☒ QUARTERLY 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

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of ~~July 8, 2016,~~April 11, 2017, there were ~~4,537,116~~4,524,970 shares of common stock of the registrant outstanding.

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

As used in this report, references to “NTIC,” the “Company,” “we,” “our” or “us,” unless the context otherwise requires, refer to Northern Technologies International Corporation and its wholly-owned ~~subsidiaries, NTIC (Shanghai) Co., Ltd., NTI Facilities, Inc.~~ and ~~Northern Technologies Holding Company, LLC, and its~~ majority-owned subsidiaries, ~~Zerust Prevenção de Corrosão S.A., NTI Asean LLC and Natur-Tec India Private Limited,~~ all of which are consolidated on NTIC’s consolidated financial statements.

~~NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures. Except as otherwise indicated, references~~As used in this report, references to: (1) “NTIC China” refer to NTIC’s ~~joint ventures do not include: (1)~~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.; ~~(2)~~(5) “Natur-Tec India” refer to NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited; and (5) “NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean LLC, which is a holding company that holds investments in eight entities that operate in the Association of Southeast Asian Nations (ASEAN) region, including the following countries: China (although the joint venture agreements for the Chinese joint venture were terminated as of December 31, 2014 and liquidation of this joint venture is anticipated), Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan and ~~Thailand; or (3) NTIC’s majority-owned subsidiary, Natur-Tec India Private Limited, in India.~~Thailand.

~~As used~~NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures. Except as otherwise indicated, references in this report ~~references to “Zerust Brazil” refer~~ to NTIC’s joint ventures do not include any of NTIC’s wholly-owned or majority-owned ~~Brazilian subsidiary, Zerust Prevenção de Corrosão S.A.~~subsidiaries.

~~As used in this report, references to “NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean LLC.~~

~~As used in this report, references to “Natur-Tec India” refer to NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited.~~

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 “NTIC China” refer to NTIC’s wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd.~~

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.

May 31, 2016 August 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,626,538 $ 2,623,981
Available for sale securities 2,239,792 2,027,441
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at May 31, 2016 and August 31, 2015 4,573,671 4,027,167
Trade joint ventures 718,899 645,377
Fees for services provided to joint ventures 1,351,593 1,449,162
Income taxes 510,288 198,462
Inventories 7,411,006 7,468,441
Prepaid expenses 489,946 411,473
Deferred income taxes 424,108 424,108
Total current assets 22,345,841 19,275,612

PROPERTY AND EQUIPMENT, NET 7,298,036 7,293,163

OTHER ASSETS:
Investments in joint ventures 18,604,871 20,544,238
Investments at carrying value (Note 7) 1,883,668 1,883,668
Deferred income taxes 1,175,170 1,176,012
Patents and trademarks, net 1,264,780 1,262,219
Other 199,216 130,736
Total other assets 23,127,705 24,996,873
Total assets $ 52,771,582 $ 51,565,648

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,769,347 $ 2,101,175
Accrued liabilities:
Payroll and related benefits 819,302 1,056,257
Other 364,405 514,409
Total current liabilities 3,953,054 3,671,841

COMMITMENTS AND CONTINGENCIES (Note 13)

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 4,537,116 and 4,539,045, respectively 90,742 90,781
Additional paid-in capital 13,738,062 13,441,264
Retained earnings 35,098,104 34,522,871
Accumulated other comprehensive loss (3,239,074 ) (3,180,811 )
Stockholders’ equity 45,687,834 44,874,105
Non-controlling interest 3,130,694 3,019,702
Total equity 48,818,528 47,893,807
Total liabilities and equity $ 52,771,582 $ 51,565,648

Three Months Ended Nine Months Ended
May 31, 2016 May 31, 2015 May 31, 2016 May 31, 2015
NET SALES:
Net sales, excluding joint ventures $ 7,925,357 $ 7,553,957 $ 21,454,381 $ 20,030,491
Net sales, to joint ventures 761,218 723,618 1,961,565 2,189,888
Total net sales 8,686,575 8,277,575 23,415,946 22,220,379
Cost of goods sold 5,777,249 5,595,207 15,920,896 15,059,558
Gross profit 2,909,326 2,682,368 7,495,050 7,160,821

JOINT VENTURE OPERATIONS:
Equity in income of joint ventures 1,664,464 1,724,915 3,600,884 4,806,247
Fees for services provided to joint ventures 1,351,913 1,303,964 3,808,384 4,432,494
Total joint venture operations 3,016,377 3,028,879 7,409,268 9,238,741

OPERATING EXPENSES:
Selling expenses 1,507,200 1,434,627 4,507,716 4,168,955
General and administrative expenses 1,691,077 1,703,083 5,057,777 4,794,206
Expenses incurred in support of joint ventures 266,791 327,586 881,255 1,510,830
Research and development expenses 1,231,950 1,064,710 3,349,572 2,968,879
Total operating expenses 4,697,018 4,530,006 13,796,320 13,442,870

OPERATING INCOME 1,228,685 1,181,241 1,107,998 2,956,692

INTEREST INCOME 29,868 7,943 58,425 25,504
INTEREST EXPENSE (15,465 ) (6,004 ) (30,987 ) (14,232 )
OTHER INCOME 6,294 — 7,255 2,145

INCOME BEFORE INCOME TAX EXPENSE 1,249,382 1,183,180 1,142,691 2,970,109

INCOME TAX EXPENSE 225,395 114,180 262,359 495,478

NET INCOME 1,023,987 1,069,000 880,332 2,474,631

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS 106,614 163,565 305,099 689,575

NET INCOME ATTRIBUTABLE TO NTIC $ 917,373 $ 905,435 $ 575,233 $ 1,785,056

NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic $ 0.20 $ 0.20 $ 0.13 $ 0.40
Diluted $ 0.20 $ 0.20 $ 0.13 $ 0.39

WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic 4,538,970 4,525,109 4,538,005 4,519,279
Diluted 4,563,801 4,594,992 4,587,064 4,635,561

	February 28, 2017			August 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,048,948		$	3,395,274
Available for sale securities		748,254			2,243,864
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at February 28, 2017 and August 31, 2016		5,916,486			4,755,320
Trade joint ventures		462,582			791,903
Fees for services provided to joint ventures		1,242,569			1,406,587
Income taxes		240,534			215,905
Inventories		8,052,207			7,711,287
Prepaid expenses		614,735			422,031
Total current assets		20,326,315			20,942,171

PROPERTY AND EQUIPMENT, NET		7,485,197			7,275,872

OTHER ASSETS:
Investments in joint ventures		21,059,113			19,840,774
Deferred income taxes		1,614,229			1,639,762
Patents and trademarks, net		1,305,039			1,278,597
Other		—			92,874
Total other assets		23,978,381			22,852,007
Total assets	$	51,789,893		$	51,070,050

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,565,903		$	2,753,903
Accrued liabilities:
Payroll and related benefits		708,411			938,363
Other		687,164			301,836
Total current liabilities		4,961,478			3,994,102

COMMITMENTS AND CONTINGENCIES (Note 13)

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 4,524,970 and 4,533,416, respectively		90,499			90,668
Additional paid-in capital		13,879,361			13,798,567
Retained earnings		34,339,958			33,655,357
Accumulated other comprehensive loss		(4,015,577	)		(3,009,617	)
Stockholders’ equity		44,294,241			44,534,975
Non-controlling interest		2,534,174			2,540,973
Total equity		46,828,415			47,075,948
Total liabilities and equity	$	51,789,893		$	51,070,050

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2017 AND FEBRUARY 29, 2016

	Three Months Ended						Six Months Ended
	February 28, 2017			February 29, 2016			February 28, 2017			February 29, 2016
NET SALES:
Net sales, excluding joint ventures	$	8,309,586		$	7,027,614		$	17,191,551		$	13,529,024
Net sales, to joint ventures		433,317			677,320			1,253,375			1,200,347
Total net sales		8,742,903			7,704,934			18,444,926			14,729,371

Cost of goods sold		5,870,186			5,268,224			12,482,952			10,143,647
Gross profit		2,872,717			2,436,710			5,961,974			4,585,724

JOINT VENTURE OPERATIONS:
Equity in income of joint ventures		1,383,139			952,667			2,657,143			1,936,420
Fees for services provided to joint ventures		1,184,028			971,042			2,499,619			2,456,471
Total joint venture operations		2,567,167			1,923,709			5,156,762			4,392,891

OPERATING EXPENSES:
Selling expenses		2,246,482			1,475,433			4,285,566			3,000,516
General and administrative expenses		1,842,528			1,806,557			4,314,308			3,981,164
Research and development expenses		742,037			1,113,525			1,384,559			2,117,622
Total operating expenses		4,831,047			4,395,515			9,984,433			9,099,302

OPERATING INCOME (LOSS)		608,837			(35,096	)		1,134,303			(120,687	)

INTEREST INCOME		4,516			14,384			8,079			28,557
INTEREST EXPENSE		(3,470	)		(10,796	)		(8,093	)		(15,522	)
OTHER INCOME		—			961			—			961

INCOME (LOSS) BEFORE INCOME TAX EXPENSE		609,883			(30,547	)		1,134,289			(106,691	)

INCOME TAX EXPENSE		124,909			40,466			242,622			36,964

NET INCOME (LOSS)		484,974			(71,013	)		891,667			(143,655	)

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		98,008			36,776			207,062			198,485

NET INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	386,966		$	(107,789	)	$	684,605		$	(342,140	)

NET INCOME (LOSS) ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	0.09		$	(0.02	)	$	0.15		$	(0.08	)
Diluted	$	0.09		$	(0.02	)	$	0.15		$	(0.08	)

WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic		4,525,091			4,537,429			4,527,555			4,536,995
Diluted		4,562,024			4,537,429			4,559,485			4,536,995

FOR THE THREE AND ~~NINE~~SIX MONTHS ENDED ~~MAY 31,~~FEBRUARY 28, 2017 AND FEBRUARY 29, 2016 ~~AND 2015~~

FOR THE ~~NINE~~SIX MONTHS ENDED ~~MAY 31,~~FEBRUARY 28, 2017 AND FEBRUARY 29, 2016 ~~AND 2015~~

1. INTERIM FINANCIAL INFORMATION

In the opinion of management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of ~~May 31, 2016~~February 28, 2017 and August 31, ~~2015~~2016 and the results of their operations for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ and their cash flows for the ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016, ~~and 2015,~~ in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K for the fiscal year ended August 31, ~~2015.~~2016. These consolidated financial statements also should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section appearing in this report.

Operating results for the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2016.

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

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.

2. 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~~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 believes there will be no material ~~impact, if any.~~impact.

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.

In November 2015, FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. The amendment takes effect for public entities for fiscal years beginning after December 15, 2017, with early adoption available. The Company ~~is currently assessing the impact that~~adopted ASU 2015-17 ~~will have~~as of August 31, 2016; and there was no material impact on its consolidated financial statements.

During February 2016, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ~~Accounting Standards Update (ASU)~~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 incurrently assessing the ~~process of evaluating the impacts of the adoption of this ASU.~~impact that ASU 2016-09 will have 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.

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 is estimated to approximate ~~$115,000~~$120,000 in each of the next five fiscal years.

6. 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 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 ~~venture~~ventures in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), Harita-NTI LTD (INDIA), Zerust OY (FINLAND) and all of the Company’s other joint ventures, are summarized as follows:

	May 31, 2016						As of February 28, 2017
	Total		EXCOR		All Other		TOTAL		EXCOR		INDIA		FINLAND		All Other
Current assets	$	47,930,421	$	22,433,723	$	25,496,698	$	51,803,644	$	25,396,338	$	4,342,356	$	1,625,779	$	20,439,171
Total assets		51,389,757		24,189,092		27,200,665		55,467,386		27,220,507		4,674,322		1,905,434		21,667,123
Current liabilities		13,952,018		4,602,925		9,349,093		13,028,897		3,027,106		1,485,452		484,988		8,031,351
Noncurrent liabilities		103,392		—		103,392		107,511		—		3,684		—		103,827
Joint ventures’ equity		37,334,348		19,586,166		17,748,182		42,330,978		24,193,401		3,185,186		1,420,446		13,531,945
Northern Technologies International Corporation’s share of joint ventures’ equity		18,604,871		9,793,085		8,811,786		21,059,113		12,096,702		1,592,593		710,221		6,659,597
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	15,892,135	$	9,416,694	$	6,475,441	$	18,984,898	$	12,065,797	$	727,771	$	690,221	$	5,501,109

On January 2, 2015, the Company announced that, effective as of December 31, 2014, the Company terminated its joint venture arrangement in China, Tianjin-Zerust Anticorrosion Co., Ltd. (Tianjin Zerust), and began the process of liquidating the joint venture entity. Since December 31, 2014, the Company has conducted business in China through a wholly-owned subsidiary, NTIC (Shanghai) Co. Ltd. (NTIC China). As of December 31, 2014, the Company started recognizing Tianjin Zerust based on its carrying value instead of the equity method since the Company no longer expects to significantly affect the joint venture’s operations or decision making. See Note 7.

The Company records expenses that are directly attributable to the joint ventures on its consolidated statements of operations in the line item “Expenses incurred in support of joint ventures.” The expenses include items such as employee compensation and benefit expenses, travel expense and consulting expense. See Note 13 regarding pending litigation involving Tianjin Zerust.

The Company did not make any joint venture investments during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 and ~~2015.~~February 29, 2016.

7. 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 iswas reported at carrying value based on the Company’s decreased level of influence over the entity, and the Company has reclassified previously unrecognized gains on foreign currency translation from accumulated other comprehensive income. ~~Any declines~~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. 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 13). These circumstances resulted in the Company concluding an indication of impairment existed and that the fair value ~~are reflected as adjustments to the carrying value. No such adjustments were recorded during the nine months ended May 31, 2016.~~

~~Because~~ of the lack of financial and other information received from Tianjin Zerust, it is possible that receipt of future financial and other information from Tianjin Zerust may impact the realization of the Company’s investment ~~in and realization of a receivable from Tianjin Zerust. The last time the Company received financial information from Tianjin Zerust~~ was ~~through November 2014. The Company,~~$0 as of ~~May~~August 31, 2016 ~~does not believe there are any triggering events that would require an impairment test. The Company’s current net investment is approximately $1,130,200, which is 60%~~based on accounting principles generally accepted in the United States of ~~its investment in Tianjin Zerust, which was $1,883,668 as of May 31, 2016. The Company will continue to evaluate the realization of this asset on an ongoing basis and adjust if necessary.~~

The Company incurred expenses of $1,425,000 and $1,138,000 during the nine months ended May 31, 2016 and 2015, respectively, related to the termination of the joint venture agreement with Tianjin Zerust, the initiation of the liquidation of Tianjin Zerust, the formation and initial operation of NTIC China and the litigation in North America. Such expenses consisted primarily of legal expenses and personnel expenses associated with the establishment of the subsidiary and the hiring of new personnel. These expenses are recorded as operating expenses on the consolidated statements of operations and are partially offset by the gross margin contribution from sales of NTIC China.

See Note 13 regarding ~~pending~~ongoing litigation involving Tianjin Zerust.

8. 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 ~~May 31, 2016~~February 28, 2017 and August 31, ~~2015.~~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. Interest is payable in arrears (a) for the portion of advances bearing interest under the prime rate on the last day of each month during the term thereof and (b) for the portion of advances bearing interest under the LIBOR option on the last day of the respective LIBOR interest period selected for such advance. Any unpaid interest is payable on the maturity date. The revolving line of credit is secured by cash, receivables and inventory.

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 February 28, 2017 and August 31, 2016 with PNC Bank. The availability of advances under the line of credit ~~is governed~~will be reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under ~~a loan agreement. The loan agreement contains standard covenants, including affirmative financial covenants, such as~~ the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, the Company is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of May 31, 2016, the Company was in compliance with all debt covenants.revolving credit facility.

On January ~~6, 2016,~~11, 2017, the Company and PNC Bank extended the maturity date of the line of credit ~~from January 7, 2016~~ to January 7, ~~2017.~~2018. All other terms of the line of credit and the loan agreement and other documents evidencing the line of credit remain the same.

As of February 28, 2017 and August 31, 2016, the Company had $75,201 and $71,599, respectively, of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2020 and 2022.

9. STOCKHOLDERS’ EQUITY

During the ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, the Company repurchased and retired ~~7,511~~11,475 shares of its common ~~stock. During~~stock at a price of $12.92 per share. No stock options to purchase shares of common stock were exercised during the ~~nine~~six months ended ~~May 31, 2015, the Company did not repurchase or retire any shares of its common stock.~~February 28, 2017.

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 the six months ended February 28, 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.

During the six months ended February 29, 2016, the Company repurchased and retired 5,461 shares of its common stock at a price of $12.92 per share. No stock options to purchase shares of common stock were exercised during the six months ended February 29, 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 the ~~nine~~six months ended ~~May 31,~~February 29, 2016. The weighted average per share exercise price of the stock options is $14.85, which is equal to the fair market value of the Company’s common stock on the date of grant.

~~During the nine months ended May 31, 2016, no stock options to purchase shares of common stock were exercised.~~

The Company granted stock options under the 2007 Plan to purchase an aggregate of 45,067 shares of its common stock to various employees and directors during the nine months ended May 31, 2015. The weighted average per share exercise price of the stock options is $20.10, which was equal to the fair market value of the Company’s common stock on the date of grant.

~~The following stock options to purchase shares of common stock were exercised during the nine months ended May 31, 2015:~~

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 per share assumes the exercise of stock options using the treasury stock method, if dilutive.

The following is a reconciliation of the ~~income~~earnings per share ~~computation:~~computation for the three and six months ended February 28, 2017 and February 29, 2016:

	Three Months Ended				Nine Months Ended				Three Months Ended					Six Months Ended
Numerators:	May 31, 2016		May 31, 2015		May 31, 2016		May 31, 2015		February 28, 2017		February 29, 2016			February 28, 2017		February 29, 2016
Net income attributable to NTIC	$	917,373	$	905,435	$	575,233	$	1,785,056
Net income (loss) attributable to NTIC									$	386,966	$	(107,789	)	$	684,605	$	(342,140	)

Denominators:
Basic – weighted shares outstanding		4,538,970		4,525,109		4,538,005		4,519,279		4,525,091		4,537,429			4,527,555		4,536,995
Weighted shares assumed upon exercise of stock options		24,831		69,883		49,059		116,282		36,933		—			31,930		—
Diluted – weighted shares outstanding		4,563,801		4,594,992		4,587,064		4,635,561		4,562,024		4,537,429			4,559,485		4,536,995
Basic income per share:	$	0.20	$	0.20	$	0.13	$	0.40
Diluted income per share:	$	0.20	$	0.20	$	0.13	$	0.39
Basic income (loss) per share:									$	0.09	$	(0.02	)	$	0.15	$	(0.08	)
Diluted income (loss) per share:									$	0.09	$	(0.02	)	$	0.15	$	(0.08	)

The dilutive impact summarized above relates to the periods when the average market price of the Company’s common stock exceeded the exercise price of the potentially dilutive option securities granted. ~~Income~~Earnings per common share ~~was~~were based on the weighted average number of ~~shares of~~ common ~~stock~~shares outstanding during the periods when computing the basic ~~income~~earnings per share. When dilutive, stock options are included as equivalents using the treasury stock market method when computing the diluted ~~income~~earnings per share. There were 275,791 options outstanding as of February 28, 2017 that were dilutive.

Excluded from the computation of diluted income per share for the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 were options outstanding to purchase ~~170,887~~48,067 shares of common stock. Excluded from the computation of diluted ~~income~~earnings per share for the three ~~and nine~~ months ended ~~May 31, 2015~~February 29, 2016 were all options outstanding to purchase ~~45,067~~283,181 shares of common ~~stock.~~stock, due to the Company’s net loss in the period.

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 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 ~~May 31, 2016,~~February 28, 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 2,439 and 1,948 shares on September 1, 2015 and 2014, respectively, under the ESPP. The Company issued 3,144 shares on March 1, 2016 under the ESPP.~~

The Company granted options to purchase an aggregate of ~~53,447~~56,677 and ~~45,067~~53,447 shares of its common stock during the ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016, ~~and 2015,~~ respectively. 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 Company recognized compensation expense of ~~$325,576~~$195,832 and ~~$378,421~~$223,715 during the ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016, ~~and 2015,~~ respectively, related to the options that vested during such time period. As of ~~May 31, 2016,~~February 28, 2017, the total compensation cost for ~~nonvested~~non-vested options not yet recognized in the Company’s consolidated statements of operations was ~~$341,261,~~$435,232, net of estimated forfeitures. Stock-based compensation expense of ~~$101,861~~$195,832 is expected through the remainder of fiscal year ~~2016,~~2017, and $159,600 and $79,800 is expected to be recognized during fiscal ~~2017~~2018 and fiscal ~~2018,~~2019, respectively, based on outstanding options as of ~~May 31, 2016.~~February 28, 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 Company currently estimates a ten percent forfeiture rate for stock options and continually reviews this estimate for future periods.

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:

	Nine Months Ended						Six Months Ended
	May 31, 2016			May 31, 2015			February 28, 2017			February 29, 2016
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected volatility		46.0	%		46.6	%		46.4	%		46.0	%
Expected life of option (years)		10			10
Expected life of option (in years)								10			10
Average risk-free interest rate		1.63	%		1.63	%		1.63	%		1.63	%

The weighted average per share fair value of options granted during ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 was $7.69 and ~~2015 was~~ $8.48, ~~and $11.58,~~ respectively. The weighted average remaining contractual life of the options outstanding as of ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ was ~~6.71~~6.91 years and ~~6.56~~6.96 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 resins and finished products under the Natur-Tec® brand.

The following table sets forth the Company’s net sales for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ by segment:

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	May 31, 2016		May 31, 2015		May 31, 2016		May 31, 2015		February 28, 2017		February 29, 2016		February 28, 2017		February 29, 2016
ZERUST® net sales	$	7,185,955	$	7,076,760	$	19,548,974	$	19,098,816	$	7,228,027	$	6,385,337	$	15,312,705	$	12,363,019
Natur-Tec® net sales		1,500,620		1,200,815		3,866,972		3,121,563		1,514,876		1,319,597		3,132,221		2,366,352
Total net sales	$	8,686,575	$	8,277,575	$	23,415,946	$	22,220,379	$	8,742,903	$	7,704,934	$	18,444,926	$	14,729,371

The following table sets forth the Company’s cost of goods sold for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ by segment:

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.

Net sales by geographic location for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ were as follows:

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 the three and ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ were as follows:

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.

Total long-lived assets located in Brazil, India, Germany and China primarily 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. Total assets located in the United States include the Company’s investments in joint ventures.

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~~geographic and ~~geographic~~segment information represents only sales and cost of goods sold recognized directly by the Company.

~~The geographical distribution of key financial statement data is as follows:~~

~~Total long-lived assets located~~All joint venture operations including equity in ~~Brazil, India~~income, fees for services and ~~China primarily consist of property, plant~~related dividends are related to ZERUST® products 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.~~services.

13. COMMITMENTS AND CONTINGENCIES

On August ~~18, 2015,~~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, ~~2016.~~2017. For fiscal ~~2016~~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 earnings before interest, taxes and other income, as adjusted to ~~take into account~~consider 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 ~~Adjusted~~ EBITOI for fiscal ~~2016~~2017 compared to a pre-established target ~~Adjusted~~ EBITOI for fiscal ~~2016~~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 ~~the Company’s~~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 ~~2016.~~2017. There was ~~$215,000~~$185,000 accrued for management bonuses for the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to anno accrual ~~of $466,000~~ for management bonuses for the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016.

~~Four~~Three joint ventures (consisting of the Company’s joint ventures in Korea, India ~~Thailand~~ and ~~Tianjin Zerust)~~Thailand) accounted for ~~65.6%~~57.1% of the Company’s trade joint venture receivables at ~~May 31, 2016~~February 28, 2017 and accounted for ~~67.0%~~55.8% of the Company’s trade joint venture receivables at August 31, ~~2015.~~2016.

On March 23, 2015, the Company and NTI Asean filed a lawsuit in Tianjin No 1 Intermediate People’s Court against two individuals, Tao Meng ~~Tao~~ and Xu Hui, related to breaches of duties and contractual commitments owed to NTI Asean under certain agreements related to the Company’s former joint venture in China, Tianjin Zerust Anti-Corrosion Technologies ~~Ltd.~~Ltd (Tianjin Zerust). The lawsuit alleges, among other things, that Mr. Tao Meng ~~Tao~~ 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 ~~May 31, 2016,~~February 28, 2017, the Company is not able to reasonably estimate the amount of any recovery to NTI Asean, if any.

On April 21, 2015, the Company and NTI Asean initiated a lawsuit in the District Court for the Second Judicial District, County of Ramsey, State of Minnesota against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to the Company and NTI Asean related to the Company’s joint venture in China, Tianjin Zerust. On November 23, 2017, NTIC and NTI Asean moved for partial summary judgment on their breach of contract claim. Cortec cross-moved for summary judgment on all NTIC’s and NTI Asean’s claims and moved to dismiss the amended supplemental complaint for failure to join an indispensable party. On February 16, 2017, the Court denied the parties’ cross-motions for dispositive relief and sua sponte dismissed the Company’s and NTI Asean’s claims based on a non-exclusive forum-selection clause contained in a settlement agreement between the parties. On March 9, 2017, the Court denied the Company’s and NTI Asean’s request to move for reconsideration of the Court’s February 16, 2017 Order. The Company and NTI Asean are currently evaluating their options related to this litigation.

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~~can 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 ~~May 31, 2016,~~February 28, 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.

14. Fair Value Measurements

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 Measurements
Using Inputs Considered as
Fair Value as of
May 31, 2016 Level 1 Level 2 Level 3
Available for sale securities $ 2,239,792 $ 2,239,792 $ — $ —

			Fair Value Measurements Using Inputs Considered as
	Fair Value as of February 28, 2017		Level 1		Level 2		Level 3
Available for sale securities	$	748,254	$	748,254	$	—	$	—

Fair Value Measurements
Using Inputs Considered as
Fair Value as of
August 31, 2015 Level 1 Level 2 Level 3
Available for sale securities $ 2,027,441 $ 2,027,441 $ — $ —

			Fair Value Measurements Using Inputs Considered as
	Fair Value as of August 31, 2016		Level 1		Level 2		Level 3
Available for sale securities	$	2,243,864	$	2,243,864	$	—	$	—

There were no transfers between Level 1, Level 2, or Level 3 during the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 and ~~2015.~~February 29, 2016.

~~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, ~~2015 and “~~~~Part II. Item 1A. Risk Factors~~~~” in this report.~~2016. 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.”

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 ~~resins~~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®~~ZERUST^® rust and corrosion inhibiting products include plastic and paper packaging, liquids and coatings, rust removers and cleaners, diffusers and 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®~~ZERUST^® rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet their technical requirements. In North America, NTIC sells its ~~ZERUST®~~ZERUST^® corrosion prevention solutions through ~~a direct sales force as well as~~ a network of independent distributors and ~~agents.~~agents supported by a direct sales force. Internationally, NTIC sells its ~~ZERUST®~~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, 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®~~ZERUST^® corrosion prevention solutions. Consequently, for the past several years, NTIC has focused ~~its~~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®~~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®~~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®~~ZERUST^® corrosion prevention solutions to customers in the oil and gas industry typically involves a long sales cycle, often including a one- to multi-year trial period with each customer and a slow integration process thereafter.

~~Natur-Tec®~~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®~~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 ~~resins~~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 ~~packaging foam~~ and coated paper products. In North America, NTIC markets its ~~Natur-Tec® resins~~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®~~Natur-Tec^® bioplastic products. Internationally, NTIC sells its ~~Natur-Tec® resins~~Natur-Tec^® resin compounds and finished products both directly and through its ~~majority- owned~~majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India), and through certain joint ventures. 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 use of non-biodegradable plastics in certain types of food and consumer packaging, NTIC expects the market in India for bioplastic packaging solutions to grow substantially.

On January 2, 2015, NTIC announced that, effective as of December 31, 2014, it is selling its ~~ZERUST®~~ZERUST^® products and services in China through a 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 LLC have filed a lawsuit in China against Mr. Tao Meng, ~~a Chinese national and~~ the former joint venture entity’s other shareholder, and his spouse, ~~in the Chinese court of Tianjin,~~ 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 LLC. ~~Commencing during the second quarter of fiscal 2015, NTIC’s consolidated financial statements include the financial results of NTIC China.~~

NTIC anticipates that it may take several quarters to transition many of the previous customers of Tianjin Zerust to NTIC China and no assurance can be provided that NTIC China will be able to achieve the net sales and income levels previously achieved by Tianjin Zerust. For fiscal 2014, Tianjin Zerust had net sales of $15.9 million and net income of $1.3 million. The operating income of the joint venture before paying royalties in an aggregate amount of $4.2 million to all shareholders was over $5.5 million; NTIC’s indirect ownership of Tianjin Zerust is 30%.

During fiscal 2015, NTIC incurred approximately $1,640,000 and during the first nine months of fiscal 2016, NTIC incurred approximately $1,425,000 in expenses related either directly or indirectly to the establishment and initial business operations of NTIC China, the termination of the joint venture agreements with Tianjin Zerust, its pending litigation against Mr. Tao Meng and his spouse and Cortec Corporation, and the anticipated liquidation of Tianjin Zerust. These expenses are recorded as selling, general and administrative expenses and expenses incurred in support of joint ventures on the consolidated statements of operations.

NTIC expects that its operating results may continue to be volatile ~~over the next few quarters~~ as a result of ~~NTIC’s~~its ongoing Chinese operations.

NTIC has ownership interests in six subsidiaries in North America, Europe and Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of February 28, 2017, the country in which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:

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

NTIC participates in 1920 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 its joint ventures based on the overall profitability of its 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. The profits of NTIC’s joint ventures 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.

The results of Zerust Brazil, NTI Asean and Natur-Tec India, and as of December 31, 2014, NTIC China, are fully consolidated in NTIC’s consolidated financial statements. NTIC holds 85% of the equity and 85% of the voting rights of Zerust Brazil. NTIC holds 60% of the equity and 60% of the voting rights of NTI Asean. NTI Asean holds investments in eight entities that operate in the following eight territories located in the ASEAN region: China (although liquidation was initiated December 31, 2014), Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. NTIC holds 90% of the equity and 90% of the voting rights of Natur-Tec India. NTIC China is a wholly-owned subsidiary of NTIC.

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.

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 ~~4.9%~~13.5% and ~~5.4%~~25.2% during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to the three and ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016. These increases were primarily a result of ~~increased~~an increase in sales ~~at NTIC China~~of ZERUST® rust and ~~increased~~corrosion inhibiting packaging products, sales to joint ventures and sales of Natur-Tec® ~~products, partially offset by decreased sales of Zerust industrial~~ products.

demand. NTIC has ~~focused~~expanded 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~~six months ended ~~May 31, 2016~~February 28, 2017 included ~~$1,229,426~~$952,240 of sales made to customers in the oil and gas industry compared to ~~$1,382,423~~$717,570 for the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 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.~~markets. In addition, we believe demand for ZERUST® products and services in the oil and gas industry ismay be dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.

During the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, 17.3% and ~~16.5%~~17.0%, of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products compared to ~~14.5%~~17.1% and ~~14.0%~~16.1% during the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively. Net sales of Natur-Tec® products increased ~~25.0%~~14.8% and ~~23.9%~~32.4% during the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively. These increases were primarily due to ~~increases~~an increase in finished product sales in North America and finished product sales at NTIC’s ~~majority owned~~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%~~67.1% during the three months ended ~~May 31, 2016~~February 28, 2017 compared to ~~67.6%~~68.4% during the three months ended ~~May 31, 2015~~February 29, 2016 and ~~increased~~decreased to ~~68.0%~~67.7% during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~67.8%~~68.9% during the prior fiscal year period. These ~~small variances~~decreases were primarily ~~as a result of small variances in raw material prices during the various periods and better margins on~~due to increased sales of ~~Natur-Tec® products.~~ZERUST® products and services in the oil and gas industry which carry higher margins than NTIC’s ZERUST® industrial products and services.

NTIC’s equity in income of joint ventures ~~decreased 3.5%~~increased 45.2% and ~~25.1%~~37.2% to ~~$1,664,464~~$1,383,139 and ~~$3,600,884,~~$2,657,143, respectively, during the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$1,724,915~~$952,667 and ~~$4,806,247~~$1,936,420 during the three and ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016, respectively. These ~~decreases~~increases were primarily ~~a result of decreases~~due to increases in profitability at the joint ventures, decreases associated with the anticipated liquidation of Tianjin Zerust and adverse effects of foreign currency exchange rate fluctuations, including in particular the Euro compared to the U.S. dollar. Equity in income provided by Tianjin Zerust was $0 for the nine months ended May 31, 2016 compared to $132,824 for the nine months ended May 31, 2015.

NTIC recognized a 3.7% increase and a 14.1% decrease in fees for services provided to joint ventures during the three and nine months ended May 31, 2016, compared to the three and nine months ended May 31, 2015, respectively. The decrease for the nine-month period was primarily a result of the anticipated liquidation of Tianjin Zerust and a decrease in sales at the joint ventures. Fees for services provided to Tianjin Zerust were $0 for the nine months ended May 31, 2016 compared to $516,000 for the nine months ended May 31, 2015. Additionally, there was a decrease in sales at the joint ventures, which were $66,223,514 during the nine months ended May 31, 2016, compared to $75,974,770 for the nine months ended May 31, 2015. This decrease in theTotal net sales of NTIC’s joint ventures ~~was~~increased 14.1% and 12.3% to $22,962,599 and $47,163,046 during the three and six months ended February 28, 2017, respectively, compared to $20,129,215 and $42,000,424 for the three and six months ended February 29, 2016, respectively. These increases were due primarily ~~the~~to higher sales from existing customers for new and existing products as a result of adverse effects of foreign currency exchange rate fluctuations and weaker economic trends, especially in Europe. This decrease resulted in a corresponding decrease in fees for services provided to joint ventures as such fees are a function of net sales of NTIC’s joint ventures.increased demand.

NTIC’s total operating expenses increased ~~3.6% and 2.6%~~9.7%, or $885,131, to ~~$4,697,018 and $13,796,320~~$9,984,433 during the ~~three and nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to the ~~nine~~six months ended ~~May 31, 2015, respectively.~~February 29, 2016. This increase was primarily ~~the result of the expenses related~~due to ~~the formation and establishment of NTIC China and the anticipated liquidation of Tianjin Zerust, partially offset by decreases~~an increase in legal expenses in North America ~~due~~related to ~~companywide cost cutting initiatives.~~the litigation against Cortec Corporation of $250,000 and an increase in operating expenses at NTIC China of $118,000. Such expenses ~~in China~~ consisted primarily of ~~legal~~selling and personnel ~~expenses~~expense associated with the ~~establishment~~increase in sales in China. Additionally, there was a management bonus accrual of $185,000 made during the ~~subsidiary,~~six months ended February 28, 2017 compared to no bonus accrual for the ~~hiring of new personnel and initial operations.~~six months ended February 29, 2016.

NTIC ~~expenses all costs related to product research~~spent $1,384,559 and ~~development as incurred. NTIC incurred $3,349,572 and $2,968,879~~$2,117,622 of expense during the ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016, ~~and 2015,~~ respectively, in connection with its research and development activities. NTIC anticipates that it will spend between ~~$4,000,000~~$2,200,000 and ~~$4,400,000~~$2,800,000 in ~~total during~~ fiscal ~~2016~~2017 on research and development ~~activities~~activities. This anticipated 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^® and the ZERUST^® oil and gas business since most of the expenses related to ~~its new technologies.~~these business units are no longer in the research and development phase of product development.

Net income attributable to NTIC ~~was $917,373,~~increased $494,755 to $386,966, or ~~$0.20~~$0.09, per diluted common share, for the three months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$905,435,~~net loss of $(107,789), or ~~$0.20~~$(0.02) per diluted common share, for the three months ended ~~May 31, 2015.~~February 29, 2016. Net income attributable to NTIC ~~decreased 67.8%~~increased 300.1%, to ~~$575,233,~~$684,605, or ~~$0.13~~$0.15 per diluted common share, for the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$1,785,056~~net loss attributable to NTIC of $(342,140), or ~~$0.39~~$(0.08) per diluted common share, for the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016. These increases were primarily the result of the increase in gross profit, partially offset by the increase in operating expenses.

NTIC anticipates that its quarterly net income or loss 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 be particularly volatile as a result of the changes in its Chinese operations.

NTIC’s working capital was ~~$18,392,783~~$15,364,837 at ~~May 31, 2016,~~February 28, 2017, including ~~$4,626,538~~$3,048,948 in cash and cash equivalents and ~~$2,239,792~~$748,254 in available for sale securities, compared to ~~$15,603,771~~$16,948,069 at August 31, ~~2015,~~2016, including ~~$2,623,981~~$3,395,274 in cash and cash equivalents and ~~$2,027,441~~$2,243,864 in available for sale securities.

The following tables set forth NTIC’s results of operations for the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 and ~~2015.~~February 29, 2016.

Net Sales. NTIC’s consolidated net sales increased ~~4.9%~~13.5% and ~~5.4%~~25.2% to ~~$8,686,575~~$8,742,903 and ~~$23,415,946, respectively,~~$18,444,926, during the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017, respectively, compared to the three and ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016. These increases were 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. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased ~~4.9%~~16.6% and ~~7.1%~~27.1% to ~~$7,925,357~~$8,309,586 and ~~$21,454,381, respectively,~~$17,191,551 during the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017, respectively, compared to the same respective prior fiscal year periods. These increases were primarily a result of increased demand ~~and sales~~from the addition of ~~ZERUST~~^® ~~rust and corrosion inhibiting packaging products and services~~new customers at ~~NTIC~~NTI China and an increase in sale of our Natur-Tec® products. Net sales to joint ventures decreased 36.0% and increased ~~5.2%~~4.4% to $433,317 and ~~decreased 10.4% to $761,218 and $1,961,565~~$1,253,375 during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to the same respective prior fiscal year periods. These changes were primarily the result of the timing of shipments during the quarter and at quarter end.

The following table sets forth NTIC’s net sales for the three and ~~nine~~six months ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~ by segment:

During the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, 82.7% and ~~83.5%~~83.0% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST^® products and services, which increased ~~1.5%~~13.2% and ~~2.4%~~23.9% to ~~$7,185,955~~$7,228,027 and ~~$19,548,974~~$15,312,705 during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to ~~$7,076,760~~$6,385,337 and ~~$19,098,816~~$12,363,019 during the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively. These increases were due to increased demand from existing customers and the addition of new ~~customers, primarily at NTIC China.~~customers. 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. In addition, we believe demand for ZERUST® products and services in the oil and gas industry ismay be dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.

The following table sets forth NTIC’s net sales of ZERUST^® products for the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 and ~~2015:~~February 29, 2016:

NTIC’s net sales to the oil and gas industry sector ~~were up slightly for~~decreased during the ~~three-month comparison~~three months ended February 28, 2017 compared to the prior fiscal year period primarily as a result of volatility in that sector and ~~decreased for~~ the ~~nine-month comparison.~~timing of projects. NTIC’s net sales to the oil and gas industry sector increased during the six months ended February 28, 2017 compared to the prior fiscal year period primarily as a result of increased sales to India as a result of increased demand. NTIC anticipates that its sales of ZERUST® products and services into the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are ~~recognized.~~recognized, specifically due to the volatility of oil prices.

During the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, 17.3% and ~~16.5%~~17.0% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, which increased ~~25.0%~~14.8% and ~~23.9%~~32.4% to ~~$1,500,620~~$1,514,876 and ~~$3,866,972~~$3,132,221 during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to the three and ~~nine~~six months ended ~~May 31, 2015. These~~February 29, 2016. Such increases were due to ~~increased demand from Natur-Tec~~the addition of new customers in North America and ~~India.~~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 ~~could~~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 ~~3.3%~~11.4% and ~~5.7%~~23.1% for the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to the three and ~~nine~~six months ended ~~May 31, 2015~~February 29, 2016. These increases were primarily as a result of the corresponding increased ~~net~~ sales ~~as described above.~~levels. Cost of goods sold as a percentage of net sales decreased to ~~66.5%~~67.1% during the three months ended ~~May 31, 2016~~February 28, 2017 compared to ~~67.6% during~~68.4% the three months ended ~~May 31, 2015~~February 29, 2016 and ~~increased~~decreased to ~~68.0%~~67.7% during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~67.8%~~68.9% during the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016. These ~~changes in cost of goods sold~~decreases were primarily as a ~~percentage~~result of increased net sales ~~were primarily~~and cost reductions realized on the ~~result of changes in~~ raw ~~material costs and margins on sales of Natur-Tec®~~materials associated with NTIC’s ZERUST® industrial products.

Equity in Income of Joint Ventures. NTIC’s equity in income of joint ventures ~~decreased 3.5%~~increased 45.2% and ~~25.1%~~37.2% to ~~$1,664,464~~$1,383,139 and ~~$3,600,884~~$2,657,143 during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to equity in income of joint ventures of ~~$1,724,915~~$952,667 and ~~$4,806,247~~$1,936,420 during the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively. These ~~decreases~~increases were primarily a result of ~~decreases in the~~improved sales and profitability at the joint ventures, a decrease in profitability associated with the anticipated liquidation of Tianjin Zerust and adverse effects of foreign currency exchange rate fluctuations, including in particular the Euro compared to the U.S. dollar. Equity in income provided by Tianjin Zerust was $0 for the nine months ended May 31, 2016 compared to $132,824 for the nine months ended May 31, 2015.ventures. Of the total equity in income of joint ventures, NTIC had equity in income of joint ventures of ~~$2,714,905~~$2,006,441 attributable to EXCOR during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$3,152,489~~$1,480,975 attributable to EXCOR during the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016. NTIC had equity in income of joint ventures of $170,549 attributable to India during the six months ended February 28, 2017 compared to $157,474 attributable to India during the six months ended February 29, 2016. NTIC had equity in income of joint ventures of $126,361 attributable to Finland during the six months ended February 28, 2017 compared to $104,070 attributable to Finland during the six months ended February 29, 2016. NTIC had equity in income of all other joint ventures of ~~$885,979~~$353,792 during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$1,520,934~~$193,900 during the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016.

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of ~~$1,351,913~~$1,184,028 and ~~$3,808,384~~$2,499,619 during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to ~~$1,303,964~~$971,042 and ~~$4,432,494~~$2,456,471 during the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively, representing ~~an increase~~increases of ~~3.7%~~21.9% and ~~decrease of 14.1%~~1.8%, respectively. ~~The decrease for the nine-month comparison was primarily a result of the anticipated liquidation Tianjin Zerust as fees~~Fee income for services provided to joint ventures from Tianjin Zerust were $0 for the nine months ended May 31, 2016 compared to $516,000 for the nine months ended May 31, 2015. Additionally, there was a decrease in total sales at all joint ventures for the nine-month comparison which adversely affected fees for services provided to joint ventures since fees for services provided to joint ventures are largelyis traditionally a function of ~~the net~~ sales ofmade by NTIC’s joint ventures. Total sales at all joint ventures were $24,223,090 and $66,223,514 during the three and nine months ended May 31, 2016, respectively, compared to $23,796,532 and $75,974,770 for the three and nine months ended May 31, 2015, respectively. Net sales of NTIC’s joint ventures decreased for the nine-month comparison due primarily to the adverse effects of foreign currency exchange rate fluctuations and weaker economic trends, especially in Europe. Net sales of NTIC’s European joint ventures were adversely affected by a downturn in European manufacturing. Future net sales of NTIC’s joint ventures ~~including in particular its European joint ventures, may be adversely affected by~~increased to $22,962,599 and $47,163,046 during the ~~recent referendum vote of~~three and six months ended February 28, 2017, respectively, compared to $20,129,215 and $42,000,424 for the ~~United Kingdom to exit the European Union. Sales~~three and six months ended February 29, 2016, respectively.

Net sales of NTIC’s joint ventures are not included in NTIC’s ~~product sales and are not combined with NTIC’s~~net sales in NTIC’s consolidated financial statements or in any description of NTIC’s net sales. Of the total fee income for services provided to joint ventures, fees of ~~$664,812~~$402,509 were attributable to EXCOR during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$660,135~~$422,654 attributable to EXCOR during the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016. Fees of $138,731 were attributable to India during the six months ended February 28, 2017 compared to $152,527 attributable to India during the six months ended February 29, 2016. Fees of $143,282 were attributable to Finland during the six months ended February 28, 2017 compared to $121,829 attributable to Finland during the six months ended February 29, 2016.

Selling Expenses. NTIC’s selling expenses increased ~~5.1%~~52.3% and ~~8.1%~~42.8% for the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to the same respective periods in fiscal ~~2015~~2016 due to ~~increases~~the transition of focus from research and development to selling, specifically as they relate to Natur-Tec^® and the ZERUST^® oil and gas business, since most of the expenses related to these business units are no longer in ~~compensation~~the research and ~~employee benefits, lab testing related expenses, commission expenses, travel and related expenses, and consulting expenses, each due in part to NTIC’s Chinese operations.~~development phase of product development. Selling expenses as a percentage of net sales increased to ~~17.4%~~25.7% and ~~19.3%~~23.2% for the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, from ~~17.3%~~19.1% and ~~18.8% and~~20.4% during the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively. The increases in selling expenses as a percentage of net sales were due primarily to the ~~increase in net sales partially offset by the increase in selling~~transition of expenses as ~~previously described.~~noted above.

General and Administrative Expenses. NTIC’s general and administrative expenses ~~decreased 0.7%~~increased 2.0% and ~~increased 5.5%~~8.4% for the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to the same respective periods in fiscal ~~2015. NTIC implemented cost cutting measures companywide~~2016 due primarily to 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^® and the ZERUST^® oil and gas business, since most of the expenses related to these business units are no longer in the ~~third quarter~~research and development phase of ~~fiscal year 2016, which partially offset~~product development. NTIC’s general and administrative expenses also increased due to an increase in legal expenses in North America related to the ~~expenses~~litigation against Cortec Corporation. NTIC incurred ~~in connection with NTIC’s Chinese operations.~~expense of $477,000 during the six months ended February 28, 2017, compared to $221,000 during the six months ended February 29, 2016. As a percentage of net sales, general and administrative expenses decreased to ~~19.5% and remained unchanged at 21.6%~~21.1% for the three ~~and nine~~ months ended ~~May 31, 2016, respectively,~~February 28, 2017, from ~~20.6%~~23.5% and ~~21.6%~~to 23.4% for the ~~three and nine~~six months ended ~~May 31, 2015, respectively.~~February 28, 2017, from 27.0%. The decrease in general and administrative expenses as a percentage of net sales for the ~~three-month~~three and six-month comparison was due primarily to the ~~decrease~~increase in net sales, partially offset by the increase in general and administrative expenses, as previously described.

~~Expenses Incurred in Support of Joint Ventures.~~ Expenses incurred in support of NTIC’s joint ventures were $266,791 and $881,255 during the three and nine months ended May 31, 2016, respectively, compared to $327,586 and $1,510,830 during the three and nine months ended May 31, 2015, respectively, representing decreases of 18.6% and 41.7%, respectively. These decreases were primarily due to expenses incurred by NTIC’s Chinese operations being classified as selling expenses and general and administrative expenses upon the formation of NTIC’s subsidiary in January 2015.

Research and Development Expenses. NTIC’s research and development expenses ~~increased 15.7%~~decreased 33.4% and 34.6% for the three and six months ended ~~May 31, 2016~~February 28, 2017 compared to the same ~~period~~respective periods in fiscal ~~2015 and increased 12.8% for the nine months ended May 31, 2016 compared to the same period in fiscal 2015.~~2016. These ~~increases~~decreases were due primarily to ~~increases in personnel~~the transition of resources that were previously devoted towards research and ~~consulting expenses.~~development to selling and general and administrative efforts, as previously described.

Interest Income. NTIC’s interest income ~~increased~~decreased to ~~$29,868~~$4,516 during the three months ended February 28, 2017 and ~~$58,425~~$8,079 during the six months ended February 28, 2017, compared to $14,384 and $28,557 during the three and ~~nine~~six months ended ~~May 31,~~February 29, 2016, respectively, ~~compared~~due primarily to ~~$7,943 and $25,504 during the three and nine months ended May 31, 2015, respectively.~~lower average cash balances.

Interest Expense. NTIC’s interest expense ~~increased~~decreased to ~~$15,465~~$3,470 during the three months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$6,004~~$10,796 during the three months ended ~~May 31, 2015~~February 29, 2016 and ~~increased~~decreased to ~~$30,987~~$8,093 during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to ~~$14,232~~$15,522 during the ~~nine~~six months ended ~~May 31, 2015.~~February 29, 2016.

Income (Loss) Before Income Tax Expense. NTIC incurred income before income tax expense of ~~$1,249,382~~$609,883 and ~~$1,142,691~~$1,134,289 for the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared to ~~$1,183,180~~loss before income tax expense of $30,547 and ~~$2,970,109~~$106,691 for the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively.

Income Tax Expense. Income tax expense was ~~$225,395~~$124,909 and ~~$262,359~~$242,622 during the three and ~~nine~~six months ended ~~May 31, 2016,~~February 28, 2017, respectively, compared income tax expense of ~~$114,180~~$40,466 and ~~$495,478~~$36,964 during the three and ~~nine~~six months ended ~~May 31, 2015,~~February 29, 2016, respectively. Income tax expense was calculated based on management’s estimate of NTIC’s annual effective income tax rate. NTIC’s annual effective income tax rate during the three and nine months ended May 31, 2016 and 2015 was lower than the statutory rate primarily due to 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 when it is more likely than not that some portion or all of its deferred tax assets will not be realized to reduce deferred tax assets to the amount expected to 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 carryforwards and Minnesota state research and development credit carryforwards, will be fully realized. In addition, NTIC determined based upon all available evidence, including new IRS guidance, historical results, projected future taxable income and foreign tax credit utilization, that it was not more likely than not that the federal research and development credits would be utilized during the carryforward period and as a result, a valuation allowance was recorded against all of NTIC’s federal research and development credits. In addition, NTIC continues to believe 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 used until after any current year foreign tax credits are utilized.

NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outside the United States based on ~~the basis of~~ estimates that NTIC’s future domestic cash generation will be sufficient to meet ~~its~~ future domestic cash needs. ~~As a result,~~Thus, U.S. income and foreign withholding taxes have not been recognized on the cumulative undistributed earnings of ~~$15,892,135~~$18,984,898 and ~~$18,483,377~~$17,779,912 at ~~May 31, 2016~~February 28, 2017 and August 31, ~~2015,~~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.~~credits

Other Comprehensive Income (Loss) ~~Income~~ - Foreign Currency Translations Adjustment. The significant changes in the foreign currency translations adjustment ~~were~~was due to the strengthening of the U.S. dollar compared to the Euro and other foreign currencies during the three and ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 compared to the same respective periods in fiscal ~~2015.~~2016.

Sources of Cash and Working Capital. As of ~~May 31, 2016,~~February 28, 2017, NTIC’s working capital was ~~$18,392,783,~~$15,364,837, including ~~$4,626,538~~$3,048,948 in cash and cash equivalents and ~~$2,239,792~~$748,254 in available for sale securities, compared to ~~$15,603,771~~$16,948,069 at August 31, ~~2015,~~2016, including ~~$2,623,981~~$3,395,274 in cash and cash equivalents and ~~$2,027,441~~$2,243,864 in available for sale securities.

As of ~~May 31, 2016,~~February 28, 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. 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, 2016,~~February 28, 2017, NTIC was in compliance with all debt covenants.

On January ~~6, 2016,~~11, 2017, NTIC and PNC Bank extended the maturity date of the line of credit retroactively from January 7, ~~2016~~2017 to January 7, ~~2017.~~2018. 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, 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 and any stock repurchases for at least the next 12 months. During the remainder of fiscal ~~2016,~~2017, NTIC expects to continue to invest ~~its Chinese operations,~~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. ~~In order to~~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 it is not likely that there exists any exposure to debt by NTIC’s joint ventures that could materially impact their respective operations and/or liquidity.

Uses of Cash and Cash Flows. Net cash ~~provided by~~used in operating activities during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 was ~~$3,053,297,~~$823,425, which resulted principally from NTIC’s equity in income from joint ventures, dividends received from ~~NTIC’s~~ joint ventures, ~~NTIC’s net~~increases in trade receivables, inventory, prepaid expenses, accrued liabilities, and income ~~the expensing of fair value of stock options vested, depreciation and amortization expense, and an increase in accounts~~tax payable, partially offset by ~~equity~~NTIC’s net income, ~~from NTIC’s joint ventures,~~depreciation and ~~a decrease in trade receivables and accrued liabilities.~~amortization. Net cash provided by operating activities during the ~~nine~~six months ended ~~May 31, 2015~~February 29, 2016 was ~~$36,221,~~$1,248,810, which resulted principally from dividends received from NTIC’s joint ventures, NTIC’s net income, fees for services provided to NTIC’s joint ventures, stock-based compensation, depreciation and amortization, partially offset by NTIC’s equity in income from joint ventures, dividends from joint ventures, a decrease in accrued liabilities and increases in receivables ~~inventories, accrued liabilities~~ and prepaid ~~expenses.~~expenses, partially offset by depreciation and amortization.

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 and ~~a decrease in~~ inventory as of ~~May 31, 2016~~February 28, 2017 compared to August 31, ~~2015 due to the increase in net sales and a desire to stock more products to shorten lead times and anticipate customer demand.~~2016. Trade receivables excluding joint ventures as of ~~May 31, 2016~~February 28, 2017 increased ~~$570,647~~$1,161,166 compared to August 31, ~~2015,~~2016, primarily related to the timing of collections and the increase in ~~NTIC’s net~~ sales. Outstanding trade receivables excluding joint ventures balances as of ~~May 31, 2016~~February 28, 2017 increased 5615 days to an average of ~~106~~65 days from balances outstanding from these customers as of August 31, ~~2015.~~2016. Outstanding trade receivables from joint ventures as of ~~May 31, 2016 increased $73,522~~February 28, 2017 decreased $329,321 compared to August 31, ~~2015~~2016 primarily due to the timing of payments. ~~There was an increase of outstanding~~Outstanding balances from trade receivables from joint ventures decreased as of ~~May 31, 2016 of~~February 28, 2017 by an average of 8020 days from an average of 9396 days from balances outstanding from these customers compared to August 31, ~~2015.~~2016. The significant average days outstanding of trade receivables from joint ventures as of ~~May 31, 2016~~February 28, 2017 were primarily due to the ~~receivable balance~~receivables balances at NTIC’s joint venture in in South Korea and Tianjin Zerust. Because of the lack of financial and other information received from Tianjin Zerust, it is possible that if and when financial and other information is received from Tianjin Zerust that NTIC may need to recognize an impairment charge on its receivable from Tianjin Zerust. NTIC estimates that its maximum exposure in terms of an impairment charge on this receivable would be approximately $114,000.Korea.

Outstanding receivables for services provided to joint ventures as of ~~May 31, 2016~~February 28, 2017 decreased ~~$97,569~~$164,018 compared to August 31, ~~2015,~~2016, which resulted in a decrease of 793 days of fees receivable outstanding as of ~~May 31, 2016~~February 28, 2017 to an average of ~~183~~95 days compared to August 31, ~~2015.~~2016.

Net cash provided by investing activities for the six months ended February 28, 2017 was $810,588, which was primarily the result of the proceeds from the sale of available for sale securities, offset by additions to property and equipment and additions to patents. Net cash used in investing activities for the ~~nine~~six months ended ~~May 31,~~February 29, 2016 was ~~$794,668,~~$1,080,567, which was primarily the result of ~~additions to property and equipment,~~ cash used in the purchase of available for sale securities, and additions to patents. Net cash provided by investing activities for the nine months ended May 31, 2015 was $1,755,098, which was primarily the result of cash proceeds from the sale of available for sale securities, partially offset by additions to property and equipment and additions to patents.

Net cash used in financing activities for the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 was ~~$228,817,~~$315,207, which resulted from a dividend paid to a non-controlling interest and the repurchase of common stock, ~~and~~partially offset by proceeds from NTIC’s employee stock purchase plan. Net cash used in financing activities for the ~~nine~~six months ended ~~May 31, 2015~~February 29, 2016 was ~~$402,570,~~$235,586, which resulted from a dividend paid to a non-controlling interest and the repurchase of common stock, partially offset by proceeds from ~~stock option exercises and~~ NTIC’s employee stock purchase plan.

~~Stock~~Share Repurchase ~~Program~~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. ~~During the nine months ended May 31, 2016, NTIC repurchased an aggregate of 7,511 shares for an aggregate purchase price of $97,400.~~ As of ~~May 31, 2016,~~February 28, 2017, up to ~~$2,878,197~~$2,688,605 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Capital Expenditures and Commitments. NTIC spent ~~$490,483~~$599,063 on capital expenditures during the ~~nine~~six months ended ~~May 31, 2016~~February 28, 2017 and expects to spend an aggregate of approximately ~~$100,000~~$700,000 to ~~$150,000~~$800,000 on capital expenditures during ~~the remainder of~~ fiscal ~~2016. Anticipated capital expenditures for fiscal 2016~~2017, which it expects will relate primarily to the purchase of new equipment.

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, ~~2015.~~2016.

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 in the United States and abroad historically has had little effect on NTIC. Although NTIC’s business historically has not ~~historically~~ been ~~seasonal.~~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 North American holiday season and overall less corrosion taking place at lower winter temperatures worldwide.

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 ~~May 31, 2016,~~February 28, 2017, NTIC had no borrowings under the line of credit.

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, ~~2015.~~2016.

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

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 ~~establishment~~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,”~~“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:

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, ~~2015~~2016 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 ~~could~~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.

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.

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.

There was no change in NTIC’s internal control over financial reporting that occurred during the quarter ended ~~May 31, 2016~~February 28, 2017 that has materially affected, or is reasonably likely to materially affect NTIC’s internal control over financial reporting.

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 ~~Tao~~ 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 ~~Tao~~ 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 in the District Court for the Second Judicial District, County of Ramsey, State of Minnesota against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to ~~the Company~~NTIC and NTI Asean related to NTIC’s joint venture in China, Tianjin Zerust. On November 4, 2015, NTIC and NTI Asean were permitted to file an amended complaint adding new counts, including, but not limited to, one for breach of contract, arising out of Cortec’s breach of a 2005 Settlement Agreement and Consent Order. The case was subsequently assigned to the complex civil jury trial calendar, extending deadlines for discovery and trial. The ~~current discovery deadline is September 23, 2016 and the trial will be scheduled during the March 27-April 14, 2017 jury trial block in Ramsey County. The~~ parties attended a court ordered mediation on September 24, 2015 which did not result in a settlement. A second mediation deadline of August 12, 2016 was set by the court in the amended scheduling ~~order.~~

~~In addition, from time~~order, which also did not result in a settlement. Fact discovery closed on September 23, 2016. On October 10, 2016, NTIC and NTI Asean moved the court for permission to ~~time we are involved in routine litigation that arises in the ordinary course of our business.~~

~~From time~~amend their amended supplemental complaint to ~~time, we are subject to various pending or threatened legal actions~~assert a claim for punitive damages. On November 23, 2017, NTIC and ~~proceedings, including those that arise in the ordinary course of our business, which may include employment matters and~~NTI Asean moved for partial summary judgment on their breach of contract ~~disputes. Such matters~~claim. Cortec cross-moved for summary judgment on all of NTIC’s and NTI Asean’s claims and moved to dismiss the amended supplemental complaint for failure to join an indispensable party. On February 16, 2017, the Court denied the parties’ cross-motions for dispositive relief and sua sponte dismissed NTIC’s and NTI Asean’s claims based on a non-exclusive forum-selection clause contained in a settlement agreement between the parties. On March 9, 2017, the Court denied NTIC’s and NTI Asean’s request to move for reconsideration of the Court’s February 16, 2017 Order. NTIC and NTI Asean are ~~subject~~currently evaluating their options related 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 pending litigation is not expected to have a material adverse effect on our results of operations or financial condition.this litigation.

During the three months ended ~~May 31, 2016,~~February 28, 2017, NTIC did not issue any shares of its common stock or other equity securities of NTIC that were not registered under the Securities Act of 1933, as amended.

The following table shows NTIC’s stock repurchase activity during the three months ended ~~May 31, 2016.~~February 28, 2017.

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

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

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Description			Page

PART I.I	FINANCIAL INFORMATION
		3
Item 1.	Financial Statements
		3
	Consolidated Balance Sheets as of ~~May~~February 28, 2017 (unaudited) and August 31, 2016 ~~(unaudited) and August 31, 2015~~	3

	Consolidated Statements of Operations (unaudited) for the Three and ~~Nine~~Six Months
	Ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~	4

	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and
	~~Nine~~ Six Months Ended ~~May 31,~~February 28, 2017 and February 29, 2016 ~~and 2015~~	5

	Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended
	~~May 31,~~ February 28, 2017 and February 29, 2016 ~~and 2015~~	6

	Notes to Consolidated Financial Statements (unaudited)	~~7-17~~7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results
	of Operations	~~18-31~~19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3132

Item 4.	Controls and Procedures	3233

PART ~~II.~~II	OTHER INFORMATION
		34
Item 1.	Legal Proceedings	3334

Item 1A.	Risk Factors	3334

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~33–~~34

Item 3.	Defaults Upon Senior Securities	3435

Item 4.	Mine Safety Disclosures	3435

Item 5.	Other Information	3435

Item 6.	Exhibits	34

~~SIGNATURE PAGE~~		35

~~EXHIBIT INDEX~~ SIGNATURES		36
EXHIBIT INDEX		37

	Three Months Ended					Nine Months Ended
	May 31, 2016		May 31, 2015			May 31, 2016			May 31, 2015
NET INCOME	$	1,023,987	$	1,069,000		$	880,332		$	2,474,631
OTHER COMPREHENSIVE INCOME (LOSS) – FOREIGN CURRENCY TRANSLATION ADJUSTMENT		432,360		(439,459	)		(52,370	)		(3,695,884	)

COMPREHENSIVE INCOME (LOSS)		1,456,347		629,541			827,962			(1,221,253	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		124,840		130,133			310,992			372,690
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	1,331,507	$	499,408		$	516,970		$	(1,593,943	)

	Three Months Ended					Six Months Ended
	February 28, 2017		February 29, 2016			February 28, 2017			February 29, 2016
NET INCOME (LOSS)	$	484,974	$	(71,013	)	$	891,667		$	(143,655	)
Other comprehensive income (LOSS) – foreign currency translation adjustment		230,991		380,398			(1,019,821	)		(484,730	)

COMPREHENSIVE INCOME (LOSS)		715,965		309,385			(128,154	)		(628,385	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON- CONTROLLING INTERESTS		132,829		21,377			193,200			186,152
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	583,136	$	288,008		$	(321,354	)	$	(814,537	)

	Nine Months Ended						Six Months Ended
	May 31, 2016			May 31, 2015			February 28, 2017			February 29, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	880,332		$	2,474,631
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	891,667		$	(143,655	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation		325,576			378,421			195,832			223,715
Depreciation expense		482,576			385,126			385,583			321,437
Amortization expense		89,275			65,747			59,517			59,517
Loss on disposal of assets		—			20,689
Equity in income from joint ventures		(3,600,884	)		(4,806,247	)		(2,657,143	)		(1,936,420	)
Deferred income taxes								24,987			—
Dividends received from joint ventures		5,449,543			2,767,771			564,934			4,054,606
Deferred income taxes		—			(27,558	)
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(570,647	)		(896,173	)		(1,177,496	)		(165,856	)
Trade, joint ventures		(73,522	)		324,338			329,321			(118,640	)
Fees for services provided to joint ventures		97,569			1,257,998			164,018			242,537
Income taxes		(314,038	)		(217,055	)		(16,484	)		(355,200	)
Inventories		17,185			(887,748	)		(349,600	)		111,146
Prepaid expenses and other		(58,518	)		(95,316	)		(103,671	)		(162,301	)
Accounts payable		692,741			82,550			915,538			(174,609	)
Income tax payable		(377	)		22,943			(91,282	)		2,564
Accrued liabilities		(363,514	)		(813,896	)		40,854			(710,031	)
Net cash provided by operating activities		3,053,297			36,221
Net cash (used in) provided by operating activities								(823,425	)		1,248,810

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available for sale securities		—			2,991,919			1,495,610			—
Purchase of available for sale securities		(212,351	)		—			—			(705,638	)
Additions to property and equipment		(490,481	)		(1,098,035	)		(599,063	)		(346,872	)
Additions to patents		(91,836	)		(138,786	)		(85,959	)		(28,057	)
Net cash (used in) provided by investing activities		(794,668	)		1,755,098
Net cash provided by (used in) investing activities								810,588			(1,080,567	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(200,000	)		(560,000	)		(200,000	)		(200,000	)
Repurchase of common stock		(97,450	)		—			(148,162	)		(70,549	)
Proceeds from employee stock purchase plan		68,633			57,980			32,955			34,963
Proceeds from exercise of stock options		—			99,450
Net cash used in financing activities		(228,817	)		(402,570	)		(315,207	)		(235,586	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH:		(27,255	)		(72,195	)		(18,282	)		(25,298	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		2,002,557			1,316,554

NET DECREASE IN CASH AND CASH EQUIVALENTS								(346,326	)		(92,641	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,623,981			2,477,017			3,395,274			2,623,981

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,626,538		$	3,793,571		$	3,048,948		$	2,531,340

	May 31, 2016			August 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,626,538		$	2,623,981
Available for sale securities		2,239,792			2,027,441
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $40,000 at May 31, 2016 and August 31, 2015		4,573,671			4,027,167
Trade joint ventures		718,899			645,377
Fees for services provided to joint ventures		1,351,593			1,449,162
Income taxes		510,288			198,462
Inventories		7,411,006			7,468,441
Prepaid expenses		489,946			411,473
Deferred income taxes		424,108			424,108
Total current assets		22,345,841			19,275,612

PROPERTY AND EQUIPMENT, NET		7,298,036			7,293,163

OTHER ASSETS:
Investments in joint ventures		18,604,871			20,544,238
Investments at carrying value (Note 7)		1,883,668			1,883,668
Deferred income taxes		1,175,170			1,176,012
Patents and trademarks, net		1,264,780			1,262,219
Other		199,216			130,736
Total other assets		23,127,705			24,996,873
Total assets	$	52,771,582		$	51,565,648

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	2,769,347		$	2,101,175
Accrued liabilities:
Payroll and related benefits		819,302			1,056,257
Other		364,405			514,409
Total current liabilities		3,953,054			3,671,841

COMMITMENTS AND CONTINGENCIES (Note 13)

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 4,537,116 and 4,539,045, respectively		90,742			90,781
Additional paid-in capital		13,738,062			13,441,264
Retained earnings		35,098,104			34,522,871
Accumulated other comprehensive loss		(3,239,074	)		(3,180,811	)
Stockholders’ equity		45,687,834			44,874,105
Non-controlling interest		3,130,694			3,019,702
Total equity		48,818,528			47,893,807
Total liabilities and equity	$	52,771,582		$	51,565,648

	Six Months Ended February 28, 2017
	Total		EXCOR		INDIA		FINLAND		All Other
Net sales	$	47,163,046	$	18,285,432	$	3,263,830	$	1,726,555	$	23,887,229
Gross profit		20,858,536		9,761,696		1,518,122		1,032,318		8,546,400
Net income		5,182,951		4,017,746		192,164		252,140		720,901
Northern Technologies International Corporation’s share of equity in income of joint ventures	$	2,657,143	$	2,006,441	$	170,549	$	126,361	$	353,792
Northern Technologies International Corporation’s dividends received from joint ventures	$	564,934	$	—	$	206,701	$	200,768	$	157,465

	Nine Months Ended May 31, 2016
	Total		EXCOR		All Other
Net sales	$	66,223,514	$	25,314,260	$	40,909,254
Gross profit		29,745,795		13,512,404		16,233,391
Net income		7,188,274		5,409,407		1,778,867
Northern Technologies International Corporation’s share of equity in income of joint ventures	$	3,600,884	$	2,714,905	$	885,979

	Nine Months Ended May 31, 2015
	Total		EXCOR		Tianjin Zerust		All Other
Net sales	$	75,974,770	$	27,580,051	$	3,735,457	$	44,659,262
Gross profit		37,469,186		15,113,100		1,783,673		20,572,413
Net income		9,634,318		6,334,009		265,648		3,034,661
Northern Technologies International Corporation’s share of equity in income of joint ventures	$	4,806,247	$	3,152,489	$	132,824	$	1,520,934

	As of August 31, 2016
	TOTAL		EXCOR		INDIA		FINLAND		All Other
Current assets	$	48,922,924	$	22,928,810	$	4,027,016	$	1,928,861	$	20,038,237
Total assets		52,407,026		24,733,340		4,352,573		2,211,392		21,109,721
Current liabilities		12,433,700		3,485,213		1,097,231		546,506		7,304,730
Noncurrent liabilities		100,783		—		6,382		—		94,401
Joint ventures’ equity		39,872,543		21,248,109		3,248,960		1,664,886		13,710,588
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		1,624,480		832,442		6,759,796
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	17,779,912	$	10,593,151	$	759,658	$	812,442	$	5,614,661
Northern Technologies International Corporation's dividends received from joint ventures	$	5,503,314	$	4,364,700	$	326,023	$	206,516	$	606,075

	Six Months Ended February 29, 2016
	Total		EXCOR		INDIA		FINLAND		All Other
Net sales	$	42,000,424	$	15,618,735	$	3,036,404	$	1,581,287	$	21,763,999
Gross profit		18,523,102		8,059,186		1,450,777		943,141		8,069,998
Net income		3,872,728		2,960,951		316,292		207,973		387,512
Northern Technologies International Corporation’s share of equity in income of joint ventures		1,936,420		1,480,975		157,474		104,070		193,900
Northern Technologies International Corporation’s dividends received from joint ventures	$	4,054,605	$	32,523,000	$	326,023	$	206,516	$	269,766

	Six Months Ended
	February 28, 2017		% of Total Fees for Services Provided to Joint Ventures			February 29, 2016		% of Total Fees for Services Provided to Joint Ventures
Germany	$	402,509		16.1	%	$	422,654		17.2	%
Poland		302,657		12.1	%		285,023		11.6	%
Japan		291,759		11.7	%		268,149		10.9	%
Thailand		235,081		9.4	%		263,063		10.7	%
Korea		191,481		7.6	%		171,902		7.0	%
France		180,785		7.2	%		162,785		6.6	%
Sweden		164,525		6.6	%		123,317		5.0	%
Czech Republic		144,114		5.8	%		121,933		5.0	%
Finland		143,282		5.7	%		121,829		5.0	%
United Kingdom		139,372		5.6	%		173,646		7.1	%
India		138,731		5.6	%		152,527		6.2	%
Other		165,323		6.6	%		189,643		7.7	%
	$	2,499,619		100.0	%	$	2,456,471		100.0	%

	At February 28, 2017		At August 31, 2016
Brazil	$	63,765	$	66,938
India		12,027		13,645
Germany		15,512		—
China		200,452		253,931
United States		7,193,441		6,941,358
Total long-lived assets	$	7,485,197	$	7,275,872

	Nine Months Ended
	May 31, 2016		% of Total Fees for Services Provided to Joint Ventures			May 31, 2015		% of Total Fees for Services Provided to Joint Ventures
Germany	$	664,812		17.4	%	$	660,135		14.9	%
Poland		452,260		11.8	%		437,607		9.9	%
Japan		416,241		10.9	%		409,316		9.2	%
Thailand		395,611		10.4	%		425,316		9.6	%
United Kingdom		292,216		7.7	%		304,600		6.9	%
France		250,373		6.6	%		318,686		7.2	%
Korea		247,730		6.5	%		133,405		3.0	%
India		223,137		5.9	%		215,548		4.9	%
Sweden		189,556		5.0	%		262,451		5.9	%
Finland		177,704		4.7	%		220,926		5.0	%
Czech Republic		176,470		4.6	%		165,492		3.7	%
China		—		0.0	%		516,139		11.6	%
Other		322,274		8.5	%		362,872		8.2	%
	$	3,808,384		100.0	%	$	4,432,494		100.0	%

			Fair Value Measurements Using Inputs Considered as
	Fair Value as of May 31, 2016		Level 1		Level 2		Level 3
Available for sale securities	$	2,239,792	$	2,239,792	$	—	$	—

	May 31, 2016			August 31, 2015			February 28, 2017			August 31, 2016
Land	$	310,365		$	310,365		$	310,365		$	310,365
Buildings and improvements		6,469,887			6,180,089			6,980,663			6,528,252
Machinery and equipment		4,273,741			4,090,619			3,674,867			3,590,063
		11,053,993			10,581,073			10,965,895			10,428,680
Less accumulated depreciation		(3,755,957	)		(3,287,910	)		(3,480,698	)		(3,152,808	)
	$	7,298,036		$	7,293,163		$	7,485,197		$	7,275,872

Options Exercised	Exercise Price
18,000	$7.65
2,333	$10.20

			Fair Value Measurements Using Inputs Considered as
	Fair Value as of August 31, 2015		Level 1		Level 2		Level 3
Available for sale securities	$	2,027,441	$	2,027,441	$	—	$	—

Joint Venture 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	%

	·	NTIC’s ongoing litigation against Mr. Tao Meng, its former joint venture partner, and NTIC’s options relating to the recent dismissal of its litigation against Cortec Corporation, and the effect of these legal matters and the expense associated therewith on NTIC’s ~~investment in Tianjin Zerust~~business and ~~a receivable from Tianjin Zerust;~~
		future operating results;

	·	The effect of current worldwide economic conditions ~~the European sovereign debt crisis~~ and any turmoil and disruption in the global credit and financial markets on NTIC’s business;

	·	The effect of the recent 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 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 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;

	·	NTIC’s dependence upon sales by Zerust Brazil to Petroleo Brasileiro S.A. (Petrobras), an oil company located in Brazil, and the effect of such sales on NTIC’s quarterly operating results, including in particular its net sales and margins;

	·	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;

	·	NTIC’s reliance upon and its relationships with its distributors, independent sales representatives and joint ventures;

	·	Oil prices, which may affect sales of NTIC’s ZERUST^® products and services into the oil and gas industry;

	·	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;