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, 1997 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 December 31, 1997
----- -----------------------------------
Common Stock, $.02 par value 4,151,790
"This document consists of 11
pages. No exhibits are being filed."
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1997 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,010,049 $ 3,945,567
Receivables:
Trade, less allowance for doubtful accounts of $30,000 and $27,000, respectively 1,419,259 1,164,660
Corporate joint ventures 518,114 517,551
Inventories 900,541 841,618
Prepaid expenses and other 87,886 77,196
Deferred income taxes 240,000 240,000
------------ ------------
Total current assets 6,175,849 6,786,592
PROPERTY AND EQUIPMENT, net 968,919 962,328
OTHER ASSETS:
Investments in corporate joint ventures 2,431,410 2,291,600
Investment in foreign company 128,916 132,000
Investment in European holding company 259,905 254,639
Deferred income taxes 130,000 130,000
Other 647,544 625,544
------------ ------------
3,597,775 3,433,783
------------ ------------
$ 10,742,543 $ 11,182,703
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 169,988 $ 162,477
Income taxes payable 95,772 376,867
Dividends payable 621,798 --
Accrued liabilities:
Payroll 228,600 230,951
Other 163,372 189,707
------------ ------------
Total current liabilities 1,279,530 960,002
DEFERRED GROSS PROFIT 118,000 118,000
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 4,145,322 and 4,202,508, respectively 82,906 84,050
Additional paid-in capital 5,053,826 5,185,828
Retained earnings 4,642,143 5,217,221
Cumulative foreign currency translation adjustments (304,055) (252,591)
------------ ------------
9,474,820 10,234,508
Notes and related interest receivable from purchase of common stock (129,807) (129,807)
------------ ------------
Total stockholders' equity 9,345,013 10,104,701
------------ ------------
$ 10,742,543 $ 11,182,703
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
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<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
SALES $ 2,682,741 $ 1,921,414
COST OF GOODS SOLD 1,387,515 912,702
----------- -----------
GROSS PROFIT 1,295,226 1,008,712
OPERATING EXPENSES:
Selling 272,735 268,421
General and administrative 524,401 466,443
Research, engineering, and technical support 112,128 100,032
----------- -----------
909,264 834,896
----------- -----------
OPERATING INCOME 385,962 173,816
CORPORATE JOINT VENTURES, FOREIGN COMPANY,
AND EUROPEAN HOLDING COMPANY:
Equity in income of corporate joint ventures, foreign company,
and European holding company 114,145 154,689
Fees for technical assistance to corporate joint ventures 466,821 511,939
Corporate joint ventures expense (185,638) (121,001)
----------- -----------
395,328 545,627
OTHER INCOME:
Interest income 32,716 7,722
Other income -- 4,157
----------- -----------
32,716 11,879
----------- -----------
INCOME BEFORE INCOME TAXES 814,006 731,322
INCOME TAXES 250,000 210,000
----------- -----------
NET INCOME $ 564,006 $ 521,322
=========== ===========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ .13 $ .12
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 4,284,746 4,251,801
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
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<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 564,006 $ 521,322
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 29,700 28,725
Equity in income of corporate joint ventures, foreign company
and European holding company (114,145) (154,689)
Dividend received from joint ventures -- 13,060
Change in current assets and liabilities:
Receivables:
Trade (254,599) (133,965)
Corporate joint ventures (563) (8,802)
Inventories (58,923) 62,917
Prepaid expenses and other (10,690) 50,356
Accounts payable 7,511 (34,128)
Income taxes payable (281,095) (372,901)
Accrued liabilities (28,686) 33,254
----------- -----------
Total adjustments (711,490) (516,173)
----------- -----------
Net cash (used in) provided by operating activities (147,484) 5,149
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in corporate joint ventures (79,311) (24,000)
Additions to property (36,291) (54,682)
Increase in other assets (22,000) (250,000)
----------- -----------
Net cash used in investing activities (137,602) (328,682)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (672,206) (24,600)
Issuance of common stock 21,774 26,603
----------- -----------
Net cash (used in) provided by financing activities (650,432) 2,003
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (935,518) (321,530)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,945,567 3,707,520
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,010,049 $ 3,385,990
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------
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, 1997 and the
results of its operations and its cash flows for the three months ended
November 30, 1997 and 1996, 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, 1997 contained in the Company's filing on Form 10-KSB dated
November 25, 1997 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,
1997 1997
Production materials $ 358,840 $ 276,631
Work in process 134,373 21,301
Finished goods 407,328 543,686
---------- ----------
$ 900,541 $ 841,618
========== ==========
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
November 30, August 31,
1997 1997
Land $ 246,097 $ 246,097
Buildings and improvements 1,044,996 1,044,996
Machinery and equipment 632,158 603,919
---------- ----------
1,923,251 1,895,012
Less accumulated depreciation 954,332 932,684
---------- ----------
$ 968,919 $ 962,328
========== ==========
<PAGE>
4. INVESTMENT IN CORPORATE JOINT VENTURES
During the three months ended November 30, 1997, the Company invested
$79,311 in foreign joint ventures. The Company has a 50% ownership in
each entity. The entities had no significant operations prior to the
Company's investment.
5. STOCKHOLDERS' EQUITY
During the three months ended November 30, 1997, the Company acquired
64,020 shares of its common stock for $672,206.
During the three months ended November 30, 1997, stock options for the
purchase of 6,834 shares of the Company's common stock were exercised at
prices between $3.00 and $5.38 per share.
6. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended November 30, 1997, the Company declared a
cash dividend of $.15 per share payable on December 15, 1997 to
shareholders of record on December 1, 1997.
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.
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 90,282 and 53,164 in the first quarter of fiscal 1998 and
1997, respectively, resulting from the assumed exercise of outstanding
options using the treasury stock method.
<PAGE>
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 $761,327 during the first quarter of fiscal 1998
from those in the first quarter of fiscal 1997. 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 52% for the
first quarter of fiscal 1998 compared to 48% for the first quarter of fiscal
1997. The variation is primarily due to the mix of product sales.
OPERATING EXPENSES - As a percentage of sales, total operating expenses
decreased from 43% in the first quarter of fiscal 1997 to 34% in the first
quarter of fiscal 1998.
Operating expense classification percentages of sales were as follows:
Three Months Ended
November 30
1997 1996
Selling 10% 14%
General and administrative 20% 24%
Research, engineering, and technical support 4% 5%
Selling expenses increased for the first three months of fiscal 1998 as compared
to the same period in 1997 due primarily to increases in sales staff salaries
and distributor commissions partially offset by a decrease in trade show
expenses. Selling expenses as a percentage of sales decreased for the three
months ended November 30, 1997 as compared to the same period in fiscal 1997 due
to the increase in sales in fiscal 1998 offsetting the effect of the increase in
fiscal 1998 selling expenses.
General and administrative expenses increased for the first three months of
fiscal 1998 as compared to the same period in 1997 due primarily to increases in
salary expense, insurance expense, and travel expense. General and
administrative expenses as a percentage of sales decreased for the three months
ended November 30, 1997 as compared to the same period in fiscal 1997 due to the
increase in sales in fiscal 1998 offsetting the effect of the increase in fiscal
1998 general and administrative expenses.
Research, engineering and technical support expenses for the first three months
of fiscal 1998 were higher than the comparable period in fiscal 1997 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 1998 as compared to the same period in fiscal 1997.
JOINT VENTURES AND FOREIGN COMPANY - Net earnings from joint ventures and
foreign company decreased in the first three months of fiscal 1998 to $395,328
from $545,627 in the first three months of fiscal 1997. This net decrease is due
to the strengthening of the U.S. dollar when compared to the local currencies of
the Company's corporate joint ventures and higher travel and legal expenses
incurred by the Company in its corporate joint ventures and in establishing new
corporate joint ventures.
<PAGE>
INCOME TAXES - Income tax expense for the three months ended November 30, 1997
and 1996 was calculated based upon management's estimate of the annual effective
rates. The effective income tax rates for fiscal 1998 and 1997 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, 1997, the Company's working capital was $4,896,319, including
$3,010,049 in cash and cash equivalents, compared to working capital of
$5,826,590 including cash and cash equivalents of $3,945,567 as of August 31,
1997.
Net cash provided from past 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 used in operations for
the three months ended November 30, 1997 was $147,484. The net cash flow used in
operations for the three months ended November 30, 1997 was principally from an
increase in trade receivables, a decrease in income taxes payable, and equity in
income of corporate joint ventures, foreign company, and European holding
company partially offset by net income. Cash flows from operations for the three
months ended November 30, 1996 was $5,149. 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, foreign company, and a
decrease in income taxes payable.
Cash used in investing activities for the three months ended November 30, 1997
was $137,602, which resulted principally from additions to property and
investments in corporate joint ventures. 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 an increase
in other assets.
Cash used in financing activities for the three months ended November 30, 1997
was $650,432, which resulted from the purchase of common stock for $672,206
partially offset by $21,774 from the exercise of stock options. 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.
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, 1997.
The Company has no postretirement benefit plan and does not anticipate
establishing any post retirement benefit program.
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, which is
effective for interim and annual reporting periods ending after December 15,
1997. SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15,
EARNINGS PER SHARE, and replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. It also requires dual
presentation for all entities with complex capital structures and provides
guidance on other computational changes. The implementation of SFAS No. 128 is
expected to increase earnings per share by an immaterial amount.
<PAGE>
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
None
<PAGE>
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
January 13, 1998 /s/ Loren M. Ehrmanntraut
-------------------------
Loren M. Ehrmanntraut
Chief Financial Officer and Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,010,049
<SECURITIES> 0
<RECEIVABLES> 1,967,373
<ALLOWANCES> 30,000
<INVENTORY> 900,541
<CURRENT-ASSETS> 6,175,849
<PP&E> 1,923,251
<DEPRECIATION> 954,332
<TOTAL-ASSETS> 10,742,543
<CURRENT-LIABILITIES> 1,279,530
<BONDS> 0
0
0
<COMMON> 82,906
<OTHER-SE> 9,262,107
<TOTAL-LIABILITY-AND-EQUITY> 10,742,543
<SALES> 2,682,741
<TOTAL-REVENUES> 2,682,741
<CGS> 1,387,515
<TOTAL-COSTS> 1,387,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 814,006
<INCOME-TAX> 250,000
<INCOME-CONTINUING> 564,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 564,006
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
