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
February 29, 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 March 31, 2000
Common Stock, $.02 par value 3,870,835
"This document consists of 12
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)
- ---------------------------------------------------------------------------------------------------------------------------
FEBRUARY 29, AUGUST 31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,241,727 $ 2,750,209
Receivables:
Trade, less allowance for doubtful accounts of $33,000 and
$27,000, respectively 1,459,204 1,704,536
Corporate joint ventures 434,525 473,553
Inventories 1,132,557 1,013,525
Prepaid expenses and other 50,876 37,008
Deferred income taxes 170,000 170,000
------------ ------------
Total current assets 6,488,889 6,148,831
PROPERTY AND EQUIPMENT, net 1,192,568 1,115,229
OTHER ASSETS:
Investments in corporate joint ventures 3,281,476 3,424,623
Investment in European holding company 247,253 247,253
Deferred income taxes 210,000 210,000
Other 376,404 315,662
------------ ------------
4,115,133 4,197,538
------------ ------------
$ 11,796,590 $ 11,461,598
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 183,230 $ 149,328
Income taxes 23,581 307,188
Accrued liabilities:
Payroll and related benefits 148,230 54,182
Other 240,173 166,610
------------ ------------
Total current liabilities 595,214 677,308
DEFERRED GROSS PROFIT 60,000 60,000
COMMITMENTS AND CONTINGENCIES
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 3,870,168
and 3,865,103, respectively 77,403 77,302
Additional paid-in capital 4,634,218 4,613,806
Retained earnings 7,009,513 6,481,550
Accumulated other comprehensive loss (449,951) (318,561)
------------ ------------
11,271,183 10,854,097
Notes and related interest receivable from purchase of
common stock (129,807) (129,807)
------------ ------------
Total stockholders' equity 11,141,376 10,724,290
------------ ------------
$ 11,796,590 $ 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 SIX MONTHS ENDED
------------------------------- -------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
SALES $ 2,693,682 $ 2,005,873 $ 5,525,546 $ 4,161,268
COST OF GOODS SOLD 1,347,685 978,486 2,696,205 2,048,189
----------- ----------- ----------- -----------
GROSS PROFIT 1,345,997 1,027,387 2,829,341 2,113,079
OPERATING EXPENSES:
Selling 459,431 383,363 910,840 724,994
General and administrative 517,309 322,981 1,197,107 835,609
Research, engineering, and
technical support 201,043 160,019 316,216 262,498
----------- ----------- ----------- -----------
1,177,783 866,363 2,424,163 1,823,101
----------- ----------- ----------- -----------
OPERATING INCOME 168,214 161,024 405,178 289,978
CORPORATE JOINT VENTURES AND
EUROPEAN HOLDING COMPANY:
Equity in income of corporate joint
ventures and European holding
company 112,045 3,866 271,362 181,669
Fees for technical assistance to
corporate joint ventures 583,942 566,682 1,280,514 1,161,395
Corporate joint venture expense (190,426) (171,221) (354,405) (311,070)
----------- ----------- ----------- -----------
505,561 399,327 1,197,471 1,031,994
INTEREST INCOME 20,424 19,927 55,341 35,949
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 694,199 580,278 1,657,990 1,357,921
INCOME TAXES 220,000 205,000 510,000 425,000
----------- ----------- ----------- -----------
NET INCOME $ 474,199 $ 375,278 $ 1,147,990 $ 932,921
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ .12 $ .10 $ .30 $ .24
=========== =========== =========== ===========
Diluted $ .12 $ .10 $ .30 $ .24
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
ASSUMED OUTSTANDING:
Basic 3,870,127 3,871,863 3,868,752 3,864,093
=========== =========== =========== ===========
Diluted 3,890,481 3,911,779 3,880,699 3,886,120
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE>
NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
-------------------------------
FEBRUARY 29, FEBRUARY 28,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,147,990 $ 932,921
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 76,165 68,950
Equity income of corporate joint ventures
and European holding company (271,362) (181,669)
Dividends received from corporate joint ventures 373,119 10,292
Change in current assets and liabilities:
Receivables:
Trade 245,332 (290,269)
Joint ventures 39,028 (99,635)
Income taxes -- (102,047)
Inventories (119,032) 176,893
Prepaid expenses and other (21,260) 126,207
Accounts payable 33,902 (77,671)
Income taxes (283,607) (66,416)
Accrued liabilities 167,611 15,586
----------- -----------
Total adjustments 239,896 (419,779)
----------- -----------
Net cash provided by operating activities 1,387,886 513,142
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in corporate joint ventures (90,000) (522,660)
Additions to property (153,504) (218,131)
Increase in other assets (53,350) --
----------- -----------
Net cash used in investing activities (296,854) (740,791)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 20,831 95,573
Repurchase of common stock (1,413) (68,900)
Dividends paid (618,932) (581,104)
----------- -----------
Net cash used in financing activities (599,514) (554,431)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 491,518 (782,080)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,750,209 2,200,490
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,241,727 $ 1,418,410
=========== ===========
</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 as of February
29, 2000 and February 28, 1999, the results of operations for the three
and six months ended February 29, 2000 and February 28, 1999, and the
cash flows for the six months ended February 29, 2000 and February 28,
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 income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 474,199 $ 375,278 $ 1,147,990 $ 932,921
Other comprehensive (loss) income (106,233) (58,048) (131,390) 59,217
----------- ----------- ------------ -----------
Total comprehensive income $ 367,966 $ 317,230 $ 1,016,600 $ 992,138
=========== =========== ============ ===========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
February 29, August 31,
2000 1999
Production materials $ 230,280 $ 218,701
Work in process 25,901 24,753
Finished goods 876,376 770,071
------------ -------------
$ 1,132,557 $ 1,013,525
============ =============
5
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
February 29, August 31,
2000 1999
Land $ 246,097 $ 246,097
Buildings and improvements 1,152,997 1,100,757
Machinery and equipment 1,065,416 964,152
------------- --------------
2,464,510 2,311,006
Less accumulated depreciation 1,271,942 1,195,777
------------- --------------
$ 1,192,568 $ 1,115,229
============= ==============
5. INVESTMENTS IN CORPORATE JOINT VENTURES
During the six months ended February 29, 2000, the Company invested an
additional $90,000 in existing foreign joint ventures.
6. STOCKHOLDERS' EQUITY
During the six months ended February 29, 2000, the Company purchased and
retired 157 shares of common stock for $1,413.
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 six months ended February 29, 2000, stock options for the
purchase of 5,222 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 net income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net 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 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 $687,809 or 34% during the second quarter of 2000
from those of the second quarter of 1999. Net sales increased by $1,364,278 or
33% during the six months ended February 29, 2000 compared to the six months
ended February 28, 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 SALES - Cost of goods sold as a percentage of net sales was 50% and 49%
for the second quarter of 2000 and 1999, respectively. The cost of goods sold
percentage of net sales was 49% for the six months ended February 29, 2000 and
February 28, 1999. Variations are due primarily to the mix of product sales.
OPERATING EXPENSES - As a percentage of net sales, total operating expenses were
44% in the second quarter of fiscal 2000 and 43% in the second quarter of fiscal
1999. Operating expenses were 44% of net sales for the six months ended February
29, 2000 and for the six months ended February 28, 1999.
Operating expense classification percentages of net sales were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- ------------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Selling expense 17% 19% 16% 18%
General and administrative 19 16 22 20
Research, engineering, and
technical support 8 8 6 6
</TABLE>
Selling expenses increased during the second quarter of fiscal 2000 as compared
to the same period in fiscal 1999 due primarily to increases in salaries and
related expenses and product promotion expenses. These same factors account for
the increase in the selling expense for the six months ended February 29, 2000
over the same period in fiscal 1999. Selling expenses as a percentage of net
sales decreased for the quarter and six months ended February 29, 2000 as
compared to the same periods in fiscal 1999 due to the increase in sales in
fiscal 2000 offsetting the increase in fiscal 2000 selling expenses.
General and administrative expenses increased during the second quarter of
fiscal 2000 as compared to the same period in fiscal 1999 due primarily to
increases in professional fees, travel, and expenses related to a new facility.
These same factors account for the increase in the general and administrative
expenses for the six months ended February 29, 2000 over the same period in
fiscal 1999. General and administrative expenses as a percentage of net sales
increased for the three and six months ended February 29, 2000, as compared to
the same periods in fiscal 1999 due to the increase in sales in fiscal 2000 not
fully offsetting the increase in fiscal 2000 general and administrative
expenses.
7
<PAGE>
Research, engineering, and technical support expenses increased during the
second quarter of fiscal 2000 as compared to the same period in fiscal 1999 due
primarily to an increase in independent consulting services for product
development and travel. These same factors account for the increase in research,
engineering, and technical support expenses for the six months ended February
29, 2000 over the same period in fiscal 1999. Such expenses as a percentage of
sales were substantially unchanged for the quarter and six months ended February
29, 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 were $505,561 and
$1,197,471 for the three and six months ended February 29, 2000, respectively,
compared to $399,327 and $1,031,994 for the three and the six months ended
February 28, 1999. This net increase is due to increased sales volume at certain
of the Company's joint ventures.
INCOME TAXES - Income tax expense for the three and six months ended February
29, 2000 and February 28, 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 ventures' undistributed earnings are distributed to the
Company, they do not result in any material additional income tax liability
after the application of foreign tax credits.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company's working capital was $5,893,675, including
$3,241,727 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 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 six months ended February 29, 2000 and February 28, 1999 was $1,387,886 and
$513,142, respectively. The net cash flow from operations for the six months
ended February 29, 2000 resulted principally from net income, corporate joint
venture dividends, and a decrease in accounts receivable offset by equity income
of corporate joint ventures and European holding company and income tax
payments. The net cash flow from operations for the six months ended February
28, 1999 resulted principally from net income and a decrease in inventories
offset by equity in income of corporate joint ventures and European holding
company and an increase in receivables.
Net cash used in investing activities for the six months ended February 29, 2000
was $296,854 which resulted from investments in corporate joint ventures,
additions to property and an increase in other assets. Net cash used in
investing activities for the six months ended February 28, 1999 was $740,791
which resulted from additional investments in existing corporate joint ventures
and additions to property.
Net cash used in financing activities for the six months ended February 29, 2000
resulted from the payment of dividends to stockholders of $618,932 and the
repurchase of common stock of $1,413 offset by proceeds of $20,831 from the
exercise of stock options. Net cash used in financing activities for the six
months ended February 28, 1999 was $554,431 which resulted from the payment of
dividends to stockholders of $581,104 and the repurchase of common stock of
$68,900 offset by proceeds from the exercise of stock options of $95,573.
8
<PAGE>
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
February 29, 2000.
The Company has no postretirement benefit plan and does not anticipate
establishing any postretirement 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.
As of April 10, 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 April 10, 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 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 business operations of
the Company.
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
The Annual Meeting of Stockholders of the Company (Annual Meeting) was held on
February 18, 2000. The following matters were voted on and approved by the
Company's stockholders at the Annual Meeting. The tabulation of votes with
respect to each of the following matters voted on at the Annual Meeting is set
forth as follows:
1. ELECTION OF DIRECTORS:
For Against Abstain
Sidney Dworkin 3,379,008 9,485 35,738
Vincent J. Graziano 3,385,208 3,285 35,738
Gerhard Hahn 3,385,208 3,285 35,738
Dr. Donald A. Kubik 3,385,208 3,285 35,738
Richard G. Lareau 3,379,008 9,485 35,738
Philip M. Lynch 3,385,208 3,285 35,738
Haruhiko Rikuta 3,385,208 3,285 35,738
Dr. Milan R. Vukcevich 3,385,208 3,285 35,738
2. ADOPTION OF THE COMPANY'S 2000 STOCK INCENTIVE PLAN
The approval and adoption of the Company's 2000 Stock Incentive Plan was
ratified. Total votes cast:
For 2,590,555
Against 102,968
Abstain 730,708
10
<PAGE>
3. APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
The appointment of Deloitte & Touche LLP as independent auditors of the
Company for the fiscal year ending August 31, 2000 was ratified. Total
votes cast:
For 3,373,370
Against 12,023
Abstain 38,838
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedule
11
<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
April 13, 2000
/s/ Matjaz Korosec
------------------
Matjaz Korosec
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 3,241,727
<SECURITIES> 0
<RECEIVABLES> 1,492,204
<ALLOWANCES> 33,000
<INVENTORY> 1,132,557
<CURRENT-ASSETS> 6,488,889
<PP&E> 2,464,510
<DEPRECIATION> 1,271,942
<TOTAL-ASSETS> 11,796,590
<CURRENT-LIABILITIES> 595,214
<BONDS> 0
0
0
<COMMON> 77,403
<OTHER-SE> 11,063,973
<TOTAL-LIABILITY-AND-EQUITY> 11,796,590
<SALES> 5,525,546
<TOTAL-REVENUES> 5,525,546
<CGS> 2,696,205
<TOTAL-COSTS> 2,696,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,657,990
<INCOME-TAX> 510,000
<INCOME-CONTINUING> 1,147,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,147,990
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
