This Management's Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess NTIC's financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Forward-Looking Statements." The following discussion of the results of the operations and financial condition of NTIC should be read in conjunction with NTIC's consolidated financial statements and the related notes thereto included under the heading "Part I. Item
1. Financial Statements."

Business Overview

NTIC develops and markets proprietary environmentally beneficial products and services in over 55 countries either directly or via a network of joint ventures, independent distributors and agents. NTIC's primary business is corrosion prevention marketed mainly under the ZERUSTŪ brand. NTIC has been selling its proprietary ZERUSTŪ rust and corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for over 35 years, and more recently, has targeted and expanded into the oil and gas industry. NTIC also sells a portfolio of bio-based and biodegradable (compostable) polymer resin compounds and finished products marketed under the Natur-TecŪ brand. These products are intended to reduce NTIC's customers' carbon footprint and provide environmentally sound disposal options.

NTIC's ZERUSTŪ rust and corrosion inhibiting products include plastic and paper packaging, liquids and coatings, rust removers and cleaners, diffusers and variations of these products designed specifically for the oil and gas industry. NTIC's also offers worldwide on-site technical consulting for rust and corrosion prevention issues. NTIC's technical service consultants work directly with the end users of NTIC's ZERUSTŪ rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet their technical requirements. In North America, NTIC sells its ZERUSTŪ corrosion prevention solutions through a direct sales force as well as a network of independent distributors and agents. Internationally, NTIC sells its ZERUSTŪ corrosion prevention solutions through its majority owned Brazilian subsidiary, Zerust Prevenįão de Corrosão S.A. (Zerust Brazil), its majority owned joint venture holding company for NTIC's joint venture investments in the Association of Southeast Asian Nations (ASEAN) region, and joint venture arrangements in North America and Europe.

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

Petroleo Brasileiro S.A. (Petrobras), an oil company located in Brazil, has conducted extensive multi-year product field trials of NTIC's ZERUSTŪ rust and corrosion inhibiting products against competitive alternatives. During fiscal 2010, Zerust Brazil received a Phase 1 contract for an initial implementation of $1.4 million in ZERUSTŪ products which was delivered in fiscal 2010 and fiscal 2011. During fiscal 2011, Zerust Brazil signed a Phase 2 contract with Petrobras to supply $2.4 million in ZERUSTŪ products. During fiscal 2012, Petrobras expanded this Phase 2 contract to supply an additional $657,000 in ZERUSTŪ products, bringing the total Phase 2 contract value to $3.1 million in ZERUSTŪ products, which were delivered in fiscal 2012. During first quarter of fiscal 2013, Zerust Brazil signed a Phase 3 contract with Petrobras to supply $3.7 million in ZERUSTŪ products.

NTIC is also pursuing opportunities to market its ZERUSTŪ rust and corrosion prevention solutions to other targeted potential customers in the oil and gas industry across several countries through NTIC's joint venture partners and other strategic partners. NTIC believes the sale of its ZERUSTŪ corrosion prevention solutions to customers in the oil and gas industry will involve a long sales cycle, likely including a one- to two-year trial period with each customer and a slow integration process thereafter.

Natur-TecŪ bio-based and biodegradable plastics are manufactured using NTIC's patented and/or proprietary technologies and are intended to replace conventional petroleum-based plastics. The Natur-TecŪ bioplastics portfolio includes biopolymer resin compounds which are available in several grades tailored for a variety of applications, such as blown-film extrusion, extrusion coating, injection molding and rigid, engineered plastics, and finished products, including shopping and grocery bags, lawn and leaf bags, can liners, pet waste collection bags, cutlery, packaging foam and coated paper products, which are engineered to be fully biodegradable in a composting environment. In North America, NTIC markets its Natur-TecŪ resin compounds and finished products primarily through a network of national and regional distributors and independent agents. NTIC continues to see significant opportunities for finished bioplastic products and, therefore, continues to strengthen and expand its North American distribution network for finished Natur-TecŪ bioplastic products. Internationally, NTIC sells its Natur-TecŪ resin compounds and finished products both directly and through some of its joint venture arrangements, including in particular its joint venture in India, Harita NTI Limited (HNTI).

During fiscal 2012, HNTI and a major global apparel brand entered into an agreement for the supply by HNTI of compostable packaging for branded garments. In addition, HNTI is pursuing applications for bioplastics in food and personal care product packaging through alliances with several local partners in India. During fiscal 2011, NTIC entered into an agreement with Italy-based Naturfuels s.r.l. to distribute its Natur-TecŪ bioplastic materials and products in the Italian market. Under the terms of the distribution agreement, NTIC supplies Naturfuels with NTIC's patented high-strength Natur-TecŪ compostable film grade resin compounds to be used for the production of bio-plastic shopping and garbage bags on conventional plastic film production equipment. In 2011, the Italian government passed legislation banning the use of non-biodegradable plastic shopping bags. However, enforcement of this law has recently been delayed to allow Italian bag manufacturers to exhaust their current supply of conventional polyolefinic resins before completely changing to certified compostable resins. As a result, resin sales to Naturfuels are not expected to have a material effect on NTIC's operating results until mid-fiscal 2013.

NTIC's Joint Venture Network

NTIC participates in 23 active joint venture arrangements in North America, Europe and Asia. Each of these joint ventures generally manufactures and markets products in the geographic territory to which it is assigned. While most of NTIC's joint ventures exclusively sell rust and corrosion inhibiting products, some of the joint ventures sell NTIC's Natur-TecŪ resin compounds. NTIC historically has funded its investments in joint ventures with cash generated from operations.

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

NTIC does not consolidate the results of its 23 joint ventures in its consolidated financial statements. NTIC's investments in its joint ventures are accounted for using the equity method. Although Zerust Brazil originated as a joint venture of NTIC, it is no longer considered a joint venture, but rather it is a majority owned subsidiary of NTIC; and thus, unlike NTIC's joint ventures, its results are consolidated in NTIC's consolidated financial statements. NTIC holds 85% of the equity and 85% of the voting rights of Zerust Brazil.

In addition, beginning in the first quarter of fiscal 2013, NTIC has consolidated the results of NTI Asean, which effective as of September 1, 2012 is a majority owned subsidiary of NTIC. On September 1, 2012, NTIC and the other 50% owner in NTI Asean contributed their respective shares of capital stock of Korea Zerust Co., Ltd. (Korea Zerust), constituting an aggregate of 50% of the equity and voting rights of Korea Zerust, to NTI Asean, and NTIC contributed exclusive license rights and other intellectual property to NTI Asean in exchange for an additional 10% ownership interest in NTI Asean. As a result of such transaction, NTIC holds 60% of the equity and 60% of the voting rights of NTI Asean. NTI Asean holds investments in eight entities that operate in the following eight territories located in the Association of Southeast Asian Nations (ASEAN) region: China, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. With respect to NTIC's joint ventures, NTIC considers only EXCOR and China to be individually significant to NTIC's consolidated assets and income; and therefore, provides certain additional information regarding EXCOR and China in the notes to NTIC's consolidated financial statements and in this section of this report.

Financial Overview

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

NTIC's consolidated net sales increased 9.5% during the three months ended November 30, 2012 compared to the three months ended November 30, 2011. This increase was primarily a result of increased sales of Natur-TecŪ products and ZERUSTŪ rust and corrosion inhibiting packaging products and services. During the three months ended November 30, 2012, 90.6% of NTIC's consolidated net sales were derived from sales of ZERUSTŪ products and services, which increased 7.7% to $4,795,283 during the three months ended November 30, 2012, compared to the same respective prior fiscal year period due to increased demand from existing customers and the addition of new customers. NTIC has focused its sales efforts of ZERUSTŪ products and services by strategically targeting customers with specific corrosion issues in new market areas, including the oil and gas industry and other industrial sectors that offer sizable growth opportunities. NTIC's consolidated net sales for the three months ended November 30, 2012 included $551,814 of sales made by Zerust Brazil, and of those sales, $40,385 in sales were made to the oil and gas industry sector in Brazil. Overall demand for ZERUSTŪ products and services depends heavily on the overall health of the markets in which NTIC sells its products, including in particular the automotive market.

During the three months ended November 30, 2012, 9.4% of NTIC's consolidated net sales were derived from sales of Natur-TecŪ products compared to 7.9% during the three months ended November 30, 2011. Net sales of Natur-TecŪ products increased 30.8% during the three months ended November 30, 2012 compared to the three months ended November 30, 2011. This increase was due to increased sales to Natur-TecŪ distributors in the United States as NTIC has continued to strengthen and expand its U.S. industrial distribution. Additionally, NTIC has continued to target key national and regional retailers utilizing independent sales agents. Demand for the Natur-TecŪ products depends primarily on market acceptance and the extent of NTIC's distribution network.

Cost of goods sold as a percentage of net sales increased to 69.8% during the three months ended November 30, 2012 compared to 66.4% during the three months ended November 30, 2011 primarily as a result of increased production expense associated with the production and shipping of both ZERUSTŪ and Natur TecŪ products. The increases are considered temporary as new suppliers are being implemented for new products and applications.

NTIC's equity in income of joint ventures decreased 15.0% to $1,154,296 during the three months ended November 30, 2012 compared $1,357,680 during the three months ended November 30, 2011 primarily as a result of the consolidation of NTI Asean which was included in the current fiscal quarter, but not in the prior comparative quarter.

NTIC recognized a 27.7% increase in fees for services provided to joint ventures during the three months ended November 30, 2012 compared to the three months ended November 30, 2011. This increase was primarily a result of the consolidation of fees for services earned by NTI Asean which are included in the current fiscal quarter, but not in the prior comparative quarter. This is partially offset by a 4.4% decrease in total net sales of NTIC's joint ventures to $27,524,934 during the three months ended November 30, 2012 compared to $28,795,232 for the three months ended November 30, 2011. Total net sales of NTIC's joint ventures were adversely affected in part by the European economic slowdown, which NTIC believes adversely affected the net sales of NTIC's European joint ventures as well as certain of NTIC's other non-European joint ventures, and the weakening of the EURO and other currencies compared to the U.S. dollar.

NTIC's total operating expenses increased to $3,727,684 during the three months ended November 30, 2012 compared to $3,393,068 for the three months ended November 30, 2011. This increase was primarily the result of an increase in selling expenses, general and administrative expenses and expenses incurred in support of joint ventures, research and development expenses, and overall reflected NTIC's efforts to support its new business efforts.

NTIC expenses all costs related to product research and development as incurred. NTIC incurred $938,206 and $814,305 of expense during the three months ended November 30, 2012 and 2011, respectively, in connection with its research and development activities. These represent net amounts after being reduced by reimbursements related to certain research and development contracts. Such reimbursement totaled $68,682 during the three months ended November 30, 2012 and 2011. NTIC anticipates that it will spend between $3,800,000 and $4,000,000 in total during fiscal 2013 on research and development activities related to its new technologies. This estimate is a net range after being reduced by anticipated reimbursements related to certain research and development contracts.

Net income attributable to NTIC decreased 59.4% to $389,622, or $0.09 per diluted common share, for the three months ended November 30, 2012 compared to $958,757, or $0.22 per diluted common share, for the three months ended November 30, 2011. This decrease was primarily the result of decreases in gross profits of NTIC's North American businesses as well as decreases in sales and earnings of NTIC's subsidiary in Brazil. NTIC anticipates that its quarterly net income will remain subject to significant volatility primarily due to the financial performance of its joint ventures and sales of its ZERUSTŪ products and services into the oil and gas industry and Natur-TecŪ bioplastics products, which sales fluctuate more on a quarterly basis than the traditional ZERUSTŪ business.

NTIC's working capital was $15,306,871 at November 30, 2012, including $6,819,036 in cash and cash equivalents compared to $10,060,081 at August 31, 2012, including $4,137,547 in cash and cash equivalents.

Results of Operations

The following tables set forth NTIC's results of operations for the three months
ended November 30, 2012 and 2011.

                                                                           Three Months Ended
                                       November 30,         % of          November 30,         % of             $             %
                                           2012           Net Sales           2011           Net Sales        Change        Change
Net sales, excluding joint ventures   $    4,770,387            90.1 %   $    4,277,643            88.5 %   $  492,744         11.5 %
Net sales, to joint ventures                 521,360             9.9 %          554,471            11.5 %      (33,111 )       (6.0 )%
Cost of goods sold                         3,690,972            69.8 %        3,209,476            66.4 %      481,496         15.0 %
Equity in income of joint ventures         1,154,296            21.8 %        1,357,680            28.1 %     (203,384 )      (15.0 )%
Fees for services provided to joint
ventures                                   1,846,277            34.9 %        1,445,252            29.9 %      401,025         27.7 %
Selling expenses                           1,171,095            22.1 %        1,108,486            22.9 %       62,609          5.6 %
General and administrative expenses        1,248,696            23.6 %        1,270,013            26.3 %      (21,317 )       (1.7 )%
Expenses incurred in support of
joint ventures                               369,687             7.0 %          200,264             4.1 %      169,423         84.6 %
Research and development expenses            938,206            17.7 %          814,305            16.9 %   $  123,901         15.2 %

Net Sales. NTIC's consolidated net sales increased 9.5% to $5,291,747 during the three months ended November 30, 2012 compared to the three months ended November 30, 2011. NTIC's consolidated net sales to unaffiliated customers excluding NTIC's joint ventures increased 11.5% to $4,770,387 during the three months ended November 30, 2012 compared to the same respective prior fiscal year period. This increase was primarily a result of increased sales of Natur-TecŪ products and ZERUSTŪ rust and corrosion inhibiting packaging products and services. Net sales to joint ventures decreased 6.0% to $521,360 during the three months ended November 30, 2012 compared to the same respective prior fiscal year period. This decrease correlated with the 4.4% decrease in total net sales of NTIC's joint ventures for the three months ended November 30, 2012.

The following table sets forth NTIC's net sales by product category for the three months ended November 30, 2012 and 2011 by segment:

                               Three Months Ended
                    November 30, 2012       November 30, 2011
ZERUSTŪ sales      $         4,795,283     $         4,452,646
Natur-TecŪ sales               496,464                 379,468
Total net sales    $         5,291,747     $         4,832,114

During the three months ended November 30, 2012, 90.6% of NTIC's consolidated net sales were derived from sales of ZERUSTŪ products and services, which increased 7.7% to $4,795,283 during the three months ended November 30, 2012 compared to $4,452,646 during the same prior year period, due primarily from increased demand from existing customers and the addition of new customers. NTIC has focused its sales efforts of ZERUSTŪ products and services by strategically targeting customers with specific corrosion issues in new market areas, including the oil and gas industry and other industrial sectors that offer sizable growth opportunities.

NTIC's consolidated net sales during the three months ended November 30, 2012 included $551,814 of sales made by Zerust Brazil, and of those sales, $40,385 in sales were made to the oil and gas industry sector in Brazil.

During the three months ended November 30, 2012, 9.4% of NTIC's consolidated net sales, respectively, were derived from sales of Natur-TecŪ products, which increased 30.8% to $496,464 during the three months ended November 30, 2012 compared to the three months ended November 30, 2011. This increase was due to increased sales to Natur-TecŪ distributors on the West Coast of the United States as NTIC has continued to strengthen and expand its U.S. industrial distribution. Additionally, NTIC has continued to target key national and regional retailers utilizing independent sales agents. Demand for the Natur-TecŪ products depends primarily on market acceptance and the extent of NTIC's distribution network.

Cost of Goods Sold. Cost of goods sold increased 15.0% for the three months ended November 30, 2012 compared to the three months ended November 30, 2011 primarily as a result of increased net sales as described above as well as the increase in production and shipping costs associated with ZERUSTŪ products. Cost of goods sold as a percentage of net sales increased to 69.7% for the three months ended November 30, 2012 compared to 66.4% for the three months ended November 30, 2011 primarily as a result of the increase in production and shipping costs associated with ZERUSTŪ products.

Equity in Income of Joint Ventures. NTIC's equity in income of joint ventures decreased 15.0% to $1,154,296 during the three months ended November 30, 2012 compared $1,357,680 during the three months ended November 30, 2011 primarily as a result of the consolidation of NTI Asean in the current fiscal year quarter, but not in the prior fiscal year comparative quarter. Of the total equity in income of joint ventures, NTIC had equity in income of joint ventures of $785,187 attributable to EXCOR during the three months ended November 30, 2012 compared to $728,528 attributable to EXCOR and $147,001 attributable to China during the three months ended November 30, 2011. NTIC had equity in income of joint ventures of $147,001 attributable to its joint venture in China during the three months ended November 30, 2012. NTIC had equity in income of all other joint ventures of $222,108 during the three months ended November 30, 2012 compared to $259,691 during the three months ended November 30, 2011.

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,846,277 during the three months ended November 30, 2012 compared to $1,445,252 during the three months ended November 30, 2011 representing an increase of $401,025. This increase was primarily a result consolidation of the fees for services earned by NTI Asean which are included in the current fiscal quarter, but not in the prior comparative quarter. This is partially offset by a 4.4% decrease in total net sales of NTIC's joint ventures to $27,524,934 during the three months ended November 30, 2012 compared to $28,795,232 for the three months ended November 30, 2011. Total net sales of NTIC's joint ventures were adversely affected in part by the European economic slowdown, which NTIC believes also adversely affected net sales of certain of NTIC's other non-European joint ventures, as well as the weakening of the EURO and other currencies compared to the U.S. dollar. Sales of NTIC's joint ventures are not included in NTIC's product sales and are not combined with NTIC's sales in NTIC's consolidated financial statements or in any description of NTIC's sales.

Of the total fee income for services provided to its joint ventures, fees of $493,312 and $242,700 were attributable to NTIC's joint venture in China and EXCOR, respectively, during the three months ended November 30, 2012 compared to $249,447 attributable to EXCOR during the three months ended November 30, 2011. This decrease was the result of foreign currency exchange rate fluctuations.

Selling Expenses. NTIC's selling expenses increased 5.6% for the three months ended November 30, 2012 compared to the same respective period in fiscal 2012 due to increases in compensation and employee benefits, lab testing related expenses, commission expenses, travel and related expenses, and consulting expenses and selling expenses incurred at Zerust Brazil. Selling expenses as a percentage of net sales decreased slightly to 22.1% for the three months ended November 30, 2012, from 22.9% during the three months ended November 30, 2011, due primarily to the increase in net sales, partially offset by the increase in selling expenses as previously described.

General and Administrative Expenses. NTIC's general and administrative expenses decreased 1.7% for the three months ended November 30, 2012 compared to the same respective periods in fiscal 2011 due to a decrease in consulting expenses. As a percentage of net sales, general and administrative expenses decreased to 23.6% for the three months ended November 30, 2012 from 26.3% for the three months ended November 30, 2011.

Expenses Incurred in Support of Joint Ventures. Expenses incurred in support of NTIC's joint ventures were $369,687 during the three months ended November 30, 2012 compared to $200,264 during the three months ended November 30, 2011, representing an increase of 84.6%. This increase was due primarily to increased compensation and benefits expenses associated with increased headcount.

Research and Development Expenses. NTIC's research and development expenses increased 15.2% for the three months ended November 30, 2012 compared to the same respective periods in fiscal 2011. The increase was primarily due to compensation and benefit expenses associated with increased headcount and an increase in consulting expenses, partially offset by reimbursements related to certain research and development contracts.

Interest Income. NTIC's interest income increased to $25,346 during the three months ended November 30, 2012 compared to $8,060 during the three months ended November 30, 2011 primarily due to increased cash balances earning interest during the most recent periods.

Interest Expense. NTIC's interest expense decreased to $6,474 during the three months ended November 30, 2012 compared to $5,966 during the three months ended November 30, 2011.

Income Before Income Tax Expense. Income before income tax expense decreased to $892,536 for the three months ended November 30, 2012 compared to $1,041,421 for the three months ended November 30, 2011.

Income Tax Expense. Income tax expense was $134,000 during the three months ended November 30, 2012 compared $106,000 during the three months ended November 30, 2011. Income tax expense was calculated based on management's estimate of NTIC's annual effective income tax rate. NTIC's annual effective income tax rate . . .