SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended: Commission File Number
May 31, 1996 1-11038
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-0857886
(State of Incorporation) (I.R.S. Employer Identification Number)
6680 N. Highway 49, Lino Lakes, MN 55014
(Address of principal executive offices)
(612) 784-1250
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES ___X___ NO ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of July 3, 1996
Common Stock, $.02 par value 4,209,590
"This document consists of 11 pages. One
exhibit is being filed."
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31, MAY 31,
1996 1995 1995
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,392,612 $ 2,831,301 $ 2,874,415
Receivables:
Trade, less allowance for doubtful accounts of
$26,500, $25,000, and $42,500, respectively 979,167 831,437 1,092,283
Corporate joint ventures 409,817 406,630 304,608
Inventories 627,264 530,594 440,177
Prepaid expenses and other 59,238 55,863 6,159
Deferred income taxes 110,000 110,000 65,000
----------- ----------- -----------
Total current assets 5,578,098 4,765,825 4,782,642
PROPERTY AND EQUIPMENT, net 809,815 342,249 313,537
OTHER ASSETS:
Investments in corporate joint ventures 1,448,161 1,352,143 1,492,950
Investment in foreign company 155,068 161,725 161,725
Deferred income taxes 100,000 100,000 65,000
Other 103,092 103,092 92,373
----------- ----------- -----------
1,806,321 1,716,960 1,812,048
----------- ----------- -----------
$ 8,194,234 $ 6,825,034 $ 6,908,227
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 116,591 $ 134,543 $ 171,691
Income taxes 180,295 142,380 216,780
Accrued liabilities:
Payroll 63,073 153,350 43,289
Other 60,916 84,868 71,548
----------- ----------- -----------
Total current liabilities 420,875 515,141 503,308
DEFERRED GROSS PROFIT 100,500 100,500 89,500
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, authorized 10,000 shares,
none issued Common stock, $.02 par value per share;
authorized 10,000,000 shares; issued and outstanding
4,216,190, 4,244,773, and 4,250,773 shares, respectively 84,324 84,895 85,015
Additional paid-in capital 5,183,717 5,197,633 5,101,773
Retained earnings 2,500,443 1,700,982 1,781,967
Cumulative foreign currency translation adjustments 34,182 99,565 283,167
----------- ----------- -----------
7,802,666 7,083,075 7,251,922
Notes and related interest receivable from purchase of
common stock (129,807) (873,682) (936,503)
----------- ----------- -----------
Total stockholders' equity 7,672,859 6,209,393 6,315,419
----------- ----------- -----------
$ 8,194,234 $ 6,825,034 $ 6,908,227
=========== =========== ===========
</TABLE>
See notes to financial statements.
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
-------------------------- --------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $ 1,751,478 $ 1,805,521 $ 4,977,396 $ 4,794,655
COST OF GOODS SOLD 809,361 871,450 2,330,574 2,286,386
----------- ----------- ----------- -----------
GROSS PROFIT 942,117 934,071 2,646,822 2,508,269
OPERATING EXPENSES:
Selling 191,778 206,380 597,862 539,234
General and administrative 315,945 174,994 830,773 694,131
Research, engineering, and technical support 108,959 95,397 297,883 267,221
----------- ----------- ----------- -----------
616,682 476,771 1,726,518 1,500,586
----------- ----------- ----------- -----------
OPERATING INCOME 325,435 457,300 920,304 1,007,683
JOINT VENTURES AND FOREIGN COMPANY:
Equity in income of corporate joint ventures
and foreign company 116,214 30,362 338,845 348,997
Fees for technical assistance to corporate joint ventures 344,094 378,262 1,017,072 914,338
Corporate joint venture expense (97,678) (93,859) (386,226) (248,292)
----------- ----------- ----------- -----------
362,630 314,765 969,691 1,015,043
OTHER INCOME:
Interest income 41,519 32,364 112,921 49,273
Other income 7,455 3,728 11,182 11,848
----------- ----------- ----------- -----------
48,974 36,092 124,103 61,121
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 737,039 808,157 2,014,098 2,083,847
INCOME TAXES 230,000 300,000 630,000 700,000
----------- ----------- ----------- -----------
NET INCOME $ 507,039 $ 508,157 $ 1,384,098 $ 1,383,847
=========== =========== =========== ===========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .12 $ .12 $ .32 $ .32
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,300,718 4,327,198 4,310,226 4,333,431
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31
--------------------------
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,384,098 $ 1,383,847
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 57,760 59,175
Equity in income of corporate joint ventures and foreign company (338,845) (348,997)
Dividends received from joint ventures 184,101 152,078
Deferred gross profit 33,750
Change in current assets and liabilities:
Receivables:
Trade (147,730) (390,368)
Joint ventures (3,187) (38,586)
Inventories (96,670) (14,330)
Prepaid expenses and other (3,375) 48,613
Accounts payable (17,952) 70,416
Income taxes 37,915 89,590
Accrued liabilities (101,416) (40,266)
----------- -----------
Total adjustments (429,399) (378,925)
----------- -----------
Net cash provided by operating activities 954,699 1,004,922
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property (525,326)
Investment in joint ventures (90,000)
Payment on note receivable from purchase of common stock 743,875
----------- -----------
Net cash provided by (used in) investing activities 218,549 (90,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 39,960 75,000
Dividends paid (424,877) (318,058)
Repurchase of common stock (227,020)
----------- -----------
Net cash used in financing activities (611,937) (243,058)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 561,311 671,864
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,831,301 2,202,551
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,392,612 $ 2,874,415
=========== ===========
</TABLE>
See notes to financial statements.
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- - -------------------------------------------------------------------------------
1. INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments, which are of a normal
recurring nature, to present fairly the financial position of Northern
Technologies International Corporation as of May 31, 1996 and 1995, the
results of operations for the three and nine months ended May 31, 1996
and 1995, and the cash flows for the nine months ended May 31, 1996 and
1995, in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with the
financial statements and related notes as of and for the year ended
August 31, 1995 contained in the Company's filing on Form 10-KSB dated
November 17, 1995 and with Management's Discussion and Analysis or Plan
of Operations appearing on pages 7 through 9 of this quarterly report.
2. INVENTORIES
Inventories consist of the following:
May 31, August 31, May 31,
1996 1995 1995
Production materials $ 125,453 $ 127,052 $ 93,787
Work in process 31,363 23,851 30,812
Finished goods 470,448 379,691 315,578
----------- ----------- -----------
$ 627,264 $ 530,594 $ 440,177
=========== =========== ===========
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
May 31, August 31, May 31,
1996 1995 1995
Land $ 241,196 $ 16,196 $ 16,196
Buildings and improvements 553,907 553,907 547,380
Machinery and equipment 587,657 508,433 495,938
Deposits 249,083 27,981
---------- ----------
1,631,843 1,106,517 1,059,514
Less accumulated depreciation 822,028 764,268 745,977
---------- ---------- ----------
$ 809,815 $ 342,249 $ 313,537
========== ========== ==========
4. STOCKHOLDERS' EQUITY
During the nine months ended May 31, 1996, the Company acquired and
retired 44,250 shares of common stock for $227,020.
In December 1995, five employees received a total of 2,500 shares of
common stock in return for services provided. The fair value of the
common stock issued, $12,813, was determined by the Board of Directors
based on the fair market value of the Company's common stock.
During the nine months ended May 31, 1996, stock options for the
purchase of 13,167 shares of the Company's common stock were exercised
at prices between $3.00 and $3.13.
5. INCOME PER SHARE
Income per common and common equivalent share was computed by dividing
net income by the weighted average number of shares of common and common
equivalent shares outstanding during each period. Common equivalent
shares include common stock equivalents of 67,950 and 95,295 for the
nine months ended May 31, 1996 and 1995, respectively, and 65,413 and
76,425 for the third quarter of fiscal 1996 and 1995, respectively, from
the assumed exercise of outstanding warrants and options using the
treasury stock method.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
General - The Company conducts all foreign transactions based on the U.S.
dollar, except for its investments in foreign joint ventures. The exchange rate
differential relating to investments in foreign joint ventures is accounted for
under the requirements of SFAS No. 52.
Sales - Net sales decreased by $54,043 during the third quarter of 1996 from
those of the third quarter of 1995. Net sales increased by $182,741 during the
nine months ended May 31, 1996 compared to the same period of 1995. These
changes in sales are due to the volume of corrosion inhibiting products sold to
existing or new customers. There has been no change in product pricing,
introduction of new products, or entry into any particular new markets.
Cost of Sales - Cost of goods sold as a percentage of net sales for the third
quarter of 1996 was 46% compared to 48% for the third quarter of 1995. The cost
of goods sold percentage of net sales was 47% for the nine months ended May 31,
1996 and 48% for the nine months ended May 31, 1995. Variations are due
primarily to the mix of product sales.
Operating Expenses - As a percentage of net sales, total operating expenses
increased from 26% in the third quarter of 1995 to 35% in the third quarter of
1996. Operating expenses were 35% and 31% of net sales for the nine months ended
May 31, 1996 and 1995, respectively.
Operating expense classification percentages of net sales were as follows:
Three Months Nine Months
Ended Ended
May 31 May 31
----------- -----------
1996 1995 1996 1995
Selling expenses 11% 11% 12% 11%
General and administrative 18% 10% 17% 14%
Research, engineering, and technical support 6% 5% 6% 6%
Selling expenses decreased for the three months ended May 31, 1996 as compared
to the same period in 1995 due to a reduction in distributor commissions
partially offset by an increase in sales staff salary. Selling expenses as a
percentage of net sales remained unchanged for the three months ended May 31,
1996 as compared to the same period in 1995 due to decrease net sales and
selling expenses in fiscal 1996. Selling expenses increased for the nine months
ended May 31, 1996 as compared to the same period in 1995 due to an increase in
sales staff salary and distributor commissions. Selling expenses as a percentage
of net sales increased for the nine months ended May 31, 1996 as compared to the
same period in 1995 due to the increase in 1996 selling expenses not being
offset by the increase in net sales in 1996.
General and administrative expenses increased for the three and nine months
ended May 31, 1996 as compared to the same periods in 1995 due to increases in
salary expense, consulting expense, and promotional expenses. General and
administrative expenses as a percentage of net sales increased for the three
months ended May 31, 1996 as compared to the same period in 1995 due to
decreased net sales and increased general and administrative expenses in 1996.
General and administrative expenses as a percentage of net sales increased for
the nine months ended May 31, 1996 as compared to the same period in 1995 due to
increased general and administrative expenses in 1996 not being offset by the
increase in net sales in 1996.
Research, engineering, and technical support expenses for the three and nine
months ended May 31, 1996 were higher than the comparable periods in 1995 due
primarily to increases in staff salary. Such expenses, as a percentage of sales,
were substantially unchanged for the three and nine months end May 31, 1996 as
compared to the same period in 1995.
Joint Ventures and Foreign Company - Net earnings from corporate joint ventures
and foreign company were $362,630 and $969,691 for the three and the nine months
ended May 31, 1996, respectively, compared to $314,765 and $1,015,043 for the
three and the nine months ended May 31, 1995, respectively. The net changes
reflect changes in sales volume at the Company's corporate joint ventures, and
increased travel and legal expense incurred by the Company in its corporate
joint ventures.
Income Taxes - Income tax expense for the three and nine months ended May 31,
1996 and 1995 was calculated based on management's estimate of the Company's
annual effective income tax rate. The Company's effective income tax rate is
lower than the statutory rate primarily due to the Company's equity in income of
corporate joint ventures and foreign company being recognized based on after tax
earnings of these entities. To the extent joint venture undistributed earnings
are distributed to the Company, it does not result in any material additional
income tax liability after the application of foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company's working capital was $5,157,223, including
$3,392,612 in cash and cash equivalents, compared to working capital of
$4,250,684 and $4,279,334 of August 31, 1995 and May 31, 1995, respectively.
On September 13, 1995, the Company entered in to a $400,000 revolving credit
agreement that expires on September 13, 1996. Borrowings under the credit
agreement are limited to 75% of "eligible" account receivable, as defined are
secured by accounts receivable, and bear interest at the bank's prime rate.
There are no borrowings outstanding under the revolving credit agreement.
During fiscal 1996, the Company implemented plans to purchase land and construct
an off-site warehouse. The land, site development and construction of the
warehouse will cost approximately $700,000 and will be funded with existing cash
equivalents and cash flow from future operations.
Net cash provided from operations has been sufficient to meet liquidity
requirements, capital expenditures, research and development costs, and
expansion of operations of the Company's joint ventures. Cash flows from
operations for the nine months ended May 31, 1996 and 1995 was $954,699 and
$1,004,922, respectively. The net cash flow from operations for the nine months
ended May 31, 1996 and 1995 resulted principally from net income offset by
increases in receivables and inventories and equity in income of joint ventures
and the foreign company being less than the dividends received.
Net cash provided by investing activities for the nine months ended May 31, 1996
was $218,549 of which $743,875 related to the payments received on notes
receivable offset by additions to property of $525,326. Net cash used in
investing activities for the nine months ended May 31, 1995 was $90,000 which
resulted from investments in corporate joint ventures.
Net cash used in financing activities for the nine months ended May 31, 1996 was
the payment of dividends to stockholders of $424,877 and the repurchase of
common stock of $227,020 offset by proceeds of $39,960 from the exercise of
stock options. Net cash used in financing activities for the nine months ended
May 31, 1995 was the payment of dividends to stockholders of $318,058 offset by
proceeds of $75,000 from the exercise of stock warrants.
The Company expects to meet future liquidity requirements with its existing cash
and cash equivalents and from cash flows of future operating earnings and
distributions of earnings and technical assistance fees from the corporate joint
venture investments.
The Company has no long-term debt and no material lease commitments at May 31,
1996. The Company does not have any material commitments for capital
expenditures outstanding at May 31, 1996.
The Company has no postretirement benefit plan and does not anticipate
establishing any postretirement benefit program.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
which requires adoption of specific disclosure provisions no later than fiscal
years beginning after December 15, 1995 for employee transactions and adoption
of certain recognition and measurement provisions for nonemployee transactions
no later than December 15, 1995. The new standards defines a fair value method
of accounting for stock options and other equity instruments. Under the fair
value method, compensation cost which is measured at the grant date based on the
fair value of the award and is recognized over the service period, which is
usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not required to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, but would be required to disclose in a note the financial statements
pro forma net income and earnings per share as if the company had applied the
new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method for
employee stock based transactions, nor has it determined the effect of the new
standard will have on net income and earnings per share should it elect to make
such a change. Adoption of the new standard will have no effect on the Company's
cash flows.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
July 11, 1996
Loren M. Ehrmanntraut
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 3,392,612
<SECURITIES> 0
<RECEIVABLES> 1,415,484
<ALLOWANCES> 26,500
<INVENTORY> 627,264
<CURRENT-ASSETS> 5,578,098
<PP&E> 1,631,843
<DEPRECIATION> 822,028
<TOTAL-ASSETS> 8,194,234
<CURRENT-LIABILITIES> 420,875
<BONDS> 0
0
0
<COMMON> 84,324
<OTHER-SE> 7,588,535
<TOTAL-LIABILITY-AND-EQUITY> 8,194,234
<SALES> 4,977,396
<TOTAL-REVENUES> 4,977,396
<CGS> 2,330,574
<TOTAL-COSTS> 2,330,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,014,098
<INCOME-TAX> 630,000
<INCOME-CONTINUING> 1,384,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,384,098
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
