# To the Stockholders of Northern Technologies International Corporation

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_NTIC_2021/NASDAQ_NTIC_2021.mmd` · pages 2-8_

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

We are proud of our fiscal 2021's strong operating and financial results. Our performance was especially encouraging, given that we not only had to continue to navigate COVID-19 pandemic challenges, but also global supply chain bottlenecks and related material shortages. Fiscal 2021 was a transformative year of recovery, reinvestment, and growth, made possible by our long-term focus, and the support of our customers, employees, joint venture partners and suppliers.

From the onset of the COVID-19 pandemic, we were well positioned to maintain our operations, staffing levels and services to our customers, while investing in new product development and pursuing new sales opportunities. This kept us ready to benefit from a significant resurgence in industrial production that started to occur in the second half of fiscal 2021. In fact, as we exit the COVID-19 pandemic, we are in a stronger competitive position and with a higher level of profitability. I believe this can be attributed to our strong global customer base, business model, and cost structure.

During fiscal 2021, we also made certain one-time strategic investments in our business and reinstated our quarterly cash dividend as a sustained macroeconomic recovery became clearer. In the fourth quarter, we invested \(6.2 million to buy a new facility in China, reflecting our commitment to the Chinese market and supporting our expected future growth within this geography. The new facility, anticipated to open in February 2022, will support our R&D, production, sales and marketing and training efforts in what we believe will become our largest geographic market.

Additionally, after fiscal 2021 ended, we acquired the remaining 50% ownership interest in our Indian joint venture, HARITA-NTI LTD., also known as Zerust India, for \(6.25 million in cash. We funded this purchase mostly with cash on hand and some borrowings under our revolving line of credit, which was increased in connection with the transaction to \)5.0 million. Zerust India is now a wholly owned subsidiary of NTIC and will be fully consolidated in NTIC's consolidated financial statements beginning in fiscal year 2022. Zerust India is expected to contribute approximately \(10.0 million in net sales along with over \)2.2 million in net income during fiscal year 2022, amounting to an additional anticipated $0.10 per diluted share. Many of our multinational customers either have their own operations in India or have suppliers based there, making it one of our strongest international markets. As a result, we are positioned to further enhance our presence in India.

NTIC's Board of Directors reinstated our regular quarterly cash dividend in May 2021. This followed a brief and prudent suspension during fiscal 2020, as a result of the uncertainty caused by the COVID-19 pandemic. Furthermore, on October 20, 2021, NTIC's Board elected to increase our quarterly cash dividend payment to $0.07 per share, representing the third increase in our quarterly dividend since 2017.

The entire NTIC team, both employees and our joint venture partners, has been working tirelessly alongside our customers, suppliers, and vendors to work through global supply chain challenges, including the availability of raw materials, labor, and inflation. While many of these challenges are expected to remain throughout our fiscal 2022, I believe NTIC's asset-light business model and global presence in over 65 countries provides the Company with an advantage navigating these macro-related headwinds.

Our strong financial position has continued to contribute to our success. We ended fiscal 2021 with no debt and $7.9 million in cash, cash equivalents and available for sale securities. Our cash, cash equivalents and available for sale securities declined on a year-over-year basis as a result of the $6.2 million investment we made in the fourth quarter to buy our new Chinese facility. NTIC's highly profitable financial model, combined with our approximately $15.9 million investment in our joint ventures, provides the Company with the financial flexibility to continue allocating capital to support our future growth initiatives and quarterly dividend program.

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Looking at fiscal 2021 financial results in more detail, NTIC's consolidated net sales for fiscal 2021 were a record \(56.5 million. The 18.6% annual increase in net sales was a result of a 32.1% increase in total ZERUST \( ^{\circledR} \)  sales driven by a rebound in global manufacturing from last year's impacts of the pandemic and a 36.3% increase in ZERUST \( ^{\circledR} \)  Oil & Gas net sales. Partially offsetting these trends was a 16.9% decline in annual Natur-Tec \( ^{\circledR} \)  sales as this business recovers from the pandemic's impact.

Improving global market conditions throughout fiscal 2021 also expanded the financial performance across many of our joint ventures. Record joint venture sales helped increase NTIC's joint venture operating income by 51.2% to \(13.4 million, compared to joint venture operating income of \)8.9 million during the fiscal year ended August 31, 2020.

Profitability improved materially in fiscal 2021 due to strong sales growth, prudent operating expense management and a \(4.5 million increase in joint venture operating income. Net income attributable to NTIC was \)6.5 million, or \(0.66 per diluted share, compared to a net loss of \)1.3 million, or a loss of \(0.15 per diluted share, last fiscal year. The net loss attributable to NTIC for fiscal year 2020 included a one-time \)1.6 million non-cash adjustment to the Company's U.S. deferred tax asset, which was required to remove the net U.S. deferred tax asset from NTIC's balance sheet.

## ZERUST \( ^{®} \)  Industrial Corrosion Prevention

ZERUST \( ^{®} \)  industrial sales benefitted from the global resurgence of industrial production that occurred throughout fiscal 2021, and we experienced strong demand both in North America and across the territories served by our global joint ventures. Sales by our joint ventures increased approximately 39.0% to a record 121.0 million during the fiscal year ended August 31, 2021, compared to 87.0 million for the fiscal year ended August 31, 2020.

Net sales at our wholly owned NTIC China subsidiary also rebounded throughout fiscal 2021 and increased by over 29.0% for the full year to an annual record of \(17.3 million. Strong performance at NTIC China is primarily due to higher sales to new and existing customers. We continue to believe the Chinese market represents a significant opportunity for NTIC. Given our recent growth and strong team, we expect China will likely become our largest geographic market in the years ahead.

Overall, ZERUST \( ^{®} \)  industrial sales trends rebounded significantly during fiscal 2021 and were up over 30.0% over the prior fiscal year. Notably, on a two-year basis, comparing fiscal 2021 to fiscal 2019 results, ZERUST \( ^{®} \)  industrial sales increased nearly 18.0% reflecting strong underlying trends across our global ZERUST \( ^{®} \)  industrial business. We are optimistic that the start of fiscal 2022 will show continued positive momentum across our markets as global industrial production remains strong.

## ZERUST \( ^{®} \)  in the Oil & Gas Industry

ZERUST \( ^{®} \)  Oil & Gas sales started to rebound during the second half of fiscal year 2021 as lockdowns and travel restrictions were lifted and we were able to implement our corrosion prevention solutions at client jobsites. As a result, we ended the year with strong momentum for our ZERUST \( ^{®} \)  Oil & Gas solutions. Fiscal 2021 fourth quarter ZERUST \( ^{®} \)  Oil & Gas sales increased 139.6% over the prior fiscal year period, and for the first time in our history, we have had two consecutive quarters of oil and gas revenues over $1 million.

I am also pleased to report, NTIC is getting noticed globally for our growing base of successful installations of oil & gas assets protected by our Vapor Corrosion Inhibitor (VCI) based technologies. During fiscal 2021, the American Petroleum Institute (API) released its technical report detailing how VCI based technologies, like the ones offered by ZERUST \( ^{®} \)  Oil & Gas, can provide effective corrosion protection for the bottoms of above ground storage tanks. We believe this API technical report validates our technology and will help NTIC's long-term sales growth efforts within the oil & gas market. As a result, we believe there are substantial opportunities to drive

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growth throughout fiscal 2022 and beyond.

## Natur-Tec \( ^{®} \)  Bioplastics

The COVID-19 pandemic continued to impact our Natur-Tec \( ^{®} \)  business during fiscal 2021. Many high-volume users of compostable products including college campuses, stadiums, arenas, restaurants, and cafeterias in large corporate office complexes have remained affected by lower attendance and measured reopening plans. As a result, Natur-Tec \( ^{®} \)  sales declined 16.9% to 10.9 million for fiscal 2021.

Quarterly sales trends improved on a year-over-year basis during the second half of fiscal 2021 but are not yet back to pre-COVID levels. We expect quarterly volatility will remain over the near-term as it takes time for large users of compostable plastics to fully re-open their facilities after prolonged COVID-19 shutdowns. However, we remain optimistic about our long-term prospects and strong market position within this large and compelling global market. In addition, as the focus on the pandemic wanes, we expect social and political support for alternatives to single-use plastics to reaccelerate, helping drive future demand for our leading bioplastic solutions.

## Closing

I am proud of the progress we made throughout fiscal 2021 and expect the positive momentum to continue into the new fiscal year. This includes the recently announced expansion of our Chinese operation and the purchase of the remaining 50% ownership interest of our Indian joint venture. In addition, we continue investing in our Natur-Tec \( ^{®} \)  and Zerust \( ^{®} \)  Oil & Gas business units to take advantage of long-term trends within these markets. I want to thank all the members of NTIC's global family of employees, joint venture partners, friends and colleagues for their hard work and dedication during fiscal 2021.

As we start fiscal 2022, I am excited by the potential NTIC has for profitable sales growth throughout our ZERUST \( ^{®} \)  industrial, ZERUST \( ^{®} \)  Oil & Gas, and Natur-Tec \( ^{®} \)  product categories.

Sincerely,

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G. Patrick Lynch
President & CEO, NTIC

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G. Patrick Lynch

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