Q2 2024 --08-31 false 0000875582 false false false false 2 0 0 0 0 0 0 0 0 00008755822023-11-302024-02-29 thunderdome:item iso4217:USD 00008755822022-08-312023-02-28 00008755822022-11-302023-02-28 00008755822023-08-312024-02-29 xbrli:pure 00008755822023-02-28 00008755822024-02-29 0000875582country:US2022-08-312023-02-28 0000875582country:US2023-08-312024-02-29 0000875582ntic:OtherCountriesMember2022-08-312023-02-28 0000875582ntic:OtherCountriesMember2023-08-312024-02-29 0000875582country:IN2022-08-312023-02-28 0000875582country:IN2023-08-312024-02-29 0000875582country:BR2022-08-312023-02-28 0000875582country:BR2023-08-312024-02-29 0000875582country:CN2022-08-312023-02-28 0000875582country:CN2023-08-312024-02-29 0000875582country:US2022-11-302023-02-28 0000875582country:US2023-11-302024-02-29 0000875582ntic:OtherCountriesMember2022-11-302023-02-28 0000875582ntic:OtherCountriesMember2023-11-302024-02-29 0000875582country:IN2022-11-302023-02-28 0000875582country:IN2023-11-302024-02-29 0000875582country:BR2022-11-302023-02-28 0000875582country:BR2023-11-302024-02-29 0000875582country:CN2022-11-302023-02-28 0000875582country:CN2023-11-302024-02-29 00008755822023-08-31 0000875582country:US2023-08-31 0000875582country:US2024-02-29 0000875582ntic:OtherCountriesMember2023-08-31 0000875582ntic:OtherCountriesMember2024-02-29 0000875582country:CN2023-08-31 0000875582country:CN2024-02-29 0000875582country:GB2022-08-312023-02-28 0000875582country:GB2023-08-312024-02-29 0000875582country:KR2022-08-312023-02-28 0000875582country:KR2023-08-312024-02-29 0000875582country:CZ2022-08-312023-02-28 0000875582country:CZ2023-08-312024-02-29 0000875582country:TH2022-08-312023-02-28 0000875582country:TH2023-08-312024-02-29 0000875582country:FI2022-08-312023-02-28 0000875582country:FI2023-08-312024-02-29 0000875582country:SE2022-08-312023-02-28 0000875582country:SE2023-08-312024-02-29 0000875582country:FR2022-08-312023-02-28 0000875582country:FR2023-08-312024-02-29 0000875582country:JP2022-08-312023-02-28 0000875582country:JP2023-08-312024-02-29 0000875582country:PL2022-08-312023-02-28 0000875582country:PL2023-08-312024-02-29 0000875582country:DE2022-08-312023-02-28 0000875582country:DE2023-08-312024-02-29 0000875582country:GB2022-11-302023-02-28 0000875582country:GB2023-11-302024-02-29 0000875582country:KR2022-11-302023-02-28 0000875582country:KR2023-11-302024-02-29 0000875582country:CZ2022-11-302023-02-28 0000875582country:CZ2023-11-302024-02-29 0000875582country:TH2022-11-302023-02-28 0000875582country:TH2023-11-302024-02-29 0000875582country:FI2022-11-302023-02-28 0000875582country:FI2023-11-302024-02-29 0000875582country:SE2022-11-302023-02-28 0000875582country:SE2023-11-302024-02-29 0000875582country:JP2022-11-302023-02-28 0000875582country:JP2023-11-302024-02-29 0000875582country:FR2022-11-302023-02-28 0000875582country:FR2023-11-302024-02-29 0000875582country:DE2022-11-302023-02-28 0000875582country:DE2023-11-302024-02-29 0000875582country:PL2022-11-302023-02-28 0000875582country:PL2023-11-302024-02-29 0000875582ntic:UnaffiliatedCustomersOutsideTheUSAMember2022-08-312023-02-28 0000875582ntic:UnaffiliatedCustomersOutsideTheUSAMember2023-08-312024-02-29 0000875582ntic:UnaffiliatedCustomersOutsideTheUSAMember2022-11-302023-02-28 0000875582ntic:UnaffiliatedCustomersOutsideTheUSAMember2023-11-302024-02-29 0000875582ntic:JointVenturesInWhichTheCompanyIsAShareholderDirectlyAndIndirectlyOutsideTheUSAMember2022-08-312023-02-28 0000875582ntic:JointVenturesInWhichTheCompanyIsAShareholderDirectlyAndIndirectlyOutsideTheUSAMember2023-08-312024-02-29 0000875582ntic:JointVenturesInWhichTheCompanyIsAShareholderDirectlyAndIndirectlyOutsideTheUSAMember2022-11-302023-02-28 0000875582ntic:JointVenturesInWhichTheCompanyIsAShareholderDirectlyAndIndirectlyOutsideTheUSAMember2023-11-302024-02-29 0000875582ntic:InsideTheUSAToUnaffiliatedCustomersMember2022-08-312023-02-28 0000875582ntic:InsideTheUSAToUnaffiliatedCustomersMember2023-08-312024-02-29 0000875582ntic:InsideTheUSAToUnaffiliatedCustomersMember2022-11-302023-02-28 0000875582ntic:InsideTheUSAToUnaffiliatedCustomersMember2023-11-302024-02-29 0000875582ntic:IndirectCostOfGoodsSoldMember2022-08-312023-02-28 0000875582ntic:IndirectCostOfGoodsSoldMember2023-08-312024-02-29 0000875582ntic:IndirectCostOfGoodsSoldMember2022-11-302023-02-28 0000875582ntic:IndirectCostOfGoodsSoldMember2023-11-302024-02-29 0000875582ntic:DirectCostOfGoodsSoldMemberntic:NaturTecMember2022-08-312023-02-28 0000875582ntic:DirectCostOfGoodsSoldMemberntic:NaturTecMember2023-08-312024-02-29 0000875582ntic:DirectCostOfGoodsSoldMemberntic:NaturTecMember2022-11-302023-02-28 0000875582ntic:DirectCostOfGoodsSoldMemberntic:NaturTecMember2023-11-302024-02-29 0000875582ntic:DirectCostOfGoodsSoldMemberntic:ZERUSTMember2022-08-312023-02-28 0000875582ntic:DirectCostOfGoodsSoldMemberntic:ZERUSTMember2023-08-312024-02-29 0000875582ntic:DirectCostOfGoodsSoldMemberntic:ZERUSTMember2022-11-302023-02-28 0000875582ntic:DirectCostOfGoodsSoldMemberntic:ZERUSTMember2023-11-302024-02-29 0000875582ntic:NaturTecMember2022-08-312023-02-28 0000875582ntic:NaturTecMember2023-08-312024-02-29 0000875582ntic:NaturTecMember2022-11-302023-02-28 0000875582ntic:NaturTecMember2023-11-302024-02-29 0000875582ntic:ZERUSTMember2022-08-312023-02-28 0000875582ntic:ZERUSTMember2023-08-312024-02-29 0000875582ntic:ZERUSTMember2022-11-302023-02-28 0000875582ntic:ZERUSTMember2023-11-302024-02-29 utr:Y iso4217:USDxbrli:shares xbrli:shares 00008755822023-08-30 0000875582us-gaap:EmployeeStockOptionMember2022-08-312023-02-28 0000875582us-gaap:EmployeeStockOptionMember2022-11-302023-02-28 0000875582us-gaap:EmployeeStockOptionMember2023-08-312024-02-29 0000875582us-gaap:EmployeeStockOptionMember2023-11-302024-02-29 0000875582ntic:ESPPMember2024-02-29 00008755822022-09-012022-09-01 00008755822023-09-012023-09-01 00008755822023-01-202023-01-20 00008755822022-10-202022-10-20 00008755822024-01-172024-01-17 00008755822023-10-182023-10-18 0000875582ntic:NTICChinaMemberntic:TermLoanInMayMember2023-08-31 0000875582ntic:NTICChinaMemberntic:TermLoanInAprilMember2023-08-31 0000875582ntic:NTICChinaMemberntic:TermLoanInMayMember2024-02-29 0000875582ntic:NTICChinaMemberntic:TermLoanInAprilMember2024-02-29 0000875582ntic:NTICChinaMemberntic:TermLoanInMayMember2023-05-30 0000875582ntic:NTICChinaMemberntic:TermLoanInAprilMember2023-04-10 iso4217:CNY 0000875582us-gaap:RevolvingCreditFacilityMemberntic:JPMorganChaseBankMember2023-01-062023-01-06 0000875582us-gaap:RevolvingCreditFacilityMemberntic:JPMorganChaseBankMemberntic:AdjustedSOFRRateApplicableMarginMember2023-01-062023-01-06 0000875582us-gaap:RevolvingCreditFacilityMemberntic:JPMorganChaseBankMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-062023-01-06 0000875582us-gaap:RevolvingCreditFacilityMemberntic:JPMorganChaseBankMember2023-01-06 0000875582us-gaap:RevolvingCreditFacilityMemberntic:JPMorganChaseBankMember2023-08-31 0000875582us-gaap:RevolvingCreditFacilityMemberntic:JPMorganChaseBankMember2024-02-29 0000875582us-gaap:StandbyLettersOfCreditMemberntic:JPMorganChaseBankMember2023-01-06 0000875582ntic:AllOtherMember2022-08-312023-02-28 0000875582ntic:EXCORMember2022-08-312023-02-28 0000875582ntic:EXCORAndAllOtherJointVentursMember2022-08-312023-02-28 0000875582ntic:AllOtherMember2022-08-312023-02-28 0000875582ntic:EXCORMember2022-08-312023-02-28 0000875582ntic:EXCORAndAllOtherJointVentursMember2022-08-312023-02-28 0000875582ntic:AllOtherMember2022-11-302023-02-28 0000875582ntic:EXCORMember2022-11-302023-02-28 0000875582ntic:EXCORAndAllOtherJointVentursMember2022-11-302023-02-28 0000875582ntic:AllOtherMember2022-11-302023-02-28 0000875582ntic:EXCORMember2022-11-302023-02-28 0000875582ntic:EXCORAndAllOtherJointVentursMember2022-11-302023-02-28 0000875582ntic:AllOtherMember2023-08-31 0000875582ntic:EXCORMember2023-08-31 0000875582ntic:EXCORAndAllOtherJointVentursMember2023-08-31 0000875582ntic:JointVenturesInFranceMember2023-08-31 0000875582ntic:EXCORMember2023-08-31 0000875582us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2023-08-31 0000875582ntic:AllOtherMember2023-08-312024-02-29 0000875582ntic:EXCORMember2023-08-312024-02-29 0000875582ntic:EXCORAndAllOtherJointVentursMember2023-08-312024-02-29 0000875582ntic:AllOtherMember2023-08-312024-02-29 0000875582ntic:EXCORMember2023-08-312024-02-29 0000875582ntic:EXCORAndAllOtherJointVentursMember2023-08-312024-02-29 0000875582ntic:AllOtherMember2023-11-302024-02-29 0000875582ntic:EXCORMember2023-11-302024-02-29 0000875582ntic:EXCORAndAllOtherJointVentursMember2023-11-302024-02-29 0000875582ntic:AllOtherMember2023-11-302024-02-29 0000875582ntic:EXCORMember2023-11-302024-02-29 0000875582ntic:EXCORAndAllOtherJointVentursMember2023-11-302024-02-29 0000875582ntic:AllOtherMember2024-02-29 0000875582ntic:EXCORMember2024-02-29 0000875582ntic:EXCORAndAllOtherJointVentursMember2024-02-29 0000875582ntic:AllOtherMember2024-02-29 0000875582ntic:EXCORMember2024-02-29 0000875582us-gaap:EquityMethodInvestmentNonconsolidatedInvesteeOrGroupOfInvesteesMember2024-02-29 0000875582us-gaap:CustomerRelationshipsMember2023-08-31 0000875582ntic:PatentsAndTrademarksMember2023-08-31 0000875582us-gaap:CustomerRelationshipsMember2024-02-29 0000875582ntic:PatentsAndTrademarksMember2024-02-29 00008755822022-08-30 0000875582us-gaap:NoncontrollingInterestMember2024-02-29 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-02-29 0000875582us-gaap:RetainedEarningsMember2024-02-29 0000875582us-gaap:AdditionalPaidInCapitalMember2024-02-29 0000875582us-gaap:CommonStockMember2024-02-29 0000875582us-gaap:NoncontrollingInterestMember2023-08-312024-02-29 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-08-312024-02-29 0000875582us-gaap:RetainedEarningsMember2023-08-312024-02-29 0000875582us-gaap:AdditionalPaidInCapitalMember2023-08-312024-02-29 0000875582us-gaap:CommonStockMember2023-08-312024-02-29 0000875582us-gaap:NoncontrollingInterestMember2023-08-30 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-08-30 0000875582us-gaap:RetainedEarningsMember2023-08-30 0000875582us-gaap:AdditionalPaidInCapitalMember2023-08-30 0000875582us-gaap:CommonStockMember2023-08-30 0000875582us-gaap:NoncontrollingInterestMember2023-02-28 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-02-28 0000875582us-gaap:RetainedEarningsMember2023-02-28 0000875582us-gaap:AdditionalPaidInCapitalMember2023-02-28 0000875582us-gaap:CommonStockMember2023-02-28 0000875582us-gaap:NoncontrollingInterestMember2022-08-312023-02-28 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-08-312023-02-28 0000875582us-gaap:RetainedEarningsMember2022-08-312023-02-28 0000875582us-gaap:AdditionalPaidInCapitalMember2022-08-312023-02-28 0000875582us-gaap:CommonStockMember2022-08-312023-02-28 0000875582us-gaap:NoncontrollingInterestMember2022-08-30 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-08-30 0000875582us-gaap:RetainedEarningsMember2022-08-30 0000875582us-gaap:AdditionalPaidInCapitalMember2022-08-30 0000875582us-gaap:CommonStockMember2022-08-30 0000875582us-gaap:NoncontrollingInterestMember2023-11-302024-02-29 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-11-302024-02-29 0000875582us-gaap:RetainedEarningsMember2023-11-302024-02-29 0000875582us-gaap:AdditionalPaidInCapitalMember2023-11-302024-02-29 0000875582us-gaap:CommonStockMember2023-11-302024-02-29 00008755822023-11-29 0000875582us-gaap:NoncontrollingInterestMember2023-11-29 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-11-29 0000875582us-gaap:RetainedEarningsMember2023-11-29 0000875582us-gaap:AdditionalPaidInCapitalMember2023-11-29 0000875582us-gaap:CommonStockMember2023-11-29 0000875582us-gaap:NoncontrollingInterestMember2022-11-302023-02-28 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-11-302023-02-28 0000875582us-gaap:RetainedEarningsMember2022-11-302023-02-28 0000875582us-gaap:AdditionalPaidInCapitalMember2022-11-302023-02-28 0000875582us-gaap:CommonStockMember2022-11-302023-02-28 00008755822022-11-29 0000875582us-gaap:NoncontrollingInterestMember2022-11-29 0000875582us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-11-29 0000875582us-gaap:RetainedEarningsMember2022-11-29 0000875582us-gaap:AdditionalPaidInCapitalMember2022-11-29 0000875582us-gaap:CommonStockMember2022-11-29 0000875582ntic:IntangibleAssetsExcludingPatentsAndTrademarksMember2023-08-31 0000875582ntic:IntangibleAssetsExcludingPatentsAndTrademarksMember2024-02-29 00008755822024-04-09
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended February 29, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________ to __________________

 

Commission File Number: 001-11038

____________________

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of incorporation or organization)

41-0857886

(I.R.S. Employer Identification No.)

 

4201 Woodland Road

P.O. Box 69

Circle Pines, Minnesota 55014

(Address of principal executive offices) (Zip Code)

 

(763) 225-6600
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.02 per share

NTIC

Nasdaq Global Market

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer

Smaller reporting company

  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ☒

 

As of April 9, 2024, there were 9,427,598 shares of common stock of the registrant outstanding.

 

 

 
 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

February 29, 2024

 

TABLE OF CONTENTS

 

Description

 

Page

PART IFINANCIAL INFORMATION

 

Item 1.

Financial Statements

 
 

Consolidated Balance Sheets as of February 29, 2024 (unaudited) and August 31, 2023 (audited) 

1

 

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended February 29, 2024 and February 28, 2023

2

 

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended February 29, 2024 and February 28, 2023

3

 

Consolidated Statements of Equity (unaudited) for the Three and Six Months Ended February 29, 2024 and February 28, 2023

4

 

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended February 29, 2024 and February 28, 2023

5

 

Notes to Consolidated Financial Statements (unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

PART IIOTHER INFORMATION

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

35

Item 6.

Exhibits

35

SIGNATURES

36

_________________

 

This quarterly report on Form 10-Q contains certain forward-looking statements that are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see Part I. Financial Information Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements.

 

i

 

 

 

_________________

 

As used in this report, references to NTIC, the Company, we, our or us, unless the context otherwise requires, refer to Northern Technologies International Corporation and its wholly-owned and majority-owned subsidiaries, all of which are consolidated on NTICs consolidated financial statements.

 

As used in this report, references to: (1) NTIC China refer to NTICs wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd.; (2) NTI Europe refer to NTICs wholly-owned subsidiary in Germany, NTIC Europe GmbH; (3) Zerust Mexico refer to NTICs wholly-owned subsidiary in Mexico, ZERUST-EXCOR MEXICO, S. de R.L. de C.V.; (4) Zerust India refer to NTICs wholly-owned subsidiary in India, HNTI Limited (formerly Harita-NTI Limited); and (5)NTI Asean refer to NTICs majority-owned holding company subsidiary, NTI Asean LLC, which holds investments in certain entities that operate in the Association of Southeast Asian Nations (ASEAN) region.

 

NTICs consolidated financial statements do not include the accounts of any of its joint ventures. Except as otherwise indicated, references in this report to NTICs joint ventures do not include any of NTICs wholly-owned or majority-owned subsidiaries.

 

As used in this report, references to EXCOR refer to NTICs joint venture in Germany, Excor Korrosionsschutz Technologien und Produkte GmbH.

 

All trademarks, trade names or service marks referred to in this report are the property of their respective owners.

 

 

 

 

 

ii

 
 

PART I - FINANCIAL INFORMATION

 

ITEM 1.         FINANCIAL STATEMENTS

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF FEBRUARY 29, 2024 (UNAUDITED)

AND AUGUST 31, 2023 (AUDITED)


 

   

February 29, 2024

   

August 31, 2023

 

ASSETS

               

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 4,835,031     $ 5,406,173  

Receivables:

               

Trade, excluding joint ventures, less allowance for doubtful accounts
of $533,000 as of February 29, 2024 and August 31, 2023

    14,800,592       15,645,130  

Trade, joint ventures

    891,929       187,912  

Fees for services provided to joint ventures

    1,227,711       1,296,594  

Dividend receivable from joint venture

    509,716       1,986,027  

Income taxes

          34,202  

Inventories

    12,538,859       13,096,489  

Prepaid expenses

    2,529,476       2,019,029  

Total current assets

  $ 37,333,314     $ 39,671,556  
                 

PROPERTY AND EQUIPMENT, NET

  $ 14,963,186     $ 14,065,354  

OTHER ASSETS:

               

Investments in joint ventures

    23,460,869       23,705,714  

Deferred income tax, net

    504,913       530,944  

Intangible asset, net

    5,926,423       6,159,485  

Goodwill

    4,782,376       4,782,376  

Operating lease right of use asset

    336,169       428,874  

Total other assets

    35,010,750       35,607,393  

Total assets

  $ 87,307,250     $ 89,344,303  
                 

LIABILITIES AND EQUITY

               

CURRENT LIABILITIES:

               

Line of credit

  $ 1,192,645     $ 3,600,000  

Term loan

    2,782,686       2,757,176  

Accounts payable

    6,487,718       6,056,329  

Income taxes payable

    13,798       13,053  

Accrued liabilities:

               

Payroll and related benefits

    1,425,274       2,305,400  

Other

    1,284,894       1,648,615  

Current portion of operating lease

    170,840       340,799  

Total current liabilities

  $ 13,357,855     $ 16,721,372  

LONG-TERM LIABILITIES:

               

Deferred income tax, net

    1,836,059       1,836,059  

Operating lease, less current portion

    165,329       88,075  

Total long-term liabilities

  $ 2,001,388     $ 1,924,134  
                 

COMMITMENTS AND CONTINGENCIES (Note 12)

           
                 

EQUITY:

               

Preferred stock, no par value; authorized 10,000 shares; none issued and outstanding

           

Common stock, $0.02 par value per share; authorized 15,000,000 shares as of
February 29, 2024 and August 31, 2023; issued and outstanding 9,427,598 and
9,424,101, respectively

    188,552       188,482  

Additional paid-in capital

    22,721,667       21,986,767  

Retained earnings

    52,281,250       51,004,427  

Accumulated other comprehensive loss

    (6,838,890 )     (6,823,403 )

Stockholders’ equity

    68,352,579       66,356,273  

Non-controlling interests

    3,595,428       4,342,524  

Total equity

    71,948,007       70,698,797  

Total liabilities and equity

  $ 87,307,250     $ 89,344,303  

 

See notes to consolidated financial statements.

 

 

1

 


NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023


 

   

Three Months Ended

   

Six Months Ended

 
   

February 29, 2024

   

February 28, 2023

   

February 29, 2024

   

February 28, 2023

 

NET SALES:

                               

Net sales

  $ 20,842,538     $ 18,270,825     $ 41,024,213     $ 38,223,591  

Cost of goods sold

    12,503,374       11,967,757       25,350,775       25,567,399  

Gross profit

    8,339,164       6,303,068       15,673,438       12,656,192  
                                 

JOINT VENTURE OPERATIONS:

                               

Equity in income from joint ventures

    1,177,990       1,128,731       2,280,231       2,318,135  

Fees for services provided to joint ventures

    1,303,059       1,252,746       2,552,017       2,434,551  

Total joint venture operations

    2,481,049       2,381,477       4,832,248       4,752,686  
                                 

OPERATING EXPENSES:

                               

Selling expenses

    4,134,894       3,595,717       7,820,952       7,103,151  

General and administrative expenses

    3,236,792       3,134,189       6,753,853       6,264,788  

Research and development expenses

    1,242,256       1,141,083       2,348,177       2,397,807  

Total operating expenses

    8,613,942       7,870,989       16,922,982       15,765,746  
                                 

OPERATING INCOME

    2,206,271       813,556       3,582,704       1,643,132  
                                 
                                 

INTEREST INCOME

    29,210       3,451       75,652       9,619  

INTEREST EXPENSE

    (77,758 )     (115,144 )     (188,896 )     (206,475 )

INCOME BEFORE INCOME TAX EXPENSE

    2,157,723       701,863       3,469,460       1,446,276  
                                 

INCOME TAX EXPENSE

    289,195       181,795       515,991       292,528  

NET INCOME

    1,868,528       520,068       2,953,469       1,153,748  
                                 

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

    167,359       108,571       356,779       240,009  

NET INCOME ATTRIBUTABLE TO NTIC

  $ 1,701,169     $ 411,497     $ 2,596,690     $ 913,739  
                                 

NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:

                               

Basic

  $ 0.18     $ 0.04     $ 0.28     $ 0.10  

Diluted

  $ 0.17     $ 0.04     $ 0.27     $ 0.09  
                                 

WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:

                               

Basic

    9,427,598       9,366,357       9,427,588       9,353,989  

Diluted

    9,723,671       9,747,461       9,715,121       9,745,166  
                                 

CASH DIVIDENDS DECLARED PER COMMON SHARE

  $ 0.07     $ 0.07     $ 0.14     $ 0.14  

 

See notes to consolidated financial statements.

 

2

 

 

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023


 

   

Three Months Ended

   

Six Months Ended

 
   

February 29, 2024

   

February 28, 2023

   

February 29, 2024

   

February 28, 2023

 

NET INCOME

  $ 1,868,528     $ 520,068     $ 2,953,469     $ 1,153,748  

OTHER COMPREHENSIVE (LOSS) INCOME – FOREIGN CURRENCY TRANSLATION ADJUSTMENT

    (345,605 )     534,713       (44,286 )     480,796  
                                 

COMPREHENSIVE INCOME

    1,522,923       1,054,781       2,909,183       1,634,544  

COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

    (144,183 )     (111,958 )     (327,980 )     (250,183 )

COMPREHENSIVE INCOME ATTRIBUTABLE TO NTIC

  $ 1,378,740     $ 942,823     $ 2,581,203     $ 1,384,361  

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

3

 

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023


 

   

STOCKHOLDERS’ EQUITY – THREE MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023

                 
                                   

Accumulated

                 
                   

Additional

           

Other

   

Non-

         
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Controlling

   

Total

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Interests

   

Equity

 
                                                         

BALANCE AT NOVEMBER 30, 2022

    9,366,357     $ 187,327     $ 20,721,235     $ 50,563,210     $ (7,305,836 )   $ 3,707,259     $ 67,873,195  

Stock option expense

                337,486                         337,486  

Dividends paid to stockholders

                      (655,645 )                 (655,645 )

Dividend received by non-controlling interest

                                  (375,574 )     (375,574 )

Net income

                      411,497             108,571       520,068  

Other comprehensive income

                            531,326       3,387       534,713  

BALANCE AT FEBRUARY 28, 2023

    9,366,357     $ 187,327     $ 21,058,721     $ 50,319,062     $ (6,774,510 )   $ 3,443,643     $ 68,234,243  
                                                         

BALANCE AT NOVEMBER 30, 2023

    9,427,598     $ 188,552     $ 22,377,726     $ 51,240,015     $ (6,516,461 )   $ 3,726,321     $ 71,016,153  

Stock option expense

                343,941                         343,941  

Dividends paid to stockholders

                      (659,934 )                 (659,934 )

Dividend received by non-controlling interest

                                  (275,076 )     (275,076 )

Net income

                      1,701,169             167,359       1,868,528  

Other comprehensive loss

                            (322,429 )     (23,176 )     (345,605 )

BALANCE AT FEBRUARY 29, 2024

    9,427,598     $ 188,552     $ 22,721,667     $ 52,281,250     $ (6,838,890 )   $ 3,595,428     $ 71,948,007  

 

     

STOCKHOLDERS’ EQUITY – SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023

                 
                                     

Accumulated

                 
                     

Additional

           

Other

   

Non-

         
     

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Controlling

   

Total

 
     

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Interests

   

Equity

 
                                                           

BALANCE AT AUGUST 31, 2022

      9,232,483     $ 184,650     $ 19,939,131     $ 50,716,613     $ (7,245,132 )   $ 3,649,034     $ 67,244,296  

Stock options exercised

      130,254       2,605       413,958                         416,563  

Stock issued for employee stock purchase plan

      3,620       72       38,624                         38,696  

Stock option expense

                  667,008                         667,008  

Dividends paid to stockholders

                        (1,311,290 )                 (1,311,290 )

Dividend received by non-controlling interest

                                    (455,574 )     (455,574 )

Net income

                        913,739             240,009       1,153,748  

Other comprehensive income

                              470,622       10,174       480,796  

BALANCE AT FEBRUARY 28, 2023

      9,366,357     $ 187,327     $ 21,058,721     $ 50,319,062     $ (6,774,510 )   $ 3,443,643     $ 68,234,243  
                                                           

BALANCE AT AUGUST 31, 2023

      9,424,102     $ 188,482     $ 21,986,767     $ 51,004,426     $ (6,823,403 )   $ 4,342,524     $ 70,698,796  

Stock issued for employee stock purchase plan

      3,496       70       40,026                         40,096  

Stock option expense

                  694,874                         694,874  

Dividends paid to stockholders

                        (1,319,866 )                 (1,319,866 )

Dividend received by non-controlling interest

                                    (1,075,076 )     (1,075,076 )

Net income

                        2,596,690             356,779       2,953,469  

Other comprehensive loss

                              (15,487 )     (28,799 )     (44,286 )

BALANCE AT FEBRUARY 29, 2024

      9,427,598     $ 188,552     $ 22,721,667     $ 52,281,250     $ (6,838,890 )   $ 3,595,428     $ 71,948,007  

 

See notes to consolidated financial statements.

 

4

 

 

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023 


 

   

Six Months Ended

 
   

February 29,
2024

   

February 28,
2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 2,953,469     $ 1,153,748  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Stock-based compensation

    694,874       667,008  

Depreciation expense

    597,403       488,838  

Amortization expense

    295,226       294,873  

Loss on disposable of assets

          (8,534 )

Equity in income from joint ventures

    (2,280,231 )     (2,318,135 )

Dividends received from joint ventures

    2,391,251       3,464,736  

Deferred income taxes

    28,088       (70,166 )

Changes in current assets and liabilities:

               

Receivables:

               

Trade, excluding joint ventures

    900,127       (338,014 )

Trade, joint ventures

    (704,017 )     (917,073 )

Fees for services provided to joint ventures

    68,883       656,210  

Dividends receivable from joint venture

    1,986,027        

Income taxes

    (475,514 )     (313,270 )

Inventories

    568,467       996,522  

Prepaid expenses and other

    (551,739 )     259,712  

Accounts payable

    417,650       (1,293,897 )

Income tax payable

    789       (29,503 )

Accrued liabilities

    (1,247,746 )     (488,221 )

Net cash provided by operating activities

    5,643,007       2,204,834  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Proceeds from the sale of available for sale securities

          5,590  

Proceeds from sale of property and equipment

          13,000  

Purchases of property and equipment

    (1,443,762 )     (1,871,903 )

Investments in patents

    (62,165 )     (70,023 )

Net cash used in investing activities

    (1,505,927 )     (1,923,336 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Net (payments) proceeds from line of credit

    (2,407,355 )     1,200,000  

Dividends paid on NTIC common stock

    (1,319,866 )     (1,311,290 )

Proceeds from the exercise of stock options

          416,563  

Dividends received by non-controlling interest

    (1,075,076 )     (455,574 )

Proceeds from employee stock purchase plan

    40,096       38,696  

Net cash used in financing activities

    (4,762,201 )     (111,605 )
                 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

    53,978       (52,672 )
                 
                 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

    (571,143 )     117,221  

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    5,406,174       5,333,890  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 4,835,031     $ 5,451,111  

 

See notes to consolidated financial statements.

 

5

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


 

 

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, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of February 29, 2024 and August 31, 2023 and the results of the Company’s operations for the three and six months ended February 29, 2024 and February 28, 2023, the changes in stockholders’ equity for the three and six months ended February 29, 2024 and February 28, 2023, and the Company’s cash flows for the six months ended February 29, 2024 and February 28, 2023, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

 

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2023. These consolidated financial statements also should be read in conjunction with the “Managements Discussion and Analysis of Financial Condition and Results of Operations” section appearing in this report.

 

Operating results for the three and six months ended February 29, 2024 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2024.

 

The Company evaluates events occurring after the date of the consolidated financial statements, through the date the consolidated financial statements were available to be issued, requiring recording or disclosure in the consolidated financial statements.

 

 

2.          ACCOUNTING PRONOUNCEMENTS

 

Recently Adopted Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19 and in April 2019, issued ASU No. 2019-04 and in May 2019, issued ASU No. 2019-05, and in November 2019, issued ASU No. 2019-11, which amended the standard. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company adopted this pronouncement on September 1, 2023 which did not have a material impact on the Company’s consolidated financial position or operating results.

 

6

 

 

3.         INVENTORIES

 

Inventories consisted of the following:

 

   

February 29, 2024

   

August 31, 2023

 

Production materials

  $ 4,610,217     $ 4,960,355  

Finished goods

    7,928,642       8,136,134  
    $ 12,538,859     $ 13,096,489  

 

 

4.         PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following:

 

   

February 29, 2024

   

August 31, 2023

 

Land

  $ 496,965     $ 496,965  

Buildings and improvements

    18,752,517       17,250,392  

Machinery and equipment

    6,057,366       5,984,364  
      25,306,848       23,731,721  

Less accumulated depreciation

    (10,343,662 )     (9,666,367 )
    $ 14,963,186     $ 14,065,354  

 

Depreciation expense was $290,393 and $597,403 for the three and six months ended February 29, 2024, respectively, compared to $225,962 and $488,838 for the three and six months ended February 28, 2023, respectively.

 

 

5.         INTANGIBLE ASSETS, NET

 

Intangible assets, net consisted of the following:

 

   

As of February 29, 2024

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

 

Patents and trademarks

  $ 3,401,882     $ (2,764,626 )   $ 637,256  

Customer relationships

    6,347,000       (1,057,833 )     5,289,167  

Total intangible assets, net

  $ 9,748,882     $ (3,822,459 )   $ 5,926,423  
                         
   

As of August 31, 2023

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

 

Patents and trademarks

  $ 3,339,717     $ (2,680,965 )   $ 658,752  

Customer relationships

    6,347,000       (846,267 )     5,500,733  

Total intangible assets, net

  $ 9,686,717     $ (3,527,232 )   $ 6,159,485  

 

7

 

Amortization expense related to intangible assets was $147,571 and $295,226 for the three and six months ended February 29, 2024, respectively, compared to $147,062 and $294,873 for the three and six months ended February 28, 2023, respectively.

 

As of February 29, 2024, future amortization expense related to intangible assets for each of the next five fiscal years and thereafter is estimated as follows:

 

Remainder of fiscal 2024

  $ 409,890  

Fiscal 2025

    543,721  

Fiscal 2026

    517,990  

Fiscal 2027

    492,221  

Fiscal 2028

    479,012  

Thereafter

    3,483,589  

Total

  $ 5,926,423  

 

 

6.         INVESTMENTS IN JOINT VENTURES

 

The consolidated financial statements of the Company’s foreign joint ventures are initially prepared using the accounting principles accepted in the respective joint ventures’ countries of domicile. Amounts related to foreign joint ventures reported in the below tables and the accompanying consolidated financial statements have subsequently been adjusted to conform with U.S. GAAP in all material respects. All material profits on sales recorded that remain on the consolidated balance sheet from the Company to its joint ventures and from joint ventures to other joint ventures have been eliminated for financial reporting purposes.

 

Financial information from the audited and unaudited financial statements of the Company’s joint venture in Germany, Excor Korrosionsschutz – Technologien und Produkte GmbH (EXCOR), and all the Company’s other joint ventures are summarized as follows:

 

   

As of February 29, 2024

 
   

Total

   

EXCOR

   

All Other

 

Current assets

  $ 56,241,025     $ 26,949,248     $ 29,291,777  

Total assets

    60,974,536       29,383,315       31,591,221  

Current liabilities

    13,269,055       2,933,713       10,335,342  

Noncurrent liabilities

    399,445             399,445  

Joint ventures’ equity

    47,306,036       26,449,601       20,856,435  

NTIC’s share of joint ventures’ equity

    23,460,869       13,224,802       10,236,067  

NTIC’s share of joint ventures’ undistributed earnings

    23,645,685       14,260,800       9,384,885  

 

   

Three Months Ended February 29, 2024

 
   

Total

   

EXCOR

   

All Other

 

Net sales

  $ 23,479,980     $ 9,163,636     $ 14,316,344  

Gross profit

    10,139,080       4,829,931       5,309,149  

Net income

    2,353,152       1,378,844       974,308  

NTIC’s share of equity in income from joint ventures

    1,177,990       690,882       487,109  

NTIC’s dividends received from joint ventures

    2,020,147       1,624,950       395,197  
                         

 

   

Six Months Ended February 29, 2024

 
   

Total

   

EXCOR

   

All Other

 

Net sales

  $ 47,040,641     $ 17,584,596     $ 29,456,045  

Gross profit

    20,242,880       9,205,006       11,037,874  

Net income

    4,557,634       2,405,751       2,151,883  

NTIC’s share of equity in income from joint ventures

    2,280,231       1,204,335       1,075,896  

NTIC’s dividends received from joint ventures

    2,391,251       1,624,950       766,301  

 

8

 

 

   

As of August 31, 2023

 
   

Total

   

EXCOR

   

All Other

 

Current assets

  $ 55,339,662     $ 27,862,458     $ 27,477,204  

Total assets

    59,729,348       30,054,277       29,675,071  

Current liabilities

    11,464,247       2,687,064       8777,183  

Noncurrent liabilities

    323,762             323,762  

Joint ventures’ equity

    47,941,339       27,367,213       20,574,126  

NTIC’s share of joint ventures’ equity

    23,705,714       13,683,608       10,022,106  

NTIC’s share of joint ventures’ undistributed earnings

    20,493,861       12,075,524       8,418,337  

 

   

Three Months Ended February 28, 2023

 
   

Total

   

EXCOR

   

All Other

 

Net sales

  $ 25,482,590     $ 9,708,482     $ 15,774,108  

Gross profit

    10,035,811       4,733,435       5,302,376  

Net income

    1,969,046       1,365,170       603,876  

NTIC’s share of equity in income from joint ventures

    1,128,731       676,800       451,931  

NTIC’s dividends received from joint ventures

    422,048             422,048  

 

   

Six Months Ended February 28, 2023

 
   

Total

   

EXCOR

   

All Other

 

Net sales

  $ 50,212,879     $ 19,854,403     $ 30,358,476  

Gross profit

    19,729,379       9,453,477       10,275,902  

Net income

    4,615,954       3,107,457       1,508,497  

NTIC’s share of equity in income from joint ventures

    2,318,135       1,547,944       770,191  

NTIC’s dividends received from joint ventures

    3,464,736       2,459,500       1,005,236  

 

 

7.         CORPORATE DEBT

 

On January 6, 2023, the Company entered into a Credit Agreement (the Credit Agreement) with JPMorgan Chase Bank, N.A. (JPM), which provides the Company with a senior secured revolving line of credit (the Credit Facility) of up to $10.0 million, which includes a $5.0 million sublimit for standby letters of credit. Borrowings of $1,192,645 and $3,600,000 were outstanding under the Credit Facility as of February 29, 2024 and August 31, 2023, respectively.

 

Unless terminated earlier, the principal amount under the Credit Facility, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on the maturity date. On January 5, 2024, the Company and JPM renewed its Credit Agreement to extend the maturity date of the Credit Facility from January 6, 2024 to January 6, 2025. All other terms of the Credit Facility and the Credit Agreement remain the same.

 

Borrowings under the Credit Agreement bear interest at a floating rate, at the option of the Company, equal to either the CB Floating Rate or the Adjusted SOFR Rate. The term “CB Floating Rate” means the greater of the Prime Rate in the United States or 2.50%. The term “Adjusted SOFR Rate” means the term secured overnight financing rate for either one, three or six months (depending on the interest period selected by the Company) plus 0.10% per annum. With respect to any borrowings using an Adjusted SOFR Rate, there is an applicable margin of 2.15% applied per annum. There is no applicable margin with respect to borrowings using a CB Floating Rate.

 

To secure the Credit Agreement, the Company assigned JPM a continuing security interest in all of its right, title and interested in collateral made up for the assets of the Company.

 

The Credit Agreement contains customary affirmative and negative covenants, including, among other matters, limitations on the Company’s ability to incur additional debt, grant liens, engage in certain business operations and transactions, make certain investments, modify its organizational documents or form any new subsidiaries, subject to certain exceptions. Further, the Credit Agreement contains a negative covenant that restricts the ability of the Company to redeem or repurchase its common stock or pay dividends if the result of which would cause an event of default under the Credit Agreement. The Credit Agreement also requires the Company to maintain a Fixed Charge Coverage Ratio of at least 1.25 to 1.00. The term “Fixed Charge Coverage Ratio” means the ratio, computed for the Company on a consolidated basis, of net income plus income tax expense, plus amortization expense, plus depreciation expense, plus interest expense, and plus dividends received from joint ventures, minus unfinanced capital expenditures and equity in income from joint ventures, all computed for the twelve month period then ending, to scheduled principal payments made, plus scheduled finance lease payments made, plus interest expense paid, plus income tax expense paid, and plus cash distributions and dividends paid, all computed for the same twelve month period then ending. The Company was in compliance with all covenants as of February 29, 2024.

 

9

 

The Credit Agreement also contains customary events of default, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, breach of any financial covenant and change of control. Upon the occurrence and during the continuance of any event of default, JPM may accelerate the payment of the obligations thereunder and exercise various other customary default remedies.

 

On each of April 10, 2023 and May 30, 2023, the Company’s wholly-owned subsidiary in China, NTIC China, entered into a loan agreement with China Construction Bank Corporation. Each term loan provided NTIC China with a RMB 10,000,000 (USD $1.45 million). Each of the term loans matures after one year with the principal due at that time, after which an extension of the loan agreement is required. Both term loans have an annual interest rate of 3.25% with interest due monthly. Both term loans are secured by an office building owned by NTIC China and the loan agreements contain certain financial and other covenants. The Company was in compliance with the covenants as of February 29, 2024. The current outstanding balance for both term loans was USD $2,782,686 as of February 29, 2024 and USD $2,757,176 as of August 31, 2023.

 

 

8.         STOCKHOLDERS EQUITY

 

During the six months ended February 29, 2024, the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of the Company’s common stock:

 

Declaration Date

 

Amount

 

Record Date

 

Payable Date

October 18, 2023

  $ 0.07  

November 1, 2023

 

November 15, 2023

January 17, 2024

  $ 0.07  

January 31, 2024

 

February 14, 2024

 

During the six months ended February 28, 2023, the Company’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of the Company’s common stock:

 

Declaration Date

 

Amount

 

Record Date

 

Payable Date

October 20, 2022

  $ 0.07  

November 3, 2022

 

November 16, 2022

January 20, 2023

  $ 0.07  

February 1, 2023

 

February 15, 2023

 

During the six months ended February 29, 2024 and February 28, 2023, the Company repurchased no shares of its common stock.

 

The Company issued 3,496 and 3,620 shares of common stock on September 1, 2023 and 2022, respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP). The ESPP is compensatory for financial reporting purposes. As of February 29, 2024, 58,538 shares of common stock remained available for sale under the ESPP.

 

10

 

 

9.         NET INCOME PER COMMON SHARE

 

Basic net income per common 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.

 

The following is a reconciliation of the net income per share computation for the three and six months ended February 29, 2024 and February 28, 2023:

 

   

Three Months Ended

   

Six Months Ended

 

Numerator:

 

February 29, 2024

   

February 28, 2023

   

February 29, 2024

   

February 28, 2023

 

Net income attributable to NTIC

  $ 1,701,169     $ 411,497     $ 2,596,690     $ 913,739  

Denominator:

                               

Basic – weighted shares outstanding

    9,427,598       9,366,357       9,427,588       9,353,989  

Weighted shares assumed upon exercise of stock options

    296,073       381,104       287,533       391,177  

Diluted – weighted shares outstanding

    9,723,671       9,747,461       9,715,121       9,745,166  

Basic net income per share:

  $ 0.18     $ 0.04     $ 0.28     $ 0.10  

Diluted net income per share:

  $ 0.17     $ 0.04     $ 0.27     $ 0.09  

 

The dilutive impact summarized above relates to the periods when the average market price of the Company’s common stock exceeded the exercise price of the potentially dilutive option securities granted. Net income per common share was based on the weighted average number of common shares outstanding during the periods when computing basic net income per share. When dilutive, stock options are included as equivalents using the treasury stock market method when computing the diluted net income per share. Excluded from the computation of diluted net income per share for the three and six months ended February 29, 2024 were options outstanding to purchase 580,869 shares of common stock. Excluded from the computation of diluted net income per share for the three and six months ended February 28, 2023, were options outstanding to purchase 305,514 shares of common stock.

 

 

10.         STOCK-BASED COMPENSATION

 

A summary of stock option activities under the Northern Technologies International Corporation 2024 Stock Incentive Plan (the 2024 Plan), the Northern Technologies International Corporation Amended and Restated 2019 Stock Incentive Plan (the 2019 Plan) and the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) is as follows:

 

11

 

 

   

Number of Options

Outstanding

   

Weighted Average

Exercise Price

 

Outstanding as of August 31, 2023

    1,557,131     $ 11.08  

Granted

    269,845     $ 13.25  

Exercised

           

Cancelled

           

Outstanding as of February 29, 2024

    1,826,976     $ 11.40  

 

The weighted average per share fair value of options granted during the six months ended February 29, 2024 and February 28, 2023 was $5.04 and $4.75, respectively. The weighted average remaining contractual life of the options outstanding as of February 29, 2024 and February 28, 2023 was 6.31 years and 6.42 years, respectively.

 

The Company recognized compensation expense of $694,874 and $667,008 during the six months ended February 29, 2024 and February 28, 2023, respectively. As of February 29, 2024, there was $1,693,930 of unrecognized compensation expense. The amount is expected to be recognized over a period of 2.5 years.

 

 

11.         SEGMENT AND GEOGRAPHIC INFORMATION

 

Segment Information

 

The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s business is organized into two reportable segments: ZERUST® and Natur-Tec®. The Company has been selling its proprietary ZERUST® rust and corrosion inhibiting products and services to the automotive, electronics, electrical, mechanical, military and retail consumer markets for almost 50 years and, more recently, has targeted and expanded into the oil and gas industry. The Company also sells a portfolio of bio-based and compostable (fully biodegradable) polymer resins and finished products under the Natur-Tec® brand.

 

The following table sets forth the Company’s net sales for the three and six months ended February 29, 2024 and February 28, 2023 by segment:

 

   

Three Months Ended

   

Six Months Ended

 
   

February 29, 2024

   

February 28, 2023

   

February 29, 2024

   

February 28, 2023

 

ZERUST® net sales

  $ 15,218,095     $ 14,458,747     $ 30,623,840     $ 29,828,748  

Natur-Tec® net sales

    5,624,443       3,812,078       10,400,373       8,394,843  

Total net sales

  $ 20,842,538     $ 18,270,825     $ 41,024,213     $ 38,223,591  

 

The following table sets forth the Company’s cost of goods sold for the three and six months ended February 29, 2024 and February 28, 2023 by segment:

 

   

Three Months Ended

   

Six Months Ended

 
   

February 29, 2024

   

% of Product Sales*

   

February 28, 2023

   

% of Product Sales*

   

February 29, 2024

   

% of Product Sales*

   

February 28, 2023

   

% of Product Sales*

 

Direct cost of goods sold

                                                               

ZERUST®

  $ 8,082,163       53.1 %   $ 8,115,451       56.1 %   $ 16,826,187       54.9 %   $ 17,294,705       58.0 %

Natur-Tec®

    3,568,719       63.5 %     2,931,036       76.9 %     6,797,302       65.4 %     6,501,709       77.4 %

Indirect cost of goods sold

    852,492             921,270             1,727,286             1,770,985        

Total net cost of goods sold

  $ 12,503,374             $ 11,967,757             $ 25,350,775             $ 25,567,399          

 


*         The percent of segment sales is calculated by dividing the direct cost of goods sold for each individual segment category by the net sales for each segment category.

 

12

 

The Company utilizes product net sales and direct and indirect cost of goods sold for each product in reviewing the financial performance of a product type. Further allocation of Company expenses or assets, aside from amounts presented in the tables above, is not utilized in evaluating product performance, nor does such allocation occur for internal financial reporting.

 

Geographic Information

 

Net sales by geographic location for the three and six months ended February 29, 2024 and February 28, 2023 were as follows:

 

   

Three Months Ended

   

Six Months Ended

 
   

February 29, 2024

   

February 28, 2023

   

February 29, 2024

   

February 28, 2023

 

Inside the U.S.A. to unaffiliated customers

  $ 6,840,855     $ 6,750,997     $ 14,073,236     $ 14,229,158  

Outside the U.S.A. to:

                               

Joint ventures in which the Company is a shareholder directly and indirectly

    611,926       1,529,763       1,463,377       2,163,228  

Unaffiliated customers

    13,389,757       9,990,065       25,487,600       21,831,205  
    $ 20,842,538     $ 18,270,825     $ 41,024,213     $ 38,223,591  

 

Net sales by geographic location are based on the location of the customer.

 

Fees for services provided to joint ventures by geographic location as a percentage of total fees for services provided to joint ventures during the three and six months ended February 29, 2024 and February 28, 2023 were as follows: