Northern Technologies International Corporation Common Stock

Item 1A. 

RISK FACTORS

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

Risk Factors Summary

This summary is not complete and should be read in conjunction with the risk factors set forth below.

Risks Related to NTICs Business and Industry

Risks Related to NTICs Joint Ventures

Risks Related to NTICs International Operations and the Foreign Markets in which NTIC Operates

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Risks Related to NTICs Products

Risks Related to Governmental Regulation, Laws, and Compliance

Risks Related to NTICs Common Stock

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Risks Related to NTICs Business and Industry

Any weakness in the global economy, and in particular in the United States, Europe, India and China, and in the automotive industry, has negatively impacted and in the future may negatively impact NTICs business, operating results, and financial condition.

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

NTICs operating results are especially dependent upon the economic health of the economies in the United States, Europe, India and China. Since a significant portion of NTICs ZERUST rust and corrosion inhibiting products and services are sold to customers in the automotive industry, adverse economic conditions affecting the automotive industry or other events that may adversely affect the automotive industry, such as the recent UAW strike,  may result in an adverse effect on NTICs net sales and its other operating results. Accordingly, any weakness in the globIn fiscal economy, particularly the United States, Europe, India and China, a2024, several events softened demand iwithin the automotive industry, including decreased production resulting from the ongoing microchip shortage, have negative which indirectly adversely impacted and may continue to negatively impact d NTICs business, operating results, and financial condition.

COVID-19 has adversely impac, including the United and may continue Auto advWorkersely impact NTICs business, operating results and financial condition.

As a result of COVID-19 and related government mandated restrictions on NTICs business, as well as the businesses of its joint vent strike, automotive plant closures, customers and suppliers, disruption to NTICs business and a slowdown in the manufacture and sale of its products and services continued to occur during fiscal 2023, including in particular in China. While demand in China improved in fiscal 2023 as a result of government restrictions being lifted, NTIC has continued to experienion of electric vehicles, the high price softened demand. This decreased demand may have a maof vehicles, high interial adverse effect on NTICs business, opeest rating resultes and financial condition in fiscal 2024. Due to the international reach of COVID-19, NTIC anticipates that its international subsidiaries and joint ventures will continue to be adversely impacted by the causes listed above, as well as oan overall sluggish automotive market. Any weakness in ther loc global issues that may arise, which will likely continue to have a meconomy, particularly the United Staterial adverse effect on NTICs international subsis, Europe, Indiaries and joint venture operationsChina, and equity in income from joint ventures. A resurgence of COVID-19 and any related government mandated restrictions could hathe automotive a significant adverse effect on economies and financial markets globally, which could hindustry have a significant adverse effect on NTICs business, operating resultsnegatively impacted and financialmay condition. Any of these events could materially adversetinue to negatively affeimpact NTICs business, operating results, and financial condition and could adversely affect NTICs stock price.

NTICs business in the past has been and, in the future, may be negatively impacted by inflation.

Increases in inflation may have a negative impact on NTICs business. While the persistent inflation experienced in fiscal 2022 began stabilizing ined in fiscal 2023 and fiscal 2023, initial increases in4, relatively high levels of inflation impactcontinued the cost of raw materials,o impact the overall demand for NTICs products, labor, and the margins NTIC and its joint ventures are able to realize on the sale of products, all of which have had and could continue to have a negative impact on NTICs business, financial position, results of operations and cash flows. Sustained levels of high inflation caused the U.S. Federal Reserve and other central banks to increase interest rates, which co. Although the U.S. Federal Reserve lowered interest rates by 0.50 percentage points in September 2024, it is not known whether additional action will be taken to lower interest rates and if this decrease, and any other decreases, will have an impact on inflation. High rates of interest or similar increases to interest rates in the future could increase the cost of capital available to NTIC and depress economic growth,  and could also negatively impact our business.

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Supply chain disruptions in the past have interrupted and, in the future, could interrupt product manufacturing, increase product costs and result in lost sales, which may have a material adverse effect on NTICs business, operating results and financial condition.

Supply chain disruptions, which were initial in fiscal 2024 related primarily brought about by the impact of COVID-19, persisted durto international shipping fiscal 2023. These disruptionissues, as described below, which at times resulted in longer lead times for, temporary raw materials and increased product costs outages and higher shipping expenses. While NTIC took steps to minimize the impact of these increased costs by working closely with its suppliers and customers and, in some cases, identifying new suppliers of certain raw materials, and while the, these issues improved in late fiscal 2023 and are expected to continue improvingmay persist in fiscal 2024, 5, and there can be no assurances that unforeseen events impacting the supply chain will not have a material adverse effect on NTIC in the future. Additionally, the impacts supply chain disruptions have on NTICs third-party manufacturers are not within NTICs control. Prolonged supply chain disruptions impacting NTIC and its third-party manufacturers could interrupt product manufacturing, increase product costs and result in lost sales, which may have a material adverse effect on NTICs business, operating results and financial condition.

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Disruptions to the distribution channels for NTICs products in the past have negatively impacted and in the future may negatively impact NTICs business, operating results, and financial condition.

During fiscal 2022 and fiscal 2023, NTIC experienced supply chain disruptions, initially 24, a confluence of factors caused disruptions to international shipping, increasing costs and delaying shipments. Attacks on ships entering the Red Sea en route to the Suez Canal, an important waterway for vessels moving between Asia and the United States, by Houthi rebels in Yemen has a result of tforced ships to take longer routes. In addition, the sustained drought in Panama reduced capacity in the COVID-19 pandemic, Panama Canal, further impacting the global supply chain. In March 2024, a cargo shipping container shortage crashed into the Francis Scott Key Bridge in the Port of Baltimore, the largest U.S. port by volume for deliveries of automotive vehicles and components, and changes in globalwhich lead to the suspension of activity in the Port of Baltimore, causing shipping vessels to be rerouted, causing congestion and demandlays in other ports. While these conditions had improved by  Port of Baltimore opened to maritime traffic on June 10, 2024, the end of fiscalbridge is not expected to be rebuilt until late 20238 and are expected tofurther work to clear out wreckage and continue maintenance of the port may continue to stacause delays in the Port of Baltimore and other East Coast ports where activities are rerouted. These factors decreased the availabilize in ty of containers and increased shipping costs in fiscal 2024, it is possible that. Additionally, the change in global routes due to the Suez Canal, Panama Canal and Port of Baltimore disruptions has caused transit times to be extended by approximately two weeks, delaying certain NTIC may encounter similar condishipments. Increased shipping costs and delays adversely affected NTICs consolidated results of operations again induring fiscal 2024, and we anticipate that the futurese factors will continue to impact us during fiscal 2025. Similar delays and elevated costs in the future could have a material adverse effect on NTICs consolidated results of operations. Furthermore, transportation delays, increased shipping containers rates, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas may impact the operations of NTICs suppliers, which could in turn adversely affect NTIC, and its revenues and operating costs. Any of these disruptions may negatively impact NTICs business, operating results, and financial condition.

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

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

Shortages of raw materials, quality control problems, production capacity constraints, or delays by suppliers could negatively affect NTICs ability to meet its production obligations and result in increased prices for affected parts, and NTIC may be forced to find new suppliers for certain raw materials. The rapid growth in demand for bioplastics products globally has increased the demand and the price for plastic resins, and limited suppliers of such plastic resins may experience shortages caused by demand outpacing their production capabilities, which could result in NTICs inability to produce its Natur-Tec products promptly or in the volumes demanded. Any such shortages, constraints, or delays may result in delays in shipments of products or components, which could adversely affect NTICs net sales and other operating results and its reputation. From time to time, materials and components used in NTICs products are subject to allocation because of shortages of these materials and components.

Increases in prices for raw materials and components used in NTICs products in the past have adversely affected and in the future could adversely affect NTICs operating results.

NTIC uses certain raw materials and components in its products, including in particular plastic resins, which are subject to price increases. In light of increased global demand for bioplastics, production slowdowns due to manufacturingfreight issues, labor shortages and power restrictions in China, freight con in fiscal 2024, certainer shortages, the war in Ukraine, and raw materials used in the lingering effectsmanufacture of COVID-19, theNTICs Natur-Tec prices of certain plastic resins increased in fiscal 2022 and, through the majority of fiscal 2023, remained above historical levels. Although resin prices began dropping in late fiscal 2023, future elevated prices couldoducts were at times unavailable or were available only at higher costs, which adversely affected gross margins on NTICs Natur-Tec products. SIf similarly, if  shortages of resinaw materials arise again in the future, the cost and/or production of NTICs products could be adversely affected. Additionally, the war between Russia and Ukraine and the resulting sanctions by U.S. and European governments have resulted in and may continue to result in commodity price fluctuations, which have decreased our margins and the margins of our joint ventures and resulted in decreased joint venture profitability, which will likely continue during fiscal 2024. The war between Israel and

Hamas may have similar impacts during fiscal 2024.  Finally, changes to international trade agreements could result in additional tariffs, duties, or other charges on raw materials or components we import into the U.S.

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

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

Changes to trade regulation, quotas, duties, or tariffs, caused by the changing U.S. and geopolitical environments or otherwise, have negatively impacted in the past and in the future may negatively impact NTICs business, operating results, and financial condition.

There is significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, taxes, government regulations, and tariffs. Within recent years, for example, trade policy changes included the imposition of additional tariffs on imported products in an effort to address trade imbalances, specifically with China, the withdrawal of the U.S. from the Trans-Pacific Partnership, the renegotiation of the North American Free Trade Agreement, and sanctions on Russia. In response to some of these actions, certain countries imposed retaliatory actions against the U.S. NTIC and its subsidiaries and joint ventures engage in sales outside of the United States and is, therefore, negatively impacted by such actions. The incoming Trump administration has announced intentions to increase tariffs by 10% or more on imports, including a 60% increase on goods from China, which could lead to corresponding punitive actions by the countries with which the U.S. trades. Any changes or potential changes in trade policies in the United States and the potential corresponding actions by other countries in which NTIC does business could adversely and materially affect NTICs business, results of operations, and financial condition.

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

Any tightening of the credit and financial markets could negatively impact the ability of companies to borrow money from their existing lenders, obtain credit from other sources, or raise financing to fund their operations. This could negatively impact the ability of NTICs customers and the customers of NTICs joint ventures to purchase NTICs products, suppliers ability to provide NTIC and its joint ventures with materials and components, and the ability of NTIC and its joint ventures, distributors, and sales representatives to finance operations, if needed, on commercially reasonable terms, or at all. Any or all of these events could negatively impact NTICs business, operating results, and financial condition. Although NTIC maintains allowances for doubtful accountscredit losses for estimated losses resulting from the inability of its customers, distributors, and joint ventures to make required payments, and such losses historically have been within NTICs expectations and the provisions established, NTIC cannot guarantee that it will continue to experience the same loss rates that it has in the past, especially if there are weaknesses in the worldwide economy. A significant change in the liquidity or financial condition of NTICs customers, distributors, or joint ventures could cause unfavorable trends in NTICs receivable collections and additional allowances may be required, which could adversely affect NTICs operating results. In addition, weaknesses in the worldwide economy, including the imposition of higher tariffs, the withdrawal from the Trans-Pacific Partnership and sanctions on Russia, may adversely impact the ability of suppliers to provide NTIC with materials and components, which could adversely affect NTICs business and operating results. NTIC is unable to predict the prospects for a global economic recovery, but the longer the duration of such adverse and uncertain economic conditions, the greater the risks NTIC faces in operating its business.

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

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

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Although we have not experienced any material labor shortage to date, we have observed an overall tightening and increasingly competitive labor market in the past tworecent years. A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business. If we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on NTICs operations, results of operations, liquidity or cash flows.

NTIC faces challenges caused by its aging workforce, and NTIC may not be able to recruit, train and retain adequate replacements for its qualified and skilled employees.

Many of our employees are approaching retirement age. As these experienced employees retire, we may have difficulty recruiting new employees with comparable qualifications and experience, and we may be unable to transfer our employees institutional knowledge successfully to new qualified employees. Any such failures would be exacerbated at times of peak demand. Our failure to recruit and train new employees and to ensure they obtain adequate qualifications and experience could result in reduced revenues, loss of customer goodwill and a material negative impact on our results of operations.

Given NTICs limited resources, it may not effectively manage its growth.

NTICs strategy to grow its business, including in particular its ZERUST rust and corrosion inhibiting products for the oil and gas industry and its Natur-Tec bio-plastic resin compounds and finished products, requires significant management time and operational and financial resources. There is no assurance that NTIC has the necessary operational and financial resources to manage its growth. This is especially true as it expands facilities and manufactures its products on a larger commercial scale. In addition, rapid growth in NTICs headcount and operations may place a significant strain on its management, administrative, operational, and financial infrastructure. Failure to adequately manage its growth could have a material and adverse effect on NTICs business, operating results, and financial condition. For example, NTICs soil side bottom solutions for tanks require implementation teams comprised of both internal NTIC personnel and outside consulting firms. NTICs failure to expand these implementation teams to service additional customers may limit NTICs ability to grow this business. In additionIn addition, NTIC may not be successful in its strategy to grow its business.

The evolution of the automotive industry towards electric vehicles could adversely affect NTICs business.

The global automotive industry is experiencing a period of significant technological change, including the development and use of electric vehicles, which do not contain as many metal components that require NTICs ZERUST products and solutions. During fiscal 20234, the automobile sector represented approximately 40-45% of ZERUST industrial net sales in North America and 55-60% of net sales of NTICs joint ventures. While there was a slowdown in electric vehicle production in fiscal 2024, NTIC continues to seek additional applications of its ZERUST products and solutions related to electric vehicles and batteries, which will likely continue to have an increasing presence in the automotive market. However, increased demand for electric vehicles, which do not contain as many components requiring these products and solutions, will still adversely affect NTICs net sales and other operating results and business.

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Risks Related to NTICs Joint Ventures

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

NTIC conducts business, either directly or indirectly, through several joint venture arrangements that operate in North America, Europe, and Asia. Each of these joint ventures manufactures, markets, and sells finished products in the geographic territory that it is assigned. NTICs receipt of funds as a result of sales by its joint ventures is dependent upon NTICs receipt of fees for services that NTIC provides to its joint ventures based primarily on the net sales of the individual joint ventures and NTICs receipt of dividend distributions from its joint ventures based on the profitability of its joint ventures. NTICs liquidity and financial position in part rely on NTICs receipt of fees for services that NTIC provides to its joint ventures and dividend distributions from its joint ventures. During fiscal 20234, NTIC recognized $5,189,185251,782 in fees and $5,639,1982,997,164 in dividend distributions from its joint ventures. Because NTIC owns 50% or less of each of its joint venture entities, NTIC does not control the decisions of these entities regarding whether to pay dividends and, if paid, how much they should be in any given year. Thus, NTIC cannot guarantee that any of its joint ventures will pay dividends in any given year. The failure of NTICs joint ventures to declare dividends or the failure of NTIC to receive fees for services provided to joint ventures in amounts typically expected by NTIC could adversely affect NTICs liquidity and financial position.

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

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

Risks Related to NTICs International Business and the Foreign Markets in which NTIC Operates

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

NTIC sells products and services directly, through its wholly-owned and majority-owned subsidiaries, and indirectly, via a network of joint ventures, independent distributors, manufacturers sales representatives, and agents in over 65 countries, including countries in North America, South America, Europe, Asia, and the Middle East. One of NTICs strategic objectives is the continued expansion of its international operations. The expansion of NTICs existing international operations and entry into additional international markets requires management attention and financial resources. For example, NTICs expansion of oil and gas activities in the Middle East has faced challenges due to operating a new business unit, coordinating with a new sales team, the ability to find resources and local support, and limited experience in this new space, requiring additional management and financial support. Whether and to what extent such issues persist cannot be predicted.

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

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

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Furthermore, in June 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, commonly referred to as Brexit. The United Kingdom officially terminated its membership of the European Union on January 31, 2020 and remained in a transition phase until December 31, 2020. Although the United Kingdom and the European Union struck a bilateral trade and cooperation deal governing the future relationship between the United Kingdom and the European Union, which became effective on May 1, 2021, political and economic uncertainties remain, and it is possible that there will be increased regulatory complexities, which could affect NTICs ability to sell its products in certain European Union countries and subject NTIC to heightened risks in that region. Any of these effects of Brexit, and other similar referenda that NTIC cannot anticipate, could adversely affect its business, operations, and financial results.

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

NTIC considers its joint venture in Germany (EXCOR) to be individually significant to NTICs consolidated assets and income and, therefore, provides certain additional information regarding EXCOR in the notes to NTICs consolidated financial statements and in certain sections of this report. Of the total equity in income from joint ventures of $6,452,7194,223,296 during fiscal 20234, NTIC had equity in income from joint ventures of $2,852,229299,274 attributable to EXCOR. Of the total fee income for services provided to joint ventures of $5,189,185251,782 during fiscal 20234, fees of $816,08928,932 were attributable to EXCOR. Accordingly, if sales of NTICs products and services by this joint venture were to significantly decline or if NTICs relationships with this joint venture were to significantly deteriorate such that the joint venture terminated or was not motivated to sell NTICs products and services, NTICs operating results likely would be adversely affected. While this is also true with respect to the other joint venture entities of which additional information is provided in NTICs consolidated financial statements and in certain other sections of this report, the significance is not as great as with EXCOR. While EXCORs financial performance has not significantly deteriorated, it's profitaprofitability has decreased over the past few years as compared to prior years, which has adversely affected NTICs financial results.

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NTICs acquisition of the remaining 50% ownership interest of HNTI and any future similar acquisitions involve risk.

Effective as of September 1, 2021, NTIC acquired the remaining 50% ownership interest in its Indian joint venture, HNTI. It is possible that as part of its succession planning efforts with respect to its joint venture partners, NTIC may complete similar acquisitions in the future. Similar future acquisitions will depend, in part, on the availability of similar opportunities or other suitable acquisition candidates at acceptable prices, terms, and conditions and the availability of capital and personnel resources to complete such acquisitions and run and integrate the acquired business effectively. These acquisitions involve risk and may harm NTICs business, reputation, financial condition, and operating results. For instance, the benefits of the HNTI acquisition or any futuresuch acquisitions may take more time than expected to develop or integrate into NTICs operations, and NTIC cannot guarantee that either the HNTI or any futuresuch acquisitions will, in fact, produce any long-term benefits. Acquisitions, such as the HNTI acquisition, in involve a number of risks, the occurrence of which could adversely affect NTICs business, reputation, financial condition, and operating results, including:

In addition, effective internal controls are necessary for NTIC to provide reliable and accurate financial reports and to effectively prevent fraud. The integration of acquired businesses may result in NTICs systems and controls becoming increasingly complex and more difficult to manage. NTIC devotes significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. However, it cannot be certain that these measures will ensure that NTIC designs, implements, and maintains adequate control over its financial processes and reporting in the future, particularly in the context of acquisitions of other businesses. Any difficulties in the assimilation of acquired businesses into NTICs internal control framework could harm its operating results or cause NTIC to fail to meet its financial reporting obligations. Also, acquisitions require the consent of the lender under NTICs loan agreement. NTIC cannot predict whether such approval would be forthcoming or the terms on which the lender would approve such acquisitions. These risks, among others, could be heightened if NTIC completes a large acquisition or multiple transactions within a relatively short period of time.

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The ongoing wars between Russia and Ukraine and Israel and Hamas may adversely affect NTICs business and results of operations.

Given the nature of NTICs business and its global operations, political, economic, and other conditions in foreign countries and regions, including geopolitical risks, such as the ongoing wars between Russia and Ukraine and Israel and Hamas, may adversely affect NTICs business and results of operations. 

In 2022, NTIC took actions to limit its operations in Russia and Ukraine, which were adversely affected by the war between Russia and Ukraine, though these losses did not have a material impact on NTICs operating results. NTIC terminated its joint venture in Russia in May 2022, which also did not have an adverse effect on its results of operations or financial condition given the immateriality of the joint venture. The broader consequences of this conflict, which may include additional international sanctions, embargoes, regional instability, and geopolitical shifts; increased tensions between the United States and countries in which NTIC operates; and the extent of the conflicts effect on NTICs business and results of operations, as well as the global economy, cannot be predicted.

To the extent the ongoing war between Russia and Ukraine adversely affects NTICs business, it may also have the effect of heightening many other risks disclosed herein, any of which could materially and adversely affect NTICs business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation, demand for NTICs products and potential recessionary economic conditions; increased cyber security threats; adverse changes in trade policies, taxes, government regulations, and tariffs; NTICs ability to implement and execute its business strategy, particularly with regard to its joint ventures; disruptions in global supply chains; its exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets.

The ongoing war between Israel and Hamas may adversely affect NTICs business and results of operations. On October 7, 2023, Hamas, a U.S. designated terrorist organization, launched a series of coordinated attacks from the Gaza Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflictwhich is ongoing as of the date of this filing. Hostilities between Israel and Hamas couldhave occasionally escalate and involved, impacting surrounding countries in the Middle East. Although the length, impact and outcome of the militaryis conflict between Israel and Hamas are highly unpredictable, this conflicit could lead to significant market and other disruptions, including disruptions to the oil and gas industry, significant volatility in commodity prices and supply of energy resources, instability in financial markets,

 supply chain interruptions, political and social instability and other material and adverse effects on macroeconomic conditions. It is not possible at this time to predict or determine the ultimate consequences of this conflict.

To the extent the ongoing war between Israel and Hamas adversely affects NTICs business, it may also have the effect of heightening many other risks disclosed herein, any of which could materially and adversely affect NTICs business and results of operations. Such risks include, but are not limited to, adverse effects on the oil and gas industry, adverse effects on macroeconomic conditions, including inflation, demand for NTICs products and potential recessionary economic conditions; increased cyber security threats; adverse changes in trade policies, taxes, government regulations,

and tariffs; NTICs ability to implement and execute its business strategy, particularly with regard to its joint ventures; disruptions in global supply chains; its exposure to foreign currency fluctuations; and constraints, volatility, or

disruption in the capital markets.

The operations of NTIC China may be adversely affected by Chinas evolving economic, political, and social conditions, as well as increasing tensions between the United States and China.

The results of operations and future prospects of NTIC China may be adversely affected by, among other things, changes in Chinas political, economic, and social conditions, escalating tensions between China and Taiwan, changes in the relationship between China and its western trade partners, changes in policies of the Chinese government, changes in laws and regulations or in the interpretation of existing laws and regulations, changes in foreign exchange regulations, measures that may be introduced to control inflation, such as interest rate increases, changes in the rates or methods of taxation, and increasing tensions between the United States and China. In addition, changes in demand could result from increased competition with local Chinese manufacturers who have cost advantages or who may be preferred suppliers for Chinese end users. Also, Chinese commercial laws, regulations, and interpretations applicable to non-Chinese owned market participants, such as NTIC China, are continually changing, and such changes may require NTIC China to change how it conducts its business. These laws, regulations, and interpretations could impose restrictions on NTICs and NTIC Chinas ownership or operations or NTICs interests in China and could adversely affect NTICs business, results of operations, and financial condition.

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Local regulations in China related to the electric power shortage that began in 2021 may adversely affect NTIC Chinas operations or the operations of our suppliers with facilities in China. For example, these regulations could result in partial or complete factory shutdowns due to a lack of continuous supply of electrical power. Additionally, the price of electric power may be increased, and peak-demand periods during which prices are higher may be extended by local governments. Certain of our resin suppliers with facilities in China were adversely impacted by these regulations, which contributed to constrained supply. Although NTIC Chinas operations have not been significantly impacted by regulations related to electric power shortages to date, such regulations may in the future decrease or shut down production or increase product costs, which could adversely affect NTICs business, results of operations, and financial condition.

IntelThese and other factors, including, but not limited to, rising labor costs in China and more favorable investment policies in Southeast Asian countries, have caused some companies to relocate from China to Southeast Asia. Remaining in China could result in these factors together adversely affecting NTICs business, results of operations, and financial condition.

Intellectual property rights are difficult to enforce in China, which could harm NTICs business, results of operations, or financial condition.

Chinese commercial law is relatively undeveloped compared to commercial law in many of NTICs other major markets, and limited protection of intellectual property is available in China as a practical matter. Although NTIC takes precautions in the operation of NTIC China to protect NTICs intellectual property, any local manufacturer of products that NTIC undertakes in China could subject NTIC to an increased risk that unauthorized parties will be able to copy or otherwise obtain or use NTICs intellectual property, which could harm NTICs business. NTIC may also have limited legal recourse in the event it encounters patent or trademark infringers, which could adversely affect NTICs business, results of operations, and financial condition.

Uncertainties with respect to the Chinese legal system may adversely affect the operations of NTIC China.

NTIC China is subject to laws and regulations applicable to foreign investment in China. There are uncertainties regarding the interpretation and enforcement of laws, rules, and policies in China. The Chinese legal system is based on written statutes, and prior court decisions have limited precedential value. Because many laws and regulations are relatively new, and the Chinese legal system is still evolving, the interpretations of many laws, regulations, and rules are not always uniform. Moreover, the relative inexperience of Chinas judiciary in many cases creates additional uncertainty as to the outcome of any litigation, and the interpretation of statutes and regulations may be subject to government policies reflecting domestic political agendas. Finally, enforcement of existing laws or contracts based on existing law may be uncertain and sporadic. For the preceding reasons, it may be difficult for NTIC or NTIC China to obtain timely or equitable enforcement of laws ostensibly designed to protect companies like NTIC or NTIC China, which could adversely affect NTICs business, results of operations, and financial condition.

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

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

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

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

Fluctuations in foreign currency exchange rates could result in declines in NTICs earnings and changes in NTICs foreign currency translation adjustments.

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

Economic uncertainty in developing markets could adversely affect NTICs revenue and earnings.

NTIC conducts business, or is contemplating expansion, in developing markets with economies that tend to be more volatile than those in the United States and Western Europe. The risk of doing business in developing markets such as China, Brazil, India, Russia, the United Arab Emirates, Mexico, and other economically volatile areas could adversely affect NTICs operations and earnings. Such risks include the financial instability among customers in these regions, political instability, fraud or corruption, and other non-economic factors, such as the impact of COVID-19 aand irregular trade flows that need to be managed successfully with the help of the local governments. In addition, commercial laws in some developing countries can be vague, inconsistently administered, and retroactively applied. If NTIC is deemed not to be in compliance with applicable laws in developing countries where NTIC conducts business, its prospects and business in those countries could be harmed, which could then have a material adverse impact on NTICs operating results and financial position. NTICs failure to successfully manage economic, political, and other risks relating to doing business in developing countries and economically and politically volatile areas could adversely affect its business.

Risks Related to NTICs Products

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

NTICs products are sold in intensely competitive markets throughout the world. This intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share. With respect to its rust and corrosion inhibiting products, NTIC competes on the basis of product innovation, quality, reliability, product support, customer service, reputation, and price. With respect to its Natur-Tec resin compounds and finished products, NTIC competes on the basis of performance, brand awareness, distribution network, product availability, product offering, shelf life, place of manufacture, and price. NTIC often competes with numerous manufacturers, many of which have substantially greater financial, marketing, and other resources than NTIC. As a result, they may be able to adapt more quickly than NTIC to new or emerging technologies, industry trends, and changes in customer requirements or to devote greater resources to the promotion and sale of their products than NTIC. In addition, competition could increase if new companies enter the markets in which NTIC competes, especially when the barriers to entry are low, which may be true with respect to NTICs rust and corrosion prevention business, or if existing competitors expand their product lines or intensify efforts within existing product lines. NTICs current products, products under development, and its ability to develop new and improved products may be insufficient to enable NTIC to compete effectively with its competitors. No assurance can be provided that NTIC will be able to compete effectively, which would harm its business and operating results. In particular, NTIC has experienced more intense competition with respect to many of its traditional ZERUST rust and corrosion inhibiting products and services, which has led to decreased pricing and smaller margins for NTIC.

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

NTICs ZERUST rust and corrosion inhibiting products and services generate a significant portion of NTICs net sales and the net sales of NTICs joint ventures. During fiscal 2023, 77.34, 74.2% of NTICs consolidated net sales were derived from sales of ZERUST rust and corrosion inhibiting products and services. While the net sales of NTICs joint ventures are not included in NTICs net sales on NTICs consolidated financial statements, NTICs receipt of fees for services that NTIC provides to its joint ventures and NTICs receipt of dividend distributions from its joint ventures are based primarily on the revenues and profitability of the joint ventures. Accordingly, if sales of these products and services were to decline due to increased competition, the introduction of a new disruptive technology, or otherwise, NTICs operating results would be adversely affected.

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

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

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

In an effort to increase net sales, NTIC has expanded the marketing of its corrosion prevention solutions into the oil and gas industry and its Natur-Tec resin compounds and finished products. NTIC expects to continue to invest additional research and development and marketing efforts and resources into these strategic initiatives. No assurance can be provided, however, that such strategic initiatives will be successful or that NTIC will be successful in obtaining additional revenue as a result of them. The introduction of new products into new markets takes significant resources, and there can be no assurance that NTIC is dedicating a sufficient amount of resources to ensure the success of these strategic initiatives. The sale of NTICs ZERUST rust and corrosion inhibiting products and services into the oil and gas industry, in particular, typically involves a long sales cycle, often including a one- to multi-year trial period with each customer and a slow integration process thereafter. This long sales cycle may cause NTICs management, stockholders, and investors to lose faith in the business opportunities for NTICs ZERUST rust and corrosion inhibiting products and services in the oil and gas industry. Additionally, projects NTIC completes for oil and gas industry customers typically involve short turnaround times, and failure to meet these expectations could damage NTICs ability to successfully promote its corrosion prevention solutions into the oil and gas industry.

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

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

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

The commercial success of NTICs Natur-Tec resin compounds and finished products depends on the widespread market acceptance of products manufactured with bio-based and biodegradable resins.

Although there is a developed market for petroleum-based plastics, the market for bioplastics which are plastics produced with bio-based resins, which are derived from renewable resources such as corn or cellulosic/plant material or blends thereof, or plastics that are engineered to be fully biodegradable or both, is still developing. The commercial succesmarket for biodegradable plastics is expanding worldwide, driven by increasing environmental awareness, regulatory support for sustainable materials, and growing demand for eco-friendly alternatives. As consumers and industries seek to reduce plastic waste, biodegradable plastics of fer a viable solution, particularly in sectors like packaging, agriculture, and consumer goods. This trend is further supported by government policies promoting sustainable practices and by advances in biodegradable technology, which make these materials more accessible and cost-effective.

The commercial success of NTICs Natur-Tec resin compounds and finished products depends on the continued expansion of the market for biodegradable plastics and widespread market acceptance of products manufactured with bio-based and biodegradable resins, which may result, in part, from government apolicies promoting sustainable practionces at the federal, state or local level. For example, in June 2022, the State of California passed a law intended to reducmany U.S. states and municipalities have taken action or are considering laws to ban certain single-use plastics, often focusing efforts on single-use plastic bags and plastic straws. However, existing federal rules and regulations favorable to the market for biodegradable plastics may be single-use plasticsubject to change under the incoming Trump administration. Internationally, the government of India announced a phased ban on the manufacture and sale of single-use plastics beginning in July 2022. Similarly, in January 2021, China implemented a ban on single-use plastic utensils, bags and certain other single-use plastic items. Despite these efforts and other measures taken at the federal, state and local levels, including policies related to the collection of organics, it is currently difficult to assess or predict with any assurance the potential size, timing, and viability of market opportunities for NTICs Natur-Tec resin compounds and finished products. Additionally, while legislation has helped increase demand for bioplastics, a lack of enforcement and higher costs associated with bioplastics have adversely impacted the demand anticipated to stem from such legislation. 

The traditional plastics market sector is well-established with entrenched competitors with whom NTIC competes. Pricing for traditional plastics has been highly volatile in recent years, which drives, to some extent, the commercial and other support for bioplastics. While NTIC expects to be able to command a premium price for its Natur-Tec resin compounds and finished products, a widening gap in the pricing for bioplastics versus petroleum-based plastics may reduce the size of the addressable market for NTICs Natur-Tec resin compounds and finished products. Whether prices for bioplastics become more competitive with prices for petroleum-based plastics will depend, in part, on continued advances in biodegradable technology. In addition, the growth of the market will create some pressure on price for applications today considered commodities, including in particular NTICs current Natur-Tec finished products.

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

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

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

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

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

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

The sale of ZERUST rust and corrosion inhibiting products into the oil and gas industry is dependent on certain macroeconomic factors, including seasonality of installations, fluctuations of crude oil prices, global events and regulatory guidelines.

Seasonality of Installations: In the past, NTIC has experienced some seasonality with respect to the sale of its ZERUST rust and corrosion inhibiting products into the oil and gas industry, with sales during parts of the second and third fiscal quarters being adversely affected by winter in the United States. However, in fiscal 2023 and fiscal 2024, this seasonality began to decreased somewhat as opportunities increased globally.

Fluctuations of Crude Oil Prices: The sale of NTICs ZERUST rust and corrosion inhibiting products into the oil and gas industry, particularly in the United States, has historically been hampered by low/unstable global crude oil prices. Although thThe price of crude oil nearedremained moderate an all-time highd relatively stable in fiscal 20224, prices receded in 2023, and low global crude oil prices have been and may in the future be caused by OPEC decisions artially due to decreased inflationary pressures and other macroeconomic factors affecting ample global supply and demandies. NTIC believes low global crude oil prices constrain capital improvement budgets of its existing and prospective customers and may result in personnel turnover at its oil and gas customers or prospects. The ongoing war between Russia and Ukraine has escalated tensions between Russia and other countries, some of which have imposed sanctions and taken other economic actions that contributed to high global crude oil prices in 2022 before receding in 2023 partially as a result of decreased inflationary pressures. Additional international sanctions on Russia may be imposed, which could again increase these costs. ly, NTIC believes the ongoing wars between Russia and Ukraine maand Israel and Hamas may create uncertainty among its existing and prospective customers, which may cause them to halt oil and gas projects or elect to decrease capital improvement budgets, either of which could harm NTICs ability to sell its products into the oil and gas industry. NTIC believes that similar impacts may result from the war between Israel and Hamas, particularly if the war escalates and surrounding countries become involved.

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Global Events: The sale of Zerust Oil Gas solutions to Oil Gas sector clients is impacted by events like the COVID-19 pandemic and  geopolitical tensions and other events in key oil producing regions like the Middle East. These affect the ability of the teams to have face-to-face meetings, travel for site surveys and implementations, etc., with the added effect of potential supply chain delays/impacts that could delay or postpone sales.

Regulatory Guidelines: The Oil Gas sector is very conservative and, in addition to long-term trials on-site, client decision makers typically default to guidelines from the American Petroleum Institute (API), Association of Materials Protection and Performance (AMPP), Pipeline and Hazardous Materials Safety Administration (PHMSA),  an agency of the United States Department of Transportation responsible for developing and enforcing regulations for the safe, reliable and environmentally sound transportation of energy and other hazardous materials, European Committee for the Study of Corrosion (CEOCOR), etc. Getting a new technology/solution approach included in these guidelines typically takes years of committee lobbying, client support, field trials and lab validation. The Zerust solutions have been included in several technical reports/committees from these groups though getting full validation is likely to take a few more years.

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

The expansion of NTICs corrosion prevention solutions into the oil and gas industry and the continued expansion of NTICs Natur-Tec resin compounds and finished products will continue to require resources during fiscal 20245 and beyond. To the extent that NTICs existing capital, including amounts available under its revolving line of credit, is insufficient to meet these requirements, NTIC may raise additional capital through financings or additional borrowings. Any equity or debt financing, if available at all, may be on terms that are not favorable to NTIC, and any equity financings could result in dilution to NTICs stockholders.

Risks Related to Governmental Regulation, Laws, and Compliance

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

NTICs business, properties, and products are subject to a wide variety of international, federal, state, and local laws, rules, taxes, and regulations relating to the protection of the environment, natural resources, and worker health and safety and the use, management, storage, and disposal of hazardous substances, wastes, and other regulated materials. These laws, rules, and regulations may affect the way NTIC conducts its operations, and the failure to comply with these regulations could lead to fines and other penalties. These laws, rules, and regulations may be subject to change by the Biden administration, which denied a key permit in the construction of the Keystone XL Pipeline, leading to the abandonment of the project, and may i In the future take action to further restrict such activities. Additionally, new environmental laws, rules, and regulations with provisions similar to those of the Inflation Reduction Act of 2022, which includes measures to reduce emissions, may be enacted, which may adversely affect NTICs business. Further, because NTIC owns and operates real property, various environmental laws also may impose liability on NTIC for the costs of cleaning up and responding to hazardous substances that may have been released on NTICs property, including releases unknown to NTIC. These environmental laws and regulations also could require NTIC to pay for environmental remediation and response costs at third-party locations where NTIC disposed of or recycled hazardous substances. NTICs future costs of complying with the various environmental requirements, as they now exist or may be altered in the future, could adversely affect NTICs financial condition and operating results. NTIC is also subject to other international, federal, and state laws, rules, and regulations, the future non-compliance with which may harm NTICs business or may adversely affect the demand for some of its products. Changes in laws and regulations, including changes in accounting standards and taxation changes, including tax rate changes, new tax laws, including the changes to U.S. federal tax laws included in the Inflation Reduction Act of 2022, such as a 1% excise tax on stock repurchases, and revised tax law interpretations, also may adversely affect NTICs operating results.

 These laws, rules and regulations may be subject to change by the incoming Trump administration, which has announced intentions to alter environmental and other regulations, although it is not possible at this time to determine whether such actions will be taken and the impact they may have on NTIC.

Governmental regulation also may adversely affect the demand for some of NTICs products and its operating results. For example, the PHMSA added several new rules with specified deadlines in calendar year 2024. As a result, pipeline owners and operators and several service contractors in the pipeline inspection sector were required to complete preliminary reporting requirements to meet these deadlines. These reporting requirements significantly delayed pipeline casing protection work in the second and third quarters of fiscal 2024 pending completion of the compliance work, adversely impacting demand for certain products and NTICs operating results. While we anticipate that the impact of these new rules and deadlines will decrease in fiscal 2025, resulting in a resurgence in client projects, other regulations may be enacted, causing similar adverse impacts, which impacts or other events may prevent the anticipated resurgence in client projects from materializing.

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

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

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

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

NTIC has identified a material weakness in its internal controls, and cannot provide assurances that this weakness will be effectively remediated or that additional material weaknesses will not occur in the future.

If NTICs internal control over financial reporting or its disclosure controls and procedures are not effective, NTIC may not be able to accurately report its financial results, which may cause investors to lose confidence in NTICs reported financial information and may lead to a decline in its stock price.

NTICs management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, which is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. NTICs internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting pAny change in accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or time generally detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements.

During the preparation of NTICs consolidataccepted financial statements included in this annual report on Form 10-K, NTICs management identified a material weakness in NTICs internal control over financial reporting relating to the probability assessment associated with the recognition of income related to employee retention credits that may be available to NTIC under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequent legislation providing numerous tax provisions and other stimulus measures, including employee retention credits, which are refundable tax credits against certain employment taxes. While NTIC is taking steps to remediate the material weakness, NTIC cannot provide any assurance that such remedial measures, or any other remedial measures NTIC takes, will be effective. If NTIC fails to maintain effective internal control over financial reporting, NTIC may not be able to accurately report its financial results, which may, among other adverse consequences, cause investors to lose confidence in NTICs reported financial information and lead to a decline in its stock price. In addition, a material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively.

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Any change in accounting principles generally accepted in the in the United States of America requiring NTIC to consolidate its joint ventures could adversely affect NTICs operating results.

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

Risks Related to NTICs Intellectual Property

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

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

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

Risks Related to NTICs Common Stock

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

The number of shares of NTICs common stock being traded daily is often very low, and on some trading days, there is no trading volume at all. During fiscal 20234, the daily trading volume ranged from 400634 shares to 340,7001,006,875 shares. Any NTIC stockholder wishing to sell his, her, or its stock may cause a significant fluctuation in the trading price of NTICs common stock. In addition, low trading volume of a stock increases the possibility that, despite rules against such activity, the price of the stock may be manipulated by persons acting in their own self-interest. NTIC may not have adequate market makers and market making activity to prevent manipulation in its common stock.

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

The market price and trading volume of NTICs common stock price historically has fluctuated over a wide range. During fiscal 20234, the sale price of NTICs common stock ranged from a low of $10.1008 per share to a high of $15.009.63 per share, and the daily trading volume ranged from 400634 shares to 340,7001,006,875 shares. It is likely that the price and trading volume of NTICs common stock will continue to fluctuate in the future. The securities of small capitalization companies, including NTIC, from time-to-time experience significant price and volume fluctuations, often unrelated to the operating performance of these companies. Securities class action litigation is sometimes brought against a company following periods of volatility in the market price of its securities or for other reasons. NTIC may become the target of similar litigation, especially if NTIC fails to meet its annual projected financial guidance or lowers its annual projected financial guidance. Securities litigation, whether with or without merit, could result in substantial costs and divert managements attention and resources, which could harm NTICs business, operating results, and financial condition as well as the market price of its common stock.

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

As of November 109, 20234, NTIC had 9,427,59970,507 shares of common stock outstanding, 22.44.3% of which were beneficially owned by directors, executive officers, principal stockholders, and their respective affiliates. The stock of companies with a substantial amount of stock held by insiders is usually not as liquid as the stock of other public companies where insider ownership is not as concentrated. Thus, the trading market for shares of NTICs common stock may not be as liquid as the stock of other public companies.

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

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

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

As of November 109, 20234, Inter Alia Holding Company, or Inter Alia, beneficially owned approximately 12.87% of NTICs outstanding common stock. Inter Alia is an entity partially owned by G. Patrick Lynch, NTICs President and Chief Executive Officer and director, as well as two other members of the Lynch family. Mr. Lynch shares voting and dispositive power of shares of NTICs common stock held by Inter Alia with the other owners. As a result of his share ownership through Inter Alia and his position as President and Chief Executive Officer and director of NTIC, Mr. Lynch may be able to influence the affairs and actions of NTIC, including matters requiring stockholder approval, such as the election of directors and approval of significant corporate transactions. The interests of Mr. Lynch and Inter Alia may differ from the interests of NTICs other stockholders. This concentration of ownership may have the effect of delaying, preventing, or deterring a change in control of NTIC, could deprive NTICs stockholders of an opportunity to receive a premium for their common stock as part of a sale or merger of NTIC, and may negatively affect the market price of NTICs common stock. Transactions that could be affected by this concentration of ownership include proxy contests, tender offers, mergers, or other purchases of common stock that could give stockholders the opportunity to realize a premium over the then-prevailing market price for shares of NTICs common stock.

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General Risk Factors

Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations.

Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters, such as hurricanes, tornadoes, earthquakes, wildfires or flooding. Climate change may also cause water shortages, changes in rainfall and storm patterns, changes in sea levels and other negative weather and climate patterns. Such weather conditions could pose physical risks to our facilities and disrupt operation of our supply chain and may impact operational costs.

The increasing global focus on climate change and the need for corporate change also may lead to new regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. The inconsistency of regulations in the countries in which we operate may affect the costs of compliance with such legal or regulatory requirements. Additionally, in the event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions and improve our energy efficiently, we may be subject to curtailment or reduced access to resources or experience significant increases in our costs of operation and delivery. As a result, climate change could negatively affect our business and operations.

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In addition, public company stockholders are increasingly sensitive to the climate change impacts and mitigation efforts of companies, are increasingly seeking enhanced disclosure on the risks, challenges, governance implications, and financial impacts of climate change faced by companies and are demanding that companies take a proactive approach to addressing perceived environmental risks, including risks associated with climate change, relating to their operations. In an effort to increase climate change disclosure, on March 6, 2024, the SEC proposadopted climate disclosure rules that would require new climate-related disclosure in SEC filings, as described below. Adverse publicity or climate-related litigation that may result from such enhanced disclosure or stockholder perception could have a negative impact on our business.

New climate disclosure rules, if  adopted by the SEC, may increase our costs and litigation risks, which would materially and adversely affect our future results of operations and financial condition.

During fiscal 2022On March 6, 2024, the SEC proposadopted new climate disclosure rules, which if adopted, would require new climate-related ddisclosure in SEC filof, among other things, including ccertain climate-related metrics and greenhouse gas emissions data, information about climate-related targetrisks, their impacts and goals, transactivition plans, if any, and extensive attestation requirements. Ines undertaken to mitigate or additionapt to requiring filsuch risks; overs to quantify and discloseight by the board of direct emissions data,ors and the new rules also would require disclosure of climate impact arising from the operrole of management; informations and uses by the filers business partner about climate-related targets and contractors and end-goals; greenhousers of the filers products gas emissions; and/or service financial statement impacts. We are currently assessing the impact of the new rules, if adopted as proposed, but at this timebut at this time, due in part to pending legal action related to the adoption of the new rules, we cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules if adopted. However, we may incur increased costs relating to the assessment and disclosure of climate-related risks and increased litigation risks related to disclosures made pursuant to the new rules, either of which could materially and adversely affect our future results of operations and financial condition.

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

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

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

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

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

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

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

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

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TICs current ehe installation of a new Enterprise rResource pPlanning (ERP)software system is outdated aand in nerelated of a, upgrade or conversequipment could cause disruption to a new ERP system.

NTICs business, and NTIC intends may not be able to implement a new ERP system duringeffectively realize the next year. Implementingbenefits of this new or upgraded  systems carries substantial risk, includ.

NTIC is in the process of installing failure to operate as designed, failure to properly integrate with othera new Enterprise Resource Planning (ERP) software systems, potential loss of data or information, cost overruns, imple and related equipmentation delays, and disruption of operations. Third-party vendors are also relied upon to design, in order to support its future growth and more fully optimize its existing program, maicesses. The implementain, and service thetion of a new ERP system. Any failures of these vendors to oftware system may properly deliver their services could have a material adverse effect on NTICs business. NTIC plans to run parallel systems (existve to be more difficult, costly or time-consuming system with new system) for multiple quarters, howeverthan expected, any disruptions or malfunctions affecting NTICs ERP sd it is possible that the system implementation plan could cause critical information upon which NTIC relies to be delayed, defective, corrupwill not yield the anticipated, inadequate, or inaccessible. NTIC may experience difficulties in its business opera benefits. Any disruptions, delays or difficulties in operating its business under theseficiencies related to the new ERP software systems, either of which could disrupt it could materially impact NTICs operations, including and its ability to timely invoice customers, ship and track product orders, projectmanage inventory requirements, manage its supply chain, effectively manage customer accounts receivable and pay suppliers within terms and, fulfill obligations to customers or otherwise adequoperately service i its customers, and could lead to increased costs and other difficultiesbusiness. In the event NTIC experiences significant disrupadditions as a result of the, implementation or upgrade of f a new ERP systems or otherwise, it may not be able to fix its systems in an efficient and  will require significant resources, including the timely manner. NTIC may not realize the benefits it anticipates should all or part of the ERP system impl and attention of NTICs managementation process prove, in order to be ineffective. Accordingly, such events may disrupt or reducfully realize the effanticiency of NTICs entire operations and have a material adverse effect on its operating results and cash flows.

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pated benefits.

NTICs business could be negatively impacted by cyber security threats.

In the ordinary course of NTICs business, NTIC uses its management information systems to store and access proprietary business information. NTIC faces various cyber security threats, including cyber security attacks to its information technology infrastructure and attempts by others to gain access to its proprietary or sensitive information. The procedures and controls NTIC uses to monitor these threats and mitigate its exposure m, as described in greater detail under Part I. Item 1C. Cybersecurity, may not be sufficient to prevent cyber security incidents. The result of these incidents could include disrupted operations, lost opportunities, misstated financial data, liability for stolen assets or information, increased costs arising from the implementation of additional security protective measures, litigation, and reputational damage. Any remedial costs or other liabilities related to cyber security incidents may not be fully insured or indemnified by other means. Additionally, on July 26, 2023, the SEC issued final rules related to cyber security risk management and related disclosures. NTIC and its Audit Committee continue to monitor and analyze the impact these rules may have on NTICs regulatory burden and cost of compliance related to cyber security threats.

NTICs quarterly results are typically unpredictable and subject to variation.

NTICs quarterly operating results vary from quarter to quarter for a variety of reasons. For example, NTICs quarterly sales to joint ventures can be affected by individual orders to joint ventures. Because of the typical size of individual orders to joint ventures and the overall size of NTICs net sales to joint ventures, the timing of one or more orders can materially affect NTICs quarterly sales to joint ventures and the comparisons to prior year quarters. In addition, because of the typical size of individual orders and the overall size of NTICs net sales derived from sales of Natur-Tec products, the timing of one or more orders can materially affect NTICs quarterly sales of Natur-Tec products and the comparisons to prior year quarters. Furthermore, since ZERUST products for the oil and gas industry typically carry higher margins than other traditional ZERUST products, the amount of sales of ZERUST products for the oil and gas industry typically affects NTICs overall margins. Such variability in operating results makes the prediction of NTICs net sales, earnings, and other operating results for each quarter difficult and increases the risk of unanticipated variations in quarterly operating results. NTICs quarterly results have been and, in the future, may be below the expectations of public market analysts and investors.

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

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

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