|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Management’s Discussion and Analysis provides material historical and prospective
disclosures intended to enable investors and other users to assess NTIC’s financial condition and results of operations.
Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “
Part
I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Forward-Looking Statements
”
in this report and under “
Part 1. Item 1A. Risk Factors
” in our annual report on Form 10-K for the fiscal year
ended August 31, 2017. The following discussion of the results of the operations and financial condition of NTIC should be read
in conjunction with NTIC’s consolidated financial statements and the related notes thereto included under the heading “
Part
I. Item 1. Financial Statements
.”
Business Overview
NTIC develops and markets proprietary environmentally beneficial products and services
in over 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
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 May 31, 2018, the country in
which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:
Subsidiary Name
|
|
Country
|
|
NTIC
Percent (%) Ownership
|
NTIC (Shanghai) Co., Ltd
|
|
China
|
|
100%
|
NTI Asean LLC
|
|
United States
|
|
60%
|
Zerust Prevenção de Corrosão S.A.
|
|
Brazil
|
|
85%
|
ZERUST-EXCOR MEXICO, S. de R.L. de C.V
|
|
Mexico
|
|
100%
|
Natur-Tec India Private Limited
|
|
India
|
|
90%
|
NTIC Europe GmbH
|
|
Germany
|
|
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 receipt of funds from its joint ventures is dependent upon 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 the joint ventures. 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.
NTIC considers 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 this section of this report.
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 26.4% and 28.0% during the three and
nine months ended May 31, 2018, respectively, compared to the three and nine months ended May 31, 2017. These increases were primarily
a result of increased demand of ZERUST
®
rust and corrosion inhibiting packaging products and services and the addition
of new customers in North America and China and an increase in sales of Natur-Tec® products.
During the three and nine months ended May 31, 2018, 80.3% and 82.1% of NTIC’s
consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 24.1% and 27.1%
to $10,382,884 and $30,102,080 during the three and nine months ended May 31, 2018, respectively, compared to $8,368,487 and $23,681,192
during the three and nine months ended May 31, 2017, respectively. These increases were due to increased demand of ZERUST
®
rust and corrosion inhibiting packaging products and services and the addition of new customers in North America and China. 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 the nine months ended May 31, 2018 included $1,418,573 of sales made to customers in the
oil and gas industry compared to $1,287,789 for the nine months ended May 31, 2017. 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 the three and nine months ended May 31, 2018, 19.7% and 17.9%, of NTIC’s
consolidated net sales, respectively, were derived from sales of Natur-Tec® products compared to 18.1% and 17.4% during the
three and nine months ended May 31, 2017, respectively. Net sales of Natur-Tec® products increased 37.0% and 31.9% during the
three and nine months ended May 31, 2018, respectively, compared to the three and nine months ended May 31, 2017, 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 increased slightly to 66.5% during
the three months ended May 31, 2018 compared to 66.3% during the three months ended May 31, 2017 and decreased slightly to 66.8%
during the nine months ended May 31, 2018 compared to 67.2% during the prior fiscal year period, primarily due to product mix and
the different gross profits realized on different products.
NTIC’s equity in income from joint ventures increased 33.2% and 33.4% to $2,246,066
and $5,793,391, respectively, during the three and nine months ended May 31, 2018 compared to $1,686,016 and $4,343,159 during
the three and nine months ended May 31, 2017, respectively. These increases were primarily due to corresponding increases in net
sales at the joint ventures, which increased 21.4% and 23.4% to $31,480,885 and $90,200,146 during the three and nine months ended
May 31, 2018, respectively, compared to $25,935,169 and $73,098,215 for the three and nine months ended May 31, 2017, respectively,
as well as a strengthened Euro and other currencies compared to the U.S. Dollar. The increases in net sales of NTIC’s joint
ventures were due primarily to higher sales from existing customers for new and existing products as a result of increased demand.
NTIC’s total operating expenses increased 16.2% and 12.1% to $5,632,826 and
$16,622,849 during the three and nine months ended May 31, 2018, respectively, compared to $4,847,144 and $14,831,577 for the three
and nine months ended May 31, 2017. These increases were primarily due to an increase in NTIC’s personnel expenses, including
an increase in the management bonus accrual of $780,000. Operating expenses, as a percent of net sales, for the three months ended
May 31, 2018 were 43.6%, compared to 47.4% for the same period last fiscal year and for the nine months ended May 31, 2018 were
45.3%, compared to 51.7% for the same period last fiscal year. These reductions in operating expenses, as a percent of net sales
were primarily due to significantly higher net sales, partially offset by higher operating expenses.
NTIC spent $860,347 and $2,581,824 during the three and nine months ended May 31,
2018 compared to $733,651 and $2,118,210 during the three and nine months ended May 31, 2017, respectively, in connection with
its research and development activities. NTIC anticipates that it will spend a total of between $3,200,000 and $3,600,000 in fiscal
2018 on research and development activities.
Net income attributable to NTIC increased to $2,142,752, or $0.46 per diluted common
share, for the three months ended May 31, 2018 compared to $1,352,416, or $0.30 per diluted common share, for the three months
ended May 31, 2017, an increase of $790,336 or $0.16 per diluted share. Net income attributable to NTIC increased 123.7%, to $4,559,225,
or $0.98 per diluted common share, for the nine months ended May 31, 2018 compared to $2,039,021, or $0.45 per diluted common share,
for the nine months ended May 31, 2017, an increase of $2,520,204 or $0.53 per diluted share. These increases were primarily the
result of the increases in net sales and corresponding gross profit, as well as the increases in income from joint venture operations,
partially offset by the increase in operating expenses, as previously described. The increase for the nine-month comparison was
partially offset by the significant impact of the $700,000 one-time provisional adjustment related to the Tax Cuts and Jobs Act
(Tax Reform Act), as described in more detail below.
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 during the next few quarters
will remain volatile primarily as a result of the changes in its Chinese operations.
NTIC’s working capital, as defined as current assets less current liabilities,
was $22,812,170 at May 31, 2018, including $4,610,325 in cash and cash equivalents and $3,282,915 in available for sale securities,
compared to $21,173,001 at August 31, 2017, including $6,360,201 in cash and cash equivalents and $3,766,984 in available for sale
securities.
During the nine months ended May 31, 2018, the Company’s Board of Directors
declared cash dividends on the following dates in the following amounts to the following holders of the Company’s common
stock:
Declaration Date
|
|
Amount
|
|
Record Date
|
|
Payable Date
|
November 20, 2017
|
|
$0.10
|
|
December 8, 2017
|
|
December 21, 2017
|
January 24, 2018
|
|
$0.10
|
|
February 8, 2018
|
|
February 21, 2018
|
April 25, 2018
|
|
$0.10
|
|
May 9, 2018
|
|
May 23, 2018
|
No cash dividends were declared by NTIC’s Board of Directors during the fiscal
year ended August 31, 2017. Although NTIC’s Board of Directors intends to continue to declare regular quarterly cash dividends,
the declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions
then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business
conditions and other factors.
Results of Operations
The following tables set forth NTIC’s results of operations for the three and
nine months ended May 31, 2018 and 2017.
|
|
Three Months Ended
|
|
|
May 31, 2018
|
|
% of
Net Sales
|
|
May 31, 2017
|
|
% of
Net Sales
|
|
$
Change
|
|
%
Change
|
Net sales, excluding joint ventures
|
|
$
|
12,044,513
|
|
|
|
93.2
|
%
|
|
$
|
9,360,883
|
|
|
|
91.6
|
%
|
|
$
|
2,683,630
|
|
|
|
28.7
|
%
|
Net sales, to joint ventures
|
|
|
879,324
|
|
|
|
6.8
|
%
|
|
|
862,136
|
|
|
|
8.4
|
%
|
|
|
17,188
|
|
|
|
2.0
|
%
|
Cost of goods sold
|
|
|
8,592,366
|
|
|
|
66.5
|
%
|
|
|
6,774,001
|
|
|
|
66.3
|
%
|
|
|
1,818,365
|
|
|
|
26.8
|
%
|
Equity in income from joint ventures
|
|
|
2,246,066
|
|
|
|
17.4
|
%
|
|
|
1,686,016
|
|
|
|
16.5
|
%
|
|
|
560,050
|
|
|
|
33.2
|
%
|
Fees for services provided to joint ventures
|
|
|
1,508,500
|
|
|
|
11.7
|
%
|
|
|
1,442,048
|
|
|
|
14.1
|
%
|
|
|
66,452
|
|
|
|
4.6
|
%
|
Selling expenses
|
|
|
2,784,694
|
|
|
|
21.5
|
%
|
|
|
2,430,824
|
|
|
|
23.8
|
%
|
|
|
353,870
|
|
|
|
14.6
|
%
|
General and administrative expenses
|
|
|
1,987,785
|
|
|
|
15.4
|
%
|
|
|
1,682,669
|
|
|
|
16.5
|
%
|
|
|
305,116
|
|
|
|
18.1
|
%
|
Research and development expenses
|
|
|
860,347
|
|
|
|
6.7
|
%
|
|
|
733,651
|
|
|
|
7.2
|
%
|
|
|
126,696
|
|
|
|
17.3
|
%
|
|
|
Nine Months Ended
|
|
|
May 31, 2018
|
|
% of
Net Sales
|
|
May 31, 2017
|
|
% of
Net Sales
|
|
$
Change
|
|
%
Change
|
Net sales, excluding joint ventures
|
|
$
|
34,479,773
|
|
|
|
94.0
|
%
|
|
$
|
26,552,434
|
|
|
|
92.6
|
%
|
|
$
|
7,927,339
|
|
|
|
29.9
|
%
|
Net sales, to joint ventures
|
|
|
2,201,077
|
|
|
|
6.0
|
%
|
|
|
2,115,511
|
|
|
|
7.4
|
%
|
|
|
85,566
|
|
|
|
4.0
|
%
|
Cost of goods sold
|
|
|
24,493,672
|
|
|
|
66.8
|
%
|
|
|
19,256,953
|
|
|
|
67.2
|
%
|
|
|
5,236,719
|
|
|
|
27.2
|
%
|
Equity in income from joint ventures
|
|
|
5,793,391
|
|
|
|
15.8
|
%
|
|
|
4,343,159
|
|
|
|
15.1
|
%
|
|
|
1,450,232
|
|
|
|
33.4
|
%
|
Fees for services provided to joint ventures
|
|
|
4,624,532
|
|
|
|
12.6
|
%
|
|
|
3,941,667
|
|
|
|
13.7
|
%
|
|
|
682,865
|
|
|
|
17.3
|
%
|
Selling expenses
|
|
|
8,028,279
|
|
|
|
21.9
|
%
|
|
|
6,716,390
|
|
|
|
23.4
|
%
|
|
|
1,311,889
|
|
|
|
19.5
|
%
|
General and administrative expenses
|
|
|
6,012,746
|
|
|
|
16.4
|
%
|
|
|
5,996,977
|
|
|
|
20.9
|
%
|
|
|
15,769
|
|
|
|
0.3
|
%
|
Research and development expenses
|
|
|
2,581,824
|
|
|
|
7.0
|
%
|
|
|
2,118,210
|
|
|
|
7.4
|
%
|
|
|
463,614
|
|
|
|
21.9
|
%
|
Net Sales
. NTIC’s consolidated net sales increased 26.4% and 28.0% to
$12,923,837 and $36,680,850 during the three and nine months ended May 31, 2018, respectively, compared to the three and nine months
ended May 31, 2017. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased
28.7% and 29.9% to $12,044,513 and $34,479,773, respectively, during the three and nine months ended May 31, 2018, respectively,
compared to the same respective periods in fiscal 2017. These increases were primarily a result of increased demand from of ZERUST
®
products and services and the addition of new customers in North America and China and an increase in sales of Natur-Tec® products.
Net sales to joint ventures increased 2.0% and 4.0% to $879,324 and $2,201,077, respectively, during the three and nine months
ended May 31, 2018 compared to the same respective periods in fiscal 2017. These increases were primarily a result of increased
demand.
The following table sets forth NTIC’s net sales by product segment for the three
and nine months ended May 31, 2018 and 2017 by segment:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
May 31, 2018
|
|
May 31, 2017
|
|
May 31, 2018
|
|
May 31, 2017
|
Total ZERUST® sales
|
|
$
|
10,382,884
|
|
|
$
|
8,368,487
|
|
|
$
|
30,102,080
|
|
|
$
|
23,681,192
|
|
Total Natur-Tec® sales
|
|
|
2,540,953
|
|
|
|
1,854,532
|
|
|
|
6,578,770
|
|
|
|
4,986,753
|
|
Total net sales
|
|
$
|
12,923,837
|
|
|
$
|
10,223,019
|
|
|
$
|
36,680,850
|
|
|
$
|
28,667,945
|
|
During the three and nine months ended May 31, 2018, 80.3% and 82.1% of NTIC’s
consolidated net sales, respectively, were derived from sales of ZERUST
®
products and services, which increased
24.1% and 27.1% to $10,382,884 and $30,102,080 during the three and nine months ended May 31, 2018, respectively, compared to $8,368,487
and $23,681,192 during the three and nine months ended May 31, 2017, respectively. These increases were due to increased demand
of ZERUST
®
industrial products and services and the addition of new customers in North America and China and increased
demand of ZERUST® oil and gas products and services. 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 the three and nine months ended May 31, 2018 and 2017:
|
|
Three Months Ended
|
|
|
May 31,
2018
|
|
May 31,
2017
|
|
$
Change
|
|
%
Change
|
ZERUST® industrial net sales
|
|
$
|
8,947,847
|
|
|
$
|
7,170,802
|
|
|
$
|
1,777,045
|
|
|
|
24.8
|
%
|
ZERUST® joint venture net sales
|
|
|
879,324
|
|
|
|
862,136
|
|
|
|
17,188
|
|
|
|
2.0
|
%
|
ZERUST® oil & gas net sales
|
|
|
555,713
|
|
|
|
335,549
|
|
|
|
220,164
|
|
|
|
65.6
|
%
|
Total ZERUST® net sales
|
|
$
|
10,382,884
|
|
|
$
|
8,368,487
|
|
|
$
|
2,014,397
|
|
|
|
24.1
|
%
|
|
|
Nine Months Ended
|
|
|
May 31,
2018
|
|
May 31,
2017
|
|
$
Change
|
|
%
Change
|
ZERUST® industrial net sales
|
|
$
|
26,482,430
|
|
|
$
|
20,277,892
|
|
|
$
|
6,204,538
|
|
|
|
30.6
|
%
|
ZERUST® joint venture net sales
|
|
|
2,201,077
|
|
|
|
2,115,511
|
|
|
|
85,566
|
|
|
|
4.0
|
%
|
ZERUST® oil & gas net sales
|
|
|
1,418,573
|
|
|
|
1,287,789
|
|
|
|
130,784
|
|
|
|
10.2
|
%
|
Total ZERUST® net sales
|
|
$
|
30,102,080
|
|
|
$
|
23,681,192
|
|
|
$
|
6,420,888
|
|
|
|
27.1
|
%
|
Demand for ZERUST® oil and gas products around the world depends primarily on market
acceptance and the reach of NTIC’s distribution network. Because of the typical size of individual orders and overall size
of NTIC’s net sales derived from sales of oil and gas products, the timing of one or more orders can materially affect NTIC’s
quarterly sales compared to prior fiscal year quarters. NTIC anticipates that its sales of ZERUST® products and services into
the oil and gas industry will continue to remain volatile from quarter to quarter as sales are recognized due to the average order
size and the timing of sales, as well as oil prices.
During the three and nine months ended May 31, 2018, 19.7% and 17.9% of NTIC’s consolidated
net sales, respectively, were derived from sales of Natur-Tec® products, which increased 37.0% and 31.9% to $2,540,953 and
$6,578,770 during the three and nine months ended May 31, 2018, respectively, compared to the three and nine months ended May 31,
2017. These increases were 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
. Cost of goods sold increased 26.8% and 27.2% for the three
and nine months ended May 31, 2018, respectively, compared to the three and nine months ended May 31, 2017. These increases were
primarily a result of the corresponding increased sales levels. Cost of goods sold as a percentage of net sales increased slightly
to 66.5% during the three months ended May 31, 2018 compared to 66.3% during the three months ended May 31, 2017 and decreased
slightly to 66.8% during the nine months ended May 31, 2018 compared to 67.2% during the nine months ended May 31, 2017 primarily
due to product mix and the different gross profits realized on different products.
Equity in Income from Joint Ventures.
NTIC’s equity in income from joint
ventures increased 33.2% and 33.4% to $2,246,066 and $5,793,391 during the three and nine months ended May 31, 2018, respectively,
compared to $1,686,016 and $4,343,159 during the three and nine months ended May 31, 2017, respectively. These increases were primarily
a result of improved profitability at the joint ventures. Of the total equity in income from joint ventures, NTIC had equity in
income from joint ventures of $4,138,814 attributable to EXCOR during the nine months ended May 31, 2018 compared to $3,089,935
during the nine months ended May 31, 2017. NTIC had equity in income from all other joint ventures of $1,654,577 during the nine
months ended May 31, 2018 compared to $1,253,224 during the nine months ended May 31, 2017.
Fees for Services Provided to Joint Ventures.
NTIC recognized fee income for services
provided to joint ventures of $1,508,500 and $4,624,532 during the three and nine months ended May 31, 2018, respectively, compared
to $1,442,048 and $3,941,667 during the three and nine months ended May 31, 2017, respectively, representing increases of 4.6%
and 17.3%, respectively. Fee income for services provided to joint ventures is traditionally a function of the sales made by NTIC’s
joint ventures. Total net sales of NTIC’s joint ventures increased to $31,480,885 and $90,200,146 during the three and nine
months ended May 31, 2018, respectively, compared to $25,935,169 and $73,098,215 during the three and nine months ended May 31,
2017, respectively, representing increases of $5,545,716 and $17,101,931, respectively. Net sales of NTIC’s joint ventures
are not included in NTIC’s consolidated financial statements. Of the total fee income for services provided to joint ventures,
fees of $680,939 were attributable to EXCOR during the nine months ended May 31, 2018 compared to $614,766 attributable to EXCOR
during the nine months ended May 31, 2017.
Selling Expenses
. NTIC’s selling expenses increased 14.6% and 19.5% for
the three and nine months ended May 31, 2018, respectively, compared to the same respective periods in fiscal 2017 due primarily
to increases in operating expenses associated with ZERUST® sales efforts, consisting primarily of selling and personnel expense.
Selling expenses as a percentage of net sales decreased to 21.5% and 21.9% for the three and nine months ended May 31, 2018, respectively,
from 23.8% and 23.4% and during the three and nine months ended May 31, 2017, respectively, primarily due to the significant increase
in net sales, partially offset by the increase in selling expenses, as previously described.
General and Administrative Expenses
. NTIC’s general and administrative
expenses increased 18.1% and 0.3% for the three and nine months ended May 31, 2018, respectively, compared to the same respective
periods in fiscal 2017. The increase in expenses during the three-month comparison was primarily due to an increase in compensation
expense and an increase in operating expenses at NTIC China. As a percentage of net sales, general and administrative expenses
decreased to 15.4% and 16.4% for the three and nine months ended May 31, 2018, respectively, from 16.5% and 20.9% for the same
respective periods in fiscal 2017, respectively. These decreases were due primarily to the significant increase in net sales, partially
offset by the increase in general and administrative expenses, as previously described.
Research and Development Expenses
. NTIC’s research and development expenses
increased 17.3% and 21.9% for the three and nine months ended May 31, 2018, respectively, compared to the same respective period
in fiscal 2017 due primarily to increased research and development activities during the current fiscal year periods.
Interest Income
. NTIC’s interest income increased to $35,630 and $84,569
during the three and nine months ended May 31, 2018, respectively, compared to $10,996 and $19,075 during the three and nine months
ended May 31, 2017, respectively, due to increased levels of invested cash.
Interest Expense
. NTIC’s interest expense decreased to $3,139 and $14,007
during the three and nine months ended May 31, 2018, respectively, compared to $7,409 and $15,502 during the three and nine months
ended May 31, 2017, respectively.
Income Before Income Tax Expense
. NTIC incurred income before income tax expense
equal to $2,485,702 and $6,052,814 for the three and nine months ended May 31, 2018, respectively, compared to $1,733,525 and $2,867,814
for the three and nine months ended May 31, 2017, respectively.
Income Tax Expense
. Income tax expense was $181,683 and $1,128,583 for the
three and nine months ended May 31, 2018, respectively, compared to income tax expense of $237,801 and $480,423 during the three
and nine months ended May 31, 2017, respectively. Income tax expense is calculated based on management’s estimate of NTIC’s
annual effective income tax rate. The increase for the nine-month comparison was primarily due to one-time provisional adjustments
related to the Tax Reform Act. The Tax Reform Act, among other things, reduced the U.S. federal corporate tax rate from 35% to
21% effective January 1, 2018, generally eliminated U.S. federal income taxes on dividends received from foreign subsidiaries and
joint ventures after December 31, 2017, and imposed a one-time deemed repatriation tax on certain unremitted earnings of foreign
subsidiaries and joint ventures. As a result of the change in the tax law, a one-time non-cash tax provisional charge of $700,000
related to the re-measurement of deferred tax assets and liabilities was recorded in the nine months ended May 31, 2018. The impact
of this non-cash tax charge increased NTIC’s effective rate by approximately 30.3% for the nine months ended May 31, 2018.
The $700,000 income tax expense and corresponding decrease in net deferred tax assets represents a provisional estimate based on
NTIC’s current interpretation of the Tax Reform Act and may change as NTIC receives additional clarification and implementation
guidance. NTIC continues to analyze the impact of other provisions of the Tax Reform Act on its financial statements and operations,
including the impact of the global intangible low-taxed income (GILTI) rules, and the impact of the Tax Reform Act on NTIC’s
indefinite reinvestment assertion with respect to the undistributed earnings of certain foreign subsidiaries and joint ventures.
Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement
period as provided for in accordance with SAB No. 118. No changes or adjustments were made during the three months ended May 31,
2018.
Net Income Attributable to NTIC
. Net income attributable to NTIC increased
to $2,140,752, or $0.46, per diluted common share, for the three months ended May 31, 2018 compared to $1,352,416, or $0.30, per
diluted common share, for the three months ended May 31, 2017, an increase of $790,336 or $0.16 per diluted share. Net income attributable
to NTIC increased to $4,557,225, or $0.98 per diluted common share, for the nine months ended May 31, 2018 compared to $2,037,021,
or $0.45 per diluted common share, for the nine months ended May 31, 2017, an increase of $2,522,204 or $0.53 per diluted share.
These increases were primarily the result of the increases in net sales and corresponding gross profit, as well as the increases
in income from joint venture operations, partially offset by the increase in operating expenses. The increase for the nine-month
comparison was partially offset by the significant impact of the $700,000 one-time provisional adjustment related to the Tax Reform
Act. As previously mentioned, the impact from the enactment of the Tax Reform Act was driven by the provisional re-measurement
of deferred tax assets and liabilities, which resulted in a non-cash discrete tax charge of $700,000 during the nine months ended
May 31, 2018.
Other Comprehensive Income - Foreign Currency Translations Adjustment.
The
changes in the foreign currency translations adjustment was due to the fluctuation of the U.S. dollar compared to the Euro and
other foreign currencies during the three and nine months ended May 31, 2018 compared to the same period in fiscal 2017.
Liquidity and Capital Resources
Sources of Cash and Working Capital
. As of May 31, 2018, NTIC’s working
capital was $22,812,170, including $4,610,325 in cash and cash equivalents and $3,282,915 in available for sale securities, compared
to $21,173,001 at August 31, 2017, including $6,360,201 in cash and cash equivalents and $3,766,984 in available for sale securities.
As of May 31, 2018, 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 May 31, 2018, NTIC was in compliance with all debt covenants.
On January 5, 2018, NTIC and PNC Bank extended the maturity date of the line of credit
from January 7, 2018 to January 7, 2019. All other terms of the line of credit and the loan agreement and other documents evidencing
the line of credit remain the same. 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 the remainder of fiscal 2018,
NTIC expects to continue to invest in NTIC China, research and development and in marketing efforts and resources for the application
of its corrosion prevention technology in the oil and gas industry and its Natur-Tec® bio-plastics business, although the amounts
of these various investments are not known at this time. In order to take advantage of such new product and market opportunities
to expand its business and increase its revenues, NTIC may decide to finance such opportunities by borrowing under its revolving
line of credit or raising additional financing through the issuance of debt or equity securities. There is no assurance that any
financing transaction will be available on terms acceptable to NTIC or at all, or that any financing transaction will not be dilutive
to NTIC’s current stockholders.
NTIC traditionally has used the cash generated from its operations, distributions
of earnings from joint ventures and fees for services provided to its joint ventures to fund NTIC’s new technology investments
and capital contributions to new and existing subsidiaries and joint ventures. NTIC’s joint ventures traditionally have operated
with little or no debt and have been self-financed with minimal initial capital investment and minimal additional capital investment
from their respective owners. Therefore, NTIC believes there is limited exposure by NTIC’s joint ventures that could materially
impact their respective operations and/or liquidity.
Uses of Cash and Cash Flows
. Net cash used in operating activities during the
nine months ended May 31, 2018 was $141,994, which resulted principally from NTIC’s equity in income from joint ventures,
increases in trade receivables excluding joint ventures, inventories, and prepaid expenses and other, partially offset by NTIC’s
net income, dividends received from joint ventures, and increases in accounts payable, accrued liabilities, depreciation and amortization.
Net cash provided by operating activities during the nine months ended May 31, 2017 was $2,826,166, which resulted principally
from dividends received from NTIC’s 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.
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 trade receivables as of May 31, 2018 compared to August
31, 2017. Trade receivables excluding joint ventures as of May 31, 2018 increased $2,780,077 compared to August 31, 2017, primarily
related to the timing of collections and the increase in sales. Outstanding trade receivables excluding joint ventures balances
as of May 31, 2018 increased 11 days to an average of 66 days from balances outstanding from these customers as of August 31, 2017.
Outstanding trade receivables from joint ventures as of May 31, 2018 decreased $93,947 compared to August 31, 2017 primarily due
to the timing of payments. Outstanding balances from trade receivables from joint ventures increased as of May 31, 2018 by an average
of 5 days from an average of 57 days from balances outstanding from these customers compared to August 31, 2017. The average days
outstanding of trade receivables from joint ventures as of May 31, 2018 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 May 31, 2018
increased $49,305 compared to August 31, 2017, which resulted in an increase of 3 days of fees receivable outstanding as of May
31, 2018 to an average of 82 days compared to August 31, 2017.
Net cash used in investing activities for the nine months ended May 31, 2018 was $79,449,
which was primarily the result of additions to property and equipment and additions to patents, partially offset by proceeds from
the sale of available for sale securities. Net cash used in investing activities for the nine months ended May 31, 2017 was $2,398,443,
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.
Net cash used in financing activities for the nine months ended May 31, 2018 was $1,517,998,
which resulted from dividends paid on NTIC common stock and a dividend paid to a non-controlling interest, partially offset by
proceeds from stock option exercises and purchases under NTIC’s employee stock purchase plan. Net cash used in financing
activities for the nine months ended May 31, 2017 was $308,689, 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.
Share Repurchase Plan
. On January 15, 2015, NTIC’s Board of Directors
authorized the repurchase of up to $3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited
privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors
at any time. No repurchases occurred during the nine months ended May 31, 2017. As of May 31, 2018, up to $2,640,548 in shares
of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.
Cash Dividends
. On April 25, 2018, NTIC’s Board of Directors declared
a cash dividend of $0.10 per share of NTIC’s common stock, paid on May 23, 2018 to stockholders of record on May 9, 2018.
During the nine months ended May 31, 2018, NTIC’s Board of Directors paid cash dividends totaling $0.30 per share of NTIC’s
common stock. No cash dividends were declared during fiscal 2017. Although NTIC’s Board of Directors intends to declare regular
quarterly cash dividends going forward, the declaration of future dividends is not guaranteed and will be determined by NTIC’s
Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements,
restrictions in financing agreements, business conditions and other factors.
Capital Expenditures and Commitments
. NTIC spent $500,924 on capital expenditures
during the nine months ended May 31, 2018, which related primarily to the purchase of new equipment. NTIC expects to spend an aggregate
of approximately $500,000 to $600,000 on capital expenditures during fiscal 2018, which it expects will relate primarily to the
purchase of new equipment.
Contractual Obligations
There has been no material change to NTIC’s contractual obligations as provided
in “
Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual
Obligations
,” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2017.
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.
Inflation and Seasonality
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 its net sales in second fiscal quarter were adversely affected by the long Chinese New Year, the North American holiday
season and overall less corrosion taking place at lower winter temperatures worldwide.
Market Risk
NTIC is exposed to some market risk stemming from changes in foreign currency exchange
rates, commodity prices and interest rates.
Because the functional currency of NTIC’s foreign operations and investments
in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising
from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese
Yen, 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 from joint ventures reflected in
its consolidated statements of operations. NTIC does not hedge against its foreign currency exchange rate risk.
Some raw materials used in NTIC’s products are exposed to commodity price changes.
The primary commodity price exposures are with a variety of plastic resins.
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 May 31, 2018, NTIC had no borrowings under the line of credit.
Critical Accounting Policies and Estimates
There have been no material changes to NTIC’s critical accounting policies and
estimates from the information provided in “
Part II. Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Critical Accounting Policies
,” included in NTIC’s annual report on Form 10-K for
the fiscal year ended August 31, 2017.
Accounting Pronouncements
See Note 2 to NTIC’s consolidated financial statements for a discussion of recent
accounting pronouncements.
Forward-Looking Statements
This quarterly report on Form 10-Q contains not only historical information, but also
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, 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 from 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,
import duties and taxes and tariffs;
|
|
·
|
The effect of the United Kingdom’s process to exit the European Union on NTIC’s operating results, including in
particular future net sales of NTIC’s European and other joint ventures;
|
|
·
|
The 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 new businesses and products and services, including in particular
NTIC’s ability and the ability of NTIC’s joint ventures to sell ZERUST® products and services 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, including from the recently enacted Tax Cuts and Jobs Act;
|
|
·
|
Effect of extreme weather conditions on NTIC’s operating results; and
|
|
·
|
NTIC’s reliance upon its management information systems.
|
For more information regarding these and other uncertainties and factors that could
cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements or otherwise
could materially adversely affect its business, financial condition or operating results, see NTIC’s annual report on Form
10-K for the fiscal year ended August 31, 2017 under the heading “
Part I. Item 1A. Risk Factors
.”
All forward-looking statements included in this report are expressly qualified in
their entirety by the foregoing cautionary statements. NTIC wishes to caution readers not to place undue reliance on any forward-looking
statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results,
which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements
and from historical results, due to the uncertainties and factors described above, 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.