UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended February 28, ~~2017~~2018

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

For the transition period from ________________ to __________________.

Commission File Number: 001-11038

____________________

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

41-0857886

(I.R.S. Employer Identification No.)

4201 Woodland Road

P.O. Box 69

Circle Pines, Minnesota 55014

(Address of principal executive offices) (Zip code)

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

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

Large accelerated filer ☐

Accelerated filer ☐

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

Smaller reporting company ☒

Emerging growth company ☐

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

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

As of April ~~11, 2017,~~13, 2018, there were ~~4,524,970~~4,537,408 shares of common stock of the registrant outstanding.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

February 28, ~~2017~~2018

TABLE OF CONTENTS

Description			Page

PART II.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of February 28, ~~2017~~2018 (unaudited) and August 31, ~~2016~~2017		31
	Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017		42
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and Six Months Ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017		53
	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017		64
	Notes to Consolidated Financial Statements (unaudited)		75
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1917
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		3230
Item 4.	Controls and Procedures		3331
PART IIII.	OTHER INFORMATION	34
Item 1.	Legal Proceedings		3432
Item 1A.	Risk Factors		3432
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3432
Item 3.	Defaults Upon Senior Securities		3533
Item 4.	Mine Safety Disclosures		3533
Item 5.	Other Information		3533
Item 6.	Exhibits		33
SIGNATURE PAGE			35
~~SIGNATURES~~	36
~~EXHIBIT INDEX~~	37

_________________

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—~~Operations – Forward-Looking Statements.”

_________________

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

As used in this report, references to: (1) “NTIC China” refer to NTIC’s wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd.; (2) “NTI Europe” refer to NTIC’s wholly-owned subsidiary in Germany, NTIC Europe GmbH; (3) “Zerust Mexico” refer to NTIC’s wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V; (4) “Zerust Brazil” refer to NTIC’s majority-owned Brazilian subsidiary, Zerust Prevenção de Corrosão S.A.; (5) “Natur-Tec India” refer to NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited; and ~~(5)~~(6) “NTI Asean” refer to NTIC’s majority-owned holding company subsidiary, NTI Asean LLC, which is a holding company that holds investments in ~~eight~~seven 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.

NTIC’s consolidated financial statements do not include the accounts of any of its joint ventures. Except as otherwise indicated, references in this report to NTIC’s joint ventures do not include any of NTIC’s wholly-owned or majority-owned subsidiaries.

As used in this report, references to “EXCOR” refer to NTIC’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH.

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

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

2ii

PART I -

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF FEBRUARY 28, ~~2017~~2018 (UNAUDITED)

AND AUGUST 31, ~~2016~~2017 (AUDITED)

	February 28, 2018			August 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,067,087		$	6,360,201
Available for sale securities		3,268,426			3,766,984
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $50,000 at February 28, 2018 and $40,000 at August 31, 2017		8,310,043			5,912,631
Trade joint ventures		447,380			691,752
Fees for services provided to joint ventures		1,365,325			1,302,944
Income taxes		309,379			137,256
Inventories		9,126,171			7,456,552
Prepaid expenses		1,024,652			439,298
Total current assets		28,918,463			26,067,618

PROPERTY AND EQUIPMENT, NET		7,155,946			7,359,662

OTHER ASSETS:
Investments in joint ventures		22,259,526			20,035,074
Deferred income taxes		1,056,565			1,756,565
Patents and trademarks, net		1,241,618			1,322,089
Other		—			71,685
Total other assets		24,557,709			23,185,413
Total assets	$	60,632,118		$	56,612,693

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,266,257		$	2,676,610
Income taxes payable		342,853			—
Accrued liabilities:
Payroll and related benefits		1,437,921			1,540,386
Other		677,126			677,621
Total current liabilities		6,724,157			4,894,617

COMMITMENTS AND CONTINGENCIES (Note 12)

EQUITY:
Preferred stock, no par value; authorized 10,000 shares; none issued and outstanding		—			—
Common stock, $0.02 par value per share; authorized 15,000,000 shares as of February 28, 2018 and 10,000,000 shares as of August 31, 2017; issued and outstanding 4,537,408 and 4,535,018, respectively		90,748			90,700
Additional paid-in capital		14,397,851			14,163,509
Retained earnings		38,586,704			37,077,483
Accumulated other comprehensive loss		(2,070,752	)		(2,471,064	)
Stockholders’ equity		51,004,551			48,860,628
Non-controlling interest		2,903,410			2,857,448
Total equity		53,907,961			51,718,076
Total liabilities and equity	$	60,632,118		$	56,612,693

See notes to consolidated financial statements.

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

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017

	Three Months Ended						Six Months Ended
	February 28, 2018			February 28, 2017			February 28, 2018			February 28, 2017
NET SALES:
Net sales, excluding joint ventures	$	11,399,853		$	8,309,586		$	22,435,260		$	17,191,551
Net sales, to joint ventures		814,122			433,317			1,321,753			1,253,375
Total net sales		12,213,975			8,742,903			23,757,013			18,444,926

Cost of goods sold		8,012,836			5,870,186			15,901,306			12,482,952
Gross profit		4,201,139			2,872,717			7,855,707			5,961,974

JOINT VENTURE OPERATIONS:
Equity in income from joint ventures		1,805,997			1,383,139			3,547,325			2,657,143
Fees for services provided to joint ventures		1,608,890			1,184,028			3,116,032			2,499,619
Total joint venture operations		3,414,887			2,567,167			6,663,357			5,156,762

OPERATING EXPENSES:
Selling expenses		2,643,636			2,246,482			5,243,585			4,285,566
General and administrative expenses		1,805,216			1,842,528			4,024,961			4,314,308
Research and development expenses		922,746			742,037			1,721,477			1,384,559
Total operating expenses		5,371,598			4,831,047			10,990,023			9,984,433

OPERATING INCOME		2,244,428			608,837			3,529,041			1,134,303

INTEREST INCOME		24,883			4,516			48,939			8,079
INTEREST EXPENSE		(5,779	)		(3,470	)		(10,868	)		(8,093	)

INCOME BEFORE INCOME TAX EXPENSE		2,263,532			609,883			3,567,112			1,134,289

INCOME TAX EXPENSE		841,909			124,909			946,900			242,622

NET INCOME		1,421,623			484,974			2,620,212			891,667

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		88,776			98,008			203,739			207,062

NET INCOME ATTRIBUTABLE TO NTIC	$	1,332,847		$	386,966		$	2,416,473		$	684,605

NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	0.29		$	0.09		$	0.53		$	0.15
Diluted	$	0.29		$	0.09		$	0.52		$	0.15

WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:
Basic		4,537,408			4,525,091			4,537,368			4,527,555
Diluted		4,673,338			4,562,024			4,641,042			4,559,485
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.10		$	0.00		$	0.20		$	0.00

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017

	Three Months Ended				Six Months Ended
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
NET INCOME	$	1,421,623	$	484,974	$	2,620,212	$	891,667
Other comprehensive income (LOSS) – foreign currency translation adjustment		467,761		230,991		442,535		(1,019,821	)

COMPREHENSIVE INCOME (LOSS)		1,889,384		715,965		3,062,747		(128,154	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		109,046		132,829		245,962		193,200
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NTIC	$	1,780,338	$	583,136	$	2,816,785	$	(321,354	)

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CASH FLOWS (UNAUDITED)
FOR THE ~~THREE AND~~ SIX MONTHS ENDED FEBRUARY 28, ~~2017~~2018 AND FEBRUARY ~~29, 2016~~28, 2017

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

	Six Months Ended
	February 28, 2018			February 28, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,620,212		$	891,667
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		206,534			195,832
Depreciation expense		418,562			385,583
Amortization expense		125,092			59,517
Equity in income from joint ventures		(3,547,325	)		(2,657,143	)
Deferred income taxes		700,000			24,987
Dividends received from joint ventures		1,770,116			564,934
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(2,292,004	)		(1,177,496	)
Trade, joint ventures		244,372			329,321
Fees for services provided to joint ventures		(62,381	)		164,018
Income taxes		(178,998	)		(16,484	)
Inventories		(1,631,734	)		(349,600	)
Prepaid expenses and other		(504,848	)		(103,671	)
Accounts payable		1,669,859			915,538
Income tax payable		139,991			(91,282	)
Accrued liabilities		(193,647	)		40,854
Net cash used in operating activities		(516,199	)		(823,425	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of available for sale securities		498,558			1,495,610
Additions to property and equipment		(207,350	)		(599,063	)
Additions to patents		(44,621	)		(85,959	)
Net cash provided by investing activities		246,587			810,588

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(200,000	)		(200,000	)
Repurchase of common stock		—			(148,162	)
Dividends paid on NTIC common stock		(907,252	)		—
Proceeds from option exercises		15,375			—
Proceeds from employee stock purchase plan		12,481			32,955
Net cash used in financing activities		(1,079,396	)		(315,207	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:		55,894			(18,282	)


NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,293,114	)		(346,326	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		6,360,201			3,395,274

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,067,087		$	3,048,948

See notes to consolidated financial statements.

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (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 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 )

~~See notes to consolidated financial statements.~~

~~NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)~~
~~FOR THE SIX MONTHS ENDED FEBRUARY 28, 2017 AND FEBRUARY 29, 2016~~

Six Months Ended
February 28,
2017 February 29,
2016
CASH FLOWS FROM 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 195,832 223,715
Depreciation expense 385,583 321,437
Amortization expense 59,517 59,517
Equity in income from joint ventures (2,657,143 ) (1,936,420 )
Deferred income taxes 24,987 —
Dividends received from joint ventures 564,934 4,054,606
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures (1,177,496 ) (165,856 )
Trade, joint ventures 329,321 (118,640 )
Fees for services provided to joint ventures 164,018 242,537
Income taxes (16,484 ) (355,200 )
Inventories (349,600 ) 111,146
Prepaid expenses and other (103,671 ) (162,301 )
Accounts payable 915,538 (174,609 )
Income tax payable (91,282 ) 2,564
Accrued liabilities 40,854 (710,031 )
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 1,495,610 —
Purchase of available for sale securities — (705,638 )
Additions to property and equipment (599,063 ) (346,872 )
Additions to patents (85,959 ) (28,057 )
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 ) (200,000 )
Repurchase of common stock (148,162 ) (70,549 )
Proceeds from employee stock purchase plan 32,955 34,963
Net cash used in financing activities (315,207 ) (235,586 )

EFFECT OF EXCHANGE RATE CHANGES ON CASH: (18,282 ) (25,298 )

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,048,948 $ 2,531,340

~~See notes to consolidated financial statements.~~

~~NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. INTERIM FINANCIAL INFORMATION

In the opinion of management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of February 28, ~~2017~~2018 and August 31, ~~2016~~2017 and the results of their operations for the three and six months ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017 and their cash flows for the six months ended February 28, ~~2017~~2018 and ~~February 29, 2016,~~2017, 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, ~~2016.~~2017. 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 six months ended February 28, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, ~~2016.~~2018.

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. Accounting PronouncementS

Recently Issued Accounting ~~PronouncementS~~Pronouncements

In May 2014, the ~~Financial Accounting Standards Board (FASB)~~FASB issued Revenue from Contracts with Customers, Topic 606 ~~(Accounting Standards Update (ASU)~~(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 fiscal 2019. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial statements, but currently believes ~~there will be no material impact.~~

~~In July 2015,~~that 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 standardtimeline established for implementation 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 adopted ASU 2015-17 as of August 31, 2016; and there was no material impact on its consolidated financial statements.attainable.

During February 2016, the FASB issued 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 guidance will be effective for the Company’s first quarter of fiscal 2020. The Company is currently assessing the effect that ASU No. 2016-02 will have on its consolidated financial statements.

In ~~March~~August 2016, the FASB issued ASU No. ~~2016-07, “~~2016-15, ~~Investments – Equity Method~~Statement of Cash Flows, Classification of Certain Cash Receipts and ~~Joint Ventures (Topic 323): Simplifying~~Cash Payments. ASU 2016-15 eliminates the ~~Transition~~diversity in practice related to the ~~Equity Method~~classification of ~~Accounting.” Among other things,~~certain cash receipts and payments for debt prepayments or extinguishment costs, the ~~amendments in ASU 2016-07 eliminate~~maturing of a zero-coupon bond, the ~~requirement that when an investment qualifies for use~~settlement of ~~the~~contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method asinvestees and beneficial interests obtained in a ~~result~~financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of ~~an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations,~~these cash receipts 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.~~payments among operating, investing and financing activities. 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 investmentguidance 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.~~2017. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2016-15 on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Cuts and Jobs Act (Tax Reform Act) that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. ASU 2018-2, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. ASU 2018-02 will be effective for the Company’s fiscal year 2020, with the option to early adopt at any time prior to the effective date. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Reform Act is recognized. The Company is currently assessing the impact ~~that ASU 2016-07~~this new accounting guidance will have on its consolidated financial statements.

In ~~March 2016,~~December 2017, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 118 (as further clarified by FASB ~~issued~~ ASU ~~2016-09,~~2018-05, ~~Stock Compensation~~Income Taxes, (Topic 740): “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”) to provide guidance for companies that may not have completed their accounting for the income tax effects of the Tax Reform Act in the period of enactment, which is ~~intended~~the period that includes December 22, 2017. SAB No. 118 provides for a provisional one year measurement period for entities to ~~simplify several aspects of~~finalize their accounting for certain income tax effects related to the Tax Reform Act. SAB No. 118 provides guidance where: (i) the accounting for ~~share-based payment award transactions. The guidance will be effective~~the income tax effect of the Tax Reform Act is complete and reported in the Tax Reform Act’s enactment period, (ii) the accounting for the ~~fiscal year beginning after December~~income tax effect of the Tax Reform Act is incomplete and reported as provisional amounts based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period until complete, and (iii) accounting for the income tax effect of the Tax Reform Act is not reasonably estimable (no related provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on tax law provisions in effect prior to the Tax Reform Act enactment until provisional amounts are reasonably estimable. SAB No. 118 requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among other relevant information (see Note 15 ~~2016, including interim periods within that year. The Company is currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.~~- Income Taxes).

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

3. INVENTORIES

Inventories consisted of the following:

	February 28, 2017		August 31, 2016		February 28, 2018		August 31, 2017
Production materials	$	1,302,043	$	1,452,396	$	1,820,942	$	1,747,189
Finished goods		6,750,164		6,258,891		7,305,229		5,709,363
	$	8,052,207	$	7,711,287	$	9,126,171	$	7,456,552

4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	February 28, 2017			August 31, 2016			February 28, 2018			August 31, 2017
Land	$	310,365		$	310,365		$	310,365		$	310,365
Buildings and improvements		6,980,663			6,528,252			6,815,771			6,847,177
Machinery and equipment		3,674,867			3,590,063			4,414,136			4,171,387
		10,965,895			10,428,680			11,540,272			11,328,929
Less accumulated depreciation		(3,480,698	)		(3,152,808	)		(4,384,326	)		(3,969,267	)
	$	7,485,197		$	7,275,872		$	7,155,946		$	7,359,662

5. PATENTS AND TRADEMARKS, NET

Patents and trademarks, net consisted of the following:

	February 28, 2017			August 31, 2016			February 28, 2018			August 31, 2017
Patents and trademarks	$	2,661,393		$	2,575,435		$	2,782,580		$	2,737,959
Less accumulated amortization		(1,356,354	)		(1,296,838	)		(1,540,962	)		(1,415,870	)
	$	1,305,039		$	1,278,597		$	1,241,618		$	1,322,089

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 ~~$120,000~~$240,000 in each of the next five fiscal years.

6. INVESTMENTS IN JOINT VENTURES

The consolidated financial statements of the Company’s foreign joint ventures are initially prepared using the accounting principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint ventures reported in the below tables and the accompanying consolidated financial statements have subsequently been adjusted to conform with ~~accounting principles generally accepted in the United States of America~~U.S. GAAP in all material respects. All material profits recorded that remain on the balance sheet on sales from the Company to its joint ventures and from joint ventures to other joint ventures have been eliminated for financial reporting purposes.

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

	As of February 28, 2017										As of February 28, 2018
	TOTAL		EXCOR		INDIA		FINLAND		All Other		Total		EXCOR		All Other
Current assets	$	51,803,644	$	25,396,338	$	4,342,356	$	1,625,779	$	20,439,171	$	57,427,392	$	25,206,550	$	32,220,842
Total assets		55,467,386		27,220,507		4,674,322		1,905,434		21,667,123		61,497,315		27,326,727		34,170,588
Current liabilities		13,028,897		3,027,106		1,485,452		484,988		8,031,351		16,468,617		4,148,371		12,320,246
Noncurrent liabilities		107,511		—		3,684		—		103,827		120,481		—		120,481
Joint ventures’ equity		42,330,978		24,193,401		3,185,186		1,420,446		13,531,945		44,908,217		23,178,356		21,729,861
Northern Technologies International Corporation’s share of joint ventures’ equity		21,059,113		12,096,702		1,592,593		710,221		6,659,597		22,259,526		11,589,180		10,670,346
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	18,984,898	$	12,065,797	$	727,771	$	690,221	$	5,501,109	$	20,230,286	$	11,558,275	$	8,672,011
Northern Technologies International Corporation’s dividends received from joint ventures											$	1,770,116	$	1,199,142	$	570,974

	Three Months Ended February 28, 2018
	Total		EXCOR		All Other
Net sales	$	30,220,550	$	12,204,736	$	18,015,814
Gross profit		13,531,276		6,557,964		6,973,312
Net income		3,712,684		2,674,777		1,037,907
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,805,997	$	1,338,671	$	467,326

	Six Months Ended February 28, 2017										Six Months Ended February 28, 2018
	Total		EXCOR		INDIA		FINLAND		All Other		Total		EXCOR		All Other
Net sales	$	47,163,046	$	18,285,432	$	3,263,830	$	1,726,555	$	23,887,229	$	58,719,261	$	23,231,250	$	35,488,011
Gross profit		20,858,536		9,761,696		1,518,122		1,032,318		8,546,400		26,319,398		12,491,490		13,827,908
Net income		5,182,951		4,017,746		192,164		252,140		720,901		7,212,499		5,158,577		2,053,922
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
Northern Technologies International Corporation’s share of equity in income from joint ventures											$	3,547,325	$	2,580,571	$	966,754

	As of August 31, 2016										As of August 31, 2017
	TOTAL		EXCOR		INDIA		FINLAND		All Other		Total		EXCOR		All Other
Current assets	$	48,922,924	$	22,928,810	$	4,027,016	$	1,928,861	$	20,038,237	$	51,518,210	$	22,142,514	$	29,375,696
Total assets		52,407,026		24,733,340		4,352,573		2,211,392		21,109,721		55,633,891		24,301,194		31,332,697
Current liabilities		12,433,700		3,485,213		1,097,231		546,506		7,304,730		15,118,074		4,469,567		10,648,507
Noncurrent liabilities		100,783		—		6,382		—		94,401		181,210		—		181,210
Joint ventures’ equity		39,872,543		21,248,109		3,248,960		1,664,886		13,710,588		40,334,607		19,831,627		20,502,980
Northern Technologies International Corporation’s share of joint ventures’ equity		19,840,774		10,624,056		1,624,480		832,442		6,759,796		20,035,074		9,915,816		10,119,258
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings	$	17,779,912	$	10,593,151	$	759,658	$	812,442	$	5,614,661		17,960,860		9,884,911		8,075,949
Northern Technologies International Corporation's dividends received from joint ventures	$	5,503,314	$	4,364,700	$	326,023	$	206,516	$	606,075
Northern Technologies International Corporation’s dividends received from joint ventures											$	6,377,054	$	5,379,062	$	997,992

	Three Months Ended February 28, 2017
	Total		EXCOR		All Other
Net sales	$	22,962,599	$	9,076,908	$	13,885,691
Gross profit		10,161,509		4,867,517		5,293,992
Net income		2,774,943		2,161,408		613,535
Northern Technologies International Corporation’s share of equity in income from joint ventures	$	1,383,139	$	1,078,272	$	304,867

	Six Months Ended February 29, 2016										Six Months Ended February 28, 2017
	Total		EXCOR		INDIA		FINLAND		All Other		Total		EXCOR		All Other
Net sales	$	42,000,424	$	15,618,735	$	3,036,404	$	1,581,287	$	21,763,999	$	47,163,046	$	18,285,432	$	28,877,614
Gross profit		18,523,102		8,059,186		1,450,777		943,141		8,069,998		20,858,536		9,761,696		11,096,840
Net income		3,872,728		2,960,951		316,292		207,973		387,512		5,182,951		4,017,746		1,165,205
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
Northern Technologies International Corporation’s share of equity in income from joint ventures											$	2,657,143	$	2,006,441	$	650,702

The Company did not make any joint venture investments during the six months ended February 28, ~~2017 and 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 was 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. 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 information2018 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 of the investment was $0 as of August 31, 2016 based on accounting principles generally accepted in the United States of America. See Note 13 regarding ongoing litigation involving Tianjin Zerust.2017.

8.7. CORPORATE DEBT

The Company has a revolving line of credit with PNC Bank, National Association (PNC Bank) of $3,000,000. No amounts were outstanding under the line of credit as of both February 28, ~~2017~~2018 and August 31, ~~2016.~~2017. 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~~governed 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 ~~inventory.~~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 February 28, 2018, the Company was in compliance with all debt covenants.

The revolving credit facility allows the Company to request that PNC Bank issue letters of credit up to $1,200,000. The Company did not have any letters of credit reserved against the available letters of credit balance as of February 28, ~~2017~~2018 and August 31, ~~2016~~2017 with PNC Bank. The availability of advances under the line of credit will be reduced by the face amount of any letter of credit issued and outstanding (whether or not drawn) under the revolving credit facility.

As of February 28, 2018 and August 31, 2017, the Company had $88,831 and $89,543, respectively, of letters of credit with JP Morgan Chase Bank that are performance based and set to expire between 2020 and 2022.

On January ~~11, 2017,~~5, 2018, the Company and PNC Bank extended the maturity date of the line of credit to January 7, ~~2018.~~2019. 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.

9.8. STOCKHOLDERS’ EQUITY

During the six months ended February 28, 2018, the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of the Company’s common stock:

Declaration Date	Amount	Record Date	Payable Date
November 20, 2017	$0.10	December 8, 2017	December 21, 2017
January 24, 2018	$0.10	February 8, 2018	February 21, 2018

During the six months ended February 28, 2018, the Company repurchased no shares of its common stock. During the six months ended February 28, 2018, stock options to purchase an aggregate of 1,500 shares of common stock were exercised at a weighted average exercise price of $10.25 per share.

The Company granted stock options under the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (2007 Plan) to purchase an aggregate of 47,252 shares of its common stock to various employees and directors during the six months ended February 28, 2018. The weighted average per share exercise price of the stock options is $18.35, which was equal to the fair market value of the Company’s common stock on the date of grant.

The Company issued 891 and 3,029 shares of common stock on September 1, 2017 and 2016, respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP).

The Company held its 2018 Annual Meeting of Stockholders (2018 Annual Meeting) on January 12, 2018. At the 2018 Annual Meeting, a proposal to approve an amendment to the Company’s Restated Certificate of Incorporation to increase the Company’s authorized shares of common stock from 10,000,000 to 15,000,000 (Share Increase Amendment) was approved by the Company’s stockholders by the required vote. The Share Increase Amendment was filed with the Office of the Secretary of State of the State of Delaware on January 16, 2018 and it became effective the same day. In determining that the Share Increase Amendment was approved by the required vote, votes cast by brokers, banks or other nominees without instruction from the beneficial owners of certain of our outstanding shares were counted in favor of the proposal in accordance with the rules of the New York Stock Exchange that govern how brokers may cast such votes. Because a disclosure in the definitive proxy statement for the 2018 Annual Meeting, which was filed on Schedule 14A with the Securities and Exchange Commission (SEC) on November 27, 2017 (2018 Proxy Statement), anticipated that brokers would not have discretion to vote for the proposal to approve the Share Increase Amendment, a question has been raised as to the validity of the vote taken on the proposal to approve the Share Increase Amendment. The Company believes that the Share Increase Amendment was properly approved and is effective. However, because the description of the authority of brokers to vote on proposals without instruction in the 2018 Proxy Statement may create some uncertainty as to the effect of the vote obtained at the 2018 Annual Meeting and out of an abundance of caution, the Company intends to ask its stockholders at either a special meeting or the next annual meeting of the Company’s stockholders to ratify the filing and effectiveness of the Share Increase Amendment pursuant to Delaware law in order to eliminate any uncertainty related to the effectiveness of the Share Increase Amendment. The Company has not issued, or reserved for issuance, and will not issue, or reserve for issuance, any of the additional 5,000,000 authorized shares as part of the Share Increase Amendment unless the vote at the special or annual meeting of the Company’s stockholders is in favor of the ratification of the Share Increase Amendment.

During the six months ended February 28, 2017, the Company repurchased and retired 11,475 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 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 iswas $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 six months ended 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.

~~10.~~9. 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 earnings per share ~~computation for the three and six months ended February 28, 2017 and February 29, 2016:~~computation:

	Three Months Ended					Six Months Ended					Three Months Ended				Six Months Ended
Numerators:	February 28, 2017		February 29, 2016			February 28, 2017		February 29, 2016			February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Net income (loss) attributable to NTIC	$	386,966	$	(107,789	)	$	684,605	$	(342,140	)
Net income attributable to NTIC											$	1,332,847	$	386,966	$	2,416,473	$	684,605

Denominators:
Basic – weighted shares outstanding		4,525,091		4,537,429			4,527,555		4,536,995			4,537,408		4,525,091		4,537,368		4,527,555
Weighted shares assumed upon exercise of stock options		36,933		—			31,930		—			135,930		36,933		103,674		31,930
Diluted – weighted shares outstanding		4,562,024		4,537,429			4,559,485		4,536,995			4,673,338		4,562,024		4,641,042		4,559,485
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	)
Basic income per share:											$	0.29	$	0.09	$	0.53	$	0.15
Diluted income per share:											$	0.29	$	0.09	$	0.52	$	0.15

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. Earnings per common share were based on the weighted average number of common shares outstanding during the periods when computing the basic earnings per share. When dilutive, stock options are included as equivalents using the treasury stock market method when computing the diluted earnings per share. ~~There were 275,791 options outstanding as of February 28, 2017 that were dilutive.~~

There were no shares excluded from the computation of diluted income per share for the three and six months ended February 28, 2018. Excluded from the computation of diluted ~~income~~earnings per share for the three and six months ended February 28, 2017 were options outstanding to purchase 48,067 shares of common stock. Excluded from the computation of diluted earnings per share for the three months ended February 29, 2016 were all options outstanding to purchase 283,181 shares of common stock, due to the Company’s net loss in the period.

~~11.~~10. 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)~~(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 February 28, ~~2017,~~2018, 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 granted options to purchase an aggregate of ~~56,677~~47,252 and ~~53,447~~56,677 shares of its common stock during the six months ended February 28, ~~2017~~2018 and ~~February 29, 2016,~~2017, 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 ~~$195,832~~$206,534 and ~~$223,715~~$195,832 during the six months ended February 28, ~~2017~~2018 and ~~February 29, 2016,~~2017, respectively, related to the options that vested during such time period. As of February 28, ~~2017,~~2018, the total compensation cost for ~~non-vested~~nonvested options not yet recognized in the Company’s consolidated statements of operations was ~~$435,232, net of estimated forfeitures.~~$425,669. Stock-based compensation expense of ~~$195,832~~$206,534 is expected through the remainder of fiscal year ~~2017,~~2018, and ~~$159,600~~$153,901 and ~~$79,800~~$65,234 is expected to be recognized during fiscal ~~2018~~2019 and fiscal ~~2019,~~2020, respectively, based on outstanding options as of February 28, ~~2017.~~2018. 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~~option pricing model with the following assumptions and results for the grants:

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

	Three and Six months ended
	February 28, 2018	February 28, 2017
Dividend yield	2.18%	0.00%
Expected volatility	45.9%	46.4%
Expected life of option (in years)	10	10
Average risk-free interest rate	1.87%	1.63%

The weighted average per share fair value of options granted during the six months ended February 28, 2018 and 2017 was $7.75 and ~~February 29, 2016 was~~ $7.69, ~~and $8.48,~~ respectively. The weighted average remaining contractual life of the options outstanding as of February 28, 2018 and 2017 was 6.75 years and ~~February 29, 2016 was~~ 6.91 years, ~~and 6.96 years,~~ respectively.

~~12.~~11. SEGMENT AND ~~GEOGRAPHIC~~GEOGRAPHICAL INFORMATION

Segment Information

The Company’s chief operating decision maker ~~(“CODM”)~~(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.

1311

The following table sets forth the Company’s net sales for the three and six months ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017 by segment:

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	February 28, 2017		February 29, 2016		February 28, 2017		February 29, 2016		February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
ZERUST® net sales	$	7,228,027	$	6,385,337	$	15,312,705	$	12,363,019	$	10,191,459	$	7,228,027	$	19,719,196	$	15,312,705
Natur-Tec® net sales		1,514,876		1,319,597		3,132,221		2,366,352		2,022,516		1,514,876		4,037,817		3,132,221
Total net sales	$	8,742,903	$	7,704,934	$	18,444,926	$	14,729,371	$	12,213,975	$	8,742,903	$	23,757,013	$	18,444,926

The following table sets forth the Company’s cost of goods sold for the three and six months ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017 by segment:

	Three Months Ended										Six Months Ended										Three Months Ended										Six Months Ended
	February 28, 2017		% of Segment Sales*			February 29, 2016		% of Segment Sales*			February 28, 2017		% of Segment Sales*			February 29, 2016		% of Segment Sales*			February 28, 2018		% of Segment Sales*			February 28, 2017		% of Segment Sales*			February 28, 2018		% of Segment Sales*			February 28, 2017		% of Segment Sales*
Direct cost of goods sold
ZERUST®	$	4,254,524		58.9	%	$	3,576,073		56.0	%	$	8,954,061		58.5	%	$	6,940,628		56.1	%	$	6,005,262		58.9	%	$	4,254,524		58.9	%	$	11,809,242		59.9	%	$	8,954,061		58.5	%
Natur-Tec®		1,068,231		70.5	%		984,938		74.6	%		2,281,399		72.8	%		1,819,197		76.9	%		1,447,240		71.6	%		1,068,231		70.5	%		2,926,439		72.5	%		2,281,399		72.8	%
Indirect cost of goods sold		547,431		—			707,213		—			1,247,492		—			1,383,822		—			560,334		—			547,431		—			1,165,625		—			1,247,492		—
Total net cost of goods sold	$	5,870,186				$	5,268,224				$	12,482,952				$	10,143,647				$	8,012,836				$	5,870,186				$	15,901,306				$	12,482,952

~~______________________~~

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

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

Geographic Information

Net sales by geographic location for the three and six months ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017 were as follows:

Three Months Ended Six Months Ended
February 28,
2017 February 29,
2016 February 28,
2017 February 29,
2016
Inside the U.S.A. to unaffiliated customers $ 5,245,092 $ 4,683,208 $ 10,395,832 $ 9,522,987
Outside the U.S.A to:
Joint ventures in which the Company is shareholder directly and indirectly 433,317 677,320 1,253,375 1,200,347
Unaffiliated customers 3,064,494 2,344,406 6,795,719 4,006,037
$ 8,742,903 $ 7,704,934 $ 18,444,926 $ 14,729,371

	Three Months Ended				Six Months Ended
	February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Inside the U.S.A. to unaffiliated customers	$	6,079,835	$	5,245,092	$	12,336,040	$	10,395,832
Outside the U.S.A to:
Joint ventures in which the Company is shareholder directly and indirectly		814,122		433,317		1,321,753		1,253,375
Unaffiliated customers		5,320,018		3,064,494		10,099,220		6,795,719
	$	12,213,975	$	8,742,903	$	23,757,013	$	18,444,926

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 six months ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017 were as follows:

	Three Months Ended										Three 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			February 28, 2018		% of Total Fees for Services Provided to Joint Ventures			February 28, 2017		% of Total Fees for Services Provided to Joint Ventures
Germany	$	199,509		16.8	%	$	192,869		19.9	%	$	236,700		14.7	%	$	199,509		16.8	%
Poland		153,453		13.0	%		145,765		15.0	%		207,038		12.9	%		153,453		13.0	%
Japan		145,722		12.3	%		137,476		14.2	%		172,032		10.7	%		145,722		12.3	%
Sweden												165,165		10.3	%		77,464		6.5	%
India												138,437		8.6	%		74,196		6.3	%
France												130,323		8.1	%		83,112		7.0	%
Thailand		87,627		7.4	%		39,322		4.0	%		111,779		6.9	%		87,627		7.4	%
Korea		86,103		7.3	%		2,500		.3	%		99,574		6.2	%		86,103		7.3	%
France		83,112		7.0	%		73,112		7.5	%
Sweden		77,464		6.5	%		50,356		5.2	%
Czech Republic		73,286		6.2	%		64,381		6.6	%		98,726		6.1	%		73,286		6.2	%
United Kingdom												82,432		5.1	%		53,241		4.5	%
Finland		66,946		5.7	%		52,896		5.5	%		76,546		4.8	%		66,946		5.7	%
United Kingdom		53,241		4.5	%		64,735		6.7	%
India		74,196		6.3	%		72,077		7.4	%
Other		83,369		7.0	%		75,553		7.7	%		90,138		5.6	%		83,369		7.0	%
	$	1,184,028		100.0	%	$	971,042		100.0	%	$	1,608,890		100.0	%	$	1,184,028		100.0	%

	Six Months Ended										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			February 28, 2018		% of Total Fees for Services Provided to Joint Ventures			February 28, 2017		% of Total Fees for Services Provided to Joint Ventures
Germany	$	402,509		16.1	%	$	422,654		17.2	%	$	456,574		14.7	%	$	402,509		16.1	%
Poland		302,657		12.1	%		285,023		11.6	%		413,114		13.3	%		302,657		12.1	%
Japan		291,759		11.7	%		268,149		10.9	%		346,077		11.1	%		291,759		11.7	%
Sweden												293,119		9.4	%		164,525		6.6	%
France												269,964		8.7	%		180,785		7.2	%
India												225,200		7.2	%		138,731		5.6	%
Thailand		235,081		9.4	%		263,063		10.7	%		214,311		6.9	%		235,081		9.4	%
United Kingdom												194,207		6.2	%		139,372		5.6	%
Korea		191,481		7.6	%		171,902		7.0	%		183,062		5.9	%		191,481		7.6	%
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	%		182,951		5.8	%		144,114		5.8	%
Finland		143,282		5.7	%		121,829		5.0	%		166,172		5.3	%		143,282		5.7	%
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	%		171,281		5.5	%		165,323		6.6	%
	$	2,499,619		100.0	%	$	2,456,471		100.0	%	$	3,116,032		100.0	%	$	2,499,619		100.0	%

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.

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

	At February 28, 2017		At August 31, 2016		At February 28, 2018		At August 31, 2017
China					$	222,089	$	228,458
Brazil	$	63,765	$	66,938		49,748		54,646
Germany						13,813		14,171
India		12,027		13,645		13,186		14,712
Germany		15,512		—
China		200,452		253,931
United States		7,193,441		6,941,358		6,857,110		7,047,675
Total long-lived assets	$	7,485,197	$	7,275,872
Total property and equipment					$	7,155,946	$	7,359,662

1513

	Six Months Ended				Six Months Ended
	February 28, 2017		February 29, 2016		February 28, 2018		February 28, 2017
China					$	6,106,942	$	3,296,299
Brazil	$	1,118,166	$	997,636		1,456,456		1,118,166
India		733,581		549,402		1,078,294		733,581
Germany		217,496		—		244,802		217,496
China		3,296,299		1,439,754
Other						1,363,151		1,531,759
United States		13,079,384		11,742,579		13,507,368		11,547,625
Total net sales	$	18,444,926	$	14,729,371	$	23,757,013	$	18,444,926

Total ~~long-lived assets located in Brazil, India, Germany and China primarily consist of~~ property and ~~equipment. These assets~~equipment 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 ~~geographic~~segment and ~~segment~~geographic information represents only sales and cost of goods sold recognized directly by the Company.

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

~~13.~~12. COMMITMENTS AND CONTINGENCIES

On August ~~26, 2016,~~31, 2017, the Compensation Committee of the Board of Directors of the Company approved the material terms of an annual bonus plan for the Company’s executive officers as well as certain officers and employees for the fiscal year ending August 31, ~~2017.~~2018. For fiscal ~~2017~~2018 as in past years, the total amount available under the bonus plan for all plan participants, including executive officers, is dependent upon the Company’s earnings before interest, taxes and other income, as adjusted to ~~consider~~take into account amounts to be paid under the bonus plan and certain other adjustments (Adjusted EBITOI). Each plan participant’s percentage of the overall bonus pool is based upon the number of plan participants, the individual’s annual base salary and the individual’s position and level of responsibility within the ~~company.~~Company. In the case of each of the Company’s executive officer participants, 75% of the amount of their individual bonus payout will be determined based upon the Company’s actual EBITOI for fiscal ~~2017~~2018 compared to a pre-established target EBITOI for fiscal ~~2017~~2018 and 25% of the payout will be determined based upon such executive officer’s achievement of certain pre-established individual performance objectives. The payment of bonuses under the plan are discretionary and may be paid to executive officer participants in both cash and shares of ~~NTIC~~the Company’s common stock, the exact amount and percentages will be determined by the Company’s Board of Directors, upon recommendation of the Compensation Committee, after the completion of the Company’s consolidated financial statements for fiscal ~~2017.~~2018. There was $880,000 accrued for management bonuses for the six months ended February 28, 2018 compared to $185,000 accrued for management bonuses for the six months ended February 28, ~~2017 compared to no accrual for management bonuses for the six months ended February 29, 2016.~~2017.

Three joint ventures (consisting of the Company’s joint ventures in South Korea, India and ~~Thailand)~~United States) accounted for ~~57.1%~~69.8% of the Company’s trade joint venture receivables at February 28, ~~2017~~2018 and three joint ventures (consisting of the Company’s joint ventures in South Korea, Thailand and India) accounted for ~~55.8%~~60.7% of the Company’s trade joint venture receivables at August 31, ~~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 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 (Tianjin Zerust). The lawsuit alleges, among other things, that Mr. Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. As of 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. 2017.

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 ~~can~~could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may be have been incurred. In the opinion of management, as of February 28, ~~2017,~~2018, 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~~13. 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
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

February 28, 2018

Level 1

Level 2

Level 3

Available for sale securities

3,268,426

—

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 $ — $ —

Fair Value Measurements

Using Inputs Considered as

Fair value as of

August 31, 2017

Level 1

Level 2

Level 3

Available for sale securities

3,766,984

—

There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended February 28, ~~2017~~2018 and ~~February 29, 2016.~~2017.

~~15.~~ 14. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information ~~consist~~consisted of:

	Three Months Ended				Three Months Ended
	February 28, 2017		February 29, 2016		February 28, 2018		February 28, 2017
Cash paid for interest	$	3,470	$	10,796	$	5,779	$	3,470
Cash paid for income taxes		—		—	$	45,000		—

	Six Months Ended				Six Months Ended
	February 28, 2017		February 29, 2016		February 28, 2018		February 28, 2017
Cash paid for interest	$	8,093	$	15,522	$	10,868	$	8,093
Cash paid for income taxes		—		—	$	45,000		—

15. INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or Tax Reform Act. The Tax Reform Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending August 31 2018, including, but not limited to, reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, generally eliminating U.S. federal income taxes on dividends received from foreign subsidiaries and joint ventures after December 31, 2017, and imposing a one-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries and joint ventures. The Company will be subject to a blended U.S. federal tax rate of 25.7% for the fiscal year ending August 31, 2018 as a result of the reduction of the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018.

The Company recognized the income tax effects of the Tax Reform Act in its 2018 interim consolidated financial statements in accordance with SAB No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Reform Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Reform Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined.

1815

The Company recorded income tax expense during the three and six months ended February 28, 2018 of $841,909 and $946,900, respectively, compared to $124,909 and $242,622 for the three and six months ended February 28, 2017. The Company’s effective tax rate for the three and six months ended February 28, 2018 was 37.2% and 26.5%, respectively, compared to 20.5% and 21.3% for the three and six months ended February 28, 2017, respectively.

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, resulting in an increase of $700,000 in income tax expense for the three months ended February 28, 2018 and a corresponding decrease of $700,000 in net deferred tax assets as of February 28, 2018. The $700,000 income tax expense and corresponding decrease in net deferred tax assets represents a provisional estimate based on the Company’s current interpretation of the Tax Reform Act and may change as the Company receives additional clarification and implementation guidance.

The one-time deemed repatriation tax is applicable to the unremitted earnings of the Company’s foreign subsidiaries and joint ventures. The Company calculated deemed repatriation tax of $489,000, which the Company expects to fully offset with foreign tax credit carryforwards for which the Company has not previously recognized a tax benefit. As a result, the transition tax resulted in zero increase in income tax expense and income taxes payable for the three months ended February 28, 2018. The $489,000 transition tax on deemed repatriation of unremitted foreign earnings represents a provisional estimate and is subject to adjustment during the measurement period of up to one year following the December 2017 enactment date of the Tax Reform Act, as provided by recent SEC guidance.

The Company continues to analyze the impact of other provisions of the Tax Reform Act on its financial statements and operations, including the impact of the global intangible low-taxed income (GILTI) rules, and the impact of the Tax Reform Act on the Company’s indefinite reinvestment assertion with respect to the undistributed earnings of certain foreign subsidiaries and joint ventures. Any additional impacts from the enactment of the Tax Reform Act will be recorded as they are identified during the measurement period as provided for in accordance with SAB No. 118.

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, ~~2016.~~2017. The following discussion of the results of the operations and financial condition of NTIC should be read in conjunction with NTIC’s consolidated financial statements and the related notes thereto included under the heading “Part I. Item 1. Financial Statements.”

Business Overview

NTIC develops and markets proprietary environmentally beneficial products and services in over 60 countries either directly or via a network of subsidiaries, joint ventures, independent distributors and agents. NTIC’s primary business is corrosion prevention marketed mainly under the ~~ZERUST®~~ZERUST^® brand. NTIC has been selling its proprietary ~~ZERUST®~~ZERUST^® products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over 40 years, and in recent years, has targeted and expanded into the oil and gas industry. NTIC also markets and sells a portfolio of biobased and certified compostable (fully biodegradable) polymer resin compounds and finished products under the ~~Natur-Tec®~~Natur-Tec^® brand. These products are intended to reduce NTIC’s customers’ carbon footprint and provide environmentally sound waste disposal options.

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

One of NTIC’s strategic initiatives is to expand into and penetrate other markets for its ZERUST^® corrosion prevention ~~solutions.~~technologies. Consequently, for the past several years, NTIC has focused significant sales and marketing efforts on the oil and gas industry, as the infrastructure that supports that industry is typically constructed using metals that are highly susceptible to corrosion. NTIC believes that its ZERUST^® corrosion prevention solutions will minimize maintenance downtime on critical oil and gas industry infrastructure, extend the life of such infrastructure and reduce the risk of environmental pollution due to corrosion leaks.

NTIC markets and sells its ZERUST^® rust and corrosion prevention solutions to customers in the oil and gas industry across several countries either directly, through its subsidiaries or through its joint venture partners and other strategic partners. The sale of ZERUST^® corrosion prevention solutions to customers in the oil and gas industry typically involves a long sales ~~cycle,~~cycles, often including ~~a one- to~~ multi-year trial ~~period~~periods with each customer and a slow integration process thereafter.

Natur-Tec^® biobased and compostable plastics are manufactured using NTIC’s patented and/or proprietary technologies and are intended to replace conventional petroleum-based plastics. The Natur-Tec^® biopolymer resin compound portfolio includes formulations that have been optimized for a variety of applications including blown-film extrusion, extrusion coating, injection molding, and engineered plastics. These resin compounds are certified to be fully biodegradable in a composting environment and are currently being used to produce finished products including can liners, shopping and grocery bags, lawn and leaf bags, pet waste collection bags, cutlery and coated paper products. In North America, NTIC markets its Natur-Tec^® resin compounds and finished products primarily through a network of regional and national distributors as well as independent agents. NTIC continues to see significant opportunities for finished bioplastic products and, therefore, continues to strengthen and expand its North American distribution network for finished Natur-Tec^® bioplastic products. Internationally, NTIC sells its Natur-Tec^® resin compounds and finished products both directly and through its majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India), and through distributors and certain joint ventures.

~~Termination of Chinese Joint Venture~~

~~On January 2, 2015, NTIC announced that, effective as of December 31, 2014, it is selling its 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, the former joint venture entity’s other shareholder, and his spouse, seeking, among other things, an orderly liquidation of Tianjin Zerust.

~~NTIC indirectly has a 30% ownership interest in Tianjin Zerust through its 60% owned holding company subsidiary, NTI Asean LLC.~~

~~NTIC expects that its operating results may continue to be volatile as a result of its ongoing Chinese operations.~~

NTIC’s Subsidiaries and Joint Venture Network

NTIC has ownership interests in six subsidiaries in North America, South America, Europe and Asia. The following table sets forth a list of NTIC’s operating subsidiaries as of February 28, ~~2017,~~2018, the country in which the subsidiary is organized and NTIC’s ownership percentage in each subsidiary:

~~Joint Venture~~ Subsidiary Name	Country	NTIC Percent (%) Ownership
NTIC (Shanghai) Co., Ltd	China		~~100~~	%100%
NTI Asean LLC	United States		60	%60%
Zerust Prevenção de Corrosão S.A.	Brazil		85	%85%
ZERUST-EXCOR MEXICO, S. de R.L. de C.V	Mexico		~~100~~	%100%
Natur-Tec India Private Limited	India		90	%90%
NTIC Europe GmbH	Germany		~~100~~	%100%

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

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

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

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

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

Financial Overview

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

NTIC’s consolidated net sales increased ~~13.5%~~39.7% and ~~25.2%~~28.8% during the three and six months ended February 28, ~~2017,~~2018, respectively, compared to the three and six months ended February ~~29, 2016.~~28, 2017. 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.

During the three and six months ended February 28, ~~2017, 82.7%~~2018, 83.4% and 83.0% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased ~~13.2%~~41.0% and ~~23.9%~~28.8% to $10,191,459 and $19,719,196, respectively, compared to $7,228,027 and $15,312,705 during the three and six months ended February 28, 2017, ~~respectively, compared to $6,385,337 and $12,363,019 during the three and six months ended February 29, 2016,~~ respectively. These increases were due to higher sales from existing customers for new and existing products as a result of increased demand. NTIC has ~~expanded~~focused its sales efforts of ZERUST® products and services by strategically targeting customers with specific corrosion issues in new market areas, including the oil and gas industry and other industrial sectors that offer sizable growth opportunities. NTIC’s consolidated net sales for the six months ended February 28, ~~2017~~2018 included ~~$952,240~~$862,860 of sales made to customers in the oil and gas industry compared to ~~$717,570~~$952,240 for the six months ended February ~~29, 2016.~~28, 2017. Overall demand for ZERUST® products and services depends heavily on the overall health of the markets in which NTIC sells its products, including the automotive, oil and gas, agriculture, and mining ~~markets. In addition, we believe demand for ZERUST® products and services~~markets in ~~the oil and gas industry may be dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.~~particular.

During the three and six months ended February 28, ~~2017, 17.3%~~2018, 16.6% and 17.0%, of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products compared to ~~17.1%~~17.3% and ~~16.1% during the three and six months ended February 29, 2016, respectively. Net sales of Natur-Tec® products increased 14.8% and 32.4%~~17.0% during the three and six months ended February 28, 2017, respectively. Net sales of Natur-Tec® products increased 33.5% and 28.9% during the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February ~~29, 2016, respectively. These increases were~~28, 2017 primarily due to an increase in finished product sales in North America and finished product sales at NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India).

Cost of goods sold as a percentage of net sales decreased to 65.6% during the three months ended February 28, 2018 compared to 67.1% during the three months ended February 28, 2017 ~~compared to 68.4% during the three months ended February 29, 2016~~ and decreased to ~~67.7%~~66.9% during the six months ended February 28, ~~2017~~2018 compared to ~~68.9%~~67.7% during the prior fiscal year ~~period. These decreases were~~period primarily ~~due to~~as a result of increased net sales ~~of ZERUST® products~~ and ~~services in~~cost reductions realized on the ~~oil and gas industry which carry higher margins than~~raw materials associated with NTIC’s ZERUST® industrial ~~products and services.~~products.

NTIC’s equity in income offrom joint ventures increased ~~45.2%~~30.6% and ~~37.2%~~33.5% to $1,805,997 and $3,547,325 during the three and six months ended February 28, 2018, respectively, compared to $1,383,139 and $2,657,143 ~~respectively,~~ during the three and six months ended February 28, 2017, ~~compared~~respectively. These increases were primarily due to ~~$952,667~~corresponding increases in net sales at the joint ventures, which increased 31.6% and ~~$1,936,420~~24.5% to $30,220,550 and $58,719,261 during the three and six months ended February ~~29, 2016, respectively. These increases were primarily due~~28, 2018, respectively, compared to ~~increases in profitability at the joint ventures. Total net sales of NTIC’s joint ventures 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, as well as a strengthened Euro and other currencies compared to ~~$20,129,215 and $42,000,424 for~~ the ~~three and six months ended February 29, 2016, respectively.~~U.S. Dollar. These increases in net sales of NTIC’s joint ventures were due primarily to higher sales from existing customers for new and existing products as a result of increased demand. The increases in net sales of NTIC’s joint ventures resulted in corresponding increases in fees for services provided to joint ventures as such fees are a function of net sales of NTIC’s joint ventures.

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NTIC’s total operating expenses increased ~~9.7%, or $885,131,~~11.2% and 10.1% to ~~$9,984,433~~$5,371,598 and $10,990,023 during the three and six months ended February 28, ~~2017~~2018, respectively, compared to $4,831,047 and $9,984,433 for the three and six months ended February ~~29, 2016.~~28, 2017. This increase was primarily due to an increase in ~~legal~~NTIC’s personnel expenses, ~~in North America related to the litigation against Cortec Corporation of $250,000 and~~including an increase in ~~operating expenses at NTIC China of $118,000. Such expenses consisted primarily of selling and personnel expense associated with~~ the ~~increase in sales in China. Additionally, there was a~~ management bonus accrual of ~~$185,000 made during~~$695,000. Operating expenses, as a percent of net sales, for the three months ended February 28, 2018 were 44.0%, compared to 55.3% for the same period last fiscal year and for the six months ended February 28, ~~2017~~2018 were 46.1%, compared to ~~no bonus accrual~~54.1% for the ~~six months ended February 29, 2016.~~same period last fiscal year. This reduction was primarily due to higher net sales and lower general and administrative expenses, partially offset by higher selling and research and development expenses.

NTIC spent ~~$1,384,559~~$922,746 and ~~$2,117,622 of expense~~$1,721,477 during the three and six months ended February 28, ~~2017~~2018 compared to $742,037 and $1,384,559 during the three and six months ended February ~~29, 2016,~~28, 2017, respectively, in connection with its research and development activities. NTIC anticipates that it will spend a total of between ~~$2,200,000~~$3,000,000 and ~~$2,800,000~~$3,400,000 in fiscal ~~2017~~2018 on research and development 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 these business units are no longer in the research and development phase of product development.~~

Net income attributable to NTIC increased ~~$494,755~~to $1,332,847, or $0.29, per diluted common share, for the three months ended February 28, 2018 compared to $386,966, or $0.09, per diluted common share, for the three months ended February 28, 2017, ~~compared~~an increase of $945,881 or $0.20 per diluted share. Net income attributable to ~~net loss of $(107,789),~~NTIC increased to $2,416,473, or ~~$(0.02)~~$0.52 per diluted common share, for the ~~three~~six months ended February ~~29, 2016. Net income attributable to NTIC increased 300.1%,~~28, 2018 compared to $684,605, or $0.15 per diluted common share, for the six months ended February 28, 2017, ~~compared to net loss attributable to NTIC~~an increase of ~~$(342,140),~~$1,731,868 or ~~$(0.08)~~$0.37 per diluted ~~common share, for the six months ended February 29, 2016.~~share. These increases were primarily the result of the ~~increase~~increases in net sales and corresponding gross profit, as well as the increases in income from joint venture operations. These increases were partially offset by the significant impact of the $700,000 one-time provisional adjustment related to the Tax Reform Act, as described in more detail below, and the increase in operating ~~expenses.~~expenses, as previously described.

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~~remain volatile primarily as a result of the changes in its Chinese operations.

NTIC’s working capital, as defined as current assets less current liabilities, was ~~$15,364,837~~$22,194,306 at February 28, ~~2017,~~2018, including ~~$3,048,948~~$5,067,087 in cash and cash equivalents and ~~$748,254~~$3,268,426 in available for sale securities, compared to ~~$16,948,069~~$21,173,001 at August 31, ~~2016,~~2017, including ~~$3,395,274~~$6,360,201 in cash and cash equivalents and ~~$2,243,864~~$3,766,984 in available for sale securities.

On January 24, 2018, NTIC’s Board of Directors declared a quarterly cash dividend of $0.10 per share of NTIC’s common stock, paid on February 21, 2018 to stockholders of record on February 8, 2018. On November 24, 2017, NTIC’s Board of Directors declared a quarterly cash dividend of $0.10 per share of NTIC’s common stock, payable on December 21, 2017 to stockholders of record on December 8, 2017. No cash dividends were declared by NTIC’s Board of Directors during the fiscal year ended August 31, 2017. Although NTIC’s Board of Directors intends to continue to declare regular quarterly cash dividends, the declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions and other factors.

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Results of Operations

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

	Three Months Ended																Three Months Ended
	February 28, 2017		% of Net Sales			February 29, 2016		% of Net Sales			$ Change			% Change			February 28, 2018		% of Net Sales			February 28, 2017		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	8,309,586		95.0	%	$	7,027,614		91.2	%	$	1,281,972			16.6	%	$	11,399,853		93.3	%	$	8,309,586		95.0	%	$	3,090,267			37.2	%
Net sales, to joint ventures		433,317		5.0	%		677,320		8.8	%		(244,003	)		(36.0	%)		814,122		6.7	%		433,317		5.0	%		380,805			87.9	%
Cost of goods sold		5,870,186		67.1	%		5,268,224		68.4	%		601,962			11.4	%		8,012,836		65.6	%		5,870,186		67.1	%		2,142,650			36.5	%
Equity in income of joint ventures		1,383,139		15.8	%		952,667		12.4	%		430,472			45.2	%
Equity in income from joint ventures																		1,805,997		14.8	%		1,383,139		15.8	%		422,858			30.6	%
Fees for services provided to joint ventures		1,184,028		13.5	%		971,042		12.6	%		212,986			21.9	%		1,608,890		13.2	%		1,184,028		13.5	%		424,862			35.9	%
Selling expenses		2,246,482		25.7	%		1,475,433		19.1	%		771,049			52.3	%		2,643,636		21.6	%		2,246,482		25.7	%		397,154			17.7	%
General and administrative expenses		1,842,528		21.1	%		1,806,557		23.5	%		35,971			2.0	%		1,805,216		14.8	%		1,842,528		21.1	%		(37,312	)		(2.0	)%
Research and development expenses		742,037		8.5	%		1,113,525		14.5	%		(371,488	)		(33.4	%)		922,746		7.6	%		742,037		8.5	%		180,709			24.4	%

	Six Months Ended																Six Months Ended
	February 28, 2017		% of Net Sales			February 29, 2016		% of Net Sales			$ Change			% Change			February 28, 2018		% of Net Sales			February 28, 2017		% of Net Sales			$ Change			% Change
Net sales, excluding joint ventures	$	17,191,551		93.2	%	$	13,529,024		91.9	%	$	3,662,527			27.1	%	$	22,435,260		94.4	%	$	17,191,551		93.2	%	$	5,243,709			30.5	%
Net sales, to joint ventures		1,253,375		6.8	%		1,200,347		8.1	%		53,028			4.4	%		1,321,753		5.6	%		1,253,375		6.8	%		68,378			5.5	%
Cost of goods sold		12,482,952		67.7	%		10,143,647		68.9	%		2,339,305			23.1	%		15,901,306		66.9	%		12,482,952		67.7	%		3,418,354			27.4	%
Equity in income of joint ventures		2,657,143		14.4	%		1,936,420		13.1	%		720,723			37.2	%
Equity in income from joint ventures																		3,547,325		14.9	%		2,657,143		14.4	%		890,182			33.5	%
Fees for services provided to joint ventures		2,499,619		13.6	%		2,456,471		16.7	%		43,148			1.8	%		3,116,032		13.1	%		2,499,619		13.6	%		616,413			24.7	%
Selling expenses		4,285,566		23.2	%		3,000,516		20.4	%		1,285,050			42.8	%		5,243,585		22.1	%		4,285,566		23.2	%		958,019			22.4	%
General and administrative expenses		4,314,308		23.4	%		3,981,164		22.9	%		333,144			8.4	%		4,024,961		16.9	%		4,314,308		23.4	%		(289,347	)		(6.7	)%
Research and development expenses		1,384,559		7.5	%		2,117,622		14.4	%		(733,063	)		(34.6	%)		1,721,477		7.2	%		1,384,559		7.5	%		336,918			24.3	%

Net Sales. NTIC’s consolidated net sales increased ~~13.5%~~39.7% and ~~25.2%~~28.8% to ~~$8,742,903~~$12,213,975 and ~~$18,444,926,~~$23,757,013 during the three and six months ended February 28, ~~2017,~~2018, respectively, compared to the three and six months ended 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.~~28, 2017. NTIC’s consolidated net sales to unaffiliated customers excluding NTIC’s joint ventures increased ~~16.6%~~37.2% and ~~27.1%~~30.5% to ~~$8,309,586~~$11,399,853 and ~~$17,191,551~~$22,435,260 during the three and six months ended February 28, ~~2017,~~2018, respectively, compared to the same respective ~~prior~~periods in fiscal ~~year periods.~~2017. These increases were primarily a result of increased demand from the addition of new customers ~~at NTI~~in North America and China and an increase in ~~sale~~sales of ~~our~~ Natur-Tec® products. Net sales to joint ventures ~~decreased 36.0%~~increased 87.9% and ~~increased 4.4%~~5.5% to ~~$433,317~~$814,122 and ~~$1,253,375~~$1,321,753, respectively, during the three and six months ended February 28, ~~2017, respectively,~~2018 compared to the same respective ~~prior~~periods in fiscal ~~year periods.~~2017. These ~~changes~~increases were primarily ~~the~~a result of ~~the timing of shipments during the quarter and at quarter end.~~increased demand.

The following table sets forth NTIC’s net sales by product segment for the ~~three and~~ six months ended February 28, ~~2017~~2018 and ~~February 29, 2016~~2017 by segment:

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	February 28, 2017		February 29, 2016		February 28, 2017		February 29, 2016		February 28, 2018		February 28, 2017		February 28, 2018		February 28, 2017
Total ZERUST® sales	$	7,228,027	$	6,385,337	$	15,312,705	$	12,363,019	$	10,191,459	$	7,228,027	$	19,719,196	$	15,312,705
Total Natur-Tec® sales		1,514,876		1,319,597		3,132,221		2,366,352		2,022,516		1,514,876		4,037,817		3,132,221
Total net sales	$	8,742,903	$	7,704,934	$	18,444,926	$	14,729,371	$	12,213,975	$	8,742,903	$	23,757,013	$	18,444,926

During the three and six months ended February 28, ~~2017, 82.7%~~2018, 83.4% and 83.0% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST^® products and services, which increased ~~13.2%~~41.0% and ~~23.9%~~28.8% to $10,191,459 and $19,719,196 during the three and six months ended February 28, 2018, respectively, compared to $7,228,027 and $15,312,705 during the three and six months ended February 28, 2017, ~~respectively, compared to $6,385,337 and $12,363,019 during the three and six months ended February 29, 2016,~~ respectively. These increases were due to increased demand from existing customers and the addition of new ~~customers.~~customers primarily in the industrial market, partially offset by a decrease in ZERUST^®joint venture net sales and ZERUST^®oil and gas net sales. NTIC has strategically focused its sales efforts for ZERUST^® products and services on customers with sizeable corrosion problems in industry sectors that offer sizable growth opportunities, including the oil and gas sector. Overall demand for ZERUST^® products and services depends heavily on the overall health of the market segments to which NTIC sells its products, including the automotive, oil and gas, agriculture, and mining markets in particular. In addition, we believe demand for ZERUST® products and services in the oil and gas industry may be dependent upon oil prices, with low oil prices causing existing or potential customers to delay purchases and installations.

2321

The following table sets forth NTIC’s net sales of ZERUST^® products for the three and six months ended February 28, ~~2017~~2018 and ~~February 29, 2016:~~2017:

	Three Months Ended										Three Months Ended
	February 28, 2017		February 29, 2016		$ Change			% Change			February 28, 2018		February 28, 2017		$ Change		% Change
ZERUST® industrial net sales	$	6,588,801	$	5,330,686	$	1,258,115			23.6	%	$	8,798,319	$	6,588,801	$	2,209,518		33.5	%
ZERUST® joint venture net sales		433,317		677,320		(244,003	)		(36.0	%)		814,122		433,317		380,805		87.9	%
ZERUST® oil & gas net sales		205,909		377,331		(171,422	)		(45.4	%)		579,018		205,909		373,109		181.2	%
Total ZERUST® net sales	$	7,228,027	$	6,385,337	$	842,690			13.2	%	$	10,191,459	$	7,228,027	$	2,963,432		41.0	%

	Six Months Ended									Six Months Ended
	February 28, 2017		February 29, 2016		$ Change		% Change			February 28, 2018		February 28, 2017		$ Change			% Change
ZERUST® industrial net sales	$	13,107,090	$	10,445,102	$	2,661,988		25.5	%	$	17,534,583	$	13,107,090	$	4,427,493			33.8	%
ZERUST® joint venture net sales		1,253,375		1,200,347		53,028		4.4	%		1,321,753		1,253,375		68,378			5.5	%
ZERUST® oil & gas net sales		952,240		717,570		234,670		32.7	%		862,860		952,240		(89,380	)		(9.4	)%
Total ZERUST® net sales	$	15,312,705	$	12,363,019	$	2,949,686		23.9	%	$	19,719,196	$	15,312,705	$	4,406,491			28.8	%

NTIC’s net sales to the oil and gas industry sector ~~decreased~~ during the three months and six months ended February 28, ~~2017~~2018 compared to the prior fiscal year ~~period primarily as a result of volatility in that sector~~periods continue to be very volatile due to the average order size and the 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.sales. NTIC anticipates that its sales of ZERUST® products and services into the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized, specifically due to the volatility of oil prices.

During the three and six months ended February 28, 2017, 17.3% and 17.0% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, which increased 14.8% and 32.4% to $1,514,876 and $3,132,221 during the three and six months ended February 28, 2017, respectively, compared to the three and six months ended February 29, 2016. Such increases were due to the addition of new customers in North America and India as well as increased sales by existing distributors. Demand for ~~Natur-Tec®~~oil and gas products around the world depends primarily on market acceptance and the reach of NTIC’s distribution network. Because of the typical size of individual orders and overall size of NTIC’s net sales derived from sales of ~~Natur-Tec®~~oil and gas products, the timing of one or more orders can materially affect NTIC’s quarterly sales ~~of Natur-Tec® products and the comparisons~~compared to prior fiscal year quarters.

During the three and six months ended February 28, 2018, 16.6 % and 17.0% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, which increased 33.5% and 28.9% to $2,022,516 and $4,037,817 during the three and six months ended February 28, 2018, respectively, compared to the three and six months ended February 28, 2017. These increases were primarily due to an increase in finished product sales in North America and finished product sales at NTIC’s majority-owned subsidiary in India, Natur-Tec India Private Limited (Natur-Tec India).

Cost of Goods Sold. Cost of goods sold increased ~~11.4%~~36.5% and ~~23.1%~~27.4% for the three and six months ended February 28, ~~2017,~~2018, respectively, compared to the three and six months ended February ~~29, 2016.~~28, 2017. These increases were primarily as a result of the corresponding increased sales levels. Cost of goods sold as a percentage of net sales decreased to ~~67.1%~~65.6% during the three months ended February 28, ~~2017~~2018 compared to ~~68.4%~~67.1% the three months ended February ~~29, 2016~~28, 2017 and decreased to 66.9% during the six months ended February 28, 2018 compared to 67.7% during the six months ended February 28, ~~2017 compared to 68.9% during the six months ended February 29, 2016.~~2017. These decreases were primarily as a result of increased net sales and cost reductions realized on the raw materials associated with NTIC’s ZERUST® industrial products.

Equity in Income offrom Joint Ventures. NTIC’s equity in income offrom joint ventures increased ~~45.2%~~30.6% and ~~37.2%~~33.5% to $1,805,997 and $3,547,325 during the three and six months ended February 28, 2018, respectively, compared to $1,383,139 and $2,657,143 during the three and six months ended February 28, 2017, ~~respectively, compared to equity in income of joint ventures of $952,667 and $1,936,420 during the three and six months ended February 29, 2016,~~ respectively. These increases were primarily a result of improved ~~sales and~~ profitability at the joint ventures. Of the total equity in income offrom joint ventures, NTIC had equity in income offrom joint ventures of ~~$2,006,441~~$2,580,571 attributable to EXCOR during the six months ended February 28, ~~2017~~2018 compared to ~~$1,480,975 attributable to EXCOR during the six months ended February 29, 2016. NTIC had equity in income of joint ventures of $170,549 attributable to India~~$2,006,441 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, 2016.2017. NTIC had equity in income of all other joint ventures of ~~$353,792~~$966,754 during the six months ended February 28, ~~2017~~2018 compared to ~~$193,900~~$650,702 during the six months ended February ~~29, 2016.~~28, 2017.

2422

Fees for Services Provided to Joint ~~Ventures.~~Ventures. NTIC recognized fee income for services provided to joint ventures of $1,608,890 and $3,116,032 during the three and six months ended February 28, 2018, respectively, compared to $1,184,028 and $2,499,619 during the three and six months ended February 28, 2017, respectively, ~~compared to $971,042 and $2,456,471 during the three and six months ended February 29, 2016, respectively,~~ representing increases of ~~21.9%~~35.9% and ~~1.8%~~24.7%, respectively. Fee income for services provided to joint ventures is traditionally a function of the sales made by NTIC’s joint ventures. Total net sales of NTIC’s joint ventures increased to $30,220,550 and $58,719,261 during the three and six months ended February 28, 2018, respectively, compared to $22,962,599 and $47,163,046 during the three and six months ended February 28, 2017, respectively, ~~compared to $20,129,215~~representing increases of $7,257,951 and ~~$42,000,424 for the three and six months ended February 29, 2016,~~$11,556,215, respectively.

Net sales of NTIC’s joint ventures are not included in NTIC’s ~~net sales in NTIC’s~~ consolidated financial ~~statements or in any description of NTIC’s net sales.~~statements. Of the total fee income for services provided to joint ventures, fees of ~~$402,509~~$456,574 were attributable to EXCOR during the six months ended February 28, ~~2017~~2018 compared to ~~$422,654~~$402,509 attributable to EXCOR during the six months ended 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, 2016.2017.

Selling Expenses. NTIC’s selling expenses increased ~~52.3%~~17.7% and ~~42.8%~~22.4% for the three and six months ended February 28, ~~2017,~~2018, respectively, compared to the same respective periods in fiscal ~~2016~~2017 due primarily to ~~the transition~~increases in operating expenses associated with ZERUST® sales efforts, consisting primarily of ~~focus from research~~selling 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 the research and development phase of product development.~~personnel expense. Selling expenses as a percentage of net sales ~~increased~~decreased slightly to 21.6% and 22.1% for the three and six months ended February 28, 2018, respectively, from 25.7% and 23.2% for the three and six months ended February 28, 2017, respectively, ~~from 19.1% and 20.4% during~~primarily due to the ~~three and six months ended February 29, 2016, respectively. The increases~~increase in selling expenses offset by the increase in sales, as ~~a percentage of net sales were due primarily to the transition of expenses as noted above.~~previously described.

General and Administrative Expenses. NTIC’s general and administrative expenses ~~increased~~decreased 2.0% and ~~8.4%~~6.7% for the three and six months ended February 28, ~~2017,~~2018, respectively, compared to the same respective periods in fiscal ~~2016~~2017 primarily 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~~cost savings initiatives related to ~~these business units are no longer in the research~~personnel costs and ~~development phase of product development. NTIC’s general and administrative expenses also increased due to an increase in~~decreased legal expenses in North America related to the litigation against Cortec Corporation. NTIC incurred expense of $477,000 during the six months ended February 28, 2017, compared to $221,000 during the six months ended February 29, 2016.expenses. As a percentage of net sales, general and administrative expenses decreased to ~~21.1%~~14.8% and 16.9% for the three ~~months ended February 28, 2017, from 23.5%~~ and ~~to 23.4% for the~~ six months ended February 28, 2018, respectively, from 21.1% and 23.4% for the same respective periods in fiscal 2017, ~~from 27.0%.~~respectively. The ~~decrease~~decreases in general and administrative expenses as a percentage of net sales for the three and six-month ~~comparison was~~comparisons were due primarily to the increase in net sales ~~partially offset by the increase~~and decreases in general and administrative expenses, as previously described.

Research and Development Expenses. NTIC’s research and development expenses ~~decreased 33.4%~~increased 24.4% and ~~34.6%~~24.3% for the three and six months ended February 28, ~~2017~~2018, respectively, compared to the same respective periods in fiscal ~~2016. These decreases were~~2017 due primarily to ~~the transition of resources that were previously devoted towards~~increased research and development ~~to selling and general and administrative efforts, as previously described.~~activities during the current fiscal year periods.

Interest Income. NTIC’s interest income ~~decreased~~increased to ~~$4,516 during the three months ended February 28, 2017~~$24,883 and ~~$8,079 during the six months ended February 28, 2017, compared to $14,384 and $28,557~~$48,939 during the three and six months ended February ~~29, 2016,~~28, 2018, respectively, compared to $4,516 and $8,079 during the three and six months ended February 28, 2017, respectively, due ~~primarily~~ to ~~lower average cash balances.~~increased levels of invested cash.

Interest Expense. NTIC’s interest expense ~~decreased~~increased to ~~$3,470~~$5,779 and $10,868 during the three and six months ended February 28, ~~2017~~2018, respectively, compared to ~~$10,796~~$3,470 and $8,093 during the three ~~months ended February 29, 2016~~ and ~~decreased to $8,093 during the~~ six months ended February 28, 2017, ~~compared to $15,522 during the six months ended February 29, 2016.~~respectively.

Income ~~(Loss)~~ Before Income Tax Expense. NTIC incurred income before income tax expense ofequal to $2,263,532 and $3,567,112 for the three and six months ended February 28, 2018, respectively, compared to $609,883 and $1,134,289 for the three and six months ended February 28, 2017, ~~respectively, compared to loss before income tax expense of $30,547 and $106,691 for the three and six months ended February 29, 2016,~~ respectively.

Income Tax Expense. Income tax expense was $841,909 and $946,900 for the three and six months ended February 28, 2018, respectively, compared to income tax expense of $124,909 and $242,622 during the three and six months ended February 28, 2017, ~~respectively, compared income tax expense of $40,466 and $36,964 during the three and six months ended February 29, 2016,~~ respectively. Income tax expense ~~was~~is calculated based on management’s estimate of NTIC’s annual effective income tax rate.

The effective tax rate for the three and six months ended February 28, 2018 was 37.2% and 26.5%, respectively, compared to 20.5% and 21.3% for the three and six months ended February 28, 2017, respectively. These increases were primarily due to one-time provisional adjustments related to the Tax Reform Act. The Tax Reform Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, generally eliminated U.S. federal income taxes on dividends received from foreign subsidiaries and joint ventures after December 31, 2017, and imposed a one-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries and joint ventures. As a result of the change in the tax law, a one-time non-cash tax provisional charge of $700,000 related to the re-measurement of deferred tax assets and liabilities was recorded in the three months ended February 28, 2018. The impact of this non-cash tax charge increased NTIC’s effective rate by approximately 30.3% for the three months ended February 28, 2018. The $700,000 income tax expense and corresponding decrease in net deferred tax assets represents a provisional estimate based on NTIC’s current interpretation of the Tax Reform Act and may change as NTIC ~~considers~~receives additional clarification and implementation guidance. NTIC continues to analyze the impact of other provisions of the Tax Reform Act on its financial statements and operations, including the impact of the global intangible low-taxed income (GILTI) rules, and the impact of the Tax Reform Act on NTIC’s indefinite reinvestment assertion with respect to the undistributed earnings of certain foreign subsidiaries and joint ~~ventures to be indefinitely invested outside~~ventures. Any additional impacts from the ~~United States based on estimates that NTIC’s future domestic cash generation~~enactment of the Tax Reform Act will be ~~sufficient~~recorded as they are identified during the measurement period as provided for in accordance with SAB No. 118.

Net Income Attributable to ~~meet future domestic cash needs. Thus, U.S.~~NTIC. Net income ~~and foreign withholding taxes have not been recognized on~~attributable to NTIC increased to $1,332,847, or $0.29, per diluted common share, for the ~~cumulative undistributed earnings of $18,984,898 and $17,779,912 at~~three months ended February 28, 2018 compared to $386,966, or $0.09, per diluted common share, for the three months ended February 28, 2017, an increase of $945,881 or $0.20 per diluted share. Net income attributable to NTIC increased to $2,416,473, or $0.52 per diluted common share, for the six months ended February 28, 2018 compared to $684,605, or $0.15 per diluted common share, for the six months ended February 28, 2017, an increase of $1,731,868 or $0.37 per diluted share. These increases were primarily the result of the increases in net sales and ~~August 31, 2016, respectively. To~~corresponding gross profit, as well as the ~~extent undistributed earnings~~increases in income from joint venture operations. These increases were partially offset by the significant impact of ~~NTIC’s joint ventures are distributed~~the $700,000 one-time provisional adjustment related to the Tax Reform Act and the increase in operating expenses. As previously mentioned, the ~~future, they are not expected~~impact from the enactment of the Tax Reform Act was driven by the provisional re-measurement of deferred tax assets and liabilities, which resulted in a non-cash discrete tax charge of $700,000. Excluding the impact of the Tax Reform Act, net income attributable to ~~result in any material additional~~NTIC would have been $1,645,881 higher than the net income ~~tax liability after~~attributable to NTIC for the ~~application of foreign tax credits~~three months ended February 28, 2018 and would have been $2,431,868 higher than the net income attributable to NTIC for the six months ended February 28, 2018.

Other Comprehensive Income ~~(Loss)~~ - Foreign Currency Translations Adjustment. The ~~significant~~ changes in the foreign currency translations adjustment was due to the ~~strengthening~~fluctuations of the U.S. dollar compared to the Euro and other foreign currencies during the three and six months ended February 28, ~~2017~~2018 compared to the same ~~respective periods~~period in fiscal ~~2016.~~2017.

Liquidity and Capital Resources

Sources of Cash and Working Capital. ~~As of February 28, 2017,~~ NTIC’s working capital was ~~$15,364,837,~~$22,241,306 at February 28, 2018, including ~~$3,048,948~~$5,067,087 in cash and cash equivalents and ~~$748,254~~$3,268,426 in available for sale securities, compared to ~~$16,948,069~~$21,173,001 at August 31, ~~2016,~~2017, including ~~$3,395,274~~$6,360,201 in cash and cash equivalents and ~~$2,243,864~~$3,766,984 in available for sale securities.

As of February 28, ~~2017,~~2018, NTIC had a revolving line of credit with PNC Bank of $3,000,000, with no amounts outstanding. The line of credit is evidenced by an amended and restated committed line of credit note in the principal amount of up to $3,000,000. The line of credit has a $1,200,000 standby letter of credit sub-facility, with any standby letters of credit issued thereunder being at the sole discretion of PNC Bank. Any lines of credit issued by PNC Bank would decrease the availability under the revolving line of credit.

The line of credit is subject to standard covenants, including affirmative financial covenants, such as the maintenance of a minimum fixed charge coverage ratio, and negative covenants, which, among other things, limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. Under the loan agreement, NTIC is subject to a minimum fixed charge coverage ratio of 1.10:1.00. As of February 28, ~~2017,~~2018, NTIC was in compliance with all debt covenants.

On January ~~11, 2017,~~5, 2018, NTIC and PNC Bank extended the maturity date of the line of credit ~~retroactively~~ from January 7, ~~2017~~2018 to January 7, ~~2018.~~2019. All other terms of the line of credit and the loan agreement and other documents evidencing the line of credit remain the same. It is anticipated that, as historically has been the practice, the line of credit will be renewed each year for one additional year for the immediate foreseeable future.

NTIC believes that a combination of its existing cash and cash equivalents, available for sale securities, forecasted cash flows from future operations, anticipated distributions of earnings, anticipated fees to NTIC for services provided to its joint ventures, and funds available through existing or anticipated financing arrangements, will be adequate to fund its existing operations, investments in new or existing joint ventures or subsidiaries, capital expenditures, debt repayments, cash dividends and any stock repurchases for at least the next 12 months. During the remainder of fiscal ~~2017,~~2018, NTIC expects to continue to invest in NTIC China, research and development and in marketing efforts and resources ~~into~~for the application of its corrosion prevention technology ~~into~~in the oil and gas industry and its Natur-Tec® bio-plastics ~~business. To~~business, although the amounts of these various investments are not known at this time. In order to take advantage of such new product and market opportunities to expand its business and increase its revenues, NTIC may decide to finance such opportunities by borrowing under its revolving line of credit or raising additional financing through the issuance of debt or equity securities. There is no assurance that any financing transaction will be available on terms acceptable to NTIC or at all, or that any financing transaction will not be dilutive to NTIC’s current stockholders.

NTIC traditionally has used the cash generated from its operations, distributions of earnings from joint ventures and fees for services provided to its joint ventures to fund NTIC’s new technology investments and capital contributions to new and existing subsidiaries and joint ventures. NTIC’s joint ventures traditionally have operated with little or no debt and have been self-financed with minimal initial capital investment and minimal additional capital investment from their respective owners. Therefore, NTIC believes itthere is ~~not likely that there exists any~~limited 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 used in operating activities during the six months ended February 28, 2018 was $516,199, which resulted principally from NTIC’s equity in income from joint ventures, increases in trade receivables excluding joint ventures, inventories, prepaid expenses and other, and accrued liabilities, partially offset by NTIC’s net income, dividends received from joint ventures, and increases in accounts payable, depreciation and amortization. Net cash used in operating activities during the six months ended February 28, 2017 was $823,425, which resulted principally from NTIC’s equity in income from joint ventures, ~~dividends received from joint ventures,~~ increases in trade receivables, inventory, prepaid expenses ~~accrued liabilities,~~ and income tax payable, partially offset by NTIC’s net income, ~~depreciation and amortization. Net cash provided by operating activities during the six months ended February 29, 2016 was $1,248,810, which resulted principally from NTIC’s equity in income~~dividends received from joint ventures, ~~dividends from joint ventures, a decrease in accrued liabilities and increases in receivables and prepaid 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 inventory as of February 28, ~~2017~~2018 compared to August 31, ~~2016.~~2017. Trade receivables excluding joint ventures as of February 28, ~~2017~~2018 increased ~~$1,161,166~~$2,397,412 compared to August 31, ~~2016,~~2017, primarily related to the timing of collections and the increase in sales.

Outstanding trade receivables excluding joint ventures balances as of February 28, 2017 increased 1510 days to an average of 6566 days from balances outstanding from these customers as of August 31, ~~2016.~~ 2017.

Outstanding trade receivables from joint ventures as of February 28, ~~2017~~2018 decreased ~~$329,321~~$244,372 compared to August 31, ~~2016~~2017 primarily due to the timing of payments. Outstanding balances from trade receivables from joint ventures decreased ~~as of February 28, 2017 by~~ an average of 208 days from an average of 9658 days from balances outstanding from these customers compared to August 31, ~~2016.~~2017. The ~~significant~~ average days outstanding of trade receivables from joint ventures as of February 28, ~~2017~~2018 were primarily due to the receivables balances at NTIC’s joint ~~venture~~ventures in South ~~Korea.~~Korea and Thailand.

Outstanding receivables for services provided to joint ventures as of February 28, ~~2017 decreased $164,018~~2018 increased $62,381 compared to August 31, ~~2016,~~2017, which resulted in aan decrease of 3 days of fees receivable outstanding as of February 28, ~~2017~~2018 to an average of 9576 days compared to August 31, ~~2016.~~2017.

Net cash provided by investing activities for the six months ended February 28, 2018 was $246,587, which was primarily the result of proceeds from the sale of available for sale securities, partially offset by additions to property and equipment, and additions to patents. 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, partially offset by additions to property and equipment and additions to patents.

Net cash used in ~~investing~~financing activities for the six months ended February ~~29, 2016~~28, 2018 was ~~$1,080,567,~~$1,079,346, which ~~was primarily the result of cash used in the~~resulted from dividends paid on NTIC common stock and a dividend paid to a non-controlling interest, partially offset by proceeds from stock option exercises and purchases under NTIC’s employee stock purchase ~~of available for sale securities, additions to property and equipment and additions to patents.~~

plan. Net cash used in financing activities for the six months ended February 28, 2017 was $315,207, which resulted from a dividend paid to a non-controlling interest and ~~the repurchase of common~~ stock repurchases, partially offset by proceeds from NTIC’s employee stock purchase plan. Net cash used in financing activities for the six months ended February 29, 2016 was $235,586, which resulted from a dividend paid to a non-controlling interest and the repurchase of common stock, partially offset by proceeds frompurchases under NTIC’s employee stock purchase plan.

Share Repurchase Plan. On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors at any time. No repurchases occurred during the six months ended February 28, 2018. As of February 28, ~~2017,~~2018, up to ~~$2,688,605~~$2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Cash Dividends. On January 24, 2018, NTIC’s Board of Directors declared a cash dividend of $0.10 per share of NTIC’s common stock, paid on February 21, 2018 to stockholders of record on February 8, 2018. Although NTIC’s Board of Directors intends to declare regular quarterly cash dividends going forward, the declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions and other factors.

Capital Expenditures and Commitments. NTIC spent ~~$599,063~~$207,350 on capital expenditures during the six months ended February 28, ~~2017 and~~2018, which related primarily to the purchase of new equipment. NTIC expects to spend an aggregate of approximately ~~$700,000~~$300,000 to ~~$800,000~~$600,000 on capital expenditures during fiscal ~~2017,~~2018, which it expects will relate primarily to the purchase of new equipment.

Contractual Obligations

There has been no material change to NTIC’s contractual obligations as provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations,” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, ~~2016.~~2017.

Off-Balance Sheet Arrangements

NTIC does not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements. As such, NTIC is not materially exposed to any financing, liquidity, market or credit risk that could arise if NTIC had engaged in such arrangements.

Inflation and Seasonality

Inflation in the United States and abroad historically has had little effect on NTIC. Although NTIC’s business historically has not been seasonal, NTIC believes there is now some seasonality in its business. NTIC believes ~~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.

Market Risk

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

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese ~~yen,~~Yen, Indian Rupee, Chinese Renminbi, South Korean ~~won~~Won and the English ~~pound~~Pound against the U.S. ~~dollar.~~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 offrom joint ventures reflected in its consolidated statements of ~~income.~~operations. NTIC does not hedge against its foreign currency exchange rate risk.

Some raw materials used in NTIC’s products are exposed to commodity price changes. The primary commodity price exposures are with a variety of plastic resins.

At the option of NTIC, outstanding advances under NTIC’s $3,000,000 revolving line of credit with PNC Bank bear interest at either (a) an annual rate based on LIBOR plus 2.15% for the applicable LIBOR interest period selected by NTIC or (b) at the rate publicly announced by PNC Bank from time to time as its prime rate, and thus may subject NTIC to some market risk on interest rates. As of February 28, ~~2017,~~2018, NTIC had no borrowings under the line of credit.

Critical Accounting Policies and Estimates

There have been no material changes to NTIC’s critical accounting policies and estimates from the information provided in “Part II. Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, ~~2016.~~2017.

Recent Accounting Pronouncements

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

Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. In addition, NTIC or others on NTIC’s behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on NTIC’s Internet web site or otherwise. All statements other than statements of historical facts included in this report or expressed by NTIC orally from time to time that address activities, events or developments that NTIC expects, believes or anticipates will or may occur in the future are forward-looking statements including, in particular, the statements about NTIC’s plans, objectives, strategies and prospects regarding, among other things, NTIC’s financial condition, results of operations and business, the outcome of contingencies such as legal proceedings and the effect of the liquidation of Tianjin Zerust and the operations of NTIC China. NTIC has identified some of these forward-looking statements in this report with words like “believe,” “can,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” ~~“approximate”~~“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~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~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:

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

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 business and future operating results;

The effect of current worldwide economic conditions and any turmoil and disruption in the global credit and financial markets on NTIC’s business;

The variability in NTIC’s sales of ZERUST® products and services into oil and gas industry and Natur-Tec^® products and NTIC’s equity income of joint ventures, which variability in sales and equity in income offrom joint venture in turn, subject NTIC’s earnings to quarterly fluctuations;

Risks associated with NTIC’s international operations and exposure to fluctuations in foreign currency exchange rates and import duties and taxes;

The effect of ~~the referendum vote of the~~ United ~~Kingdom~~Kingdom’s process to exit the European Union on NTIC’s operating results, including in particular future net sales of NTIC’s European and other joint ventures;

The health of the U.S. automotive industry on NTIC’s business;

NTIC’s dependence on the success of its joint ventures and fees and dividend distributions that NTIC receives from them;

NTIC’s relationships with its joint ventures and its ability to maintain those relationships, especially in light of anticipated succession planning issues;

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

The success of and risks associated with NTIC’s emerging new businesses and products and services, including in particular NTIC’s ability and the ability of NTIC’s joint ventures to sell ZERUST® products and services into oil and gas industry and Natur-Tec^® products and the often lengthy and extensive sales process involved in selling such products and services;

NTIC’s ability to introduce new products and services that respond to changing market conditions and customer demand;

Market acceptance of NTIC’s existing and new products, especially in light of existing and new competitive products;

Maturation of certain existing markets for NTIC’s ZERUST^® products and services and NTIC’s ability to grow market share and succeed in penetrating other existing and new markets;

Increased competition, especially with respect to NTIC’s ZERUST^® products and services, and the effect of such competition on NTIC’s and its joint ventures’ pricing, net sales and margins;

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

NTIC’s reliance upon suppliers;

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

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

The costs and effects of complying with laws and regulations and changes in tax, fiscal, government and other regulatory policies, including rules relating to environmental, health and safety matters;

Unforeseen product quality or other problems in the development, production and usage of new and existing products;

Unforeseen production expenses incurred in connection with new customers and new products;

Loss of or changes in executive management or key employees;

Ability of management to manage around unplanned events;

Pending and future litigation;

NTIC’s reliance on its intellectual property rights and the absence of infringement of the intellectual property rights of others;

NTIC’s ability to maintain effective internal control over financial reporting, especially in light of its joint venture arrangements;

Changes in applicable laws or regulations and NTIC’s failure to comply with applicable laws, rules and regulations;

Changes in generally accepted accounting principles and the effect of new accounting pronouncements;

Fluctuations in NTIC’s effective tax ~~rate;~~rate, including from the recently enacted Tax Cuts and Jobs Act;

Effect of extreme weather conditions on NTIC’s operating results; and

NTIC’s reliance upon its management information systems.

For more information regarding these and other uncertainties and factors that could cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements or otherwise could materially adversely affect its business, financial condition or operating results, see NTIC’s annual report on Form 10-K for the fiscal year ended August 31, ~~2016~~2017 under the heading “Part I. Item 1A. Risk Factors.”

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. NTIC wishes to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above, as well as others that NTIC may consider immaterial or does not anticipate at this time. Although NTIC believes that the expectations reflected in its forward-looking statements are reasonable, NTIC does not know whether its expectations will prove correct. NTIC’s expectations reflected in its forward-looking statements can be affected by inaccurate assumptions NTIC might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive and further information concerning NTIC and its business, including factors that potentially could materially affect its financial results or condition, may emerge from time to time. NTIC assumes no obligation to update, amend or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. NTIC advises you, however, to consult any further disclosures NTIC makes on related subjects in its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K NTIC files with or furnishes to the Securities and Exchange Commission.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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.

3230

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There was no change in NTIC’s internal control over financial reporting that occurred during the quarter ended February 28, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect NTIC’s internal control over financial reporting.

3331

PART II -

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On March 23, 2015, NTIC and NTI Asean LLC (NTI Asean), a majority-owned subsidiary of NTIC, filed a lawsuit in Tianjin No 1 Intermediate People’s Court against two individuals, Tao Meng and Xu Hui, related to breaches of duties and contractual commitments owed to NTI Asean under certain agreements related to NTIC’s former joint venture in China, Tianjin Zerust Anti-Corrosion Technologies Ltd. (Tianjin Zerust). The lawsuit alleges, among other things, that Mr. Tao Meng and Xu Hui have engaged in self-dealing, usurped business opportunities, and received economic benefits that were required to go to Tianjin Zerust. At this point it is too early in the lawsuit to reasonably estimate the amount of any recovery to NTI ~~Asean.~~Asean, if any.

On April 21, 2015, NTIC and NTI Asean initiated a lawsuit in the District Court for the Second Judicial District, County of Ramsey, State of Minnesota against Cortec Corporation alleging, among other things, that Cortec Corporation aided and abetted breaches of duties and contractual commitments owed to NTIC and NTI Asean related to NTIC’s joint venture in China, Tianjin Zerust. 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 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, 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 amend their amended supplemental complaint to assert a claim for punitive damages. 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 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 currently evaluating their options related to this litigation.

ITEM 1A.

RISK FACTORS

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Equity Securities

During the three months ended February 28, ~~2017,~~2018, NTIC did not issue any shares of its common stock or other equity securities of NTIC that were not registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

The following table shows NTIC’s second quarter of fiscal 2018 stock repurchase ~~activity during the three months ended February 28, 2017.~~activity.

Period Total Number of Shares (or Units) Purchased Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
December 1, 2016 through December 31, 2016 5,900 $ 12.96 0 (1 )
January 1, 2017 through January 31, 2017 0 N/A 0 (1 )
February 1, 2017 through February 28, 2017 0 N/A 0 (1 )(2)
Total 5,900 $ 12.96 0 (1 )(2)

Period	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)	Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs	Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
December 1, 2017 through December 31, 2017	0	$0	0	(1)
January 1, 2018 through January 31, 2018	0	$0	0	(1)
February 1, 2018 through February 28, 2018	0	$0	0	(1)
Total	0	$0	0	(1)(2)

(1)

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

(2)

As of February 28, ~~2017,~~2018, up to ~~$2,688,605~~$2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

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

Exhibit No.	~~Description~~ Item	Method of Filing
3.1	Certificate of Amendment to the Restated Certificate of Incorporation of Northern Technologies International Corporation dated January 16, 2018	Incorporated by reference to Exhibit 3.1 to NTIC’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 16, 2018 (File No. 001-11038)

10.1	Letter Agreement effective as of January ~~11, 2017~~5, 2018 between PNC Bank, National Association and Northern Technologies International Corporation ~~(incorporated~~	Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, ~~2016~~2017 (File No. 001-11038))
~~10.2~~	Consulting Agreement dated January 11, 2017 by and among Northern Technologies International Corporation, BioPlastic Polymers LLC, and Ramani Narayan, Ph.D. (incorporated by reference to Exhibit 10.2 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2016 (File No. 001-11038))
31.1	Certification of Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ~~(filed herewith)~~	Filed herewith

31.2	Certification of Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ~~(filed herewith)~~	Filed herewith

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ~~(furnished herewith)~~	Furnished herewith
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ~~(furnished herewith)~~	Furnished herewith

Exhibit No.		Item		Method of Filing
101		The following materials from NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Comprehensive Income (Loss), (iv) the unaudited Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements (filed herewith)

~~SIGNATURES~~

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

	~~NORTHERN TECHNOLOGIES INTERNATIONAL~~
	~~CORPORATION~~


~~Date: April 11, 2017~~	~~Matthew C. Wolsfeld, CPA~~
	~~Chief Financial Officer~~
	~~(Principal Financial and Accounting Officer and~~
	~~Duly Authorized to Sign on Behalf of the Registrant)~~

~~NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION~~
~~QUARTERLY REPORT ON FORM 10-Q~~

~~EXHIBIT INDEX~~

~~Exhibit~~ ~~No.~~	~~Description~~	~~Method of Filing~~
~~10.1~~	~~Letter Agreement effective as of January 11, 2017 between PNC Bank, National Association and Northern Technologies International Corporation~~	~~Incorporated by reference to Exhibit 10.1 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2016 (File No. 001-11038)~~
~~10.2~~	~~Consulting Agreement dated January 11, 2017 by and among Northern Technologies International Corporation, BioPlastic Polymers LLC, and Ramani Narayan, Ph.D.~~	~~Incorporated by reference to Exhibit 10.2 to NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2016 (File No. 001-11038)~~
~~31.1~~	~~Certification of Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	~~Filed herewith~~
~~31.2~~	~~Certification of Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~	~~Filed herewith~~
~~32.1~~	~~Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~	~~Furnished herewith~~
~~32.2~~	~~Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~	~~Furnished herewith~~
~~101~~	~~The following materials from Northern Technologies International Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2017,~~2018, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Comprehensive Income (Loss), (iv) the unaudited Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements		Filed herewith

SIGNATURES

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

	NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION


Date: April 16, 2018	Matthew C. Wolsfeld, CPA
	Chief Financial Officer
	(Principal Financial and Accounting Officer and
	Duly Authorized to Sign on Behalf of the Registrant)

			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, 2016		Level 1		Level 2		Level 3
Available for sale securities	$	2,243,864	$	2,243,864	$	—	$	—

Period	Total Number of Shares (or Units) Purchased		Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs		Maximum Number of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
December 1, 2016 through December 31, 2016		5,900	$	12.96		0		(1	)
January 1, 2017 through January 31, 2017		0		N/A		0		(1	)
February 1, 2017 through February 28, 2017		0		N/A		0		(1	)(2)
Total		5,900	$	12.96		0		(1	)(2)