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, 2000 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)
(651) 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 7, 2000
Common Stock, $.02 par value 3,849,180
"This document consists of 11
pages. One exhibit is being filed."
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
----------------------------------------------------------------------------------------------------------
MAY 31, AUGUST 31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,456,554 $ 2,750,209
Receivables:
Trade, less allowance for doubtful accounts of $39,000 and $27,000,
respectively 1,641,525 1,704,536
Corporate joint ventures 541,954 473,553
Inventories 1,123,010 1,013,525
Prepaid expenses and other 29,220 37,008
Deferred income taxes 170,000 170,000
------------ ------------
Total current assets 6,962,263 6,148,831
PROPERTY AND EQUIPMENT, net 1,235,385 1,115,229
OTHER ASSETS:
Investments in corporate joint ventures 3,159,767 3,424,623
Investment in European holding company 247,253 247,253
Deferred income taxes 210,000 210,000
Other 691,962 315,662
------------ ------------
4,308,982 4,197,538
------------ ------------
$ 12,506,630 $ 11,461,598
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 194,439 $ 149,328
Income taxes 48,495 307,188
Accrued liabilities:
Payroll and related benefits 204,690 54,182
Other 204,553 166,610
------------ ------------
Total current liabilities 652,177 677,308
DEFERRED GROSS PROFIT 60,000 60,000
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 3,858,768 and 3,865,103, respectively 77,175 77,302
Additional paid-in capital 4,614,240 4,613,806
Retained earnings 7,714,666 6,481,550
Accumulated other comprehensive loss (481,821) (318,561)
------------ ------------
11,924,260 10,854,097
Notes and related interest receivable from purchase of
common stock (129,807) (129,807)
------------ ------------
Total stockholders' equity 11,794,453 10,724,290
------------ ------------
$ 12,506,630 $ 11,461,598
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
--------------------------- ---------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
SALES $ 2,812,990 $ 2,442,319 $ 8,338,536 $ 6,603,587
COST OF GOODS SOLD 1,345,961 1,249,527 4,042,166 3,297,716
----------- ----------- ----------- -----------
GROSS PROFIT 1,467,029 1,192,792 4,296,370 3,305,871
OPERATING EXPENSES:
Selling 388,117 358,915 1,298,957 1,083,909
General and administrative 503,791 466,609 1,700,898 1,302,218
Research, engineering, and technical support 106,468 112,202 422,684 374,700
----------- ----------- ----------- -----------
998,376 937,726 3,422,539 2,760,827
----------- ----------- ----------- -----------
OPERATING INCOME 468,653 255,066 873,831 545,044
CORPORATE JOINT VENTURES AND
EUROPEAN HOLDING COMPANY:
Equity in income of corporate joint
ventures and European holding company 142,209 189,294 413,571 370,963
Fees for technical assistance to
corporate joint ventures 698,139 651,975 1,978,653 1,813,370
Corporate joint venture expense (214,101) (206,416) (568,506) (517,486)
----------- ----------- ----------- -----------
626,247 634,853 1,823,718 1,666,847
INTEREST INCOME 27,846 17,155 83,187 53,104
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,122,746 907,074 2,780,736 2,264,995
INCOME TAXES 360,000 245,000 870,000 670,000
----------- ----------- ----------- -----------
NET INCOME $ 762,746 $ 662,074 $ 1,910,736 $ 1,594,995
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ .20 $ .17 $ .49 $ .41
=========== =========== =========== ===========
Diluted $ .20 $ .17 $ .49 $ .41
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 3,865,524 3,863,446 3,867,668 3,863,875
=========== =========== =========== ===========
Diluted 3,874,605 3,924,514 3,878,230 3,912,221
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------------------------------------------------
NINE MONTHS ENDED
MAY 31
----------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,910,736 $ 1,594,995
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 117,013 112,280
Equity in income of corporate joint ventures and
European holding company (413,571) (370,963)
Dividends received from corporate joint ventures 373,118 10,292
Common stock issued for services -- 20,625
Change in current assets and liabilities:
Receivables:
Trade 63,011 (354,289)
Corporate joint ventures (68,401) (245,585)
Inventories (109,485) 158,296
Prepaid expenses and other (6,315) 127,146
Accounts payable 45,111 (71,351)
Income taxes (258,693) 23,489
Accrued liabilities 188,451 67,619
----------- -----------
Total adjustments (69,761) (522,441)
----------- -----------
Net cash provided by operating activities 1,840,975 1,072,554
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (237,169) (252,586)
Investments in corporate joint ventures (90,000) (522,660)
Increase in other assets (130,148) --
----------- -----------
Net cash used in investing activities (457,317) (775,246)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 25,000 98,838
Dividends paid (618,932) (581,104)
Repurchase of common stock (83,381) (79,119)
----------- -----------
Net cash used in financing activities (677,313) (561,385)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 706,345 (264,077)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,750,209 2,200,490
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,456,554 $ 1,936,413
=========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 and subsidiaries (the Company) as
of May 31, 2000 and 1999, the results of operations for the three and
nine months ended May 31, 2000 and 1999, and the cash flows for the nine
months ended May 31, 2000 and 1999, 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, 1999 contained in the Company's filing on Form 10-KSB dated
November 19, 1999 and with Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing on pages 7
through 9 of this quarterly report.
2. COMPREHENSIVE INCOME
The Company's total comprehensive incomes were as follows:
Three Months Ended Nine Months Ended
May 31 May 31
---------------------- ----------------------
2000 1999 2000 1999
Net income $ 762,746 $ 662,074 $1,910,736 $1,594,995
Other comprehensive loss 31,870 90,486 163,260 31,269
---------- ---------- ---------- ----------
Total comprehensive income $ 730,876 $ 571,588 $1,747,476 $1,563,726
========== ========== ========== ==========
3. INVENTORIES
Inventories consist of the following:
May 31, August 31,
2000 1999
Production materials $ 260,655 $ 218,701
Work in process 27,827 24,753
Finished goods 834,528 770,071
---------- ----------
$1,123,010 $1,013,525
========== ==========
5
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
May 31, August 31,
2000 1999
Land $ 246,097 $ 246,097
Buildings and improvements 1,152,997 1,100,757
Machinery and equipment 1,131,698 964,152
---------- ----------
2,530,792 2,311,006
Less accumulated depreciation 1,295,407 1,195,777
---------- ----------
$1,235,385 $1,115,229
========== ==========
5. INVESTMENTS IN CORPORATE JOINT VENTURES
During the nine months ended May 31, 2000, the Company invested an
additional $90,000 in existing joint ventures.
6. STOCKHOLDERS' EQUITY
During the nine months ended May 31, 2000, the Company purchased and
retired 12,224 shares of common stock for $83,381.
In November 1999, the Company declared a cash dividend of $.16 per share
payable on December 17, 1999 to shareholders of record on December 3,
1999.
During the nine months ended May 31, 2000, stock options for the
purchase of 5,889 shares of the Company's common stock were exercised at
prices between $3.00 and $6.25 per share.
7. NET INCOME PER SHARE
Basic income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted income per
share assumes the exercise of stock options using the treasury stock
method, if dilutive.
8. COMMITMENTS AND CONTINGENCIES
A subsidiary of the Company owns a one-third ownership interest in a
limited liability company, which owns and operates a rental property
building. The Company has guaranteed a performance obligation of the
limited liability company valued at $319,275.
The Company's subsidiary has entered into a lease for office and
warehouse space requiring monthly payments of $13,194 per month, subject
to annual CPI index escalation, through November 2014.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS 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 and foreign
company. The exchange rate differential relating to investments in foreign joint
ventures and foreign company is accounted for under the requirements of SFAS No.
52.
SALES - Net sales originating in the United States increased by $370,671 or 15%
during the third quarter of fiscal 2000 as compared to the third quarter of
fiscal 1999. Net sales originating in the United States increased by $1,734,949
or 26% during the nine months ended May 31, 2000 compared to the nine months
ended May 31, 1999. These changes in sales are due to an increase in demand and
selling prices for materials-science-based industrial packaging products. There
has been no introduction of new products or entry into any particular new
markets.
COST OF GOODS SOLD - Cost of goods sold as a percentage of net sales for the
third quarter of fiscal 2000 was 48% compared to 51% for the third quarter of
fiscal 1999. The cost of goods sold percentage of net sales was 48% for the nine
months ended May 31, 2000 and 50% for the nine months ended May 31, 1999.
Variations are due primarily to the mix of product sales and the increase in
selling prices.
OPERATING EXPENSES - As a percentage of net sales, total operating expenses were
35% in the third quarter of fiscal 2000 and 38% in the third quarter of fiscal
1999. Operating expenses were 41% of net sales for the nine months ended May 31,
2000 and 42% for the nine months ended May 31, 1999.
Operating expense classification percentages of net sales were as follows:
Three Months Nine Months
Ended May 31 Ended May 31
---------------- ----------------
2000 1999 2000 1999
Selling 14% 15% 16% 16%
General and administrative 18 19 20 20
Research, engineering, and
technical support 3 4 5 6
Selling expenses increased during the three and nine months ended May 31, 2000
as compared to the same periods in fiscal 1999 due primarily to increases in
salaries and related expenses and product promotion expenses. Selling expenses
as a percentage of net sales decreased for the three months ended May 31, 2000
as compared to the same period in 1999 due to the increased level of net sales
in fiscal 2000 offsetting the increase in fiscal 2000 selling expenses. Selling
expenses as a percentage of net sales were largely unchanged for the nine months
ended May 31, 2000 as comparable to the same period in fiscal 1999 due to the
increased level of net sales in fiscal 2000 offsetting the increase in fiscal
2000 selling expenses.
General and administrative expenses increased during the third quarter of fiscal
2000 as compared to the same period in fiscal 1999 due primarily to increases in
professional fees, consulting expenses, and expenses related to the new
facility. The same factors account for the increase in general and
administrative expenses during the nine months ended May 31, 2000 as compared to
the same period in fiscal 1999. General and administrative expenses as a
percentage of net sales decreased for the three
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<PAGE>
months ended May 31, 2000, as compared to the same period in 1999, due to the
increase in sales in fiscal 2000 offsetting the increase in fiscal 2000 general
and administrative expenses. General and administrative expenses as a percentage
of net sales were largely unchanged for the nine months ended May 31, 2000, as
compared to the same period in 1999, due to the increased level of net sales in
fiscal 2000 offsetting the increase in fiscal 2000 general and administrative
expenses.
Research, engineering, and technical support expenses decreased during the third
quarter of fiscal 2000 as compared to the same period in fiscal 1999 due
primarily to a decrease in independent consulting services for product
development. Research, engineering, and technical support expenses increased for
the nine months ended May 31, 2000 over that same period in fiscal 1999 due
primarily to increases in independent consulting services for product
development and travel. Research, engineering, and technical support expenses as
a percentage of net sales decreased for the three and nine months ended May 31,
2000 compared to the same periods in fiscal 1999 due to the increase in sales in
fiscal 2000 offsetting the increase in fiscal 2000 research, engineering, and
technical support expenses.
CORPORATE JOINT VENTURES AND EUROPEAN HOLDING COMPANY - Net earnings from
corporate joint ventures and European holding company were $626,247 and
$1,823,718 for the three and nine months ended May 31, 2000, respectively,
compared to $634,853 and $1,666,847 for the three and the nine months ended May
31, 1999. The net decrease for the three months ended May 31, 1999 compared to
the same period in fiscal 1999 is due primarily to the aggregated decreased
sales volume of the Company's corporate joint ventures. The net increase for the
nine months ended May 31, 2000 compared to the same period in fiscal 1999 is due
primarily to the aggregate increased sales volume of the Company's corporate
joint ventures.
INCOME TAXES - Income tax expense for the three and nine months ended May 31,
2000 and 1999 was calculated based on management's estimate of the Company's
annual effective income tax rate. The Company's effective income tax rate for
fiscal 2000 and 1999 is lower than the statutory rate primarily due to the
Company's equity in income of corporate joint ventures and European holding
company being recognized based on after-tax earnings of these entities. To the
extent joint venture's 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, 2000, the Company's working capital was $6,310,086, including
$3,456,554 in cash and cash equivalents, compared to working capital of
$5,471,523 including $2,750,209 in cash and cash equivalents as of August 31,
1999.
Net cash provided from operations has been sufficient to meet liquidity
requirements, capital expenditures, research and development cost, and expansion
of operations of the Company's joint ventures. Cash flows from operations for
the nine months ended May 31, 2000 and 1999 was $1,840,975 and $1,072,554,
respectively. The net cash flow from operations for the nine months ended May
31, 2000 resulted principally from net income, dividends received from corporate
joint ventures, and an increase in accrued liabilities, offset by equity income
of corporate joint ventures and European holding company and the payment of
income taxes. The net cash flow from operations for the nine months ended May
31, 1999 resulted principally from net income offset by equity income of
corporate joint ventures and European holding company and increased trade and
joint venture receivables.
Net cash used in investing activities for the nine months ended May 31, 2000 was
$457,317 which resulted from investments in joint ventures, additions to
property and equipment, and an increase in other
8
<PAGE>
assets. Net cash used in investing activities for the nine months ended May 31,
1999 was $775,246 which resulted from investments in joint ventures and
additions to property and equipment.
Net cash used in financing activities for the nine months ended May 31, 2000 was
$677,313 which resulted from the payment of dividends to stockholders of
$618,932 and the repurchase of common stock of $83,381 offset by proceeds from
the exercise of stock options of $25,000. Net cash used in financing activities
for the nine months ended May 31, 1999 of $561,385 resulted from the payment of
dividends to stockholders of $581,104 and the repurchase of common stock of
$79,119 offset by proceeds of $98,838 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 capital lease commitments at
May 31, 2000.
The Company has no postretirement benefit plan and does not anticipate
establishing any postretirement benefit program.
EURO CURRENCY ISSUE
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their respective existing currencies
and the Euro and agreed to adopt the Euro as their common legal currency on that
date (the Euro Conversion). Following the Euro Conversion, however, the
previously existing currencies of the participating countries are scheduled to
remain legal tender in the participating countries between January 1, 1999 and
January 2002. During this transition period, public and private parties may pay
for goods and services using either the Euro or the previously existing
currencies. Beginning January 1, 2002, the participating countries will issue
new Euro-denominated bills and coins for use in cash transactions. No later than
July 1, 2002, the participating countries will withdraw all bills and coins
denominated in the previously existing currencies, making Euro Conversion
complete.
The Company and the corporate joint ventures have been evaluating the potential
impact the Euro Conversion and the Euro currency may have on their results of
operations, liquidity, or financial condition. The Company has determined that
expected costs for compliance will not be material to its results of operations,
liquidity, financial condition, or capital expenditures. Significant
noncompliance by the Company's corporate joint ventures and their customers or
suppliers could adversely impact the Company's results of operations, liquidity,
or financial condition. Accordingly, until the Company completes its assessment
of the Euro Conversion impact, there can be no assurance that the Euro
Conversion will not have a material impact on the overall operations of the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. In July 1999, the FASB issued SFAS No. 137
delaying the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. To date, the Company believes the adoption of
SFAS No. 133 will not have a significant impact on its financial position or the
results of its operations.
9
<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
27 Financial Data Schedule
10
<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
July 13, 2000 /s/ Matjaz Korosec
-----------------------------------------------
Matjaz Korosec
Treasurer
11
