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
November 30, 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 January 13, 1997
----- ----------------------------------
Common Stock, $.02 par value 4,206,308
"This document consists of 11
pages. No exhibits are being filed."
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
BALANCE SHEETS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
NOVEMBER 30, AUGUST 31,
1996 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,385,990 $ 3,707,520
Receivables:
Trade, less allowance for doubtful accounts of $26,000 1,261,940 1,127,975
Corporate joint ventures 533,379 524,577
Inventories 521,295 584,212
Prepaid expenses and other 78,247 78,603
Deferred income taxes 170,000 170,000
----------- -----------
Total current assets 5,950,851 6,192,887
PROPERTY AND EQUIPMENT, net 1,006,773 980,816
OTHER ASSETS:
Investments in corporate joint ventures 1,842,721 1,726,328
Investment in foreign company 159,879 159,879
Deferred income taxes 90,000 90,000
Trading investment, principally cash at broker 250,000 --
Other 114,140 164,140
----------- -----------
2,456,740 2,140,347
----------- -----------
$ 9,414,364 $ 9,314,050
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 120,731 $ 154,859
Income taxes payable 90,799 463,700
Dividends payable 504,733 --
Accrued liabilities:
Payroll 190,249 177,381
Other 117,555 112,544
----------- -----------
Total current liabilities 1,024,067 908,484
DEFERRED GROSS PROFIT 109,000 109,000
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 4,206,108 and 4,199,275, respectively 84,122 83,985
Additional paid-in capital 5,192,586 5,158,344
Retained earnings 3,143,114 3,143,526
Cumulative foreign currency translation adjustments (8,718) 40,518
----------- -----------
8,411,104 8,426,373
Notes and related interest receivable from purchase of common stock (129,807) (129,807)
----------- -----------
Total stockholders' equity 8,281,297 8,296,566
----------- -----------
$ 9,414,364 $ 9,314,050
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
- -------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
SALES $ 1,921,414 $ 1,618,599
COST OF GOODS SOLD 912,702 757,610
----------- -----------
GROSS PROFIT 1,008,712 860,989
OPERATING EXPENSES:
Selling 268,421 193,259
General and administrative 466,443 333,654
Research, engineering, and technical support 100,032 85,558
----------- -----------
834,896 612,471
----------- -----------
OPERATING INCOME 173,816 248,518
JOINT VENTURES AND FOREIGN COMPANY:
Equity in income of corporate joint ventures and foreign
company 154,689 137,211
Fees for technical assistance to corporate joint ventures 511,939 297,638
Corporate joint ventures expense (121,001) (108,310)
----------- -----------
545,627 326,539
OTHER INCOME:
Interest income 7,722 27,851
Other income 4,157 3,727
----------- -----------
11,879 31,578
----------- -----------
INCOME BEFORE INCOME TAXES 731,322 606,635
INCOME TAXES 210,000 170,000
----------- -----------
NET INCOME $ 521,322 $ 436,635
=========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .12 $ .10
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,251,801 4,321,332
=========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 521,322 $ 436,635
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 28,725 18,291
Equity in income of corporate joint ventures and foreign company (154,689) (137,211)
Dividend received from joint ventures 13,060 --
Change in current assets and liabilities:
Receivables:
Trade (133,965) (118,160)
Corporate joint ventures (8,802) 101,089
Inventories 62,917 69,099
Prepaid expenses and other 50,356 (10,032)
Accounts payable (34,128) (19,646)
Income taxes payable (372,901) (97,101)
Accrued liabilities 33,254 22,696
----------- -----------
Total adjustments (516,173) (170,975)
----------- -----------
Net cash provided by operating activities 5,149 265,660
CASH FLOWS FROM INVESTING ACTIVITIES:
Trading investment, principally cash at broker (250,000) --
Investment in joint ventures (24,000) --
Additions to property (54,682) (147,355)
----------- -----------
Net cash used in investing activities (328,682) (147,355)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (24,600) --
Payment on notes receivable from purchase of common stock -- 68,035
Issuance of common stock 26,603 12,250
----------- -----------
Net cash provided by financing activities 2,003 80,285
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (321,530) 198,590
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,707,520 2,831,301
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,385,990 $ 3,029,891
=========== ===========
See notes to financial statements.
</TABLE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
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 November 30, 1996 and the
results of its operations and its cash flows for the three months ended
November 30, 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, 1996 contained in the Company's filing on Form 10-KSB dated
November 26, 1996 and with Management's Discussion and Analysis or Plan
of Operation appearing on pages 7 through 9 of this quarterly report.
2. INVENTORIES
Inventories consist of the following:
November 30, August 31,
1996 1996
Production materials $ 125,324 $ 150,139
Work in process 26,487 22,619
Finished goods 369,484 411,454
------------- -------------
$ 521,295 $ 584,212
============= =============
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
November 30, August 31,
1996 1996
Land $ 246,097 $ 246,097
Buildings and improvements 1,025,177 979,369
Machinery and equipment 596,411 587,537
------------- -------------
1,867,685 1,813,003
Less accumulated depreciation 860,912 832,187
------------- -------------
$ 1,006,773 $ 980,816
============= =============
4. TRADING INVESTMENT, PRINCIPALLY CASH AT BROKER
During the three months ended November 30, 1996, the Company entered in
to an agreement (the Agreement) with a company to start a day trading
program. The program's objectives are to make purchase and sales of
shares on the New York Stock Exchange involving rapid turnover of market
positions within a trading day. The Agreement required the Company to
deposit $250,000 in a trading account at a broker for an indefinite
period of time.
5. STOCKHOLDERS' EQUITY
During the three months ended November 30, 1996, the Company acquired
and retired 5,000 shares of common stock for $24,600.
In November 1996, six employees received a total of 3,000 shares of
common stock for services provided in fiscal 1996. The fair value of the
common stock issued was determined based on the market value of the
Company's common stock on the grant date and was accrued in fiscal 1996.
During the three months ended November 30, 1996, stock options for the
purchase of 8,833 shares of the Company's common stock were exercised at
prices between $3.00 and $3.13 per share.
6. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended November 30, 1996, the Company declared a
cash dividend of $.12 per share payable on December 20, 1996 to
shareholders of record on December 6, 1996.
During the three months ended November 30, 1995, the Company declared a
cash dividend of $.10 per share payable on December 18, 1995 to
shareholders of record on December 4, 1995.
7. INCOME PER SHARE
Income per share of common stock was computed by dividing net income by
the weighted average number of common and common equivalent shares
outstanding during each period. This amount includes common stock
equivalents of 53,164 and 73,218 in the first quarter of fiscal 1997 and
1996, respectively, resulting 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 increased by $302,815 during the first quarter of fiscal 1997
from those in the first quarter of fiscal 1996. This increase was due to an
increase in demand for corrosion inhibiting products.
COST OF SALES - Cost of goods sold as a percentage of net sales was 48% for the
first quarter of fiscal 1997 compared to 47% for the first quarter of fiscal
1996. The variation is primarily due to the mix of product sales.
OPERATING EXPENSES - As a percentage of sales, total operating expenses
increased from 38% in the first quarter of fiscal 1996 to 43% in the first
quarter of fiscal 1997.
Operating expense classification percentages of sales were as follows:
Three Months Ended
November 30
1996 1995
Selling 14% 12%
General and administrative 24% 21%
Research, engineering, and technical support 5% 5%
Selling expenses increased for the first three months of fiscal 1997 as compared
to the same period in 1996 due primarily to increases in sales staff salaries,
travel and distributor commissions. Selling expenses as a percentage of sales
also increased for the three months ended November 30, 1996 as compared to the
same period in fiscal 1996 due to the increase in sales in fiscal 1997 not
offsetting the effect of the increase in fiscal 1997 selling expenses.
General and administrative expenses increased for the first three months of
fiscal 1997 as compared to the same period in 1996 due primarily to increases in
salary expense and travel expense. General and administrative expenses as a
percentage of sales also increased for the three months ended November 30, 1996
as compared to the same period in fiscal 1996 due to the increase in sales in
fiscal 1997 not offsetting the effect of the increase in fiscal 1997 general and
administrative expenses.
Research, engineering and technical support expenses for the first three months
of fiscal 1997 were higher than the comparable period in fiscal 1996 due
primarily to increases in staff salaries and travel. Such expenses, as a
percentage of sales, were substantially unchanged for the first three months of
fiscal 1997 as compared to the same period in fiscal 1996.
JOINT VENTURES AND FOREIGN COMPANY - Net earnings from joint ventures and
foreign company increased in the first three months of fiscal 1997 to $545,627
from $326,539 in the first three months of fiscal 1996. This net increase
reflects increased sales volume at the Company's corporate joint ventures,
partially offset by higher travel and legal expenses incurred by the Company in
its corporate joint ventures and in establishing new corporate joint ventures.
INCOME TAXES - Income tax expense for the three months ended November 30, 1996
and 1995 was calculated based upon management's estimate of the annual effective
rates. The effective income tax rates for fiscal 1997 and 1996 is lower than the
statutory rate primarily due to equity in income of joint ventures and foreign
company being recognized on an after tax basis for these entities. To the extent
the joint ventures' 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 November 30, 1996, the Company's working capital was $4,926,784, including
$3,385,990 in cash and cash equivalents, compared to working capital of
$5,284,403 including cash and cash equivalents of $3,707,520 as of August 31,
1996.
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 three months ended November 30, 1996 and 1995 was $5,149 and $265,660,
respectively. The net cash flow from operations for the three months ended
November 30, 1996 resulted principally from net income offset by equity income
of corporate joint ventures and foreign company and a decrease in income taxes
payable. The net cash flow from operations for the three months ended November
30, 1995 resulted principally from net income offset by equity in income of
corporate joint ventures and foreign company.
Cash used in investing activities for the three months ended November 30, 1996
was $328,682, which resulted from investments in corporate joint ventures,
additions to property and trading investment, principally cash at broker. Cash
used in investing activities for the three months ended November 30, 1995 was
$147,355, which resulted from additions to property.
Cash provided by financing activities for the three months ended November 30,
1996 was $2,003, which resulted from payments received of $26,603 from the
exercise of stock options offset by the repurchase of common stock of $24,600.
Cash provided by financing activities for the three months ended November 30,
1995 was $80,285, which resulted from a payment received of $68,035 on notes
receivable from the purchase of common stock and $12,250 from the exercise of
stock options.
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 November
30, 1996.
The Company has no postretirement benefit plan and does not anticipate
establishing any post retirement benefit program.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 encourages companies to
adopt a new accounting method that accounts for stock compensation awards based
on their estimated fair value at the date they are granted. However, companies
are permitted to continue following current accounting requirements for employee
stock-based transactions, which generally do not result in an expense charge for
most options if the exercise price is at least equal to the fair market value of
the stock at the date of grant. Companies that continue to follow existing
standards would be required to disclose in a note to the financial statements
the effect on net income and net income per share had the Company recognized
expense for options issued to employees based on SFAS No. 123. SFAS No. 123 is
effective for the Company's fiscal year ending August 31, 1997 and will require
disclosure information in those financial statements about stock options granted
in fiscal 1996 and thereafter. The Company has determined that it will not adopt
the fair value method prescribed by SFAS No. 123 for employee stock-based
transactions. The "as if" disclosures will be included in the Company's annual
financial statements for the year ending August 31, 1997.
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
/s/ Loren M. Ehrmanntraut
January 13, 1997 -----------------------------------------------
Loren M. Ehrmanntraut
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 3,385,990
<SECURITIES> 0
<RECEIVABLES> 1,821,319
<ALLOWANCES> 26,000
<INVENTORY> 521,295
<CURRENT-ASSETS> 5,950,851
<PP&E> 1,867,685
<DEPRECIATION> 860,912
<TOTAL-ASSETS> 9,414,364
<CURRENT-LIABILITIES> 1,024,067
<BONDS> 0
0
0
<COMMON> 84,122
<OTHER-SE> 8,197,175
<TOTAL-LIABILITY-AND-EQUITY> 9,414,364
<SALES> 1,921,414
<TOTAL-REVENUES> 1,921,414
<CGS> 912,702
<TOTAL-COSTS> 912,702
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 731,322
<INCOME-TAX> 210,000
<INCOME-CONTINUING> 521,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 521,322
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
