’s marketing plans. NTIC’s failure to maintain its existing relationships
with these entities, or its failure to recruit and retain additional skilled joint venture partners, distributors,
manufacturer’s sales representatives and other agents could have an adverse effect on NTIC’s operations. It
is anticipated that several of NTIC’s joint venture partners will retire during the next several years which will
require a transition on the part of the joint venture as well as NTIC and could harm NTIC’s relationship with
the joint venture and NTIC’s business.

NTIC may be subject to product liability claims or other claims arising out of the activities of its joint
ventures, which could adversely affect NTIC and its business.

While NTIC is not aware of any specific potential risk beyond its initial investment in and any undistributed
earnings of each of its joint ventures, there can be no assurance that NTIC will not be subject to lawsuits
based on product liability claims or other claims arising out of the activities of its joint ventures. To mitigate
the ramifications of such an occurrence, NTIC maintains liability insurance specifically applicable to its
ownership positions in its joint venture arrangements in excess of any insurance the joint ventures may
maintain. No assurance can be provided, however, that such insurance will be available or adequate in the
event of a claim.

The sale of ZERUST® rust and corrosion inhibiting products into the oil and gas industry is especially
risky in light of the hazards typically associated with such operations and the significant amount of
potential liability involved, which could adversely affect NTIC’s business if ZERUST® rust and corrosion
inhibiting products are involved, even if the cause of such events was not related to NTIC’s products.

Because NTIC sells its ZERUST® rust and corrosion inhibiting products into the oil and gas industry, NTIC
is subject to some of the risks and hazards typically associated with such operations, including hazards such
as fire, explosion, blowouts, cratering, unplanned gas releases and spills, each of which could be claimed to
be attributed to the failure of NTIC’s products to perform as anticipated. If such events occur and NTIC’s
products are involved, NTIC’s business and operating results may suffer even if the cause of such events was
not related to NTIC’s products.

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

In the past, NTIC has experienced some seasonality with respect to the sale of its ZERUST® rust and
corrosion inhibiting products into the oil and gas industry, with sales during parts of the second and third
fiscal quarters being adversely affected by winter in the United States. In addition, the sale of NTIC’s
ZERUST® rust and corrosion inhibiting products into the oil and gas industry, particularly in the United
States, have been and may continue to be hampered by low global crude oil prices, which NTIC believes
constrains capital improvement budgets of its existing and prospective customers and may result in personnel
turnover at its oil and gas customers or prospects.

Severe weather could have a material adverse effect on our business.

Our business could be materially and adversely affected by severe weather. Our customers, including in
particular our oil and gas customers, may have operations located in parts of the southern United States or
other places and may be adversely affected by hurricanes and tropical storms, resulting in reduced demand
for our products and services or increased operating costs. Furthermore, our customers and raw material
suppliers’ operations may be adversely affected by such hurricanes and other extreme or seasonal weather
conditions. Adverse weather can also directly impede our own operations. Repercussions of severe weather
conditions may include:

curtailment of services or reduced demand for products;

•
• weather-related damage to facilities and equipment, resulting in suspension of operations;
•

inability to deliver equipment, personnel and products to job sites in accordance with contract
schedules or increased transportation or other operating costs; and
loss of productivity.

•

These constraints could delay our operations and materially increase our operating and capital costs.

NTIC has limited staffing and will continue to be dependent upon key employees.

NTIC’s success is dependent upon the efforts of a small management team and group of employees. NTIC’s
future success will depend in large part on its ability to retain its key employees and identify, attract and
retain other highly qualified managerial, technical, research and development, sales and marketing and
customer service personnel when needed. Competition for these individuals may be intense, especially in the
markets in which NTIC operates. NTIC may not succeed in identifying, attracting and retaining these
personnel. Inadequate performance by any of NTIC’s limited staff could have a negative impact on the
performance of the company as a whole. NTIC’s current management, other than its President and Chief
Executive Officer, does not have any material stock ownership in NTIC. In addition, none of NTIC’s
employees have any contractual obligation to maintain his or her employment with NTIC. The loss or
interruption of services of any of NTIC’s key personnel, including in particular its technical personnel, the
inability to identify, attract or retain qualified personnel in the future, delays in hiring qualified personnel, or
any employee slowdowns, strikes or similar actions could make it difficult for NTIC to manage its business
and meet key objectives, which could harm NTIC’s business, financial condition and operating results.

Given NTIC’s limited resources, it may not effectively manage its growth.

NTIC’s strategy to grow its business, including in particular its ZERUST® rust and corrosion inhibiting
products for the oil and gas industry and its Natur-Tec® bio-plastic resin compounds and finished products,
requires significant management time and operational and financial resources. There is no assurance that
NTIC has the necessary operational and financial resources to manage its growth. This is especially true as it
expands facilities and manufactures its products on a larger commercial scale. In addition, rapid growth in

NTIC’s headcount and operations may place a significant strain on its management, administrative,
operational and financial infrastructure. Failure to adequately manage its growth could have a material and
adverse effect on NTIC’s business, financial condition and operating results. For example, NTIC’s soil side
bottom solutions for tanks require implementation teams comprised of both internal NTIC personnel and
outside consulting firms. NTIC’s failure to expand these implementation teams to service additional
customers may limit NTIC’s ability to grow this business. In addition, NTIC may not be successful in its
strategy to grow its business.

Certain of NTIC’s operations are subject to regulation by the U.S. Food and Drug Administration.

The manufacture, sale and use of NTIC’s Natur-Tec® bio-plastic resin compounds are subject to regulation
by the U.S. FDA. The FDA’s regulations are concerned with substances used indirectly in food packaging
materials, not with specific finished food packaging products. Thus, food and beverage containers are in
compliance with FDA regulations if the components used in the food and beverage containers: (i) are
approved by the FDA as indirect food additives for their intended uses and comply with the applicable FDA
indirect food additive regulations; or (ii) are generally recognized as safe for their intended uses and are of
suitable purity for those intended uses. NTIC believes that its Natur-Tec® resin compounds are in
compliance with all FDA requirements. However, failure to comply with FDA regulations could subject
NTIC to administrative, civil or criminal penalties.

NTIC relies on its management information systems for inventory management, distribution and other
functions. If these information systems fail to adequately perform these functions or if NTIC experiences
an interruption in their operation, NTIC’s business and operating results could be adversely affected.

The efficient operation of NTIC’s business is dependent on its management information systems. NTIC
relies on its management information systems to effectively manage accounting and financial functions;
manage order entry, order fulfillment and inventory replenishment processes; and to maintain its research
and development data. The failure of management information systems to perform as anticipated could
disrupt NTIC’s business and product development and could result in decreased sales, causing NTIC’s
business and operating results to suffer. In addition, NTIC’s management information systems are
vulnerable to damage or interruption from natural or man-made disasters, terrorist attacks and attacks by
computer viruses or hackers, or power loss or computer systems, Internet, telecommunications or data
network failure. Any such interruption could adversely affect NTIC’s business and operating results.

NTIC’s business could be negatively impacted by cyber security threats.

In the ordinary course of NTIC’s business, NTIC uses its management information systems to store and
access proprietary business information. NTIC faces various cyber security threats, including cyber
security attacks to its information technology infrastructure and attempts by others to gain access to its
proprietary or sensitive information. The procedures and controls NTIC uses to monitor these threats and
mitigate its exposure may not be sufficient to prevent cyber security incidents. The result of these incidents
could include disrupted operations, lost opportunities, misstated financial data, liability for stolen assets or
information, increased costs arising from the implementation of additional security protective measures,
litigation and reputational damage. Any remedial costs or other liabilities related to cyber security incidents
may not be fully insured or indemnified by other means.

NTIC’s reliance upon patents, trademark laws, trade secrets and contractual provisions to protect its
proprietary rights may not be sufficient to protect its intellectual property from others who may sell similar
products.

NTIC holds patents relating to various aspects of its products and believes that proprietary technical know-
how is critical to many of its products. Proprietary rights relating to NTIC’s products are protected from

unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or
are maintained in confidence as trade secrets. NTIC cannot be certain that it will be issued any patents from
any pending or future patent applications owned by or licensed to NTIC or that the claims allowed under any
issued patents will be sufficiently broad to protect its technology. In the absence of patent protection, NTIC
may be vulnerable to competitors who attempt to copy NTIC’s products or gain access to its trade secrets and
know-how. NTIC’s competitors may initiate litigation to challenge the validity of NTIC’s patents, or they
may use their resources to design comparable products that do not infringe NTIC’s patents. NTIC may incur
substantial costs if its competitors initiate litigation to challenge the validity of its patents or if it initiates any
proceedings to protect its proprietary rights and if the outcome of any such litigation is unfavorable to NTIC,
its business and operating results could be materially adversely affected.

In addition, NTIC relies substantially on trade secrets and proprietary know-how that it seeks to protect, in
part, by confidentiality agreements with its employees, and consultants. These agreements may be breached,
and NTIC may not have adequate remedies for any such breach. Even if these confidentiality agreements are
not breached, NTIC’s trade secrets may otherwise become known or be independently developed by
competitors.

NTIC may not achieve its annual financial guidance or projected goals and objectives in the time periods
that NTIC anticipates or announces publicly, which could have an adverse effect on NTIC’s business and
could cause its stock price to decline.

On a quarterly basis, NTIC typically provides projected annual financial information, including its
anticipated annual net sales and net earnings. These financial projections are based on management’s then-
current expectations and typically do not contain any margin of error or cushion for any specific
uncertainties, or for the uncertainties inherent in all financial forecasting. The failure to achieve such
financial projections could have an adverse effect on NTIC’s business, disappoint investors and analysts and
cause its stock price to decline.

NTIC also sets goals and objectives for, and makes public statements regarding, the timing of certain
accomplishments and milestones regarding its business, such as its progress in selling its ZERUST® rust and
corrosion inhibiting products and services to customers in the oil and gas industry, the progress and timing of
its various field trials with prospective customers in the oil and gas industry, its ability to increase sales of its
Natur-Tec® resin compounds and finished products, and other developments and milestones. The actual
timing of these events can vary dramatically due to a number of factors including without limitation the
timing of the receipt of purchase orders, delays or failures in current field trials, the amount of time, effort
and resources committed to the sales and marketing of NTIC’s products and services by NTIC and its current
and potential future distributors and agents and the uncertainties inherent in introducing new products and
services. As a result, there can be no assurance that NTIC will succeed in achieving its projected goals and
objectives in the time periods that NTIC anticipates or announces publicly. The failure to achieve such
projected goals and objectives in the time periods that NTIC anticipates or announces publicly could have an
adverse effect on NTIC’s business, disappoint investors and analysts and cause its stock price to decline.

NTIC’s quarterly results are typically unpredictable and subject to variation.

NTIC’s quarterly operating results vary from quarter to quarter for a variety of reasons. For example,
NTIC’s quarterly sales to joint ventures can be affected by individual orders to joint ventures. Because of the
typical size of individual orders to joint ventures and overall size of NTIC’s net sales to joint ventures, the
timing of one or more orders can affect materially NTIC’s quarterly sales to joint ventures and the
comparisons to prior year quarters. In addition, because of the typical size of individual orders and overall
size of NTIC’s net sales derived from sales of Natur-Tec® products, the timing of one or more orders can
materially affect NTIC’s quarterly sales of Natur-Tec® products and the comparisons to prior year quarters.
Furthermore, since ZERUST® products for the oil and gas industry typically carry higher margins than other

traditional ZERUST® products, the amount of sales of ZERUST® products for the oil and gas industry
typically affects NTIC’s overall margins. Such variability in operating results makes the prediction of
NTIC’s net sales, earnings and other operating results for each quarter difficult and increases the risk of
unanticipated variations in quarterly operating results. NTIC’s quarterly results have been and in the future,
may be below the expectations of public market analysts and investors.

NTIC is exposed to risks relating to its evaluation of its internal control over financial reporting as
required by Section 404 of the Sarbanes-Oxley Act.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including
the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes-Oxley Act of 2002 and
related and other regulations implemented by the SEC and the Nasdaq Stock Market, are challenging for
small publicly-held companies, including NTIC. NTIC’s efforts to comply with evolving laws, regulations
and standards have resulted in, and are likely to continue to result in, significant general and administrative
expenses and a diversion of management time and attention from revenue-generating activities to compliance
activities. In particular, NTIC’s efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and
the related regulations regarding NTIC’s assessment of its internal control over financial reporting have
required and will continue to require the expenditure of significant financial and managerial resources.
Although NTIC’s management has concluded that NTIC’s internal control over financial reporting was
effective as of August 31, 2017, no assurance can be provided that NTIC’s management will reach a similar
conclusion as of any later date. NTIC’s failure to maintain effective internal control over financial reporting
may have an adverse effect on its stock price.

NTIC’s compliance with accounting principles generally accepted in the United States of America and
any changes in such principles might adversely affect NTIC’s operating results and financial condition.
Any requirement to consolidate NTIC’s joint ventures or subject them to compliance with the internal
control provisions of the Sarbanes-Oxley Act of 2002 could adversely affect NTIC’s operating results and
financial condition.

If there were a change in accounting rules and NTIC were required to fully consolidate its joint ventures or if
NTIC’s joint ventures otherwise would be required to be consolidated with NTIC or be in compliance with
the internal control provisions of the Sarbanes-Oxley Act of 2002, NTIC and the individual joint venture
would incur significant additional costs. In addition, other accounting pronouncements issued in the future
could have a material cost associated with NTIC’s implementation of such new accounting pronouncements.

NTIC’s business is subject to a number of other miscellaneous risks that may adversely affect NTIC’s
operating results, financial condition or business.

NTIC’s business is subject to a number of other miscellaneous risks that may adversely affect NTIC’s
operating results, financial condition or business, such as natural or man-made disasters, an unexpected loss
of supply due to a force majeure event or global pandemics that may result in shortages of raw materials,
higher commodity costs, an increase in insurance premiums and other adverse effects on NTIC’s business;
the continued threat of terrorist acts and war that may result in heightened security and higher costs for
import and export shipments of components or finished goods; and the ability of NTIC’s management to
adapt to unplanned events.

Risks Related to NTIC’s Common Stock

The trading volume of NTIC’s common stock is typically very low, leaving NTIC’s common stock open to
risk of high volatility.

The number of shares of NTIC’s common stock being traded on a daily basis is often very low and on some
trading days, there is no trading volume at all. During fiscal 2017, the daily trading volume ranged from zero
shares to 44,502 shares. Any NTIC stockholder wishing to sell his, her or its stock may cause a significant
fluctuation in the trading price of NTIC’s common stock. In addition, low trading volume of a stock
increases the possibility that, despite rules against such activity, the price of the stock may be manipulated by
persons acting in their own self-interest. NTIC may not have adequate market makers and market making
activity to prevent manipulation in its common stock.

The price and trading volume of NTIC’s common stock has been, and may continue to be, volatile.

The market price and trading volume of NTIC’s common stock price historically has fluctuated over a wide
range. During fiscal 2017, the sale price of NTIC’s common stock ranged from a low of $12.60 per share to
a high of $19.30 per share, and the daily trading volume ranged from zero shares to 44,502 shares. It is
likely that the price and trading volume of NTIC’s common stock will continue to fluctuate in the future.
The securities of small capitalization companies, including NTIC, from time to time experience significant
price and volume fluctuations, often unrelated to the operating performance of these companies. Securities
class action litigation is sometimes brought against a company following periods of volatility in the market
price of its securities or for other reasons. NTIC may become the target of similar litigation, especially if
NTIC fails to meet its annual projected financial guidance or lower its annual projected financial guidance.
Securities litigation, whether with or without merit, could result in substantial costs and divert management’s
attention and resources, which could harm NTIC’s business, financial condition, and operating results, as
well as the market price of its common stock.

A large percentage of NTIC’s outstanding common stock is held by insiders, and, as a result, the trading
market for NTIC’s common stock is not as liquid as the stock of other public companies.

As of November 15, 2017, NTIC had 4,537,408 shares of common stock outstanding, of which 19.6% of
these outstanding shares were beneficially owned by directors, executive officers, principal stockholders and
their respective affiliates. The stock of companies with a substantial amount of stock held by insiders is
usually not as liquid as the stock of other public companies where insider ownership is not as concentrated.
Thus, the trading market for shares of NTIC’s common stock may not be as liquid as the stock of other
public companies.

If securities or industry analysts do not publish research or reports about NTIC’s business, or if they
adversely change their recommendations regarding NTIC’s common stock, the market price for NTIC’s
common stock and trading volume could decline.

The trading market for NTIC’s common stock has been influenced by research or reports that industry or
securities analysts publish about NTIC or its business. If one or more analysts who cover NTIC downgrade
NTIC’s common stock, the market price for NTIC’s common stock would likely decline. If one or more
cease coverage of NTIC or fail to regularly publish reports on NTIC, NTIC could lose visibility in the
financial markets, which, in turn, could cause the market price or trading volume for NTIC’s common stock
to decline.

One of NTIC’s principal stockholders beneficially owns a significant percentage of NTIC’s outstanding
common stock and is affiliated with NTIC’s President and Chief Executive Officer and thus may be able
to influence matters requiring stockholder approval, including the election of directors, and could
discourage or otherwise impede a transaction in which a third party wishes to purchase NTIC’s
outstanding shares at a premium.

As of November 15, 2017, Inter Alia Holding Company, or Inter Alia, beneficially owned approximately
13.3% of NTIC’s outstanding common stock. Inter Alia is an entity partially owned by G. Patrick Lynch,
NTIC’s President and Chief Executive Officer and a director, as well as three other members of the Lynch
family. Mr. Lynch shares voting and dispositive power of shares of NTIC’s common stock held by Inter
Alia with the other owners. As a result of his share ownership through Inter Alia and his position as
President and Chief Executive Officer and a director of NTIC, Mr. Lynch may be able to influence the affairs
and actions of NTIC, including matters requiring stockholder approval, such as the election of directors and
approval of significant corporate transactions. The interests of Mr. Lynch and Inter Alia may differ from the
interests of NTIC’s other stockholders. This concentration of ownership may have the effect of delaying,
preventing or deterring a change in control of NTIC, could deprive NTIC’s stockholders of an opportunity to
receive a premium for their common stock as part of a sale or merger of NTIC and may negatively affect the
market price of NTIC’s common stock. Transactions that could be affected by this concentration of
ownership include proxy contests, tender offers, mergers or other purchases of common stock that could give
stockholders the opportunity to realize a premium over the then-prevailing market price for shares of NTIC’s
common stock.

Item 1B. UNRESOLVED STAFF COMMENTS

This Item 1B is inapplicable to NTIC as a smaller reporting company.

Item 2.

PROPERTIES

NTIC’s principal executive offices, production facilities and domestic research and development operations
are located at 4201 Woodland Road, Circle Pines, Minnesota 55014. NTIC owns this real estate and
building. NTIC also owns real estate and a building in Beachwood, Ohio, which it uses for office,
manufacturing, laboratory and warehouse space. Additionally, NTIC has contract warehousing agreements in
place in California and Indiana to hold and release stock products to customers. NTIC’s subsidiaries in
Brazil, India, Mexico and China all lease office, warehouse and laboratory space. NTIC’s management
considers its current properties suitable and adequate for its current and foreseeable needs.

Item 3. LEGAL PROCEEDINGS

On March 23, 2015, NTIC and NTI Asean LLC (NTI Asean) filed a lawsuit in Tianjin No 1 Intermediate
People’s Court against two individuals, Tao Meng and Xu Hui, related to breaches of duties and contractual
commitments owed to NTI Asean under certain agreements related to NTIC’s former joint venture in China,
Tianjin Zerust Anti-Corrosion Technologies Ltd. (Tianjin Zerust). The lawsuit alleges, among other things,
that Mr. Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received
economic benefits that were required to go to Tianjin Zerust. As of August 31, 2017, NTIC is not able to
reasonably estimate the amount of any recovery to NTI Asean, if any.

On April 21, 2015, NTIC and NTI Asean initiated a lawsuit in the District Court for the Second Judicial
District, County of Ramsey, State of Minnesota against Cortec Corporation (Cortec) alleging, among other
things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to
NTIC and NTI Asean related to NTIC’s joint venture in China, Tianjin Zerust. After fully litigating the case
through discovery and dispositive motion practice, on February 16, 2017, the Minnesota court denied both
sides’ motions for summary judgment and, sua sponte, dismissed without prejudice NTIC’s and NTI Asean’s
claims based on a non-exclusive forum-selection clause contained in a 2005 settlement agreement between
NTIC and Cortec. While NTIC had strong arguments to appeal the Minnesota court’s decision, an appeal
would have meant a significant delay to the resolution of the dispute. On April 21, 2017, NTIC re-filed the
lawsuit in the United States District Court for the Northern District of Ohio. On September 20, 2017,
following a jury trial that commenced on September 18, 2017, the United States District Court for the
Northern District of Ohio dismissed with prejudice all claims asserted by NTIC in the lawsuit. NTIC chose
not to appeal the Court’s dismissal of the case.

From time to time, NTIC is subject to various ongoing or threatened legal actions and proceedings, including
those that arise in the ordinary course of business, which may include employment matters and breach of
contract disputes. Such matters are subject to many uncertainties and to outcomes that are not predictable
with assurance and that may not be known for extended periods of time. In the opinion of management, the
outcome of such routine ongoing litigation is not expected to have a material adverse effect on NTIC’s
results of operations or financial condition.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The two individuals named below have been designated by NTIC’s Board of Directors as “executive
officers” of NTIC. Their ages and the offices held, as of November 15, 2017, are as follows:

Name

G. Patrick Lynch

Age
50

President and Chief Executive Officer

Position with NTIC

Matthew C. Wolsfeld

Chief Financial Officer and Corporate Secretary

G. Patrick Lynch, an employee of NTIC since 1995, has been President since July 2005 and Chief Executive
Officer since January 2006 and was appointed a director of NTIC in February 2004. From July 2005 to
January 2006, Mr. Lynch served as Chief Operating Officer of NTIC. Mr. Lynch served as President of
North American Operations of NTIC from May 2004 to July 2005. Prior to May 2004, Mr. Lynch held
various positions with NTIC, including Vice President of Strategic Planning, Corporate Secretary and Project
Manager. Mr. Lynch is also an officer and director of Inter Alia Holding Company, a holding company that
is a significant stockholder of NTIC. Prior to joining NTIC, Mr. Lynch held positions in sales management

for Fuji Electric Co., Ltd. in Tokyo, Japan and programming project management for BMW AG in Munich,
Germany. Mr. Lynch received an M.B.A. degree from the University of Michigan Ross School of Business
in Ann Arbor, Michigan.

Matthew C. Wolsfeld, an employee of NTIC since February 2001, has been NTIC’s Chief Financial Officer
since November 2001 and Corporate Secretary since November 2004. Mr. Wolsfeld was Controller of NTIC
from May 2001 through November 2001. Prior to joining NTIC, Mr. Wolsfeld held an auditing position
with PricewaterhouseCoopers LLP in Minneapolis, Minnesota from 1997 to 2001. Mr. Wolsfeld received a
B.A. degree in Accounting from the University of Notre Dame and received his M.B.A. degree at the
University of Minnesota, Carlson School of Business. Mr. Wolsfeld is a Certified Public Accountant.

Other corporate officers of NTIC, their ages and the offices held, as of November 15, 2017, are as follows:

Name

Vineet R. Dalal

Age
48 Vice President and Director – Global Market Development –

Position with NTIC

Natur-Tec®

Gautam Ramdas

44 Vice President and Director – Global Market Development –

Oil & Gas

Vineet R. Dalal, an employee of NTIC since 2004, has served as Vice President and Director – Global
Market Development – Natur-Tec® since November 2005. Prior to joining NTIC, Mr. Dalal was a Principal
in the Worldwide Product Development Practice of PRTM, a management consultancy to technology based
companies (now part of PricewaterhouseCoopers Management Consulting). In this position, Mr. Dalal
consulted to several Fortune 500 companies, in the areas of product strategy, Product Lifecycle Management
(PLM) and technology management. Prior to that, Mr. Dalal held positions in program management and
design engineering at National Semiconductor Corporation in Santa Clara, California. Mr. Dalal received an
M.B.A. degree from the University of Michigan Ross School of Business in Ann Arbor, Michigan. He also
holds an M.S. degree in Electrical and Computer Engineering from Oregon State University, and a B.Eng.
degree in Electronics Engineering from Karnatak University, India.

Gautam Ramdas, an employee of NTIC since 2005, has served as Vice President and Director – Global
Market Development – Oil & Gas since 2005. Prior to joining NTIC, Mr. Ramdas was a Manager in the
Strategic Change group of IBM Business Consulting Services. In this position, Mr. Ramdas led consulting
engagements at several Fortune 500 companies, in the areas of service strategy, global supplier relationship
management and supply chain streamlining. Mr. Ramdas held positions in the E-Commerce and Supply
Chain strategy groups at PricewaterhouseCoopers Management Consulting, again providing consulting
services for Fortune 500 clients. Prior to management consulting, Mr. Ramdas worked as a program
manager and design engineer with Kinhill Engineers in Australia. He has also been involved in the start-up
stage of successful small businesses in the United States and in India. Mr. Ramdas received an M.B.A. from
the University of Michigan Ross School of Business in Ann Arbor, Michigan. He also holds a bachelor’s
degree in Mechanical Engineering from the College of Engineering, Guindy (Chennai), India.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

NTIC’s common stock is listed for trading on the Nasdaq Global Market under the symbol “NTIC.” The
following table sets forth the high and low daily sales prices for NTIC’s common stock, as reported by the
Nasdaq Global Market, for the fiscal quarter indicated:

High

Low

Fiscal 2017

Fourth Quarter ...........................................
Third Quarter ............................................
Second Quarter ..........................................
First Quarter ..............................................

$ 18.50
19.30
15.85
14.25

Fiscal 2016

$ 14.93
14.95
17.00
18.00

$ 14.95
15.00
12.55
12.50

$ 10.00
11.16
9.60
13.19

Dividends

No cash dividends were declared by NTIC’s Board of Directors during the fiscal year ended August 31,
2017. On November 20, 2017, NTIC’s Board of Directors declared a cash dividend of $0.10 per share of
NTIC’s common stock, payable on December 21, 2017 to stockholders of record on December 8, 2017.
Although NTIC’s Board of Directors intends to declare regular quarterly cash dividends going forward, the
payment of any future dividends will be determined by NTIC’s Board of Directors in light of conditions then
existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing
agreements, business conditions and other factors.

Number of Record Holders

As of August 31, 2017, there were 174 record holders of NTIC’s common stock. This does not include
shares held in “street name” or beneficially owned.

Recent Sales of Unregistered Equity Securities

NTIC did not sell any shares of its common stock or any other equity securities of NTIC that were not
registered under the Securities Act of 1933, as amended, during the fourth quarter of fiscal 2017.

Issuer Purchases of Equity Securities

The following table shows NTIC’s fourth quarter of fiscal 2017 stock repurchase activity.

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

Average Price
Paid Per Share
(or Unit)

N/A

(1)

(1)(2)

Total
Number of
Shares
(or Units)
Purchased
0

Period

June 1, 2017 through
June 30, 2017
July 1, 2017 through
July 31, 2017
August 1, 2017
through August 31,
2017
Total

(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 August 31, 2017, up to $2,640,548 in shares of NTIC common stock remained available for
repurchase under NTIC’s stock repurchase program.

Item 6.

SELECTED FINANCIAL DATA

The following tables set forth certain of NTIC’s selected consolidated financial data as of the dates and for
the years indicated. The selected consolidated financial data was derived from NTIC’s consolidated financial
statements. The audited consolidated financial statements as of August 31, 2017 and 2016 and for the fiscal
years ended August 31, 2017 and 2016 are included elsewhere in this report. The audited consolidated
financial statements as of August 31, 2015, 2014 and 2013 and for the fiscal years ended August 31, 2015,
2014 and 2013 are not included in this report. Historical results are not necessarily indicative of the results
to be expected for any future period.

2017

Fiscal Year Ended August 31,
2015

2014

2016

2013

Statements of Operations Data:
Net sales, excluding joint ventures ........................ $ 36,346,645 $ 30,211,660
2,721,905
Net sales, to joint ventures ....................................
32,933,565
Total net sales ......................................................
22,320,156
Cost of goods sold .................................................
10,613,409
Gross profit .........................................................
4,743,831
Equity in income from joint ventures ....................
5,137,710
Fees for services provided to joint ventures ..........
9,881,541
Total joint venture operations ...........................
6,255,353
Selling expenses ....................................................
8,232,369
General and administrative expenses ....................
4,724,596
Research and development expenses .....................
19,212,318
Total operating expenses ...................................
1,282,551
Operating income ..................................................
42,115
Interest income ......................................................
(13,261)
Interest expense .....................................................
(1,883,668)
Impairment on investment at carrying value.........
Other income .........................................................
—
(572,182)
Income (loss) before income taxes ........................
626,120
Income tax expense ..........................................
(1,198,302)
Net income (loss) ..................................................
Net income (loss) attributable to non-controlling

3,222,478
39,569,123
26,316,511
13,252,612
5,898,908
5,452,687
11,351,595
9,283,310
7,807,563
2,912,393
20,003,266
4,600,941
43,539
(20,382)
—
—
4,624,098
699,519
3,924,579

$ 27,491,392
2,831,301
30,322,693
20,555,932
9,766,761
5,936,565
5,715,491
11,652,056
5,820,748
8,399,146
4,047,279
18,267,173
3,151,644
34,835
(20,960)
—
515
3,166,034
648,674
2,517,360

$ 23,601,514 $ 19,724,205
2,777,659
22,501,864
15,473,212
7,028,652
5,237,711
7,352,980
12,590,691
4,845,676
5,993,176
3,815,515
14,654,367
4,964,976
34,614
(52,215)
—
670,126
5,617,501
864,000
4,753,501

3,224,594
26,826,108
17,803,153
9,022,955
5,920,603
8,142,863
14,063,466
5,221,738
6,801,545
4,368,752
16,392,035
6,694,386
11,617
(47,322)
—
4,393
6,663,074
1,124,662
5,538,412

interests .............................................................

502,453

Net income (loss) attributable to NTIC ................. $ 3,422,126 $
Net income (loss) attributable to NTIC per

(330,788)
727,789
(867,514) $ 1,789,571

1,432,040

1,386,607
$ 4,106,372 $ 3,366,894

common share:

Basic ................................................................. $
Diluted .............................................................. $
Weighted-average common shares assumed

outstanding:

0.76 $
0.75 $

(0.19) $
(0.19) $

0.40
0.38

$
$

0.92 $
0.90 $

0.76
0.75

Basic .................................................................
Diluted ..............................................................

4,528,611
4,577,359

4,537,504
4,537,504

4,521,788
4,649,060

4,454,836
4,579,498

4,421,636
4,475,895

Balance Sheet Data:
Cash and cash equivalents ..................................... $ 6,360,201 $ 3,395,274
2,243,864
Available for sale securities ..................................
20,942,171
Total current assets ................................................
51,070,050
Total assets ............................................................
3,994,102
Total current liabilities ..........................................
Note payable, net of current portion ......................
—
2,540,973
Non-controlling interests .......................................
44,543,975
Total stockholders’ equity .....................................
47,075,948
Total equity ...........................................................

3,766,984
26,067,618
56,612,693
4,894,617
—
2,857,448
48,860,628
51,718,076

$ 2,623,981
2,027,441
19,275,612
51,565,648
3,671,841
—
3,019,702
44,874,105
47,893,807

$ 2,477,017 $ 4,314,258
—
16,932,505
49,053,949
3,662,053
857,295
3,800,929
40,733,672
44,534,601

5,519,766
22,319,966
54,057,775
4,466,655
—
3,837,257
45,753,863
49,591,120

2017

Fiscal Year Ended August 31,
2015

2014

2016

2013

Other Financial Data:
Net cash provided by (used in) operating activities $ 5,735,691 $ 2,055,607
(955,240)
Net cash (used in) provided by investing activities
Net cash used in by financing activities .................
(270,247)
Effect of exchange rate changes on cash and cash

(2,607,915)
(226,690)

(755,545) $ 7,422,912
7,457,380
1,901,224
(1,814,418)
(874,652)

$ 1,910,702
1,752,842
(1,563,867)

equivalents .........................................................

63,839

(18,826)

(124,064)

11,646

(39,574)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

This Management’s Discussion and Analysis provides material historical and prospective disclosures
intended to enable investors and other users to assess NTIC’s financial condition and results of operations.
Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the
heading “Part I. Item 1. Business—Forward-Looking Statements” and under the heading “Part I. Item 1A.
Risk Factors.” The following discussion of the results of the operations and financial condition of NTIC
should be read in conjunction with NTIC’s consolidated financial statements and the related notes thereto
included under “Part II. Item 8. Financial Statements and Supplementary Data.”

This Management’s Discussion and Analysis is organized in the following major sections:

• Business Overview. This section provides a brief overview description of NTIC’s business,

focusing in particular on developments during the most recent fiscal year.

• NTIC’s Subsidiaries and Joint Venture Network. This section provides a brief overview of
NTIC’s subsidiaries and its joint venture network, the joint ventures which are considered
individually significant to NTIC’s consolidated assets and income and how NTIC’s joint ventures
are accounted for by NTIC.

• Financial Overview. This section provides a brief summary of NTIC’s financial results and

financial condition for fiscal 2017 compared to 2016.

• Sales and Expense Components. This section provides a brief description of the significant line

items in NTIC’s consolidated statements of operations.

• Results of Operations. This section provides an analysis of the significant line items in NTIC’s

consolidated statements of operations.

• Liquidity and Capital Resources. This section provides an analysis of NTIC’s liquidity and cash

flows and a discussion of NTIC’s financial condition and financial commitments.

•

Inflation and Seasonality. This section describes the effects of inflation and seasonality, if any, on
NTIC’s business and operating results.

• Market Risk. This section describes material market risks to which NTIC is subject.

• Related Party Transactions. This section describes any material related party transactions to

which NTIC is a party.

• Off-Balance Sheet Arrangements. This section describes NTIC’s material off-balance sheet

arrangements.

• Critical Accounting Policies and Estimates. This section discusses NTIC’s critical accounting
policies and estimates which require NTIC to exercise subjective or complex judgments in their
application. All of NTIC’s significant accounting policies, including its critical accounting estimates,
are summarized in Note 1 to NTIC’s consolidated financial statements.

• Recent Accounting Pronouncements. This section references Note 2 to NTIC’s consolidated
financial statements, which summarizes effect of recently issued accounting pronouncements on
NTIC’s results of operations and financial condition.

Business Overview

NTIC develops and markets proprietary environmentally beneficial products and services in over 60
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 40 years, and in recent years, has targeted and
expanded into the oil and gas industry. NTIC also markets and sells a portfolio of biobased and certified
compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec®
brand. These products are intended to reduce NTIC’s customers’ carbon footprint and provide
environmentally sound waste disposal options.

NTIC’s ZERUST® rust and corrosion inhibiting products include plastic and paper packaging, liquids,
coatings, rust removers, cleaners, and diffusers, as well as engineered solutions designed specifically for the
oil and gas industry. NTIC also offers worldwide on-site technical consulting for rust and corrosion
prevention issues. NTIC’s technical service consultants work directly with the end users of NTIC’s
ZERUST® rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet
their performance requirements. In North America, NTIC sells its ZERUST® corrosion prevention solutions
through a network of independent distributors and agents supported by a direct sales force. Internationally,
NTIC sells its ZERUST® corrosion prevention solutions through its wholly-owned subsidiary in China,
NTIC (Shanghai) Co., Ltd. (NTIC China), its majority-owned joint venture holding company for NTIC’s
joint venture investments in the Association of Southeast Asian Nations (ASEAN) region, NTI Asean LLC
(NTI Asean), its majority-owned subsidiary in Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil),
and its wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V (Zerust
Mexico), and joint venture arrangements in North America, Europe and Asia. NTIC also sells products
directly to its 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 corrosion leaks.

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.

Natur-Tec® biobased 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, pet waste
collection bags, cutlery 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 majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec
India), and through distributors and certain joint ventures.

NTIC’s Subsidiaries and Joint Venture Network

Subsidiary Name

NTIC (Shanghai) Co., Ltd
NTI Asean LLC
Zerust Prevenção de Corrosão S.A.
ZERUST-EXCOR MEXICO, S. de R.L. de C.V
Natur-Tec India Private Limited
NTIC Europe GmbH

Country
China
United States
Brazil
Mexico
India
Germany

NTIC
Percent (%) Ownership
100%
60%
85%
100%
90%
100%

The results of these subsidiaries are fully consolidated in NTIC’s consolidated financial statements.

NTIC participates in 20 active joint venture arrangements in North America, Europe and Asia. Each of these
joint ventures generally manufactures and markets products in the geographic territory to which it is
assigned. While most of NTIC’s joint ventures exclusively sell rust and corrosion inhibiting products, some
of the joint ventures also sell NTIC’s Natur-Tec® resin compounds. NTIC has historically funded its
investments in joint ventures with cash generated from operations.

NTIC’s receives funds from its joint ventures as fees for services that NTIC provides to its joint ventures and
as dividend distributions. The fees for services provided to joint ventures are determined based on either a
flat fee or a percentage of sales depending on local laws and tax regulations. With respect to NTIC’s joint
venture in Germany (EXCOR), NTIC recognizes an agreed upon quarterly fee for such services. NTIC
recognizes equity income from each joint venture based on the overall profitability of the joint venture. Such
profitability is subject to variability from quarter to quarter which, in turn, subjects NTIC’s earnings to
variability from quarter to quarter. The profits of each joint venture are shared by the respective joint venture
owners in accordance with their respective ownership percentages. NTIC typically directly or indirectly
owns 50% or less of each of its joint venture entities and thus does not control the decisions of these entities
regarding whether to pay dividends and, if paid, how much they should be in a given year. The payment of a
dividend by an entity is determined by a joint vote of the owners and is not at the sole discretion of NTIC.

NTIC accounts for the investments and financial results of its joint ventures in its financial statements
utilizing the equity method of accounting.

Financial Overview

NTIC’s management, including its chief executive officer who is NTIC’s chief operating decision maker,
reports and manages NTIC’s operations in two reportable business segments based on products sold,
customer base and distribution center: ZERUST® products and services and Natur-Tec® products.

NTIC’s consolidated net sales increased 20.1% during fiscal 2017 compared to fiscal 2016. This increase
was primarily a result of an increase in sales of ZERUST® rust and corrosion inhibiting packaging products,
sales to joint ventures and sales of Natur-Tec® products.

During fiscal 2017, 82.9% of NTIC’s consolidated net sales were derived from sales of ZERUST® products
and services, which increased 18.9% to $32,789,283 during fiscal 2017 compared to $27,577,566 during
fiscal 2016. This increase was due to higher sales from existing customers for new and existing products as a
result of increased demand. NTIC has focused its sales efforts of ZERUST® products and services by
strategically targeting customers with specific corrosion issues in new market areas, including the oil and gas
industry and other industrial sectors that offer sizable growth opportunities. NTIC’s consolidated net sales
for fiscal 2017 included $1,720,162 of sales made to customers in the oil and gas industry compared to
$1,739,607 for fiscal 2016. 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.

During fiscal 2017, 17.1% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products
compared to 16.3% during fiscal 2016. Net sales of Natur-Tec® products increased 26.6% to $6,779,840
during fiscal 2017 compared to fiscal 2016 primarily due to an increase in finished product sales in North
America and finished product sales at NTIC’s majority owned subsidiary in India, Natur-Tec India Private
Limited (Natur-Tec India).

Cost of goods sold as a percentage of net sales decreased to 66.5% during fiscal 2017 compared to 67.8%
during fiscal 2016. This decrease was primarily as a result of increased net sales and cost reductions realized
on the raw materials associated with NTIC’s ZERUST® industrial products.

NTIC’s equity in income from joint ventures increased 24.3% to $5,898,908 during fiscal 2017 compared to
$4,743,831 during fiscal 2016. This increase was primarily due to a corresponding increase in net sales at the
joint ventures, which were $101,261,132 during fiscal 2017, compared to $90,646,833 during fiscal 2016.
The increase in the net sales of NTIC’s joint ventures was due primarily to higher sales from existing
customers for new and existing products as a result of increased demand. The increase in net sales of NTIC’s
joint ventures resulted in a corresponding increase in fees for services provided to joint ventures as such fees
are a function of net sales of NTIC’s joint ventures.

NTIC’s total operating expenses increased $790,948, or 4.1%, to $20,003,266 during fiscal 2017 compared
to $19,212,318 in fiscal 2016. This increase was primarily due: (i) an increase in legal expenses in North
America related to the litigation against Cortec Corporation of $289,000; and (ii) an increase in NTIC’s
management bonus accrual of $565,000.

NTIC spent $2,912,393 in fiscal 2017 in connection with its research and development activities, compared
to $4,724,596 in fiscal 2016. NTIC anticipates that it will spend between $2,500,000 and $3,000,000 in fiscal
2018 on research and development activities. This significant decrease from fiscal 2016 is due to the
transition of efforts from research and development to selling, general and administrative areas, specifically
as they relate to Natur-Tec® products and the ZERUST® oil and gas business since most of the expenses
related to these business units are no longer in the research and development phase of product development.

Net income (loss) attributable to NTIC increased to net income of $3,422,126, or $0.75 per diluted common
share, for fiscal 2017 compared to net loss of $(867,514), or $(0.19) per diluted common share, for fiscal
2016. This increase was primarily the result of the increase in gross profit, partially offset by the increase in
operating expenses.

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 and sales of its ZERUST®
products and services into the oil and gas industry and Natur-Tec® bioplastics products, which sales fluctuate
more on a quarterly basis than the traditional ZERUST® business. NTIC also anticipates that its operating
results will remain volatile primarily as a result of the changes in its Chinese operations.

NTIC’s working capital was $21,172,997 at August 31, 2017, including $6,360,201, in cash and cash
equivalents and $3,766,984 in available for sale securities, compared to $16,948,069 at August 31, 2016,
including $3,395,274 in cash and cash equivalents and $2,243,864 in available for sale securities.

Sales and Expense Components

The following is a description of the primary components of net sales and expenses:

Net Sales, Excluding Joint Ventures. NTIC derives net sales from the sale of its ZERUST® products and
services and its Natur-Tec® products. NTIC sells its ZERUST® products and services and its Natur-Tec®
products either directly, through its subsidiaries or via a network of joint ventures, independent distributors
and agents. Net sales, excluding joint ventures represents net sales by NTIC either directly to end users or to
distributors worldwide, but not sales to NTIC’s joint ventures and not sales by NTIC’s joint ventures. NTIC
recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, the
product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is
reasonably assured, all of which criteria are generally met upon shipment when risk of loss and title passes to
the customer or distributor. NTIC records all amounts billed to customers and distributors in a sales
transaction related to shipping and handling as sales and records costs related to shipping and handling in
cost of goods sold.

Net Sales, To Joint Ventures. Net sales, to joint ventures represents net sales by NTIC to NTIC’s joint
ventures, but not sales by NTIC either directly to end users or to distributors or sales by NTIC’s joint
ventures. NTIC’s revenue recognition policy for sales to its joint ventures is the same as NTIC’s policy for
sales to unaffiliated customers. NTIC recognizes revenue from the sale of its products to joint ventures when
persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and
determinable and collection of the resulting receivable is reasonably assured, all of which criteria are
generally met upon shipment when risk of loss and title passes to the joint venture.

Cost of Goods Sold. Most of NTIC’s products are manufactured by third parties and its cost of goods sold
for those products consists primarily of the price invoiced by its third-party vendors. For the portion of
products that NTIC manufactures, NTIC’s cost of goods sold for those products consists primarily of direct
labor, allocated manufacturing overhead, raw materials and components. NTIC’s margins on its Natur-Tec®
resin compounds and finished products are generally smaller than its margins on its ZERUST® products and

services, and NTIC’s margins on its ZERUST® products and services sold into the oil and gas industry are
generally greater than its margins on its traditional ZERUST® products and services.

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures consists of NTIC’s
share of equity in income from each joint venture based on the overall profitability of the joint ventures.
Such profitability is subject to variability from quarter to quarter which, in turn, subjects NTIC’s earnings to
variability from quarter to quarter. Traditionally, a portion of the equity income recorded in a given fiscal
year is paid to the owners of the joint venture entity during the following fiscal year through a dividend. The
payment of a dividend by a joint venture entity is determined by a vote of the joint venture owners and is not
at the sole discretion of NTIC. NTIC typically owns only 50% or less of its joint venture entities and thus
does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much
they should be in a given year.

Fees for Services Provided to Joint Ventures. NTIC provides certain services to its joint ventures including
consulting, legal, travel, insurance, technical and marketing services. NTIC receives fees for these services it
provides to its joint ventures based primarily on the net sales by NTIC’s joint ventures, the latter of which are
not included in NTIC’s net sales reflected on NTIC’s consolidated statements of operations. The fees for
services received by NTIC from its joint ventures are generally determined based on either a flat fee or a
percentage of net sales by NTIC’s joint ventures depending on local laws and tax regulations. With respect
to EXCOR, NTIC receives an agreed upon fixed quarterly fee for such services. NTIC records revenue
related to fees for services provided to joint ventures when earned, amounts are determinable and
collectability is reasonably assured. Under NTIC’s agreements with its joint ventures in which the fees for
services is described, fees are earned when the joint venture recognizes the revenue.

Selling Expenses. Selling expenses consist primarily of sales commissions and support costs for NTIC’s
direct sale and distribution system, and marketing costs.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries
and benefits, and other costs for NTIC’s executives, accounting, stock-based compensation, finance, legal,
information technology and human resources functions.

Research and Development Expenses. Research and development expenses include costs associated with
the design, development, market analysis, lab testing and field trials and enhancements of NTIC’s products
and services. NTIC expenses all costs related to product research and development as incurred. Research
and development expenses reflect the net amount after being reduced by reimbursements related to certain
research and development contracts. With respect to such research and development contracts, NTIC
accrues proceeds received under the contracts and offsets research and development expenses incurred in
equal installments over the timelines associated with completion of the contracts’ specific objectives and
milestones.

Interest Income. Interest income consists of interest earned on investments, which typically consist of
investment-grade, interest-bearing securities and money market accounts.

Interest Expense. Interest expense results primarily from interest associated with any borrowings under
NTIC’s line of credit with PNC Bank.

Income Tax Expense. Income tax expense includes federal income taxes, foreign withholding taxes, income
tax of consolidated entities in foreign jurisdictions, state income tax and changes to NTIC’s deferred tax
valuation allowance. NTIC utilizes the liability method of accounting for income taxes which requires an
asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws

and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized. NTIC records a tax valuation allowance when it is more likely than not that some portion or all of
its deferred tax assets will not be realized. NTIC makes this determination based on all available evidence,
including historical data and projections of future results. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Results of Operations

Fiscal Year 2017 Compared to Fiscal Year 2016

The following table sets forth NTIC’s results of operations for fiscal 2017 and fiscal 2016.

Net sales, excluding joint ventures .................
Net sales, to joint ventures ...........................
Cost of goods sold ..............................................
Equity in income from joint ventures .................
Fees for services provided to joint ventures........
Selling expenses ........................................
General and administrative expenses ..............
Research and development expenses ..............
Impairment of investment at carrying value……

Fiscal 2017
$ 36,346,645
3,222,478
26,316,511
5,898,908
5,452,687
9,283,310
7,807,563
2,912,393
—

% of
Net
Fiscal 2016
Sales
91.9% $ 30,211,660
2,721,905
8.1%
22,320,156
66.5%
4,743,831
14.9%
5,137,710
13.8%
6,255,353
23.5%
8,232,369
19.7%
4,724,596
7.4%
1,883,668
n/a

% of
Net
Sales
91.7%
8.3%
67.8%
14.4%
15.6%
19.0%
25.0%
14.3%
5.7%

$
Change
$ 6,134,985
500,573
3,996,355
1,155,077
314,977
3,027,957
(424,806)
(1,812,203)
1,883,668

%
Change
20.3%
18.4%
17.9%
24.3%
6.1%
48.4%
(5.2)%
(38.4)%
n/a

Net Sales. NTIC’s consolidated net sales increased 20.1% to $39,569,123 during fiscal 2017 compared to
$32,933,565 during fiscal 2016. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s
joint ventures increased 20.3% to $36,346,645 during fiscal 2017 compared to $30,211,660 during fiscal
2016. These increases were primarily a result of increased demand from the addition of new customers in
North America and China and an increase in sales of our Natur-Tec® products. Net sales to joint ventures
increased 18.4% to $3,222,478 in fiscal 2017 compared to fiscal 2016. This increase was due primarily to
the increase in sales at the joint ventures.

The following table sets forth NTIC’s net sales by product segment for fiscal 2017 and fiscal 2016:

ZERUST® net sales ........................
Natur-Tec® net sales .........................
Total net sales ...................................

Fiscal 2017
$ 32,789,283
6,779,840
$ 39,569,123

Fiscal 2016
$ 27,577,566
5,355,999
$ 32,933,565

$
Change
$ 5,211,717
1,423,841
$ 6,635,558

%
Change

18.9%
26.6%
20.1%

During fiscal 2017, 82.9% of NTIC’s consolidated net sales were derived from sales of ZERUST® products
and services, which increased 18.9% to $32,789,283 compared to $27,577,566 during fiscal 2016. This
increase was due to increased demand from existing customers and the addition of new customers primarily
in the industrial market, partially offset by a decrease in ZERUST® joint venture net sales and ZERUST® oil
and gas net sales. NTIC has strategically focused its sales efforts for ZERUST® products and services on
customers with sizeable corrosion problems in industry sectors that offer sizable growth opportunities,
including the oil and gas sector. Overall demand for ZERUST® products and services depends heavily on
the overall health of the market segments to which NTIC sells its products, including the automotive, oil and
gas, agriculture, and mining markets in particular.

The following table sets forth NTIC’s net sales of ZERUST® products for fiscal 2017 and fiscal 2016:

ZERUST® industrial net sales ................... $
ZERUST® joint venture net sales ..............
ZERUST® oil & gas net sales ....................

Total ZERUST® net sales ................... $

Fiscal 2017

Fiscal 2016

27,846,643
3,222,478
1,720,162
32,789,283

23,124,461
2,713,498
1,739,607
27,577,566

$
Change
$ 4,722,182
508,980
(19,445)
$ 5,211,717

%
Change

20.4%
18.8%
(1.1)%
18.9%

During fiscal 2017, 17.1% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products,
compared to 16.3% during fiscal 2016. Sales of Natur-Tec® products increased 26.6% to $6,779,840 during
fiscal 2017 compared to $5,355,999 during fiscal 2016. This increase was due to the addition of new
customers in North America and India as well as increased sales by existing distributors. Demand for Natur-
Tec® 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 Natur-Tec® products, the timing of one or more orders can materially affect NTIC’s
quarterly sales of Natur-Tec® products and the comparisons to prior fiscal year quarters.

Cost of Goods Sold. Cost of goods sold increased 17.9% in fiscal 2017 compared to fiscal 2016 primarily as
a result of the increase in net sales as described above. Cost of goods sold as a percentage of net sales
decreased to 66.5% during fiscal 2017 compared to 67.8% during fiscal 2016. This decrease was primarily
as a result of increased net sales and cost reductions realized on the raw materials associated with NTIC’s
ZERUST® industrial products.

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures increased 24.3% to
$5,898,908 during fiscal 2017 compared to $4,743,831 during fiscal 2016. This increase was primarily a
result of improved sales and profitability at the joint ventures. Specifically, of the total equity in income
from joint ventures, NTIC had equity in income from joint ventures of $4,185,988 attributable to EXCOR
during fiscal 2017 compared to $3,534,113 attributable to EXCOR during fiscal 2016. This increase was due
to overall increases in sales and profitability at EXCOR. NTIC had equity in income of all other joint
ventures of $1,712,920 during fiscal 2017 compared to $1,205,592 during fiscal 2016.

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint
ventures of $5,452,687 during fiscal 2017 compared to $5,137,710 during fiscal 2016, representing an
increase of 6.1% or $314,977. The increase in fees for services provided to joint ventures was a result of an
increase in total sales at all joint ventures, which were $101,261,132 during fiscal 2017 compared to
$90,646,833 during fiscal 2016, an increase of 11.7%. Net sales of NTIC’s joint ventures increased due
primarily to stronger economic trends and a stronger Euro. Sales of NTIC’s joint ventures are not included
in NTIC’s product sales and are not combined with NTIC’s sales in NTIC’s consolidated financial statements
or in any description of NTIC’s sales. Of NTIC’s fee income for services provided to joint ventures,
$838,627 was attributable to EXCOR during fiscal 2017 compared to $845,857 attributable to EXCOR
during fiscal 2016. The slight decrease in fee income for services provided to joint ventures attributable to
EXCOR was primarily the result of foreign currency exchange rate fluctuations. NTIC received fee income
for services provided to all of its other joint ventures of $4,614,060 during fiscal 2017 compared to
$4,291,835 during fiscal 2016.

Selling Expenses. NTIC’s selling expenses increased 48.4% in fiscal 2017 compared to fiscal 2016 due
primarily to increases in operating expenses at Zerust Brazil and NTIC China, consisting primarily of selling
and personnel expense associated with increased sales efforts, and the transition of expenses that were
previously focused on research and development efforts, but now relate to selling, specifically as they relate
to Natur-Tec® products and the ZERUST® oil and gas business, since most of the expenses related to these
business units are no longer in the research and development phase of product development. Selling

expenses as a percentage of net sales increased to 23.5% in fiscal 2017 compared to 19.0% in fiscal 2016
primarily due to the increase in selling expenses, as previously described, partially offset by the increase in
net sales as previously described.

General and Administrative Expenses. NTIC’s general and administrative expenses decreased by 5.2% in
fiscal 2017 compared to fiscal 2016 primarily due to cost savings initiatives, partially offset by: (i) the
transition of expenses that were previously focused on research and development efforts, but now relate to
general and administrative focus, specifically as they relate to Natur-Tec® products and the ZERUST® oil
and gas business, since most of the expenses related to these business units are no longer in the research and
development phase of product development; and (ii) an increase in legal expenses in North America related
to the litigation against Cortec Corporation, which increased $289,000 for the fiscal year comparison. The
general and administrative expenses as a percentage of net sales decreased to 19.7% for fiscal 2017 from
25.0% for fiscal 2016 due primarily to the increase in net sales and the decrease in general and administrative
expenses as previously described.

Research and Development Expenses. NTIC’s research and development expenses decreased 38.4% in fiscal
2017 compared to fiscal 2016. These decreases were due primarily to the transition of resources that were
previously devoted towards research and development to selling and general and administrative efforts, as
previously described.

Interest Income. NTIC’s interest income increased to $43,539 in fiscal 2017 compared to $42,115 in fiscal
2016. This was primarily due to slightly changing levels of investments during fiscal 2017.

Interest Expense. NTIC’s interest expense increased to $20,382 in fiscal 2017 compared to $13,261 in fiscal
2016. This decrease was primarily due to slightly higher average outstanding debt levels during fiscal 2017.

Impairment on Investment at Carrying Value. NTIC’s impairment on investment at carrying value for fiscal
2016 was attributable to its investment in Tianjin Zerust. Specifically, as of August 31, 2016, for accounting
purposes, NTIC’s joint venture investment in Tianjin Zerust was fully impaired, based on additional
information regarding the financial position of the investment that was obtained by NTIC through the legal
proceeding in China that has been ongoing. As of August 31, 2016, the carrying value of Tianjin Zerust
prior to impairment was $1,883,668, of which the net impact to NTIC was $1,130,201 based on the 60%
ownership of NTI Asean. As of August 31, 2016, the carrying value, for accounting purposes, was $0.

Income (Loss) Before Income Tax Expense. NTIC realized income before income tax expense of $4,624,098
for fiscal 2017 compared to loss before income tax expense of $(572,182) for fiscal 2016.

Income Tax Expense. Income tax expense was $699,519 for fiscal 2017 compared to $626,120 during fiscal
2016 for an effective rate of 15.1% and (109.4)%, respectively. NTIC’s annual effective income tax rate
during fiscal 2017 and 2016 was lower than the statutory rate primarily due to foreign withholding taxes and
NTIC’s equity in income of joint ventures being recognized based on after-tax earnings of these entities. To
the extent undistributed earnings of NTIC’s joint ventures are distributed to NTIC, any material additional
income tax liability after the application of foreign tax credits is not expected. NTIC records a tax valuation
allowance to reduce deferred tax assets to the amount expected to be realized when it is more likely than not
that some portion or all of its deferred tax assets will not be realized. NTIC determined based on all
available evidence, including historical data and projections of future results, that it is more likely than not
that all of its deferred tax assets, except for its foreign tax credit carryforward, federal and Minnesota
research and development credit carryforwards, and foreign net operating loss carryforwards will be fully
realized. NTIC determined that its deferred tax asset related to foreign tax credit carryforwards will not be
realized due to insufficient federal taxable income within the carryforward period and the fact that for
ordering purposes the foreign tax credit carryforwards are not allowed to be utilized until after any current
year foreign tax credits are utilized. In addition, based on historical data and future projections, NTIC

determined that it is more likely than not that its deferred tax asset related to federal and Minnesota research
and development credit carryforwards will not be realized due to insufficient federal and Minnesota taxable
income within the carryforward period after considering the foreign tax credit usage. NTIC determined that
its deferred tax asset related to foreign net operating loss carryforwards will not be utilized due to insufficient
taxable income within the carryforward period.

NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outside the United
States on the basis of estimates that future domestic cash generation will be sufficient to meet NTIC’s future
domestic cash needs. As a result, U.S. income and foreign withholding taxes have not been recognized on the
cumulative undistributed earnings of $17,960,860 and $17,779,912 as of August 31, 2017 and August 31,
2016, 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.

Other Comprehensive Income - Foreign Currency Translations Adjustment. The changes in the foreign
currency translations adjustment was due to the fluctuations of the U.S. dollar compared to the Euro and
other foreign currencies during fiscal 2017 compared to fiscal 2016.

Liquidity and Capital Resources

Sources of Cash and Working Capital. As of August 31, 2017, NTIC’s working capital was $21,172,997,
including $6,360,201 in cash and cash equivalents and $3,766,984 in available for sale securities, compared
to working capital of $16,948,069, including $3,395,274 in cash and cash equivalents as of August 31, 2016
and $2,243,864 in available for sale securities.

As of August 31, 2017, NTIC had a revolving line of credit with PNC Bank of $3,000,000, with no amounts
outstanding. The line of credit is evidenced by an amended and restated committed line of credit note in the
principal amount of up to $3,000,000. The line of credit has a $1,200,000 standby letter of credit sub-
facility, with any standby letters of credit issued thereunder being at the sole discretion of PNC Bank. Any
lines of credit issued by PNC Bank would decrease the availability under the revolving line of credit.

The line of credit is subject to standard covenants, including affirmative financial covenants, such as the
maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things,
limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers
and consolidations and other matters customarily restricted in such agreements. Under the loan agreement,
NTIC is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of August 31, 2017, NTIC was
in compliance with all debt covenants.

On January 11, 2017, PNC Bank extended the maturity date of the line of credit from January 7, 2017 to
January 7, 2018 under substantially similar terms. It is anticipated that, as historically has been the practice,
the line of credit will be renewed each year for one additional year for the immediate foreseeable future.

NTIC believes that a combination of its existing cash and cash equivalents, available for sale securities,
forecasted cash flows from future operations, anticipated distributions of earnings, anticipated fees to NTIC
for services provided to its joint ventures, and funds available through existing or anticipated financing
arrangements, will be adequate to fund its existing operations, investments in new or existing joint ventures
or subsidiaries, capital expenditures, debt repayments, cash dividends and any stock repurchases for at least
the next 12 months. During fiscal 2018, NTIC expects to continue to invest in NTIC China, research and
development and in marketing efforts and resources into the application of its corrosion prevention
technology into 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 and fees for
services provided to its joint ventures to fund NTIC’s new technology investments and capital contributions
to new and existing subsidiaries and joint ventures. NTIC’s joint ventures traditionally have operated with
little or no debt and have been self-financed with minimal initial capital investment and minimal additional
capital investment from their respective owners. Therefore, NTIC believes there is limited exposure by
NTIC’s joint ventures that could materially impact their respective operations and/or liquidity.

Uses of Cash and Cash Flow. Net cash provided by operating activities during fiscal 2017 was $5,735,691,
which resulted principally from dividends received from joint ventures, net income, an increase in accounts
payable and depreciation and amortization, partially offset by NTIC’s equity in income from joint ventures
and an increase in trade receivables. Net cash used in operating activities during fiscal 2016 was $2,055,606,
which resulted principally from the impairment of investment at carrying value, dividends received from
joint ventures, depreciation and amortization and an increase in accounts payable, partially offset by NTIC’s
net loss, equity in income from joint ventures and increases in receivables, inventories and accrued liabilities.

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. 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, and 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 for trade
receivables from its joint ventures are 90 days. 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 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 receivables and inventory as of August 31, 2017 compared to August 31,
2016 due to the increase in sales and a desire to stock more products to shorten lead times and anticipate
customer demand. Trade receivables excluding joint ventures as of August 31, 2017 increased $1,157,311
compared to August 31, 2016, primarily related to miscellaneous differences in the timing of collections and
the increase in sales. Outstanding trade receivables excluding joint ventures balances as of August 31, 2017
increased 2 days to an average of 60 days from balances outstanding from these customers as of August 31,
2016. Outstanding trade receivables from joint ventures as of August 31, 2017 decreased $100,151
compared to August 31, 2016 primarily due to the timing of payments. Outstanding balances from trade
receivables from joint ventures decreased as of August 31, 2017 by an average of 28 days from an average of
107 days from balances outstanding from these customers compared to August 31, 2016. The significant
average days outstanding of trade receivables from joint ventures as of August 31, 2017 were primarily due
to the receivables balances at NTIC’s joint ventures in South Korea and Thailand.

Outstanding receivables for services provided to joint ventures as of August 31, 2017 decreased $103,643
compared to August 31, 2016, which resulted in a decrease of 13 days of fees receivable outstanding as of
August 31, 2017 to an average of 88 days compared to August 31, 2016.

Net cash used in investing activities during fiscal 2017 was $2,607,915, which was primarily the result of
cash used in the purchase of available for sale securities, additions to property and equipment, and additions
to patents partially offset by cash provided by the sale of available for sale securities. Net cash provided by
investing activities for fiscal 2016 was $995,240, which was primarily due to additions to property and
equipment, purchase of available for sale securities and additions to patents.

Net cash used in financing activities for fiscal 2017 was $226,690, which resulted from a dividend paid to a
non-controlling interest and the repurchase of common stock, partially offset by proceeds from NTIC’s
employee stock purchase plan and stock option exercises. Net cash used in financing activities for fiscal
2016 was $270,247, which resulted from a dividend paid to a non-controlling interest and repurchases of
common stock, partially offset by proceeds from NTIC’s employee stock purchase plan.

Share Repurchase Plan. On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to
$3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited
privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s
Board of Directors at any time. As of August 31, 2017, up to $2,640,548 in shares of NTIC common stock
remained available for repurchase under NTIC’s stock repurchase program.

Cash Dividends. No cash dividends were declared by NTIC’s Board of Directors during the fiscal year ended
August 31, 2017. On November 20, 2017, NTIC’s Board of Directors declared a cash dividend of $0.10 per
share of NTIC’s common stock, payable on December 21, 2017 to stockholders of record on December 8,
2017. Although NTIC’s Board of Directors intends to declare regular quarterly cash dividends going
forward, the payment of any future dividends will be determined by NTIC’s Board of Directors in light of
conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in
financing agreements, business conditions and other factors.

Capital Expenditures and Commitments. NTIC spent $922,270 on capital expenditures during fiscal 2017
which related primarily to the purchase of new equipment and the expansion of its lab capabilities. NTIC
expects to spend an aggregate of approximately $300,000 to $600,000 on capital expenditures during fiscal
2018, which it expects will relate primarily to the purchase of new equipment.

Contractual Obligations. Set forth below is information concerning NTIC’s known contractual obligations as
of August 31, 2017 that are fixed and determinable by year starting with the twelve months ending August
31, 2018.

Payments Due by Period

Contractual
Obligations
Rent obligations ..

Total .................

Total

702,427

Inflation and Seasonality

Less than
1 Year

264,919

1-3 Years
$

255,844

3-5 Years
$ 133,780

More than
5 Years
$

47,884

264,919

255,844

$ 133,780

47,884

Inflation in the United States and abroad historically has had little effect on NTIC. Although NTIC’s
business historically has not been seasonal, NTIC believes there is now some seasonality in its business.
NTIC believes that its net sales in second fiscal quarter were adversely affected by the long Chinese New
Year, the 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, Indian Rupee, Chinese Renminbi, 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 of joint ventures reflected in
its consolidated statements of income. 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.

At the option of NTIC, outstanding advances under NTIC’s $3,000,000 revolving line of credit with PNC
Bank bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable LIBOR interest
period selected by NTIC or (b) at the rate publicly announced by PNC Bank from time to time as its prime
rate, and thus may subject NTIC to some market risk on interest rates. As of August 31, 2017, NTIC had no
borrowings under the line of credit.

Related Party Transactions

Since NTIC’s joint ventures are considered related parties, NTIC recorded sales to its joint ventures as a
separate line item on the face of NTIC’s consolidated statements of operations and recorded fees for services
provided to its joint ventures and expenses incurred in support of its joint ventures as separate line items on
the face of NTIC’s consolidated statements of operations. Expenses previously recorded as “Expenses
incurred in support of joint ventures” have been reclassified as “General and administrative expenses” based
on the reduction in direct costs associated with supporting the joint ventures. NTIC also records as separate
line items trade receivables from joint ventures, receivables for fees for services provided to joint ventures
and NTIC’s investments in joint ventures on its consolidated balance sheets.

NTIC established its joint venture network approximately 25 years ago as a method to increase its worldwide
distribution network for ZERUST® rust and corrosion inhibiting products and services. NTIC participates,
either directly or indirectly, in 20 active joint venture arrangements in North America, Europe and Asia.
Each of these joint ventures generally manufactures and markets finished products in the geographic territory
to which it is assigned. NTIC’s joint venture partners are knowledgeable in the applicable environmental,
labor, tax and other requisite regulations and laws of the respective foreign countries in which they operate,
as well as the local customs and business practices. NTIC’s revenue recognition policy for sales to its joint
ventures is the same as its policy for sales to unaffiliated customers.

The fees for services provided to joint ventures are determined based on either a flat fee or a percentage of
sales depending on local laws and tax regulations. With respect to NTIC’s joint venture in Germany
(EXCOR), NTIC recognizes an agreed upon quarterly fee for such services. NTIC records revenue related to
fees for services provided to joint ventures when earned, amounts are determinable and collectability is
reasonably assured. Under NTIC’s agreements with its joint ventures, fee amounts are earned when product
is shipped from joint venture facilities. NTIC reviews the financial situation of each joint venture to assist in
the likelihood of collections on amounts earned. From time to time, NTIC elects to account for such fees on

a cash basis for certain joint ventures when uncertainty exists surrounding the collections of such fees, there
are no fees being accounted for in this manner at present. The expenses incurred in support of its joint
ventures are direct expenses that NTIC incurs related to its joint ventures and include such items as employee
compensation and benefit expenses, travel expense, insurance, consulting expense, legal expense and lab
supplies and testing expense. Expenses previously recorded as “Expenses incurred in support of joint
ventures” have been reclassified as “General and administrative expenses” based on the reduction in direct
costs associated with supporting the joint ventures.

See Note 14 to NTIC’s consolidated financial statements for other related party transaction disclosures.

Off-Balance Sheet Arrangements

NTIC does not have any relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities, which would have been established for the
purpose of facilitating off-balance sheet financial arrangements. As such, NTIC is not materially exposed to
any financing, liquidity, market or credit risk that could arise if NTIC had engaged in such arrangements.

Critical Accounting Policies and Estimates

The preparation of NTIC’s consolidated financial statements requires management to make estimates and
judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. The Securities and Exchange Commission has defined a company’s most
critical accounting policies as those that are most important to the portrayal of its financial condition and
results of operations, and which require the company to make its most difficult and subjective judgments,
often as a result of the need to make estimates of matters that are inherently uncertain. Based on this
definition, NTIC has identified the following critical accounting policies. Although NTIC believes that its
estimates and assumptions are reasonable, they are based upon information available when they are made.
Actual results may differ significantly from these estimates under different assumptions or conditions.

Principles of Consolidation

NTIC evaluates its voting and variable interests in entities on a qualitative and quantitative basis. NTIC
consolidates entities in which it concludes it has the power to direct the activities that most significantly
impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits
that could be significant to the entity. All such relationships are evaluated on an ongoing basis. The
consolidated financial statements include the accounts of Northern Technologies International Corporation,
its wholly-owned subsidiaries, Northern Technologies Holding Company, LLC, NTIC (Shanghai) Co., Ltd.,
NTIC Europe GmbH and ZERUST-EXCOR MEXICO, S. de R.L. de C.V, and NTIC’s majority-owned
subsidiary in Brazil, Zerust Prevenção de Corrosão S.A., NTIC’s majority-owned holding company, NTI
Asean LLC, and NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited. NTIC’s
consolidated financial statements do not include the accounts of any of its joint ventures.

Investments in Joint Ventures and Recoverability of Investments in Joint Ventures

NTIC’s investments in its joint ventures are accounted for using the equity method. NTIC assesses its joint
ventures for impairment on an annual basis as of August 31 of each year as part of its fiscal year end
analysis. In addition to the annual review for impairment, NTIC reviews the operating results of each joint
venture on a quarterly basis in comparison to its historical operating results and its accrual for fees for
services provided to joint ventures. If the operating results of a joint venture do not meet NTIC’s financial
performance expectations, an additional evaluation is performed on the joint venture. In addition to the
annual assessments for impairment, non-periodic assessments for impairment may occur if cash remittances
are less than accrued balances, a joint venture’s management requests capital or other events occur
suggesting anything other than temporary decline in value. If an investment were determined to be impaired,
then a reserve would be created to reflect the impairment on the financial results of NTIC. NTIC’s
evaluation of its investments in joint ventures requires NTIC to make assumptions about future cash flows of
its joint ventures. These assumptions require significant judgment and actual results may differ from
assumed or estimated amounts.

Investment at Carrying Value

If NTIC is no longer able to exercise significant influence over operating and financial policy of a joint
venture previously accounted for under the equity method, it maintains the investment at the carrying value
as of the date that significant influence no longer exists and discontinues accruing the proportionate earnings
or losses of the investment.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary.
Fair value is calculated based on publicly available market information or other estimates determined by
management. NTIC employs a systematic methodology on a quarterly basis that considers available
quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an
investment exceeds its fair value, NTIC evaluates, among other factors, general market conditions, credit
quality of debt instrument issuers, the duration and extent to which the fair value is less than cost, and for
equity securities, its intent and ability to hold, or plans to sell, the investment. NTIC also considers specific
adverse conditions related to the financial health of and business outlook for the investee, including industry
and sector performance, changes in technology, and operational and financing cash flow factors. Once a
decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other
income (expense) and a new cost basis in the investment is established.

Revenue Recognition

NTIC recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists,
the product has been delivered, the price is fixed and determinable and collection of the resulting receivable
is reasonably assured. These criteria are met at the time of shipment when risk of loss and title pass to the
customer, distributor or joint venture entity.

With respect to recording revenue related to fees earned for services provided to NTIC’s joint ventures,
NTIC recognizes revenue related to support of joint ventures when earned, amounts are determinable and
collectability is reasonably assured. The support and services NTIC provides its joint ventures include
consulting, travel, insurance, technical and marketing services to existing joint ventures, legal fees incurred
in the establishment of new joint ventures, registration and promotion and legal defense of worldwide
trademarks, and legal fees incurred in connection with the filing of patent applications. NTIC receives fees
for these services it provides to its joint ventures based primarily on the net sales by NTIC’s joint ventures.
The fees for support services received by NTIC from its joint ventures are generally determined based on
either a flat fee or a percentage of net sales by NTIC’s joint ventures depending on local laws and tax
regulations. Under NTIC’s agreements with its joint ventures, amounts are earned when product is shipped

from joint venture facilities. NTIC reviews the financial situation of each of its joint ventures to assist in the
likelihood of collections on amounts earned. NTIC elects to account for these fees on a cash basis for certain
joint ventures when uncertainty exists surrounding the collections of such fees.

Accounts and Notes Receivable

Trade receivables arise from sales of NTIC’s products and services to NTIC’s joint ventures and to
unaffiliated customers. Trade receivables from joint ventures arise from sales NTIC makes to its joint
ventures of products and the essential additives required to make ZERUST® industrial corrosion inhibiting
products functional. Receivables for services to NTIC’s joint ventures are contractually based primarily on a
percentage of the sales of the joint ventures and are intended to compensate NTIC for services NTIC
provides to its joint ventures, including consulting, legal, travel, insurance, technical and marketing services.

Payment terms for NTIC’s unaffiliated customers are determined based on credit risk and vary by customer.
NTIC typically offers standard payments terms to unaffiliated customers of net 30 days. Payment terms for
NTIC’s joint ventures also are determined based on credit risk; however, additional consideration also is
given to the individual joint venture due to the transportation time associated with ocean delivery of most
products and certain other factors. NTIC typically offers payment terms to joint ventures of net 90 days.
NTIC does not accrue interest on past due accounts receivable. NTIC reviews the credit histories of its
customers, including its joint ventures, before extending unsecured credit. NTIC values accounts and notes
receivable, net of an allowance for doubtful accounts. Each quarter, NTIC prepares an analysis of its ability
to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts. In
doing so, NTIC evaluates the age of its receivables, past collection history, current financial conditions of
key customers and its joint ventures, and economic conditions. Based on this evaluation, NTIC establishes a
reserve for specific accounts and notes receivable that it believes are uncollectible, as well as an estimate of
uncollectible receivables not specifically known. Deterioration in the financial condition of any key
customer or joint venture or a significant slowdown in the economy could have a material negative impact on
NTIC’s ability to collect a portion or all of the accounts and notes receivable. NTIC believes that an analysis
of historical trends and its current knowledge of potential collection problems provide NTIC with sufficient
information to establish a reasonable estimate for an allowance for doubtful accounts. However, since NTIC
cannot predict with certainty future changes in the financial stability of its customers or joint ventures,
NTIC’s actual future losses from uncollectible accounts may differ from its estimates. In the event NTIC
determined that a smaller or larger uncollectible accounts reserve is appropriate, NTIC would record a credit
or charge to selling expense in the period that it made such a determination. During fiscal 2016, NTIC
created a reserve against the accounts receivable balance owed from Tianjin Zerust of $114,636 as, for
accounting purposes, NTIC determined it to be uncollectible. NTIC’s allowance for uncollectible accounts
was $40,000 as of August 31, 2017 and August 31, 2016.

Recoverability of Long-Lived Assets

NTIC reviews its long-lived assets whenever events or changes in circumstances indicate the carrying
amount of the assets may not be recoverable and determines potential impairment by comparing the carrying
value of the assets with expected net cash flows expected to be provided by operating activities of the
business or related products. If the sum of the expected undiscounted future net cash flows were less than
the carrying value, NTIC would determine whether an impairment loss should be recognized. An
impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair
value of the asset.

Foreign Currency Translation (Accumulated Other Comprehensive Income)

The functional currency of each international joint venture is the applicable local currency. The translation
of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using exchange
rates in effect at the balance sheet date and for revenue and expense accounts using an average monthly
exchange rate. Translation gains or losses are reported as an element of accumulated other comprehensive
income.

NTIC (excluding NTIC China, Zerust Brazil, Natur-Tec India, NTI Asean, Zerust Mexico, NTI Europe and
its joint ventures) conducts all foreign transactions based on the U.S. dollar. Since NTIC’s investments in its
joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates
would be reflected as a foreign currency translation adjustment and would not change the equity in income
from joint ventures reflected in NTIC’s consolidated statements of operations.

Stock-Based Compensation

NTIC recognizes compensation cost relating to share-based payment transactions, including grants of
employee stock options and transactions under NTIC’s employee stock purchase plan in its consolidated
financial statements. That cost is measured based on the fair value of the equity or liability instruments
issued. NTIC measures the cost of employee services received in exchange for stock options or other stock-
based awards based on the grant-date fair value of the award, and recognizes the cost over the period the
employee is required to provide services for the award.

Inventory Valuation

NTIC’s inventories consist primarily of production materials and finished goods. NTIC purchases
production materials and finished goods based on forecasted demand and records inventory at the lower of
cost or market. Cost is determined by the first-in, first-out (FIFO) method. Management regularly assesses
inventory valuation based on current and forecasted usage, demand and pricing, shelf life, customer
inventory-related contractual obligations and other considerations. If actual results differ from management
estimates with respect to the actual or projected selling of inventories at amounts less than their carrying
amounts, NTIC would adjust its inventory balances accordingly. During fiscal 2016, NTIC China wrote off
$198,887 of inventory that was prepared in anticipation for transitioning business from Tianjin Zerust to
NTIC China during the initial formation of the entity, since not all of the business was converted and most of
the inventory is customer specific. With respect to this inventory, it was determined that any remaining
inventory as of August 31, 2016 that was made specific for untransitioned customers should be written down
to $0.

Recent Accounting Pronouncements

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

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following items are included herein:

57
Report of Independent Registered Public Accounting Firm .....................................................................................
58
Consolidated Balance Sheets as of August 31, 2017 and 2016 ................................................................................
Consolidated Statements of Operations for the years ended August 31, 2017 and 2016 .........................................
59
Consolidated Statements of Comprehensive Income (Loss) for the years ended August 31, 2017 and 2016 .......... 60
61
Consolidated Statements of Equity for the years ended August 31, 2017 and 2016 ................................................
62
Consolidated Statements of Cash Flows for the years ended August 31, 2017 and 2016 ........................................
Notes to Consolidated Financial Statements ............................................................................................................ 63-82

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders, Audit Committee and Board of Directors
Northern Technologies International Corporation and Subsidiaries
Circle Pines, Minnesota

We have audited the accompanying consolidated balance sheets of Northern Technologies International
Corporation and Subsidiaries as of August 31, 2017 and 2016, and the related consolidated statements of
operations, comprehensive income (loss), equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of its internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Northern Technologies International Corporation and Subsidiaries as of August 31,
2017 and 2016 and the results of their operations and cash flows for the years then ended, in conformity with
U.S. generally accepted accounting principles.

/s/ Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota
November 21, 2017

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AUGUST 31, 2017 AND 2016

August 31, 2017

August 31, 2016

6,360,201
3,766,984

3,395,274
2,243,864

5,912,631
691,752
1,302,944
137,256
7,456,552
439,298
26,067,618

7,359,662

20,035,074
1,756,565
1,322,089
71,685
23,185,413
56,612,693

2,676,610

1,540,386
677,621
4,894,617

—

90,700
14,163,509
37,077,483
(2,471,064)
48,860,628
2,857,448
51,718,076
56,612,693

4,755,320
791,903
1,406,587
215,905
7,711,287
422,031
20,942,171

7,275,872

19,840,774
1,639,762
1,278,597
92,874
22,852,007
51,070,050

2,753,903

938,363
301,836
3,994,102

—

90,668
13,798,567
33,655,357
(3,009,617)
44,534,975
2,540,973
47,075,948
51,070,050

ASSETS
CURRENT ASSETS:

Cash and cash equivalents
Available for sale securities
Receivables:

Trade excluding joint ventures, less allowance for doubtful accounts

of $40,000 at both August 31, 2017 and 2016

Trade joint ventures
Fees for services provided to joint ventures

Income taxes
Inventories
Prepaid expenses

Total current assets

PROPERTY AND EQUIPMENT, NET

OTHER ASSETS:

Investments in joint ventures
Deferred income taxes
Patents and trademarks, net
Other
Total other assets
Total assets

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued liabilities:

Payroll and related benefits
Other

Total current liabilities

COMMITMENTS AND CONTINGENCIES (Note 16)

EQUITY:

Preferred stock, no par value; authorized 10,000 shares; none issued and
outstanding
Common stock, $0.02 par value per share; authorized 10,000,000

shares; issued and outstanding 4,535,018 and 4,533,416, respectively

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Stockholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2017 AND 2016

NET SALES:
Net sales, excluding joint ventures
Net sales, to joint ventures
Total net sales

Cost of goods sold
Gross profit

JOINT VENTURE OPERATIONS:

Equity in income from joint ventures
Fees for services provided to joint ventures
Total joint venture operations

OPERATING EXPENSES:

Selling expenses
General and administrative expenses
Research and development expenses
Total operating expenses

2017

2016

36,346,645
3,222,478
39,569,123

26,316,511
13,252,612

5,898,908
5,452,687
11,351,595

9,283,310
7,807,563
2,912,393
20,003,266

30,211,660
2,721,905
32,933,565

22,320,156
10,613,409

4,743,831
5,137,710
9,881,541

6,255,353
8,232,369
4,724,596
19,212,318

OPERATING INCOME

4,600,941

1,282,632

INTEREST INCOME
INTEREST EXPENSE
IMPAIRMENT ON INVESTMENT AT CARRYING VALUE (Note 7)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

INCOME TAX EXPENSE

NET INCOME (LOSS)

NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS

NET INCOME (LOSS) ATTRIBUTABLE TO NTIC

NET INCOME (LOSS) ATTRIBUTABLE TO NTIC PER COMMON
SHARE:

Basic
Diluted

WEIGHTED AVERAGE COMMON SHARES

ASSUMED OUTSTANDING:

Basic
Diluted

See notes to consolidated financial statements.

43,539
(20,382)
—

4,624,098

699,519

3,924,579

42,115
(13,261)
(1,883,668)

(572,182)

626,120

(1,198,302)

502,453

(330,788)

3,422,126

(867,514)

0.76
0.75

$
$

(0.19)
(0.19)

4,528,611
4,577,359

4,537,504
4,537,504

$
$

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED AUGUST 31, 2017 AND 2016

NET INCOME (LOSS)

$
OTHER COMPREHENSIVE INCOME (LOSS) – FOREIGN

CURRENCY TRANSLATION ADJUSTMENT

2017
3,924,579

552,575

2016
(1,198,302)

223,253

COMPREHENSIVE INCOME (LOSS)

4,477,154

(975,049)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
NON-CONTROLLING INTERESTS

516,475

(278,729)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC

3,960,679

(696,320)

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED AUGUST 31, 2017 AND 2016 .

STOCKHOLDERS’ EQUITY

Common Stock

Amount

Additional

Paid-in

Capital

Retained

Earnings

Accumulated

Other

Non-

Comprehensive

Controlling

Income (Loss)

Interests

Total

Equity

BALANCE AT AUGUST 31, 2015

4,539,045

$ 90,781

$13,441,264

$ 34,522,871

$ (3,180,811)

$ 3,019,702

$ 47,893,807

Repurchase of common stock
Stock issued for employee stock
purchase plan

Stock option expense
Dividend received by non-controlling
interest

Comprehensive income (loss)

(11,211)

5,582

(225)

112

(138,656)

68,522

427,437

(867,514)

171,194

(200,000)

(278,729)

(138,881)

68,634

427,437

(200,000)

(975,049)

BALANCE AT AUGUST 31, 2016

4,533,416

90,668

13,798,567

33,655,357

(3,009,617)

2,540,973

47,075,948

Repurchase of common stock

(14,525)

(291)

(195,934)

Stock options exercised
Stock issued for employee stock
purchase plan

Stock option expense
Dividend received by non-controlling
interest

Comprehensive income

12,000

4,127

240

122,759

46,453

391,664

(196,225)

122,999

46,536

391,664

(200,000)

3,422,126

538,553

516,475

4,477,154

BALANCE AT AUGUST 31, 2017

4,535,018

$ 90,700

$14,163,509

$ 37,077,483

(2,471,064)

$ 2,857,448

$ 51,718,076

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2017 AND 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

2017

2016

3,924,579

(1,198,302)

Stock-based compensation
Depreciation expense
Amortization expense
Equity in income from joint ventures
Dividends received from joint ventures
Impairment on investment at carrying value
Loss on disposal of property and equipment

Deferred income taxes

Changes in current assets and liabilities:

Receivables:

Trade, excluding joint ventures
Trade, joint ventures
Fees for services provided to joint ventures
Income taxes

Inventories
Prepaid expenses and other
Accounts payable
Income tax payable
Accrued liabilities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment

Purchase of available for sale securities
Proceeds from the sale of available for sale securities

Additions to patents

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest
Repurchase of common stock

Proceeds from employee stock purchase plan
Proceeds from exercise of stock options
Net cash used in financing activities

391,664
787,111
119,033
(5,898,908)
6,377,054
—
50,000
(117,298)

(1,092,187)
100,151
103,643
90,926
305,268
8,454
(129,371)
(27,297)
742,869
5,735,691

(922,270)
(3,000,000)
1,476,880
(162,525)
(2,607,915)

(200,000)
(196,225)
46,536
122,999
(226,690)

427,437
660,008
119,032
(4,743,831)
5,503,314
1,883,668
—
(47,000)

(723,798)
(146,526)
42,575
(40,859)
(257,826)
17,023
641,631
42,984
(123,924)
2,055,606

(643,407)
(216,423)
—
(135,410)
(995,240)

(200,000)
(138,881)
68,634
—
(270,247)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS

63,839

(18,826)

NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

2,964,925
3,395,274

771,293
2,623,981

CASH AND CASH EQUIVALENTS AT END OF YEAR

6,360,199

3,395,274

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 2017 AND 2016

NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business – Northern Technologies International Corporation and Subsidiaries (the Company) develop
and market proprietary environmentally beneficial products and services in over 60 countries either directly or
via a network of joint ventures, independent distributors and agents. The Company’s primary business is
corrosion prevention marketed mainly under the ZERUST® brand. The Company has been selling its
proprietary ZERUST® rust and corrosion inhibiting products and services to the automotive, electronics,
electrical, mechanical, military and retail consumer markets for over 40 years, and more recently, has targeted
and expanded into the oil and gas industry. The Company also sells a portfolio of biobased and certified
compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec® brand.
These products are intended to reduce the Company’s customers’ carbon footprint and provide environmentally
sound disposal options. The Company’s two operating segments are ZERUST and Natur-Tec.

The Company participates, either directly or indirectly, in 20 active joint venture arrangements in North
America, Europe and Asia. Each of these joint ventures generally manufactures and markets products in the
geographic territory to which it is assigned. While most of the Company’s joint ventures exclusively sell rust
and corrosion inhibiting products, some of the joint ventures also sell the Company’s Natur-Tec® resin
compounds and finished products. The profits of joint ventures are shared by the respective joint venture
owners in accordance with their respective ownership percentages. The Company typically owns 50% or less of
its joint venture entities and does not control the decisions of these entities, including dividend declaration or
amount in any given year.

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

Principles of Consolidation - NTIC evaluates its voting and variable interests in entities on a qualitative and
quantitative basis. NTIC consolidates entities in which it concludes it has the power to direct the activities that
most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to
receive benefits that could be significant to the entity. The consolidated financial statements include the
accounts of Northern Technologies International Corporation, its wholly-owned subsidiaries, Northern
Technologies Holding Company, LLC, NTIC (Shanghai) Co., Ltd. (NTIC China), ZERUST-EXCOR MEXICO,
S. de R.L. de C.V (Zerust Mexico), NTIC Europe GmbH (NTI Europe), and, NTIC’s majority-owned
subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India), NTIC’s majority-owned subsidiary in
Brazil, Zerust Prevenção de Corrosão S.A. (Zerust Brazil) and NTIC’s majority-owned holding company, NTI
Asean LLC (NTI Asean). NTIC’s consolidated financial statements do not include the accounts of any of its
joint ventures.

Non-Controlling Interests – The Company owns 90% of Natur-Tec India, 85% of Zerust Brazil and 60% of NTI
Asean. The remaining ownership is accounted for as non-controlling interests and reported as part of equity in
the consolidated financial statements. The Company allocates gains and losses to the non-controlling interest
even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling
interest, changes in ownership interests are treated as equity transactions if the Company maintains control.

Net Sales –The Company includes net sales to its joint ventures and net sales to unaffiliated customers as
separate line items on its consolidated statements of operations. There are no sales originating from the
Company’s joint ventures included in the amount, as the Company’s investments in its joint ventures are
accounted for using the equity method.

Revenue Recognition – The Company recognizes revenue from the sale of its products when persuasive
evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured. These criteria are met when risk of loss and title
pass to the customer, distributor or joint venture entity. Sales and use taxes charged to customers are reported
on a net basis.

Trade Receivable – Payment terms for the Company’s unaffiliated customers are determined based on credit
risk and vary by customer. The Company typically offers standard payment terms to unaffiliated customers of
net 30 days. The Company does not accrue interest on past due accounts receivable. The Company reviews the
credit histories of its customers before extending unsecured credit. The Company presents accounts and notes
receivable, net of an allowance for doubtful accounts. Each quarter, the Company prepares an analysis of its
ability to collect outstanding receivables that provides a basis for an allowance estimate for doubtful accounts.
In doing so, the Company evaluates the age of its receivables, past collection history, current financial
conditions of key customers and its joint ventures, and economic conditions. Based on this evaluation, the
Company establishes a reserve for specific accounts and notes receivable that it believes are uncollectible, as
well as an estimate of uncollectible receivables not specifically known. The Company believes that an analysis
of historical trends and its current knowledge of potential collection problems provide the Company with
sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. In the event the
Company determines that a smaller or larger uncollectible accounts reserve is appropriate; the Company records
a credit or charge to selling expense in the period that it made such determination. Accounts receivable have
been reduced by an allowance for uncollectible accounts of $40,000 as of August 31, 2017 and 2016. Accounts
are considered past due based on terms agreed upon between the Company and the customer. Accounts
receivable are written-off only after all collection attempts have failed and are based on individual credit
evaluation and specific circumstances of the customer.

Trade Receivables from Joint Ventures – Trade receivables from joint ventures arise from sales of products the
Company makes to its joint ventures. Payment terms for the Company’s joint ventures also are determined
based on credit risk; however, additional consideration also is given to the individual joint venture due to the
transportation time associated with ocean delivery of most products and certain other factors. Generally,
accounts receivable from the Company’s joint ventures unpaid after 90 days are considered past due. The
Company does not accrue interest on past due balances. The Company periodically reviews amounts due from
its joint ventures for collectability, and based on past experience and continuous review of the balances due,
determined an allowance for doubtful accounts related to its joint venture receivables is not necessary as of
August 31, 2017 or 2016.

Fees for Services Provided to Joint Ventures – The Company provides services to its joint ventures including
consulting, legal, travel, insurance, technical and marketing services. The Company receives fees for the
services it provides to its joint ventures. The fees for services received by the Company from its joint ventures
are generally based on either a flat fee or a percentage of net sales by the Company’s joint ventures depending
on local laws and tax regulations. The Company recognizes revenues related to fees for services provided to its
joint ventures when earned, amounts are determinable and collectability is reasonably assured. Under the
Company’s agreements with its joint ventures, amounts are earned when product is shipped from joint venture
facilities. The Company reviews the financial situation of each of its joint ventures to assist in the likelihood of
collections on amounts earned. The Company accounts for these fees on a cash basis if uncertainty exists
surrounding the collection of such fees.

Cash and Cash Equivalents - The Company includes as cash and cash equivalents highly liquid, short-term
investments with maturity of three months or less when purchased, which are readily convertible into known
amounts of cash. The Company maintains its cash in high quality financial institutions. The balances, at times,
may exceed federally insured limits.

Available for Sale Securities – Available for sale securities are recorded at fair value. Unrealized holding gains
and losses on available for sale securities are excluded from earnings.

Inventories - Inventories are recorded at the lower of cost (first-in, first-out basis) or market.

Property and Depreciation - Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated service lives of the various assets as follows:

Buildings and improvements
Machinery and equipment

5-30 years
3-10 years

Patents and Trademarks – Patents and Trademarks, including acquisition costs, are stated at cost, less
accumulated amortization. Amortization is computed using the straight-line method over the estimated useful
lives of the respective assets. Upon retirement, the cost of assets disposed and the related accumulated
amortization are removed from the accounts and any resulting gain or loss is credited or charged to operations.

Investments in Joint Ventures - Investments in the Company’s joint ventures are accounted for using the equity
method. Under the equity method, investments are initially recorded at cost and are adjusted for dividends,
distributed and undistributed earnings and losses, changes in foreign currency exchange rates and additional
investments. In the event the Company’s share of joint venture’s cumulative losses exceeds the Company’s
investment balance, the balance is reported at zero value until proportionate income exceeds the losses. The
Company assesses its joint ventures for impairment on an annual basis as of August 31 of each year as part of its
fiscal year end analysis. In addition to the annual review for impairment, the Company reviews the operating
results of each joint venture on a quarterly basis in comparison to its historical operating results and its accrual
of fees for services provided to joint ventures. If the operating results of a joint venture do not meet financial
performance expectations, an additional evaluation is performed on the joint venture. The Company’s
evaluation of its investments in joint ventures requires the Company to make assumptions about future cash
flows of its joint ventures. These assumptions require significant judgment and actual results may differ from
assumed or estimated amounts. All investments in joint ventures have positive equity as of August 31, 2017 and
2016. The Company considers any of its joint ventures to be significant and discloses entity specific financial
information if the joint venture’s income or assets make up more than 20% of the Company’s total assets or
income.

The Company classifies distributions received from its joint ventures based on the nature of the distributions,
generally, as a return on its investment in operating activities on the consolidated statement of cash flows.

Investment at Carrying Value – If the Company is no longer able to exercise significant influence over operating
and financial policy of a joint venture previously accounted for under the equity method, it maintains the
investment at the carrying value as of the date that significant influence no longer exists and discontinues
accruing the proportionate earnings or losses of the investment.

quality, the duration and extent to which the fair value is less than cost, and for equity securities, the Company’s
intent and ability to hold, or plans to sell, the investment. The Company also considers specific adverse
conditions related to the financial health of and business outlook for the investee, including industry and sector
performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair
value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and
a new cost basis in the investment is established.

Recoverability of Long-Lived Assets - The Company reviews its long-lived assets whenever events or changes in
circumstances indicate the carrying amount of the assets may not be recoverable. The Company determines
potential impairment by comparing the carrying value of the assets with expected net cash flows expected to be
provided by operating activities of the business or related products. If the sum of the expected undiscounted
future net cash flows is less than the carrying value, the Company evaluates if an impairment loss should be
recognized. An impairment loss is measured by comparing the amount by which the carrying value exceeds the
fair value of the asset.

Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes which
requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements. Deferred income tax assets and liabilities are determined
based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date.

The Company records net deferred tax assets to the extent the Company believes these assets will more likely
than not be realized. In making such a determination, the Company considers all available positive and negative
evidence, including future reversals of existing taxable temporary differences, projected future taxable income,
tax-planning strategies, and results of recent operations. In the event the Company determines that it would be
able to realize its deferred income tax assets in the future in excess of their net recorded amount, the Company
makes an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income
taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby the Company
determines whether it is more likely than not that the tax positions will be sustained based on the technical
merits of the position and those tax positions that meet the more-likely-than-not recognition threshold. The
Company recognizes the largest amount of tax benefit that is greater than 50 percent likely to be realized upon
ultimate settlement with the related tax authority.

Foreign Currency Translation (Accumulated Other Comprehensive Income (Loss)) - The functional currency of
NTIC China, Zerust Brazil, Natur-Tec India, Zerust Mexico, NTI Europe and each unconsolidated international
joint venture is the applicable local currency. The translation of the applicable foreign currencies into U.S.
dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for
revenue and expense accounts using an average monthly exchange rate. Translation gains or losses are reported
as an element of other comprehensive income (loss).

The Company (excluding NTIC China, Zerust Brazil, Natur-Tec India, NTI Asean, Zerust Mexico, NTI Europe
and its joint ventures) conducts all foreign transactions based on the U.S. dollar. Since investments in joint
ventures are accounted for using the equity method, any changes in foreign currency exchange rates are
reflected as a foreign currency translation adjustment and does not change the equity in income from joint
ventures reflected in the Company’s consolidated statements of operations.

Fair Value of Financial Instruments – The carrying value of cash and cash equivalents, available for sale
securities, short-term accounts and notes receivable, notes payable, trade accounts payables, and other accrued
expenses approximate fair value because of the short maturity of those instruments.

Shipping and Handling - The Company records all amounts billed to customers in a sales transaction related to
shipping and handling as sales. The Company records costs related to shipping and handling in cost of goods
sold.

Research and Development - The Company expenses all costs related to product research and development as
incurred.

Common Stock – The Company issues authorized but unissued shares of common stock upon the exercise of
stock options.

Stock-Based Compensation – The Company recognizes compensation cost relating to share-based payment
transactions, including grants of employee stock options and transactions under the Company’s employee stock
purchase plan, in its consolidated financial statements. That cost is measured based on the fair value of the
equity or liability instruments issued. The Company measures the cost of employee services received in
exchange for stock options and other stock-based awards based on the grant-date fair value of the award, and
recognizes the cost over the period the employee is required to provide services for the award (generally the
vesting term).

Use of Estimates - The preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Certain amounts reported in the consolidated financial statements for the previous reporting period have been
reclassified to conform to the current period presentation. Expenses previously recorded as “Expenses incurred
in support of joint ventures” have been reclassified as “General and administrative expenses” based on the
reduction in direct costs associated with supporting the joint ventures.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued Revenue from Contracts with
Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the
recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled
to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements
regarding revenue, cash flows and obligations related to contracts with customers, was originally to be effective
for the Company beginning in fiscal year 2018. In July 2015, the FASB confirmed a one-year deferral of the
effective date of the new revenue standard which also allows early adoption as of the original effective date. The
updated guidance will be effective for the Company’s first quarter of 2019. The Company is currently
evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements, but currently believes
that the timeline established for implementation is attainable.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory”, which modifies the subsequent measurement of
inventories recorded under a first-in-first-out or average cost method. Under the new standard, such inventories
are required to be measured at the lower of cost and net realizable value. The new standard is effective for the
Company’s fiscal year 2018, with prospective application. The Company does not expect the adoption of the
provisions of ASU 2015-11 to have a material impact on its consolidated financial statements.

During February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2016-02, “Leases.” ASU No. 2016-02 was issued to increase transparency and comparability among
organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a
lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years, with earlier application permitted.
Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively
using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that
ASU No. 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, “Investments – Equity Method and Joint Ventures (Topic
323): Simplifying the Transition to the Equity Method of Accounting.” Among other things, the amendments in
ASU 2016-07 eliminate the requirement that when an investment qualifies for use of the equity method as a
result of an increase in the level of ownership interest or degree of influence, an investor must adjust the
investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity
method had been in effect during all previous periods that the investment had been held. The amendments
require that the equity method investor add the cost of acquiring the additional interest in the investee to the
current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date
the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity
method of accounting, no retroactive adjustment of the investment is required. The amendments require that an
entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting
recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at
the date the investment becomes qualified for use of the equity method. The amendments are effective for all
entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The
amendments should be applied prospectively upon their effective date to increases in the level of ownership
interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The
Company is currently assessing the impact that ASU 2016-07 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation, which is intended to simplify several
aspects of the accounting for share-based payment award transactions. The guidance will be effective for the
fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is
currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, Classification of Certain Cash
Receipts and Cash Payments ASU 2016-15 eliminates the diversity in practice related to the classification of
certain cash receipts and payments for debt prepayments or extinguishment costs, the maturing of a zero coupon
bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance
settlements, distributions from certain equity method investees and beneficial interests obtained in a financial
asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to
allocate certain components of these cash receipts and payments among operating, investing and financing
activities. The guidance is effective for fiscal years beginning December 15, 2017. Early adoption is permitted.
The Company is currently evaluating the effects of adopting ASU 2016-15 on its consolidated financial
statements, but the adoption is not expected to have a significant impact on its consolidated financial statements.

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.

INVENTORIES

Inventories consisted of the following:

Production materials
Finished goods

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

Land
Buildings and improvements
Machinery and equipment

Less accumulated depreciation

PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

Patents and trademarks
Less accumulated amortization

August 31, 2017
1,747,189
5,709,636
7,456,552

August 31, 2016
1,452,396
6,258,891
7,711,287

August 31, 2017
310,365
6,847,177
4,171,387
11,328,929
(3,969,267)
7,359,662

August 31, 2016
310,365
6,528,252
3,590,063
10,428,680
(3,152,808)
7,275,872

August 31, 2017
2,737,959
(1,415,870)
1,322,089

August 31, 2016
2,575,435
(1,296,838)
1,278,597

Patent and trademark costs are amortized over seven years. Costs incurred related to patents and trademarks are
capitalized until filed and approved, at which time the amounts capitalized to date are amortized and any further
costs, including maintenance costs, are expensed as incurred. Amortization expense was $119,033 and
$119,032 for the years ended August 31, 2017 and 2016, respectively. Amortization expense is estimated to
approximate $120,000 in each of the next five fiscal years.

INVESTMENTS IN JOINT VENTURES

The financial statements of the Company’s foreign joint ventures are initially prepared using the accounting
principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint
ventures reported in the below tables and the accompanying consolidated financial statements have subsequently
been adjusted to conform with accounting principles generally accepted in the United States of America in all
material respects. All material profits recorded that remain on the balance sheet on sales 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 ventures in
Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR) and all the Company’s other
joint ventures, are summarized as follows:

Current assets
Total assets
Current liabilities
Noncurrent liabilities
Joint ventures’ equity
Northern Technologies International
Corporation’s share of joint ventures’
equity
Northern Technologies International
Corporation’s share of joint ventures’
undistributed earnings

Net sales
Gross profit
Net income
Northern Technologies International
Corporation’s share of equity in
income of joint ventures
Northern Technologies International
Corporation's dividends received from
joint ventures

Current assets
Total assets
Current liabilities
Noncurrent liabilities
Joint ventures’ equity
Northern Technologies International Corporation’s
share of joint ventures’ equity
Northern Technologies International Corporation's
share of joint ventures’ undistributed earnings

Total
51,518,210
55,633,891
15,118,074
181,210
40,334,607

As of August 31, 2017
EXCOR

22,142,514
24,301,194
4,469,567
—
19,831,627

All Other

29,375,696
31,332,697
10,648,507
181,210
20,502,980

20,035,074

9,915,816

10,119,258

17,960,860

9,884,911

8,075,949

Total
101,261,132
44,861,300
11,839,933

Fiscal Year Ended August 31, 2017
EXCOR

39,849,757
21,133,632
8,369,728

All Other

61,411,375
23,727,668
3,470,205

5,898,908

4,185,988

1,712,920

6,377,054

5,379,062

997,992

Total
48,922,924
52,407,026
12,433,700
100,783
39,872,543

As of August 31, 2016
EXCOR

22,928,810
24,733,340
3,485,231
—
21,248,109

All Other

25,994,114
27,673,686
8,948,469
100,783
18,624,434

19,840,774

10,624,056

9,216,728

17,779,912

10,593,151

7,186,761

Net sales
Gross profit
Net income
Northern Technologies International Corporation’s
share of equity in income from joint ventures
Northern Technologies International Corporation’s
dividends received from joint ventures

Total
90,646,833
40,440,726
9,534,771

4,743,831
5,503,314

Fiscal Year Ended August 31, 2016
EXCOR

35,138,214
18,635,421
7,049,462

All Other

55,508,619
21,805,305
2,485,309

3,534,113
4,364,700

1,209,718
1,165,614

The Company did not make any joint venture investments during fiscal 2017 or fiscal 2016.

CHINA OPERATIONS

Effective December 31, 2014, the Company terminated its joint venture agreements with its previous joint
venture in China, Tianjin Zerust, began the process of liquidating the joint venture entity, and commenced
operations in China through a wholly-owned subsidiary, NTIC (Shanghai) Co. Ltd. on January 1, 2015.
Effective December 31, 2014, the Company’s investment in Tianjin Zerust was reported at carrying value based
on the Company’s decreased level of influence over the entity, and the Company reclassified previously
unrecognized gains on foreign currency translation from accumulated other comprehensive income. Any
declines in the fair value were reflected as adjustments to the carrying value.

Since it began the process of liquidating the joint venture entity on December 31, 2014, the Company has not
received any proceeds from the assets of Tianjin Zerust. In addition, the Company has not received financial
information or cooperation from its joint venture partner in determining the investment value for the year ended
August 31, 2017 or 2016. During the fourth quarter of fiscal 2016, the Company obtained additional
information regarding the financial position of the investment through the legal proceedings that have been
ongoing (See Note 16). These circumstances resulted in the Company concluding an indication of impairment
exists and that the fair value of the investment was $0 as of August 31, 2016 based on accounting principles
generally accepted in the United States of America. See Note 16 regarding ongoing litigation involving Tianjin
Zerust.

CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank of $3,000,000. No amounts were outstanding under
the line of credit as of both August 31, 2017 and 2016. At the option of the Company, outstanding advances
under the line of credit bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable
LIBOR interest period selected by the Company or (b) at the rate publicly announced by PNC Bank from time
to time as its prime rate. The line of credit matures on January 7, 2018.

The line of credit is subject to 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, the
Company is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of August 31, 2017, the
Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to
$1,200,000. The Company did not have any letters of credit reserved against the available letters of credit
balance as of August 31, 2017 and 2016 with PNC Bank. The availability of advances under the line of credit
are reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under the
revolving credit facility.

As of August 31, 2017, the Company had $89,543 of letters of credit with JP Morgan Chase Bank that are
performance based and set to expire between 2020 and 2022.

STOCKHOLDERS’ EQUITY

On January 15, 2015, the Company’s Board of Directors authorized the repurchase of up to $3,000,000 in shares
of common stock through open market purchases or unsolicited or solicited privately negotiated transactions.
This program has no expiration date but may be terminated by the Company’s Board of Directors at any time.
As of August 31, 2017, up to $2,640,548 in shares of common stock remained available for repurchase under the
stock repurchase program.

During fiscal 2017, the Company repurchased and retired 14,525 shares of its common stock at an average price
of $13.51 per share. During fiscal 2017, stock options to purchase an aggregate of 12,000 shares of common
stock at an exercise price of $10.25 per share were exercised.

The Company granted stock options under the Northern Technologies International Corporation Amended and
Restated 2007 Stock Incentive Plan (the 2007 Plan) to purchase an aggregate of 56,677 shares of its common
stock to various employees and directors during fiscal 2017. The weighted average per share exercise price of
the stock options is $13.40, which was equal to the fair market value of the Company’s common stock on the
date of grant.

No stock options to purchase shares of common stock were exercised during fiscal 2016.

The Company granted stock options under the 2007 Plan to purchase an aggregate of 53,447 shares of its
common stock to various employees and directors during fiscal 2016. The weighted average per share exercise
price of the stock options is $14.85, which was equal to the fair market value of the Company’s common stock
on the date of grant.

10.

NET INCOME (LOSS) PER COMMON SHARE

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

The following is a reconciliation of the earnings per share computation:

Numerator:
Net income (loss) attributable to NTIC

August 31, 2017
3,422,126

August 31, 2016
(867,514)

Denominator:
Basic-weighted shares outstanding
Weighted shares assumed upon exercise of
stock options
Diluted – weighted shares outstanding

4,528,611

48,748
4,577,359

4,537,504

—
4,537,504

Basic income (loss) earnings per share:
Diluted income (loss) earnings per share:

$
$

0.76
0.75

$
$

(0.19)
(0.19)

The dilutive impact summarized above relates to the periods when the average market price of Company stock
exceeded the exercise price of the potentially dilutive option securities granted. Earnings per common share
were based on the weighted average number of common shares outstanding during the periods when computing
the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock
market method when computing the diluted earnings per share. There were 48,067 options outstanding as of
August 31, 2017 that were dilutive. 170,887 shares of common stock were excluded from the computation as of
August 31, 2016 because the effect was anti-dilutive due to the Company’s net loss for fiscal 2016.

11.

STOCK-BASED COMPENSATION

The Company has two stock-based compensation plans under which stock options and other stock-based awards
have been granted, the Northern Technologies International Corporation Amended and Restated 2007 Stock
Incentive Plan (the 2007 Plan) and the Northern Technologies International Corporation Employee Stock
Purchase Plan (the ESPP). The Compensation Committee of the Board of Directors and the Board of Directors
administer these plans.

The 2007 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation
rights, restricted stock, stock unit awards, performance awards and stock bonuses to eligible recipients to enable
the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity
participation in the Company, and to reward those individuals who contribute to the achievement of the
Company’s economic objectives. Subject to adjustment as provided in the 2007 Plan, up to a maximum of
800,000 shares of the Company’s common stock are issuable under the 2007 Plan. Options granted under the
2007 Plan generally have a term of ten years and become exercisable over a three- or four-year period beginning
on the one-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the
market value of the Company’s common stock on the date of grant. The Company issues new shares upon the
exercise of options. As of August 31, 2017, only stock options and stock bonuses had been granted under the
2007 Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is
100,000 shares, subject to adjustment as provided in the ESPP. The ESPP provides for six-month offering
periods beginning on September 1 and March 1 of each year. The purchase price of the shares is 90% of the
lower of the fair market value of common stock at the beginning or end of the offering period. This discount
may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal
Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes. The Company
issued 3,029 and 2,438 shares of common stock on September 1, 2016 and 2015, respectively, under the ESPP.
The Company issued 1,098 and 3,144 shares on March 1, 2017 and 2016, respectively, under the ESPP.

The fair value of option grants is determined at date of grant, using the Black-Scholes option pricing model with
the assumptions listed below. The volatility factor used in the Black-Scholes option pricing model is based on
historical stock price fluctuations and the risk-free interest rate is based on U.S. treasury rates appropriate for the
expected term. Dividend yield and expected volatility are estimated using historical amounts that are anticipated
to be consistent with current values. Expected life of the option is based on the life of the option agreements.
Based on these valuations, the Company recognized compensation expense of $391,664 and $427,437 during
fiscal 2017 and fiscal 2016, respectively, related to the options that vested during such time period. As of
August 31, 2017, the total compensation cost for non-vested options not yet recognized in the Company’s
consolidated statements of operations was $239,400. Stock-based compensation expense of $159,600 and
$79,800 is expected to be recognized during fiscal 2018 and 2019, respectively, based on outstanding options as
of August 31, 2017. Future option grants will impact the compensation expense recognized. Stock-based
compensation expense is included in general and administrative expense on the consolidated statements of
operations.

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

Dividend yield
Expected volatility
Expected life of option
Weighted average risk-free interest rate

August 31, 2017
0.00%
46.0%
10 years
1.63%

August 31, 2016
0.00%
46.6%
10 years
1.63%

Stock option activity during the periods indicated is as follows:

Outstanding at August 31, 2015
Options granted
Options exercised
Options terminated

Outstanding at August 31, 2016
Options granted
Options exercised
Options terminated

Outstanding at August 31, 2017

Exercisable at August 31, 2017

Number of
Shares (#)
241,734
53,447
0
(12,000)

Weighted Average

Exercise Price
$ 13.72
14.85
0.00
13.38

283,181
56,677
(12,000)
(20,000)

307,858

221,027

13.95
13.40
10.25
15.21

13.93

13.76

Aggregate
Intrinsic Value

$1,238,009

$ 942,314

The weighted average per share fair value of options granted during fiscal 2017 and fiscal 2016 was $7.69 and
$8.48, respectively. The weighted average remaining contractual life of the total options and exercisable options
outstanding as of August 31, 2017 and 2016, was 6.77 years and 6.46 years, respectively.

12.

SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

The Company’s chief operating decision maker (CODM) 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 40 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 resin compounds and finished products under the Natur-Tec® brand.

The following tables present the Company’s business segment information in fiscal 2017 and fiscal 2016:

ZERUST® net sales
Natur-Tec® net sales
Total net sales

Fiscal 2017
32,789,283
6,779,840

Fiscal 2016
$ 27,577,566
5,355,999

39,569,123

$ 32,933,565

The following table sets forth the Company’s cost of goods sold for fiscal 2017 and fiscal 2016 by segment:

Fiscal 2017

Fiscal 2016

Direct cost of goods sold
ZERUST®
$ 18,996,264
Natur-Tec®
4,925,061
2,395,186
Indirect cost of goods sold
Total net cost of goods sold $ 26,316,511

$ 15,588,133
4,076,249
2,655,774
$ 22,320,156

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

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

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

Geographic Information

Net sales by geographic location were as follows:

Inside the U.S.A. to unaffiliated customers
Outside the U.S.A. to:

Joint ventures in which the Company is a

shareholder directly and indirectly

Unaffiliated customers

Fiscal Year Ended August 31,

2017

$ 21,787,694

2016
$ 20,304,480

3,222,478
14,558,951
$ 39,569,123

2,721,905
9,907,180
$ 32,933,565

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

Fees for services provided to joint ventures by geographic location as a percentage of total fees for services
provided to joint ventures during fiscal 2017 and fiscal 2016, respectively, were as follows:

Germany
Poland
Japan
Sweden
Thailand
France
South Korea
India
Czech
United Kingdom
Finland
Other

Fiscal 2017
838,628
661,226
641,699
472,819
448,013
410,842
376,002
322,677
314,834
295,761
292,225
377,962
$ 5,452,687

Fiscal 2016
845,857
599,391
646,015
265,745
537,212
329,805
352,393
300,506
237,062
386,761
252,578
384,385
$ 5,137,710

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 and cost of goods sold recognized directly by the Company.

See Note 6 for additional details on geographical information regarding equity in income from joint ventures.

The geographical distribution of total long-lived assets and net sales is as follows:

China
Brazil
Germany
India
United States

At August 31, 2017
$

228,458
54,646
14,171
14,712
7,047,675
7,359,662

Total long-lived assets

China
Brazil
Germany
India
Other
United States

Total net sales

Fiscal Year Ended
August 31, 2017
7,225,659
2,394,730
711,923
1,417,955
6,031,162
21,787,694
39,569,123

At August 31, 2016

253,931
66,938
—
13,645
8,219,955
8,554,469

Fiscal Year Ended
August 31, 2016

4,114,288
2,172,297
—
1,104,947
5,237,553
20,304,480
32,933,565

Total long-lived assets located in China, Brazil, Germany and India consist of property and equipment. These
assets are periodically reviewed to assure the net realizable value from the estimated future production based on
forecasted sales exceeds the carrying value of the assets.

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

13.

RETIREMENT PLAN

The Company has a 401(k) employee savings plan. Employees who meet certain age and service requirements
may elect to contribute up to 15% of their salaries. The Company typically contributes the lesser of 50% of the
participant’s contributions or 3.5% of the employee’s salary. The Company recognized expense for the savings
plan of $202,559 and $215,785 for fiscal 2017 and fiscal 2016, respectively.

14.

RELATED PARTY TRANSACTIONS

During fiscal 2017 and fiscal 2016, the Company made consulting payments of $137,666 and $100,000,
respectively, to Bioplastic Polymers LLC, an entity owned by Ramani Narayan, Ph.D., a director of the
Company, and paid royalties of $10,136 and $31,463, respectively, based on net sales of the Company’s
bioplastics products.

15.

INCOME TAXES

The provision for income taxes for the fiscal years ended August 31, 2017 and 2016 consists of the following:

Current:

Federal
State

Foreign

Deferred:
Federal
State
Foreign

Fiscal Year Ended August 31,
2017

2016

— $

62,000
754,000

816,000

(135,000)
(9,000)
28,000
(116,000)

—
20,000
647,000

667,000

6,000
—
(47,000)
(41,000)

700,000 $

626,000

Reconciliations of the expected federal income tax at the statutory rate with the provisions for income taxes for
the fiscal years ended August 31, 2017 and 2016 are as follows:

Tax computed at statutory rates
State income tax, net of federal benefit
Tax effect on equity in income of international
joint ventures
Tax effect on dividends received from joint
ventures and investment at carrying value
Tax effect of foreign operations
Foreign tax credit
Research and development credit
Valuation allowance
Stock based compensation
Non-controlling interest

Other

Fiscal Year Ended August 31,

2017

1,591,000 $
53,000

2016

(195,000)
20,000

(1,998,000)

(956,000)

3,159,000
841,000
(3,680,000)
(212,000)
989,000
81,000
(143,000)
19,000

2,681,000
997,000
(3,178,000)
(408,000)
1,620,000
90,000
(148,000)
103,000

700,000 $

626,000

The Company has not provided U.S. income taxes or foreign withholding taxes with respect to its portion of the
cumulative undistributed earnings of foreign joint ventures that are essentially permanent in duration. The
Company’s portion of the cumulative undistributed earnings of foreign joint ventures that are essentially
permanent in duration were $17,960,860 and $17,779,912 as of August 31, 2017 and 2016, respectively. During
fiscal 2016, the Company recorded deferred income tax expense of $3,000 representing foreign withholding
taxes to be paid with respect to the portion of the cumulative undistributed earnings of foreign joint ventures that
it determined were not essentially permanent in duration. If some or all of the undistributed earnings of the joint
ventures are remitted to the Company in the future, income taxes, if any, after the application of foreign tax
credits will be provided at that time. To the extent undistributed earnings of the Company’s joint ventures are

distributed in the future, it is not expected to result in any material additional U.S. income tax liability after the
application of foreign tax credits.

The tax effect of the temporary differences and tax carryforwards comprising the net deferred taxes shown on
the consolidated balance sheets as of August 31, 2017 and 2016 are as follows:

Accrued compensation
Inventory costs
Accrued joint venture expenses
Other accrued expenses
Goodwill and other intangible assets
Stock-based compensation
Foreign tax credit carryforward
Other credit and loss carryforwards
Total deferred tax assets
Valuation allowance
Total deferred tax assets after valuation allowance
Property and equipment
Other
Total deferred tax liabilities

Net deferred tax assets

August 31,

2017

310,300 $
87,000
15,200
74,000
1,317,700
241,600
6,105,700
3,473,100
11,624,600
(9,578,700)
2,045,900
(206,000)
(83,300)
(289,300)
1,756,600 $

2016

150,600
95,300
54,200
87,000
1,332,000
210,600
5,679,000
3,214,300
10,823,000
(8,893,300)
1,929,700
(215,600)
(74,300)
(289,900)
1,639,800

As of August 31, 2017 the Company had foreign tax credit carryforwards of approximately $6,105,700 which
will begin to expire if not utilized prior to August 31, 2021. In addition, the Company had federal and state tax
credit carryforwards of $2,855,100 as of August 31, 2017 which begin to expire in fiscal 2019. These federal
and state tax credit carryforwards consist primarily of federal and Minnesota research and development credit
carryforwards. The Company also has foreign net operating loss carryforwards of $618,000 as of August 31,
2017 which begin to expire in fiscal 2020.

As of August 31, 2017, the Company has recorded a valuation allowance of $6,105,700 with respect to the
foreign tax credit carryforwards. In addition, the Company has recorded a valuation allowance of $2,855,100
with respect to federal and state tax credit carryforwards, and has recorded a valuation allowance of $618,000
with respect to the foreign net operating loss carryforwards.

As of August 31, 2016, the Company had recorded a valuation allowance of $5,679,000 with respect to the
foreign tax credit carryforwards. In addition, the Company had recorded a valuation allowance of $2,643,300
with respect to federal and state tax credit carryforwards, and had recorded a valuation allowance of $571,000
with respect to the foreign net operating loss carryforwards.

The Company records a tax valuation allowance to reduce deferred tax assets to the amount expected to be
realized when it is more likely than not that some portion or all of its deferred tax assets will not be
realized. The Company determined based on all available evidence, including historical data and projections of
future results, that it is more likely than not that all of its deferred tax assets, except for its foreign tax credit
carryforward, federal and Minnesota research and development credit carryforwards, and foreign net operating
loss carryforwards will be fully realized. The Company determined that its deferred tax asset related to foreign
tax credit carryforwards will not be realized due to insufficient federal taxable income within the carryforward
period and the fact that for ordering purposes the foreign tax credit carryforwards are not allowed to be utilized

until after any current year foreign tax credits are utilized. In addition, based on historical data and future
projections, the Company determined that it is more likely than not that its deferred tax asset related to federal
and Minnesota research and development credit carryforwards will not be realized due to insufficient federal
and Minnesota taxable income within the carryforward period after considering the foreign tax credit usage.
The Company determined that its deferred tax asset related to foreign net operating loss carryforwards will not
be utilized due to insufficient taxable income within the carryforward period.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:

Gross unrecognized tax benefits – beginning balance
Gross increases (decreases) - prior period tax positions

Gross increases – current period tax positions
Gross unrecognized tax benefits – ending balance

Fiscal Year Ended August 31,

2017

2016

238,000

(4,000)
16,000
250,000

203,000
15,000
20,000
238,000

The entire amount of unrecognized tax benefits would affect the effective tax rate. It is not expected that the
amount of unrecognized tax benefits will change significantly in the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the
Company’s income tax provision. Accrued interest and penalties are included within the related tax liability line
in the consolidated balance sheet. There was no liability for the payment of interest and penalties as of both
August 31, 2017 and August 31, 2016.

The Company is subject to taxation in the United States and various states and foreign jurisdictions. With few
exceptions, as of August 31, 2017, the Company is no longer subject to federal, state, local, or foreign
examinations by tax authorities for years prior to August 31, 2014.

16.

COMMITMENTS AND CONTINGENCIES

On August 31, 2017, 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, 2018. For fiscal 2018 as in past years, the total amount
available under the bonus plan for all plan participants, including executive officers, is dependent upon the
Company’s earnings before interest, taxes and other income, as adjusted to take into account amounts to be paid
under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of
the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the
individual’s position and level of responsibility within the company. In the case of each of the Company’s
executive officer participants, 75% of the amount of their individual bonus payout will be determined based
upon the Company’s actual EBITOI for fiscal 2018 compared to a pre-established target EBITOI for fiscal 2018
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 are discretionary and
may be paid to executive officer participants in both cash and shares of NTIC common stock, the exact amount
and percentages will be 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
2018.

On August 26, 2016, 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, 2017. For fiscal 2017 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 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 2017 compared to a pre-established target EBITOI for fiscal 2017 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 are discretionary and may be paid to executive officer
participants in both cash and shares of NTIC common stock, the exact amount and percentages will be
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 2017.

Accrued bonuses as of August 31, 2017 and 2016 were $1,015,000 and $450,000, respectively.

Three joint ventures (consisting of the Company’s joint ventures in South Korea, Thailand and India) accounted
for 60.7% of the Company’s trade joint venture receivables as of August 31, 2017, and three joint ventures
(consisting of the Company’s joint ventures in South Korea, India and Thailand) accounted for 55.8% of the
Company’s trade joint venture receivables as of August 31, 2016.

On March 23, 2015, NTIC and NTI Asean LLC, a majority-owned subsidiary of NTIC, filed a lawsuit in Tianjin
No 1 Intermediate People’s Court against two individuals, Tao Meng and Xu Hui, related to breaches of duties
and contractual commitments owed to NTI Asean under certain agreements related to NTIC’s former joint
venture in China, Tianjin Zerust Anti-Corrosion Technologies Ltd. The lawsuit alleges, among other things,
that Mr. Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received
economic benefits that were required to go to Tianjin Zerust. At this point it is too early in the lawsuit to
reasonably estimate the amount of any recovery to NTI Asean.

On April 21, 2015, NTIC and NTI Asean initiated a lawsuit against Cortec Corporation alleging, among other
things, that Cortec Corporation (Cortec) aided and abetted breaches of duties and contractual commitments
owed to NTIC and NTI Asean related to NTIC’s joint venture in China, Tianjin Zerust. On September 20, 2017,
following a jury trial that commenced on September 18, 2017, the United States District Court for the Northern
District of Ohio dismissed with prejudice all claims asserted by the Company in the lawsuit. The Company
chose not to appeal the Court’s dismissal of the case.

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 be have been incurred. In the opinion of management, as of August 31, 2017, 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.

The Company has leases for office and warehouse space in the United States of America, China, India, Germany
and Brazil with monthly rents ranging from $814 to $11,539, which expire through August 31, 2023. Future
minimum rents due under these leases are as follows for each of the next five years ended August 31:

Fiscal 2018
Fiscal 2019

Fiscal 2020
Fiscal 2021
Fiscal 2022

Thereafter

$ 264,919
146,635

109,209
66,647
67,133
47,884

702,427

17.

STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information consist of:

Cash paid during the year for income tax
Cash paid during the year for interest

18.

FAIR VALUE MEASUREMENTS

Fiscal Year Ended
August 31,

2017

$ 699,519
20,382

2016

$ 610,000
13,261

The Company follows the authoritative guidance on fair value measurements and disclosures with respect to
assets and liabilities that are measured at fair value on both a recurring and non-recurring basis. Under this
guidance, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants as of the measurement date. The
authoritative guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use
of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs are inputs market participants would use in valuing the asset or
liability, developed based on market data obtained from sources independent of the Company. Unobservable
inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in
valuing the asset or liability developed based upon the best information available in the circumstances. The
categorization of financial assets and financial liabilities within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement.

The hierarchy is broken down into three levels defined as follows:

Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for

identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted
prices) that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability.

See the section below titled Valuation Techniques for further discussion of how the Company determines fair
value for investments.

Assets and Liabilities That Are Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis primarily relate to marketable equity
securities. These items are marked-to-market at each reporting period.

The following tables provide information by level for assets and liabilities that are measured at fair value on a
recurring basis:

Fair value as of
August 31, 2017
3,766,984

Fair value as of
August 31, 2016
2,243,864

Fair Value Measurements
Using Inputs Considered as

Level 1
$ 3,766,984

Level 2
$ —

Level 3
$ —

Fair Value Measurements
Using Inputs Considered as

Level 1
$ 2,243,864

Level 2
$ —

Level 3
$ —

Available for sale securities

Valuation Techniques

Financial assets that are classified as Level 1 securities include cash equivalents and available for sale securities.
These are valued using quoted market prices in an active market.

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to
observe valuation inputs may result in a reclassification of levels for certain securities within the fair value
hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy
at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer
occurs. There were no transfers between Level 1, Level 2, or Level 3 during the fiscal years ended August 31,
2017 or August 31, 2016. When a determination is made to classify an asset or liability within Level 3, the
determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

19.

SUBSEQUENT EVENT

On November 20, 2017, NTIC’s Board of Directors declared a cash dividend of $0.10 per share of NTIC’s
common stock, payable on December 21, 2017 to stockholders of record on December 8, 2017. Although
NTIC’s Board of Directors intends to declare regular quarterly cash dividends going forward, the payment of
any future dividends will be determined by NTIC’s Board of Directors in light of conditions then existing,
including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements,
business conditions and other factors.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Management’s Report on Internal Control over Financial Reporting

NTIC’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and
with the participation of NTIC’s Chief Executive Officer and Chief Financial Officer, NTIC’s management
conducted an evaluation of the effectiveness of NTIC’s internal control over financial reporting based on the
framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, NTIC’s management concluded that
NTIC’s internal control over financial reporting was effective as of August 31, 2017.

This report does not include an attestation report of NTIC’s independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by
NTIC’s independent registered public accounting firm pursuant to rules of the Securities and Exchange
Commission that permit NTIC to provide only management’s report in this report.

Changes in Internal Control over Financial Reporting

There was no change in NTIC’s internal control over financial reporting that occurred during the quarter ended
August 31, 2017 that has materially affected, or is reasonably likely to materially affect NTIC’s internal control
over financial reporting.

Item 9B. OTHER INFORMATION

Not applicable.

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

PART III

Directors

The information in the “Proposal One – Election of Directors” section of NTIC’s definitive proxy statement to
be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting of
stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by
reference.

Executive Officers

Information concerning NTIC’s executive officers and officers is included in this annual report on Form 10-K
under Item 4A of Part I under the heading “Executive Officers of the Registrant.”

Section 16(a) Beneficial Ownership Reporting Compliance

The information in the “Stock Ownership—Section 16(a) Beneficial Ownership Reporting Compliance” section
of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to
NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated in this
annual report on Form 10-K by reference.

Code of Ethics

NTIC has adopted a code of ethics that applies to its principal executive officer, principal financial officer,
principal accounting officer or controller or persons performing similar functions, as well as other employees
and NTIC’s directors and meets the requirements of the SEC and the Nasdaq Global Market. A copy of NTIC’s
Code of Ethics is filed as an exhibit to this report. NTIC intends to satisfy the disclosure requirements of Item
5.05 of Form 8-K regarding amendments to or waivers from any provision of its code of ethics by posting such
information on its corporate website at www.ntic.com.

Changes to Nomination Procedures

During the fourth quarter of fiscal 2017, NTIC made no material changes to the procedures by which
stockholders may recommend nominees to NTIC’s Board of Directors, as described in NTIC’s most recent
proxy statement.

Audit Committee Matters

The information in the “Corporate Governance—Audit Committee” section of NTIC’s definitive proxy
statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual meeting
of stockholders, which involves the election of directors, is incorporated in this annual report on Form 10-K by
reference.

Item 11. EXECUTIVE COMPENSATION

The information in the “Director Compensation” and “Executive Compensation” sections of NTIC’s definitive
proxy statement to be filed with the Securities and Exchange Commission with respect to NTIC’s next annual
meeting of stockholders, which involves the election of directors, is incorporated in this annual report on Form
10-K by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

Stock Ownership

The information in the “Stock Ownership—Beneficial Ownership of Significant Stockholders and
Management” section of NTIC’s definitive proxy statement to be filed with the Securities and Exchange
Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of
directors, is incorporated in this annual report on Form 10-K by reference.

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes outstanding options and other awards under NTIC’s equity compensation plans
as of August 31, 2017. NTIC’s equity compensation plans as of August 31, 2017 were the Northern
Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan and the Northern
Technologies International Corporation Employee Stock Purchase Plan. Except for automatic annual grants of
options to purchase 4,000 shares of NTIC common stock to NTIC’s directors in consideration for their services
as directors of NTIC, an automatic annual grant of an option to purchase 2,000 shares of NTIC common stock to
NTIC’s Chairman of the Board in consideration for his services as Chairman on the first day of each fiscal year
and automatic initial grants of options to purchase a pro rata portion of 4,000 shares of NTIC common stock to
NTIC’s new directors in consideration for their services as directors of NTIC, options and other awards granted
in the future under the Northern Technologies International Corporation Amended and Restated 2007 Stock
Incentive Plan are within the discretion of the Board of Directors and the Compensation Committee of the Board
of Directors and therefore cannot be ascertained at this time.

(a)

(b)

Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))

306,358(1)(2)

—
306,358(1)(2)

$13.93

—
$13.93

237,172(3)

—

237,172(3)

Plan Category

Equity compensation plans
approved by security holders

Equity compensation plans not
approved by security holders

Total

______________________
(1)

Amount includes shares of NTIC common stock issuable upon the exercise of stock options outstanding as of
August 31, 2017 under the Northern Technologies International Corporation Amended and Restated 2007 Stock
Incentive Plan.

(2)

Excludes employee stock purchase rights accruing under the Northern Technologies International Corporation
Employee Stock Purchase Plan. Under such plan, each eligible employee may purchase up to 2,000 shares of
NTIC common stock at semi-annual intervals on February 28th or 29th (as the case may be) and August 31st each
year at a purchase price per share equal to 90% of the lower of (i) the closing sales price per share of NTIC
common stock on the first day of the offering period or (ii) the closing sales price per share of NTIC common
stock on the last day of the offering period.

(3)

Amount includes 187,669 shares remaining available at August 31, 2017 for future issuance under Northern
Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan and 49,503 shares
available at August 31, 2017 for future issuance under the Northern Technologies International Corporation
Employee Stock Purchase Plan.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information in the “Related Person Relationships and Transactions” and “Corporate Governance—Director
Independence” sections of NTIC’s definitive proxy statement to be filed with the Securities and Exchange
Commission with respect to NTIC’s next annual meeting of stockholders, which involves the election of
directors, is incorporated in this annual report on Form 10-K by reference.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information in the “Proposal Three—Ratification of Selection of Independent Registered Public Accounting
Firm—Audit, Audit-Related, Tax and Other Fees” and “Proposal Three—Ratification of Selection of
Independent Registered Public Accounting Firm—Audit Committee Pre-Approval Policies and Procedures”
sections of NTIC’s definitive proxy statement to be filed with the Securities and Exchange Commission with
respect to NTIC’s next annual meeting of stockholders, which involves the election of directors, is incorporated
in this annual report on Form 10-K by reference.

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements

PART IV

NTIC’s consolidated financial statements are included in Item 8 of Part III of this report.

Financial Statement Schedules

All financial statement schedules are omitted because they are inapplicable since NTIC is a smaller reporting
company.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

NORTHERN TECHNOLOGIES INTERNATIONAL

CORPORATION

November 21, 2017

By: /s/ G. Patrick Lynch
G. Patrick Lynch
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant on the dates and in the capacities indicated.

Name

Title

Date

President and Chief Executive Officer and
Director
(principal executive officer)

Chief Financial Officer and Corporate
Secretary
(principal financial and accounting officer)

November 21, 2017

Chairman of the Board

November 21, 2017

/s/ G. Patrick Lynch
G. Patrick Lynch

/s/ Matthew C. Wolsfeld, CPA
Matthew C. Wolsfeld, CPA

/s/ Richard J. Nigon
Richard J. Nigon

/s/ Barbara D. Colwell
Barbara D. Colwell

/s/ Soo Keong Koh
Soo Keong Koh

/s/ Sunggyu Lee, Ph.D.
Sunggyu Lee, Ph.D.

/s/ Ramani Narayan, Ph. D.
Ramani Narayan, Ph.D.

Director

/s/ Konstantin von Falkenhausen
Konstantin von Falkenhausen

Director

November 21, 2017

Board of Directors
Mr. Richard J. Nigon
Chairman of the Board, NTIC
Senior Vice President of Cedar Point Capital, Inc.

Mr. G. Patrick Lynch
President & CEO, NTIC

Dr. Ramani Narayan
Distinguished Professor in the Department of
Engineering & Materials Science, Michigan State
University

Dr. Sunggyu Lee
Professor of Chemical & Molecular Engineering,
Russ College of Engineering & Technology at Ohio
University

Mr. Soo-Keong Koh
Managing Director, EcoSave Pte Ltd.

Mr. Konstantin von Falkenhausen
Partner, B Capital Partners AG

Mrs. Barbara D. Colwell
Corporate Director of NTIC, Publishers Clearing House,
and Mutual Trust Financial Group

NTIC Executive Officers
Mr. G. Patrick Lynch
President & CEO

Mr. Matthew C. Wolsfeld
Chief Financial Officer, Treasurer and
Corporate Secretary

Independent Registered Public
Accounting Firm
Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota

Transfer Agent and Registrar
For a response to questions regarding misplaced stock
certificates, changes of address or the consolidation
of accounts, please contact NTIC’s transfer agent:

Broadridge Corporate Issuer Solutions, Inc.
1717 Arch Street, Suite 1300
Philadelphia, PA 19103
1-877-830-4936
shareholder@broadridge.com

Investor Relations
Northern Technologies International Corporation
welcomes inquiries from its stockholders and other
interested investors. For further information on
NTIC’S activities or additional copies of this report,
please contact:

Investor Relations
Northern Technologies International Corporation
4201 Woodland Road, P.O. Box 69
Circle Pines, Minnesota 55014
(763) 225-6600
www.ntic.com

Stock Listing
NTIC’s common stock is traded on the
NASDAQ Global Market under the symbol NTIC.

Annual Meeting
The annual meeting of stockholders will be held
at 2:00 p.m. on Friday, January 12, 2018 at NTIC’s
corporate headquarters:

Northern Technologies International Corp.
4201 Woodland Road
Circle Pines, MN 55014 USA
(763) 225-6600