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, 1999 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 December 31, 1999
----- -----------------------------------
Common Stock, $.02 par value 3,870,325
"This document consists of 11
pages. No exhibits are being filed."
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1999 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,680,400 $ 2,750,209
Receivables:
Trade, less allowance for doubtful accounts of $33,000 and $27,000, respectively 1,944,272 1,704,536
Corporate joint ventures 603,759 473,553
Income tax receivable 175,412 --
Inventories 1,073,371 1,013,525
Prepaid expenses and other 46,753 37,008
Deferred income taxes 170,000 170,000
------------ ------------
Total current assets 6,693,967 6,148,831
PROPERTY AND EQUIPMENT, net 1,142,182 1,115,229
OTHER ASSETS:
Investments in corporate joint ventures 3,246,234 3,424,623
Investment in European holding company 247,253 247,253
Deferred income taxes 210,000 210,000
Other 369,680 315,662
------------ ------------
4,073,167 4,197,538
------------ ------------
$ 11,909,316 $ 11,461,598
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 146,776 $ 149,328
Income taxes payable -- 307,188
Dividends payable 618,985 --
Accrued liabilities:
Payroll and related benefits 80,690 54,182
Other 240,594 166,610
------------ ------------
Total current liabilities 1,087,045 677,308
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 3,868,325 and 3,865,103, respectively 77,367 77,302
Additional paid-in capital 4,622,073 4,613,806
Retained earnings 6,536,356 6,481,550
Accumulated other comprehensive loss (343,718) (318,561)
------------ ------------
10,892,078 10,854,097
Notes and related interest receivable from purchase of common stock (129,807) (129,807)
------------ ------------
Total stockholders' equity 10,762,271 10,724,290
------------ ------------
$ 11,909,316 $ 11,461,598
============ ============
</TABLE>
See notes to financial statements.
2
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
SALES $ 2,831,864 $ 2,155,395
COST OF GOODS SOLD 1,348,520 1,069,703
------------ ------------
GROSS PROFIT 1,483,344 1,085,692
OPERATING EXPENSES:
Selling 451,409 341,631
General and administrative 679,798 512,628
Research, engineering, and technical support 115,173 102,479
------------ ------------
1,246,380 956,738
------------ ------------
OPERATING INCOME 236,964 128,954
CORPORATE JOINT VENTURES AND EUROPEAN
HOLDING COMPANY:
Equity in income of corporate joint ventures and European
holding company 159,317 177,803
Fees for technical assistance to corporate joint ventures 696,572 594,713
Corporate joint ventures expense (163,979) (139,849)
------------ ------------
691,910 632,667
INTEREST INCOME 34,917 16,022
------------ ------------
INCOME BEFORE INCOME TAXES 963,791 777,643
INCOME TAXES 290,000 220,000
------------ ------------
NET INCOME $ 673,791 $ 557,643
============ ============
NET INCOME PER SHARE:
Basic $ .17 $ .14
============ ============
Diluted $ .17 $ .14
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 3,867,379 3,856,408
============ ============
Diluted 3,870,919 3,900,463
============ ============
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 673,791 $ 557,643
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 37,379 31,275
Equity in income of corporate joint ventures and European
holding company (159,317) (177,803)
Dividends received from corporate joint ventures 362,549 --
Change in current assets and liabilities:
Receivables:
Trade (239,736) (147,811)
Corporate joint ventures (130,206) (194,409)
Income tax receivable (175,412) (20,363)
Inventories (59,846) 137,782
Prepaid expenses and other (7,102) 10,741
Accounts payable (2,552) (62,706)
Income taxes payable (307,188) (66,416)
Accrued liabilities 100,492 17,725
------------ ------------
Total adjustments (580,939) (471,985)
------------ ------------
Net cash provided by operating activities 92,852 85,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in corporate joint ventures (50,000) (20,509)
Additions to property (64,332) (31,231)
(Increase) decrease in other assets (56,661) 13,409
------------ ------------
Net cash used in investing activities (170,993) (38,331)
CASH FLOWS FROM FINANCING ACTIVITIES -
Issuance of common stock 8,332 90,531
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (69,809) 137,858
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,750,209 2,200,490
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,680,400 $ 2,338,348
============ ============
</TABLE>
See notes to financial statements.
4
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1. INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all necessary adjustments, which are of a
normal recurring nature, to present fairly the consolidated financial
position of Northern Technologies International Corporation and Subsidiary
as of November 30, 1999 and the results of its operations and its cash
flows for the three months ended November 30, 1999 and 1998, 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
November 30
1999 1998
Net income $ 673,791 $ 557,643
Other comprehensive income (loss) (25,157) 117,265
----------- -----------
Total comprehensive income $ 648,634 $ 674,908
=========== ===========
3. INVENTORIES
Inventories consist of the following:
November 30, August 31,
1999 1999
Production materials $ 264,550 $ 218,701
Work in process 34,581 24,753
Finished goods 774,240 770,071
----------- -----------
$ 1,073,371 $ 1,013,525
=========== ===========
5
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
November 30, August 31,
1999 1999
Land $ 246,097 $ 246,097
Buildings and improvements 1,112,757 1,100,757
Machinery and equipment 1,016,484 964,152
----------- -----------
2,375,338 2,311,006
Less accumulated depreciation 1,233,156 1,195,777
----------- -----------
$ 1,142,182 $ 1,115,229
=========== ===========
5. INVESTMENT IN CORPORATE JOINT VENTURES
During the three months ended November 30, 1999, the Company invested an
additional $50,000 in an existing foreign joint venture.
6. STOCKHOLDERS' EQUITY
During the three months ended November 30, 1999, stock options for the
purchase of 3,222 shares of the Company's common stock were exercised at
prices between $3.00 and $6.25 per share.
7. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended November 30, 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 three months ended November 30, 1998, the Company declared a
cash dividend of $.15 per share payable on December 18, 1998 to
shareholders of record on December 4, 1998.
8. 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.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 $676,469 during the first quarter of fiscal 2000
from those in the first quarter of fiscal 1999. This increase was due to
increases in demand and selling prices for materials science based industrial
packaging products.
COST OF SALES - Cost of goods sold as a percentage of net sales was 48% for the
first quarter of fiscal 2000 compared to 50% for the first quarter of fiscal
1999. The variation is primarily due to the mix of product sales and the
increase in selling prices.
OPERATING EXPENSES - As a percentage of sales, total operating expenses was 44%
in the first quarters of fiscal 2000 and 1999.
Operating expense classification percentages of sales were as follows:
Three Months Ended
November 30
1999 1998
Selling 16% 16%
General and administrative 24% 24%
Research, engineering, and technical support 4% 4%
Selling expenses increased for the first three months of fiscal 2000 as compared
to the same period in 1999 due primarily to increases in salaries and related
expenses and product promotion. Such expenses, as a percentage of sales, were
substantially unchanged for the first three months of fiscal 2000 as compared to
the same period in fiscal 1999.
General and administrative expenses increased for the first three months of
fiscal 2000 as compared to the same period in 1999 due primarily to increases in
rent expense, consulting, and travel expense. Such expenses, as a percentage of
sales, were substantially unchanged for the first three months of fiscal 2000 as
compared to the same period in fiscal 1999.
Research, engineering and technical support expenses for the first three months
of fiscal 2000 were higher than the comparable period in fiscal 1999 due
primarily to increases in supplies and travel expense. Such expenses, as a
percentage of sales, were substantially unchanged for the first three months of
fiscal 2000 as compared to the same period in fiscal 1999.
CORPORATE JOINT VENTURES AND EUROPEAN HOLDING COMPANY - Net earnings from
corporate joint ventures and European holding company increased in the first
three months of fiscal 2000 to $691,910 from $632,667 in the first three months
of fiscal 1999. This net increase is due to increased sales of the corporate
joint ventures resulting in an increase in fees for technical assistance
partially offset by higher travel and legal expenses incurred by the Company in
its corporate joint ventures and in establishing new corporate joint ventures.
7
<PAGE>
INCOME TAXES - Income tax expense for the three months ended November 30, 1999
and 1998 was calculated based upon management's estimate of the annual effective
rates. The effective income tax rates for fiscal 2000 and 1999 is lower than the
statutory rate primarily due to equity in income of joint ventures 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, 1999, the Company's working capital was $5,606,922, including
$2,680,400 in cash and cash equivalents, compared to working capital of
$5,471,523 including cash and cash equivalents of $2,750,209 as of August 31,
1999.
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 from operations for
the three months ended November 30, 1999 was $92,852. The net cash flow from
operations for the three months ended November 30, 1999 resulted principally
from net income and dividends received from corporate joint ventures offset by
equity income of corporate joint ventures and European holding company and
increases in receivables and income tax payments. Cash flows from operations for
the three months ended November 30, 1998 was $85,658. The net cash flow from
operations for the three months ended November 30, 1998 was principally from net
income and a decrease in inventories offset by equity in income of corporate
joint ventures and European holding company and increases in receivables.
Cash used in investing activities for the three months ended November 30, 1999
was $170,993, which resulted principally from investments in corporate joint
ventures, additions to property, and an investment in a corporation owning real
estate. Cash used in investing activities for the three months ended November
30, 1998 was $38,331, which resulted from investments in corporate joint
ventures and additions to property partially offset by decreases in other
assets.
Cash provided by financing activities for the three months ended November 30,
1999 was $8,332, which resulted from payments received from the exercise of
stock options. Cash provided by financing activities for the three months ended
November 30, 1998 was $90,531, which resulted from payments received 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, 1999.
The Company has no postretirement benefit plan and does not anticipate
establishing any post retirement benefit program.
IMPACT OF YEAR 2000
Computer programs have historically been written to abbreviate dates by using
two digits instead of four digits to identify a particular year. The so-called
"year-2000 problem" or "millennium bug" is the inability of computer software or
hardware (collectively, Systems) to recognize or properly process dates ending
in "00" and dates after the year 2000. Significant attention is being focused as
the year 2000
8
<PAGE>
approaches on updating or replacing such Systems in order to avoid System
failures, miscalculations, or business interruptions that might otherwise
result.
As of January 13, 2000, the Company has not experienced and does not anticipate
any adverse effects on the Company's systems and operations as a result of
year-2000 issues. Further, as of January 13, 2000, the Company has not
experienced any operating problems or product failures as a result of year-2000
issues with its vendors, service providers, or customers.
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 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, the corporate joint ventures, and the foreign company 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 business operations of the Company.
RECENTLY ISSUED 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. SFAS No. 133 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, with earlier adoption encouraged. The Company has
not yet determined the effects SFAS No. 133 will have 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
None
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
January 13, 2000 /s/ Matjaz Korosec
-----------------------------------------
Matjaz Korosec
Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 2,680,400
<SECURITIES> 0
<RECEIVABLES> 1,977,272
<ALLOWANCES> 33,000
<INVENTORY> 1,073,371
<CURRENT-ASSETS> 6,693,967
<PP&E> 2,375,338
<DEPRECIATION> 1,233,156
<TOTAL-ASSETS> 11,909,316
<CURRENT-LIABILITIES> 1,087,045
<BONDS> 0
0
0
<COMMON> 77,367
<OTHER-SE> 10,684,904
<TOTAL-LIABILITY-AND-EQUITY> 11,909,316
<SALES> 2,831,864
<TOTAL-REVENUES> 2,831,864
<CGS> 1,348,520
<TOTAL-COSTS> 1,348,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 963,791
<INCOME-TAX> 290,000
<INCOME-CONTINUING> 673,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 673,791
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
