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NORTHERN TECHNOLOGIES INTERNATIONAL CORP - Quarter Report: 2023 February (Form 10-Q)

ntic20230228_10q.htm
 

 

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 28, 2023

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 11, 2023, there were 9,366,358 shares of common stock of the registrant outstanding.

 

 

 

 

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION

FORM 10-Q

February 28, 2023

 

TABLE OF CONTENTS

 

Description

Page
     

PART IFINANCIAL INFORMATION

 
     

Item 1.

Financial Statements

1
 

Consolidated Balance Sheets as of February 28, 2023 (unaudited) and August 31, 2022 (audited) 

1
 

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended February 28, 2023 and 2022

2
 

Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended February 28, 2023 and 2022

3
 

Consolidated Statements of Equity (unaudited) for the Three and Six Months Ended February 28, 2023 and 2022

4
 

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended February 28, 2023 and 2022

5
 

Notes to Consolidated Financial Statements (unaudited)

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31
     

PART IIOTHER INFORMATION

 
   

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34
     

SIGNATURES

35

 

_________________

 

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 effective as of September 1, 2021, 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 28, 2023 (UNAUDITED) AND AUGUST 31, 2022 (AUDITED)


 

   

February 28, 2023

   

August 31, 2022

 
ASSETS                
CURRENT ASSETS:                

Cash and cash equivalents

  $ 5,451,111     $ 5,333,890  

Available for sale securities

          5,590  
Receivables:                

Trade, excluding joint ventures, less allowance for doubtful accounts of $439,000 as of February 28, 2023 and August 31, 2022

    14,675,017       14,136,930  

Trade, joint ventures

    1,614,934       697,861  

Fees for services provided to joint ventures

    1,108,907       1,765,117  

Income taxes

    313,270        

Inventories

    15,180,239       16,341,729  

Prepaid expenses

    1,833,124       1,953,764  

Total current assets

  $ 40,176,602     $ 40,234,881  

PROPERTY AND EQUIPMENT, NET

  $ 13,445,966     $ 12,170,493  
OTHER ASSETS:                

Investments in joint ventures

    21,522,496       21,814,754  

Intangible asset, net

    6,409,028       6,633,878  

Goodwill

    4,782,376       4,782,376  

Operating lease right of use asset

    374,037       557,571  

Total other assets

    33,087,937       33,788,579  

Total assets

  $ 86,710,505     $ 86,193,953  
                 
LIABILITIES AND EQUITY                
CURRENT LIABILITIES:                

Accounts payable

  $ 6,307,443     $ 7,796,494  

Line of credit

    7,100,000       5,900,000  

Income taxes payable

          30,742  
Accrued liabilities:                

Payroll and related benefits

    1,304,717       2,297,543  

Other

    1,292,950       667,292  

Current portion of operating leases

    173,179       373,330  

Total current liabilities

  $ 16,178,289     $ 17,065,401  
LONG-TERM LIABILITIES:                

Deferred income tax, net

    1,623,364       1,700,015  

Operating leases, less current portion

    200,858       184,241  

Total long-term liabilities

  $ 1,824,222     $ 1,884,256  
                 
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 28, 2023 and August 31, 2022; issued and outstanding 9,366,357 and 9,232,483, respectively

    187,327       184,650  

Additional paid-in capital

    21,058,721       19,939,131  

Retained earnings

    50,792,813       50,716,613  

Accumulated other comprehensive loss

    (6,774,510 )     (7,245,132 )

Stockholders’ equity

    65,264,351       63,595,262  

Non-controlling interests

    3,443,643       3,649,034  

Total equity

    68,707,994       67,244,296  

Total liabilities and equity

  $ 86,710,505     $ 86,193,953  

 

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 28, 2023 AND 2022


 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 
   

2023

   

2022

   

2023

   

2022

 
NET SALES:                                

Net sales

  $ 18,270,825     $ 16,748,639     $ 38,223,591     $ 34,942,052  

Cost of goods sold

    11,867,639       11,764,304       25,467,281       24,254,787  

Gross profit

    6,403,186       4,984,335       12,756,310       10,687,265  
                                 
JOINT VENTURE OPERATIONS:                                

Equity in income from joint ventures

    1,128,731       922,832       2,318,135       2,297,581  

Fees for services provided to joint ventures

    1,252,746       1,246,909       2,434,551       2,505,767  

Total joint venture operations

    2,381,477       2,169,741       4,752,686       4,803,348  
                                 
OPERATING EXPENSES:                                

Selling expenses

    3,418,717       2,971,391       6,926,151       6,209,149  

General and administrative expenses

    3,084,189       2,518,788       6,214,788       5,115,135  

Research and development expenses

    994,450       1,218,674       2,251,174       2,454,495  

Total operating expenses

    7,497,356       6,708,853       15,392,113       13,778,779  
                                 

OPERATING INCOME

    1,287,307       445,223       2,116,883       1,711,834  
                                 

REMEASUREMENT GAIN ON ACQUISITION OF EQUITY METHOD INVESTEE

                      3,951,550  

INTEREST INCOME

    3,451       9,909       9,619       20,852  

INTEREST EXPENSE

    (115,144 )     (7,404 )     (206,475 )     (10,295 )

INCOME BEFORE INCOME TAX EXPENSE

    1,175,614       447,728       1,920,027       5,673,941  
                                 

INCOME TAX EXPENSE

    181,795       151,743       292,528       656,123  

NET INCOME

    993,819       295,985       1,627,499       5,017,818  
                                 

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

    108,571       113,138       240,009       341,212  

NET INCOME ATTRIBUTABLE TO NTIC

  $ 885,248     $ 182,847     $ 1,387,490     $ 4,676,606  
                                 
NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:                                

Basic

  $ 0.10     $ 0.02     $ 0.15     $ 0.51  

Diluted

  $ 0.09     $ 0.02     $ 0.14     $ 0.48  
                                 
WEIGHTED AVERAGE COMMON SHARES ASSUMED OUTSTANDING:                                

Basic

    9,366,357       9,214,817       9,353,989       9,211,858  

Diluted

    9,747,461       9,683,426       9,745,166       9,736,060  
                                 

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 28, 2023 AND 2022


 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 
   

2023

   

2022

   

2023

   

2022

 

NET INCOME

  $ 993,819     $ 295,985     $ 1,627,499     $ 5,017,818  

OTHER COMPREHENSIVE LOSS – FOREIGN CURRENCY TRANSLATION ADJUSTMENT

    534,713       26,295       480,796       (382,769 )
                                 

COMPREHENSIVE INCOME

    1,528,532       322,280       2,108,295       4,635,049  

COMPREHENSIVE LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

    (111,958 )     (136,037 )     (250,183 )     (292,102 )

COMPREHENSIVE INCOME ATTRIBUTABLE TO NTIC

  $ 1,640,490     $ 458,317     $ 2,358,478     $ 4,927,151  

 

 

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 28, 2023 AND 2022


 

   

STOCKHOLDERS EQUITY THREE MONTHS ENDED FEBRUARY 28, 2023 AND 2022

                 
                                   

Accumulated

                 
                   

Additional

           

Other

   

Non-

         
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Controlling

   

Total

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Interests

   

Equity

 
                                                         

BALANCE AT NOVEMBER 30, 2021

    9,203,446     $ 184,069     $ 19,146,510     $ 50,823,730     $ (3,862,085 )   $ 3,338,620     $ 69,630,844  

Stock options exercised

    18,071       361       (361 )                        

Stock option expense

                232,883                         232,883  

Dividends paid to stockholders

                      (645,511 )                 (645,511 )

Dividend received by non-controlling interest

                                  (102,729 )     (102,729 )

Net income

                      182,847             113,138       295,985  

Other comprehensive income

                            3,396       22,899       26,295  

BALANCE AT FEBRUARY 28, 2022

    9,221,517     $ 184,430     $ 19,379,032     $ 50,361,066     $ (3,858,689 )   $ 3,371,928     $ 69,437,767  
                                                         

BALANCE AT NOVEMBER 30, 2022

    9,336,357     $ 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

                      885,248             108,571       993,819  

Other comprehensive income

                            531,326       3,387       534,713  

BALANCE AT FEBRUARY 28, 2023

    9,336,357     $ 187,327     $ 21,058,721     $ 50,792,813     $ (6,774,510 )   $ 3,443,643     $ 68,707,994  

 

 

   

STOCKHOLDERS EQUITY SIX MONTHS ENDED FEBRUARY 28, 2023 AND 2022

                 
                                   

Accumulated

                 
                   

Additional

           

Other

   

Non-

         
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Controlling

   

Total

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Interests

   

Equity

 
                                                         

BALANCE AT AUGUST 31, 2021

    9,184,811     $ 183,696     $ 18,736,268     $ 46,973,092     $ (3,525,030 )   $ 3,382,555     $ 65,750,581  

Stock options exercised

    34,071       681       138,519                         139,200  

Stock issued for employee stock purchase plan

    2,635       53       38,479                         38,532  

Stock option expense

                465,766                         465,766  

Dividends paid to stockholders

                      (1,288,632 )                 (1,288,632 )

Dividend received by non-controlling interest

                                  (302,729 )     (302,729 )

Net income

                      4,676,606             341,212       5,017,818  

Other comprehensive loss

                            (333,659 )     (49,110 )     (382,769 )

BALANCE AT FEBRUARY 28, 2022

    9,221,517     $ 184,430     $ 19,379,032     $ 50,361,066     $ (3,858,689 )   $ 3,371,928     $ 69,437,767  
                                                         

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

                      1,387,490             240,009       1,627,499  

Other comprehensive income

                            470,622       10,174       480,796  

BALANCE AT FEBRUARY 28, 2023

    9,336,357     $ 187,327     $ 21,058,721     $ 50,792,813     $ (6,774,510 )   $ 3,443,643     $ 68,707,994  

 

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 28, 2023 AND 2022


 

   

Six Months Ended February 28,

 
   

2023

   

2022

 
CASH FLOWS FROM OPERATING ACTIVITIES:                

Net income

  $ 1,627,499     $ 5,017,818  
Adjustments to reconcile net income to net cash provided by operating activities:                

Stock-based compensation

    667,008       465,766  

Depreciation expense

    488,838       430,991  

Amortization expense

    294,873       315,631  

Remeasurement gain on acquisition of equity method investee

          (3,951,550 )

Loss on disposal of assets

    (8,534 )      

Equity in income from joint ventures

    (2,318,135 )     (2,297,581 )

Dividends received from joint ventures

    3,464,736       5,362,636  

Deferred income taxes

    (70,166 )     139,338  
Changes in current assets and liabilities:                
Receivables:                

Trade, excluding joint ventures

    (911,765 )     321,322  

Trade, joint ventures

    (917,073 )     (281,153 )

Fees for services provided to joint ventures

    656,210       426,425  

Income taxes

    (313,270 )     (286,458 )

Inventories

    996,522       (990,628 )

Prepaid expenses and other

    259,712       (1,136,130 )

Accounts payable

    (1,293,897 )     674,147  

Income tax payable

    (29,503 )     (376,544 )

Accrued liabilities

    (388,221 )     (1,715,302 )

Net cash provided by operating activities

    2,204,834       2,118,728  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                

Acquisition of Zerust India business, net of cash acquired

          (5,062,003 )

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

    (1,871,903 )     (618,533 )

Investments in patents

    (70,023 )     (112,297 )

Net cash used in investing activities

    (1,923,336 )     (5,792,833 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                

Net proceeds from line of credit

    1,200,000       4,200,000  

Dividends paid on NTIC common stock

    (1,311,290 )     (1,288,632 )

Proceeds from the exercise of stock options

    416,563       139,200  

Dividends received by non-controlling interest

    (455,574 )     (302,729 )

Proceeds from employee stock purchase plan

    38,696       38,532  

Net cash (used in) provided by financing activities

    (111,605 )     2,786,371  
                 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

    (52,672 )     694,904  
                 
                 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    117,221       (192,830 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    5,333,890       7,680,641  
                 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 5,451,111     $ 7,487,811  

 

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 28, 2023 and August 31, 2022 and the results of the Company’s operations for the three and six months ended February 28, 2023 and 2022, the changes in stockholders’ equity for the three and six months ended February 28, 2023 and 2022, and the Company’s cash flows for the six months ended February 28, 2023 and 2022, 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, 2022. 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 28, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2023.

 

The Company evaluates events occurring after the date of the consolidated financial statements requiring recording or disclosure in the consolidated financial statements.

 

 

2.

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, with early adoption permitted. 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 is still evaluating the impact of this ASU.

 

6

 

 

3.

INVENTORIES

 

Inventories consisted of the following:

 

   

February 28, 2023

   

August 31, 2022

 

Production materials

  $ 5,629,424     $ 6,496,656  

Finished goods

    9,550,815       9,845,073  
    $ 15,180,239     $ 16,341,729  

 

 

4.

PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consisted of the following:

 

   

February 28, 2023

   

August 31, 2022

 

Land

  $ 310,365     $ 310,365  

Buildings and improvements

    16,428,804       14,778,759  

Machinery and equipment

    5,792,363       5,643,320  
      22,531,532       20,732,444  

Less accumulated depreciation

    (9,085,566 )     (8,561,951 )
    $ 13,445,966     $ 12,170,493  

 

On February 28, 2023, the Company purchased the property immediately adjacent to NTIC’s headquarters in Circle Pines, Minnesota, which includes a 26,000 square foot industrial building for $1,200,000. The building will be used primarily for warehousing space and light industrial production.

 

Depreciation expense was $225,962 and $488,838 for the three and six months ended February 28, 2023, respectively, compared to $215,685 and $430,991 for the three and six months ended February 28, 2022, respectively.

 

 

5.

INTANGIBLE ASSETS, NET

 

Intangible assets, net consisted of the following:

 

   

As of February 28, 2023

 
   

Gross Carrying

Amount

   

Accumulated

Amortization

   

Net Carrying

Amount

 

Patents and trademarks

  $ 3,295,678     $ (2,598,950 )   $ 696,728  

Customer relationships

    6,347,000       (634,700 )     5,712,300  

Total intangible assets, net

  $ 9,642,678     $ (3,233,650 )   $ 6,409,028  

 

   

As of August 31, 2022

 
   

Gross Carrying

Amount

   

Accumulated

Amortization

   

Net Carrying

Amount

 

Patents and trademarks

  $ 3,225,655     $ (2,515,644 )   $ 710,011  

Customer relationships

    6,347,000       (423,133 )     5,923,867  

Total intangible assets, net

  $ 9,572,655     $ (2,938,777 )   $ 6,633,878  

 

7

 

Amortization expense related to intangible assets was $147,062 and $294,873 for the three and six months ended February 28, 2023, respectively, compared to $195,737 and $315,631 for the three and six months ended February 28, 2022, respectively.

 

As of February 28, 2023, future amortization expense related to intangible assets for each of the next five fiscal years and thereafter is estimated as follows:

 

Remainder of fiscal 2023

  $ 294,873  

Fiscal 2024

    589,746  

Fiscal 2025

    589,746  

Fiscal 2026

    589,746  

Fiscal 2027

    589,746  

Thereafter

    3,755,171  

Total

  $ 6,409,028  

 

 

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 28, 2023

 
   

Total

   

EXCOR

   

All Other

 

Current assets

  $ 54,425,899     $ 25,538,114     $ 28,887,785  

Total assets

    57,924,227       27,376,219       30,548,008  

Current liabilities

    14,002,680       3,163,365       10,839,315  

Noncurrent liabilities

    346,645       -       346,645  

Joint ventures’ equity

    43,574,902       24,212,854       19,362,048  

Northern Technologies International Corporation’s share of joint ventures’ equity

    21,522,496       12,106,429       9,416,067  

Northern Technologies International Corporation’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  

Northern Technologies International Corporation’s share of equity in income from joint ventures

    1,128,731       676,800       451,931  

Northern Technologies International Corporation'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  

Northern Technologies International Corporation’s share of equity in income from joint ventures

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

Northern Technologies International Corporation's dividends received from joint ventures

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

 

8

 

   

As of August 31, 2022

 
   

Total

   

EXCOR

   

All Other

 

Current assets

  $ 52,428,831     $ 26,047,914     $ 26,380,917  

Total assets

    55,854,457       27,932,532       27,921,925  

Current liabilities

    10,981,833       2,943,895       8,037,938  

Noncurrent liabilities

    1,138,980             1,138,980  

Joint ventures’ equity

    43,733,644       24,988,637       18,745,007  

Northern Technologies International Corporation’s share of joint ventures’ equity

    21,814,754       12,494,320       9,320,434  

Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings

  $ 21,256,923     $ 12,463,415     $ 8,793,508  

 

   

Three Months Ended February 28, 2022

 
   

Total

   

EXCOR

   

All Other

 

Net sales

  $ 24,601,767     $ 9,312,434     $ 15,289,333  

Gross profit

    9,845,002       4,658,450       5,186,552  

Net income

    1,851,591       1,170,187       681,404  

Northern Technologies International Corporation’s share of equity in income from joint ventures

    922,832       589,048       333,784  

Northern Technologies International Corporation's dividends received from joint ventures

  $ 320,365           $ 320,365  

 

   

Six Months Ended February 28, 2022

 
   

Total

   

EXCOR

   

All Other

 

Net sales

  $ 51,624,762     $ 20,612,662     $ 31,012,100  

Gross profit

    20,877,961       10,127,436       10,750,525  

Net income

    4,629,196       2,991,734       1,637,462  

Northern Technologies International Corporation’s share of equity in income from joint ventures

    2,297,581       1,499,821       797,760  

Northern Technologies International Corporation's dividends received from joint ventures

  $ 5,362,636     $ 4,255,200     $ 1,107,436  

 

 

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 $7,100,000 and $5,900,000 were outstanding under the lines of credit as of February 28, 2023 and August 31, 2022, respectively.

 

Unless terminated earlier, the Credit Facility will mature on January 6, 2024, and the principal amount thereunder, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on such date. 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 to JPM a continuing security interest in all of its right, title and interested in collateral made up for the assets of the Company.

 

9

 

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 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.

 

In connection with the execution of the Credit Agreement described above, on January 6, 2023, the Amended and Restated Loan Agreement dated August 31, 2021 between Northern Technologies International Corporation and PNC Bank, National Association was terminated.

 

 

8.

STOCKHOLDERS EQUITY

 

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 28, 2022, 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, 2021

 

$0.07

 

November 3, 2021

 

November 17, 2021

January 21, 2022

 

$0.07

 

February 2, 2022

 

February 16, 2022

 

During the six months ended February 28, 2023 and 2022, the Company repurchased no shares of its common stock.

 

The Company issued 3,620 and 2,636 shares of common stock on September 1, 2022 and 2021, respectively, under the Northern Technologies International Corporation Employee Stock Purchase Plan (ESPP). The ESPP is compensatory for financial reporting purposes. As of February 28, 2023, 65,600 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 28, 2023 and 2022:

 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 

Numerator:

 

2023

   

2022

   

2023

   

2022

 

Net income attributable to NTIC

  $ 885,248     $ 182,847     $ 1,387,490     $ 4,676,606  

Denominator:

                               

Basic – weighted shares outstanding

    9,366,357       9,214,817       9,353,989       9,211,858  

Weighted shares assumed upon exercise of stock options

    381,104       468,609       391,177       524,202  

Diluted – weighted shares outstanding

    9,747,461       9,683,426       9,745,166       9,736,060  

Basic net income per share:

  $ 0.10     $ 0.02     $ 0.15     $ 0.51  

Diluted net income per share:

  $ 0.09     $ 0.02     $ 0.14     $ 0.48  

 

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 28, 2023 were options outstanding to purchase 305,514 shares of common stock. Excluded from the computation of diluted net income per share for the three and six months ended February 28, 2022, were options outstanding to purchase 311,061 shares of common stock.

 

 

10.

STOCK-BASED COMPENSATION

 

A summary of stock option activities under 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:

 

   

Number of

Options

Outstanding

   

Weighted

Average Exercise

Price

 

Outstanding as of August 31, 2022

    1,544,727     $ 10.23  

Granted

    277,613     $ 11.41  

Exercised

    (178,331 )   $ 6.03  

Outstanding as of February 28, 2023

    1,644,009     $ 10.52  

 

The weighted average per share fair value of options granted during the six months ended February 28, 2023 and 2022 was $4.75 and $7.29, respectively. The weighted average remaining contractual life of the options outstanding as of February 28, 2023 and 2022 was 6.42 years and 6.25 years, respectively.

 

11

 

The Company recognized compensation expense of $674,971 and $465,766 during the six months ended February 28, 2023 and 2022, respectively. As of February 28, 2023, there was $1,686,298 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 28, 2023 and 2022 by segment:

 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 
   

2023

   

2022

   

2023

   

2022

 

ZERUST® net sales

  $ 14,458,747     $ 13,117,777     $ 29,828,748     $ 27,541,562  

Natur-Tec® net sales

    3,812,078       3,630,862       8,394,843       7,400,490  

Total net sales

  $ 18,270,825     $ 16,748,639     $ 38,223,591     $ 34,942,052  

 

The following table sets forth the Company’s cost of goods sold for the three and six months ended February 28, 2023 and 2022 by segment:

 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 
   

2023

   

% of

Product

Sales*

   

2022

   

% of

Product

Sales*

   

2023

   

% of

Product

Sales*

   

2022

   

% of

Product

Sales*

 
Direct cost of goods sold                                                                

ZERUST®

  $ 8,115,451       56.1 %   $ 8,151,274       62.1 %   $ 17,294,705       58.0 %   $ 16,857,941       61.2 %

Natur-Tec®

    2,931,036       76.9 %     2,775,436       76.4 %     6,501,709       77.4 %     5,697,533       77.0 %

Indirect cost of goods sold

    821,152             837,594             1,670,867             1,699,313        

Total net cost of goods sold

  $ 11,867,639             $ 11,764,304             $ 25,467,281             $ 24,254,787          

_________________

*

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.

 

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 28, 2023 and 2022 were as follows:

 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 
   

2023

   

2022

   

2023

   

2022

 

Inside the U.S.A. to unaffiliated customers

  $ 6,750,997     $ 5,115,963     $ 14,229,158     $ 11,272,285  
Outside the U.S.A. to:                                

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

    1,529,763       883,513       2,163,228       1,723,952  

Unaffiliated customers

    9,990,065       10,749,163       21,831,205       21,945,815  
    $ 18,270,825     $ 16,748,639     $ 38,223,591     $ 34,942,052  

 

12

 

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 28, 2023 and 2022 were as follows:

 

   

Three Months Ended February 28,

 
   

2023

   

% of Total Fees for

Services Provided to

Joint Ventures

   

2022

   

% of Total Fees for

Services Provided to

Joint Ventures

 

Germany

  $ 202,964       16.2 %   $ 216,992       17.4 %

Poland

    199,927       16.0 %     172,700       13.9 %

Japan

    153,795       12.3 %     151,933       12.2 %

France

    118,938       9.5 %     115,663       9.3 %

Sweden

    112,615       9.0 %     99,178       8.0 %

Finland

    91,620       7.3 %     85,426       6.9 %

Thailand

    91,601       7.3 %     87,918       7.1 %

Czech Republic

    91,001       7.3 %     69,386       5.6 %

South Korea

    65,803       5.3 %     64,173       5.1 %

United Kingdom

    65,648       5.2 %     86,736       7.0 %

Other

    58,834       4.6 %     96,803       7.5 %
    $ 1,252,746       100.0 %   $ 1,246,908       100.0 %

 

   

Six Months Ended February 28,

 
   

2023

   

% of Total Fees for

Services Provided to

Joint Ventures

   

2022

   

% of Total Fees for

Services Provided to

Joint Ventures

 

Germany

  $ 396,792       16.3 %   $ 435,422       17.4 %

Poland

    386,623       15.9 %     349,626       14.0 %

Japan

    301,715       12.4 %     318,740       12.7 %

France

    228,295       9.4 %     231,958       9.3 %

Sweden

    213,051       8.8 %     207,248       8.3 %

Finland

    182,052       7.5 %     165,599       6.6 %

Thailand

    174,557       7.2 %     175,472       7.0 %

Czech Republic

    171,333       7.0 %     139,483       5.6 %

South Korea

    129,197       5.3 %     126,800       5.1 %

United Kingdom

    123,339       5.1 %     181,663       7.2 %

Other

    127,597       5.1 %     173,756       6.8 %
    $ 2,434,551       100.0 %   $ 2,505,767       100.0 %

 

13

 

The geographical distribution of total property and equipment and net sales is as follows:

 

   

At

February 28, 2023

   

At

August 31, 2021

 

China

  $ 5,885,664     $ 5,826,898  

Other

    668,910       565,022  

United States

    6,891,392       5,778,573  

Total property and equipment, net

  $ 13,445,966     $ 12,170,493  

 

 

   

Three Months Ended February 28,

 
   

2023

   

2022

 

China

  $ 2,871,795     $ 4,163,741  

Brazil

    1,206,790       936,089  

India

    4,364,358       4,068,781  

Other

    3,076,885       2,464,066  

United States

    6,750,997       5,115,962  

Total net sales

  $ 18,270,825     $ 16,748,639  

 

   

Six Months Ended February 28,

 
   

2023

   

2022

 

China

  $ 6,618,435     $ 8,221,593  

Brazil

    2,574,208       2,232,306  

India

    9,211,285       8,545,765  

Other

    5,590,505       4,670,103  

United States

    14,229,158       11,272,285  

Total net sales

  $ 38,223,591     $ 34,942,052  

 

Long-lived assets consist of property and equipment. These assets are periodically reviewed to assure the net realizable value from the estimated future production based on forecasted sales exceeds the carrying value of the assets.

 

Sales to the Company’s joint ventures are included in the foregoing segment and geographic information; however, sales by the Company’s joint ventures to other parties are not included. The foregoing segment and geographic information represents only sales recognized directly by the Company and sold in that geographic territory.

 

All joint venture operations, including equity in income, fees for services and related dividends, are primarily related to ZERUST® products and services.

 

 

12.

COMMITMENTS AND CONTINGENCIES

 

Concentrations

 

Three joint ventures (the Company’s joint ventures in South Korea, Sweden and France) accounted for 68.1% of the Company’s trade joint ventures receivables as of February 28, 2023, and one joint venture (the Company’s joint venture in South Korea) accounted for 33.8% of the Company’s trade joint venture receivables as of February 28, 2022.

 

14

 

Legal Matters

 

From time to time, the Company is subject to various other claims and legal actions in the ordinary course of its business. The Company records a liability in its consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where the Company has assessed that a loss is probable, and an amount could be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that material loss may have been incurred. In the opinion of management, as of February 28, 2023, the amount of liability, if any, with respect to these matters, individually or in the aggregate, will not materially affect the Company’s consolidated results of operations, financial position or cash flows.

 

 

13.

FAIR VALUE MEASUREMENTS

 

Assets and liabilities that are measured at fair value on a recurring basis primarily relate to marketable equity securities. These items are marked-to-market at each reporting period, and the Company estimates that market value approximates costs.

 

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:

 

           

Fair Value Measurements

Using Inputs Considered as

 
   

Fair value as of

February 28, 2023

   

Level 1

   

Level 2

   

Level 3

 

Available for sale securities

  $     $     $     $  

 

           

Fair Value Measurements

Using Inputs Considered as

 
   

Fair value as of

August 31, 2022

   

Level 1

   

Level 2

   

Level 3

 

Available for sale securities

  $ 5,590     $ 5,590     $     $  

 

There were no transfers between Level 1, Level 2, or Level 3 during the three and six months ended February 28, 2023 or 2022.

 

 

14.

SUPPLEMENTAL CASH FLOW INFORMATION

 

Supplemental disclosures of cash flow information consisted of:

 

   

Three Months Ended

February 28,

   

Six Months Ended

February 28,

 
   

2023

   

2022

   

2023

   

2022

 

Cash paid for interest

  $ 115,144     $ 7,404     $ 206,475     $ 10,295  

 

 

15.

INCOME TAXES

 

Income tax expense for the three and six months ended February 28, 2023 was $181,795 and $292,528, respectively, compared to $151,743 and $656,123, respectively, for the three and six months ended February 28, 2022. The expense was largely due to foreign operations. The Company has federal and state tax credit carry forwards, net operating loss carry forwards and foreign tax carry forwards. The Company has recorded a full valuation allowance against the U.S. deferred tax assets as of February 28, 2023 and August 31, 2022.

 

 

16.

SUBSEQUENT EVENTS

 

On April 7, 2023, the Company’s wholly-owned subsidiary in China, NTIC China, entered into a line of credit agreement with China Construction Bank Corporation, which provides NTIC China with a RMB 10,000,000 (USD $1.45 million) revolving line of credit. The term of the credit agreement is for one year, after which an extension of the agreement is required. The credit agreement has an annual interest rate of 3.25% with interest due monthly. The line of credit is secured by various property owned by NTIC China and the line of credit agreement contains certain financial and other covenants.

 

15

 

 

 

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess NTIC’s financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Part I. Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsForward-Looking Statements” in this report and under “Part 1. Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended August 31, 2022. The following discussion of the results of the operations and financial condition of NTIC should be read in conjunction with NTIC’s consolidated financial statements and the related notes thereto included under the heading “Part I. Item 1. Financial Statements.”

 

Business Overview

 

NTIC develops and markets proprietary, environmentally beneficial products and services in over 65 countries either directly or via a network of subsidiaries, joint ventures, independent distributors, and agents. NTIC’s primary business is corrosion prevention marketed mainly under the ZERUST® brand. NTIC has been selling its proprietary ZERUST® products and services to the automotive, electronics, electrical, mechanical, military, and retail consumer markets for almost 50 years and, more recently, has also expanded into the oil and gas industry. Additionally, NTIC markets and sells a portfolio of proprietary bio-based and certified compostable (fully biodegradable) polymer resin compounds and finished products under the Natur-Tec® brand. These products are intended to reduce NTIC’s customers’ carbon footprint and provide environmentally sound waste disposal options.

 

NTIC’s ZERUST® rust and corrosion inhibiting products include plastic and paper packaging, liquids, coatings, rust removers, cleaners, and diffusers as well as engineered solutions designed specifically for the oil and gas industry. NTIC also offers worldwide, on-site, technical consulting for rust and corrosion prevention issues. NTIC’s technical service consultants work directly with the end users of NTIC’s ZERUST® rust and corrosion inhibiting products to analyze their specific needs and develop systems to meet their performance requirements. In North America, NTIC sells its ZERUST® corrosion prevention solutions through a network of independent distributors and agents supported by a direct sales force.

 

Internationally, NTIC sells its ZERUST® corrosion prevention solutions through its wholly-owned subsidiary in China, NTIC (Shanghai) Co., Ltd. (NTIC China), starting September 1, 2021 its wholly-owned subsidiary in India, HNTI Ltd. (Zerust India), its majority-owned joint venture holding company for NTIC’s joint venture investments in the Association of Southeast Asian Nations (ASEAN) region, NTI Asean LLC (NTI Asean), certain majority-owned and wholly-owned subsidiaries, and joint venture arrangements in North America, Europe, and Asia. NTIC also sells products directly to its European joint venture partners through its wholly-owned subsidiary in Germany, NTIC Europe GmbH (NTI Europe).

 

One of NTIC’s strategic initiatives is to expand into and penetrate other markets for its ZERUST® corrosion prevention technologies. Consequently, for the past several years, NTIC has focused significant sales and marketing efforts on the oil and gas industry, as the infrastructure that supports that industry is typically constructed using metals that are highly susceptible to corrosion. NTIC believes that its ZERUST® corrosion prevention solutions will minimize maintenance downtime on critical oil and gas industry infrastructure, extend the life of such infrastructure, and reduce the risk of environmental pollution due to leaks caused by corrosion. NTIC markets and sells its ZERUST® rust and corrosion prevention solutions to customers in the oil and gas industry in a continuously increasing number of countries either directly, through its subsidiaries, or through its joint venture partners and other strategic partners. The sale of ZERUST® corrosion prevention solutions to customers in the oil and gas industry typically involves long sales cycles, often including multi-year trial periods with each customer and a slow integration process thereafter.

 

16

 

Natur-Tec® bio-based and compostable plastics are manufactured using NTIC’s patented and/or proprietary technologies and are intended to replace conventional petroleum-based plastics. The Natur-Tec® biopolymer resin compound portfolio includes formulations that have been optimized for a variety of applications, including blown-film extrusion, extrusion coating, injection molding, and engineered plastics. These resin compounds are certified to be fully biodegradable in a composting environment and are currently being used to produce finished products, including can liners, shopping and grocery bags, lawn and leaf bags, branded apparel packaging bags and accessories, and various foodservice items, such as disposable cutlery, drinking straws, food-handling gloves, and coated paper products. In North America, NTIC markets its Natur-Tec® resin compounds and finished products primarily through a network of regional and national distributors as well as independent agents. NTIC continues to see significant opportunities for finished bioplastic products and, therefore, continues to strengthen and expand its North American distribution network for finished Natur-Tec® bioplastic products.

 

Internationally, NTIC sells its Natur-Tec® resin compounds and finished products both directly and through its wholly-owned subsidiary in China and majority-owned subsidiaries in India and Sri Lanka, and through distributors and certain joint ventures.

 

Impact of COVID-19

 

As a result of the novel coronavirus (COVID-19) and related government mandated restrictions on NTIC’s business, as well as the businesses of its joint ventures, customers and suppliers, disruption to the Company’s business and the manufacture and sale of its products and services continued to occur during the first six months of fiscal 2023, including in particular China, and may continue during the remainder of fiscal 2023. While demand in China improved during the second quarter of fiscal 2023 as a result of government restrictions that were lifted, NTIC continued to experience softened demand for its products in China during the first six months of fiscal 2023.

 

Worldwide Supply Chain Disruptions

 

Worldwide supply chain disruptions, which were initially brought about by the impact of COVID-19, have persisted despite the recovery in the global economy and financial markets. These issues continued during the first six months of fiscal 2023 and, although these issues have shown some improvement, are expected to continue to some degree throughout the remainder of fiscal 2023. NTIC has experienced longer lead times for raw materials, has been forced to find new suppliers of certain raw materials, and has experienced raw material cost increases compared to prior fiscal quarters. Additionally, NTIC has experienced significantly longer shipping times and significant price increases per shipping container compared to prior fiscal quarters due to ocean freight capacity issues resulting from increased demand for shipping and reduced capacity and equipment. These and other issues resulting from worldwide supply chain disruptions have recently improved but are expected to continue to some degree throughout the remainder of fiscal 2023 and could continue to have a material adverse effect on NTIC’s business, operating results and financial condition. The precise financial impact and duration, however, cannot be reasonably estimated at this time.

 

Financial Overview

 

NTIC’s management, including its chief executive officer, who is NTIC’s chief operating decision maker, reports and manages NTIC’s operations in two reportable business segments based on products sold, customer base and distribution center: Zerust® products and services and Natur-Tec® products.

 

17

 

 

Highlights of NTIC’s financial results for the three and six months ended February 28, 2023 include the following, with increases or decreases in each case as compared to the respective prior fiscal year period:

 

 

NTIC’s consolidated net sales increased 9.1% and 9.4% during the three and six months ended February 28, 2023, respectively, compared to the three and six months ended February 28, 2022 primarily as a result of an increase in sales of and demand for both Zerust® products, as well as targeted price increases on certain products. During the six months ended February 28, 2023, 78.0% of NTIC’s consolidated net sales were derived from sales of ZERUST® products and services, which increased 8.3% over the prior fiscal year period, and 22.0% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products, which increased 13.4% over the prior fiscal year period. NTIC’s consolidated net sales for the six months ended February 28, 2023 included $3,427,132 of sales made to customers in the oil and gas industry, a 121.1% increase over the prior fiscal year period.

 

 

Cost of goods sold as a percentage of net sales decreased to 65.0% during the three months ended February 28, 2023, compared to 70.2% during the three months ended February 28, 2022, and decreased to 66.6% during the six months ended February 28, 2023, compared to 69.4% during the prior fiscal year period primarily as a result of passing along price increases to customers and increased sales made to customers in the oil and gas industry, which products carry higher margins than our Zerust industrial products and Natur-Tec® products.

 

 

NTIC’s equity in income from joint ventures increased 22.3% and 0.9% during the three and six months ended February 28, 2023, respectively, to $1,128,731 and $2,318,135, respectively, compared to $922,832 and $2,297,581 during the three and six months ended February 28, 2022, respectively. These increases were primarily due to an improvement in gross margins and operating profits at the joint ventures. Net sales at the joint ventures increased 3.6% and decreased 2.7% to $25,482,590 and $50,212,879 during the three and six months ended February 28, 2023, respectively, compared to $24,601,767 and $51,624,762 during the three and six months ended February 28, 2022, respectively.

 

 

NTIC’s total operating expenses increased 11.7% and 11.8% to $7,497,356 and $15,392,113 during the three and six months ended February 28, 2023, respectively, compared to $6,708,853 and $13,778,779 for the three and six months ended February 28, 2022. These increases were primarily due to increased personnel expenses, including benefits and travel, and expenses incurred during the current fiscal year periods in connection with the startup of a new indirect, majority owned subsidiary formed to assume the operations of a former joint venture in Taiwan, partially offset by payroll tax credits.

 

 

NTIC incurred net income attributable to NTIC of $885,248, or $0.09 per diluted common share, for the three months ended February 28, 2023, compared to $182,847, or $0.02 per diluted common share, for the three months ended February 28, 2022. NTIC incurred net income attributable to NTIC of $1,387,490 or $0.14 per diluted common share, for the six months ended February 28, 2023, compared to $4,676,606, or $0.48 per diluted common share, for the six months ended February 28, 2022. Of the net income attributable to NTIC incurred in the six months ended February 28, 2022, $3,951,550 was due to the gain from the Zerust India acquisition.

 

 

18

 

 

Results of Operations

 

The following table sets forth NTIC’s results of operations for the three and six months ended February 28, 2023 and 2022.

 

   

Three Months Ended February 28,

 
   

2023

   

% of

Net Sales

   

2022

   

% of

Net Sales

   

$

Change

   

%

Change

 

Net sales

  $ 18,270,825       100.0 %   $ 16,748,639       100.0 %   $ 1,522,186       9.1 %

Cost of goods sold

    11,867,639       65.0 %     11,764,304       70.2 %     103,335       0.9 %

Equity in income from joint ventures

    1,128,731       6.2 %     922,832       5.5 %     205,899       22.3 %

Fees for services provided to joint ventures

    1,252,746       6.9 %     1,246,909       7.4 %     5,837       0.5 %

Selling expenses

    3,418,717       18.7 %     2,971,391       17.7 %     447,326       15.1 %

General and administrative expenses

    3,084,189       16.9 %     2,518,788       15.0 %     565,401       22.4 %

Research and development expenses

    994,450       5.4 %     1,218,674       7.3 %     (224,224 )     (18.4 )%

 

   

Six Months Ended February 28,

 
   

2023

   

% of

Net Sales

   

2022

   

% of

Net Sales

   

$

Change

   

%

Change

 

Net sales

  $ 38,233,591       100.0 %   $ 34,942,052       100.0 %   $ 3,281,539       9.4 %

Cost of goods sold

    25,467,281       66.6 %     24,254,787       69.4 %     1,212,494       5.0 %

Equity in income from joint ventures

    2,318,135       6.1 %     2,297,581       6.6 %     20,554       0.9 %

Fees for services provided to joint ventures

    2,434,551       6.4 %     2,505,767       7.2 %     (71,216 )     (2.8 )%

Selling expenses

    6,926,151       18.1 %     6,209,149       17.8 %     717,002       11.5 %

General and administrative expenses

    6,214,788       16.3 %     5,115,135       14.6 %     1,099,653       21.5 %

Research and development expenses

    2,251,174       5.9 %     2,454,495       7.0 %     (203,321 )     (8.3 )%

 

Net Sales. NTIC’s consolidated net sales increased 9.1% and 9.4% to $18,270,825 and $38,223,591 during the three and six months ended February 28, 2023, respectively, compared to the three and six months ended February 28, 2022. These increases were primarily a result of increased demand across all market segments, including oil and gas, as well as targeted price increases on certain products.

 

The following table sets forth NTIC’s net sales by product segment for the three and six months ended February 28, 2023 and 2022:

 

   

Three Months Ended February 28,

   

Six Months Ended February 28,

 
   

2023

   

2022

   

2023

   

2022

 

Total ZERUST® sales

  $ 14,458,747     $ 13,117,777     $ 29,828,748     $ 27,541,562  

Total Natur-Tec® sales

    3,812,078       3,630,862       8,394,843       7,400,490  

Total net sales

  $ 18,270,825     $ 16,748,639     $ 38,223,591     $ 34,942,052  

 

During the three and six months ended February 28, 2023, 79.1% and 78.0% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 10.2% and 8.3% to $14,458,747 and $29,828,748, respectively, compared to $13,117,777 and $27,541,562 during the three and six months ended February 28, 2022, respectively. These increases were primarily a result of increased demand in North America, as well as targeted price increases on certain products.

 

19

 

 

The following table sets forth NTIC’s net sales of ZERUST® products for the three and six months ended February 28, 2023 and 2022:

 

   

Three Months Ended February 28,

 
   

2023

   

2022

   

$

Change

   

%

Change

 

ZERUST® industrial net sales

  $ 12,653,512     $ 12,539,856     $ 113,656       0.9 %

ZERUST® oil & gas net sales

    1,805,235       577,921       1,227,314       212.4 %

Total ZERUST® net sales

  $ 14,458,747     $ 13,117,777     $ 1,340,970       10.2 %

 

   

Six Months Ended February 28,

 
   

2023

   

2022

   

$

Change

   

%

Change

 

ZERUST® industrial net sales

  $ 26,401,616     $ 25,991,825     $ 409,791       1.6 %

ZERUST® oil & gas net sales

    3,427,132       1,549,737       1,877,395       121.1 %

Total ZERUST® net sales

  $ 29,828,748     $ 27,541,562     $ 2,287,186       8.3 %

 

NTIC’s total ZERUST® net sales increased during the three and six months ended February 28, 2023, compared to the prior fiscal year periods, primarily due to increased sales to new and existing oil and gas customers. Overall, demand for ZERUST® products and services depends heavily on the overall health of the markets in which NTIC sells its products, including the automotive, oil and gas, agriculture, and mining markets in particular.

 

ZERUST® oil and gas net sales increased 212.4% and 121.1% during the three and six months ended February 28, 2023 compared to the prior fiscal year periods primarily as a result of new opportunities with new and existing customers. NTIC anticipates that its sales of ZERUST® products and services into the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized, specifically due to the volatility of oil prices. Demand for oil and gas products around the world depends primarily on market acceptance and the reach of NTIC’s distribution network. Because of the typical size of individual orders and overall size of NTIC’s net sales derived from sales of oil and gas products, the timing of one or more orders can materially affect NTIC’s quarterly sales compared to prior fiscal year quarters.

 

During the three and six months ended February 28, 2023, 20.9% and 22.0% of NTIC’s consolidated net sales, respectively, were derived from sales of Natur-Tec® products, compared to 21.7% and 21.2% during the three and six months ended February 28, 2022, respectively. Sales of Natur-Tec® products increased 5.0% and 13.4% to $3,812,078 and $8,394,843 during the three and six months ended February 28, 2023, respectively, compared $3,630,862 and $7,400,490 during the three and six months ended February 28, 2022, respectively, as a result of increased global demand. COVID-19 adversely impacted demand for Natur-Tec® products from across the apparel industry, as well as many large users of bioplastics, including college campuses, stadiums, arenas, restaurants, and corporate office complexes. While NTIC has experienced a recovery in many of these areas to pre-pandemic levels, NTIC still expects some of these customers will be the last businesses to fully re-open and operate at full pre-pandemic capacities.

 

Cost of Goods Sold. Cost of goods sold increased 0.9% and 5.0% for the three and six months ended February 28, 2023, respectively, compared to the three and six months ended February 28, 2022 primarily as a result of the increase in net sales, as described above. Cost of goods sold as a percentage of net sales decreased to 65.0% and 66.6% for the three and six months ended February 28, 2023, compared to 70.2% and 69.4% for the three and six months ended February 28, 2022 primarily as a result of passing along price increases to customers and increased sales made to customers in the oil and gas industry, which products carry higher margins than our Zerust industrial products. Although NTIC has taken certain actions to address inflationary pressures and pass on related cost increases to its customers, it expects some of these inflationary pressures to persist through the end of fiscal 2023. Some improvements from these actions as well as some improvements in gross margin were realized in the six months ended February 28, 2023.

 

20

 

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures increased 22.3% and 0.9% during the three and six months ended February 28, 2023, respectively, to $1,128,731 and $2,318,135, respectively, compared to $922,832 and $2,297,581 during the three and six months ended February 28, 2022, respectively. These increases were primarily due an improvement in gross margins and operating profits at the joint ventures. NTIC’s equity in income from joint ventures fluctuates based on net sales and profitability of the joint ventures during the respective periods. Of the total equity in income from joint ventures, NTIC had equity in income from joint ventures of $1,547,944 attributable to EXCOR during the six months ended February 28, 2023, compared to $1,499,821 attributable to EXCOR during the six months ended February 28, 2022. NTIC had equity in income from all other joint ventures of $770,191 during the six months ended February 28, 2023, compared to $797,760 during the six months ended February 28, 2022.

 

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,252,746 and $2,434,551 during the three and six months ended February 28, 2023, respectively, compared to $1,246,909 and $2,505,767 during the three and six months ended February 28, 2022, respectively, representing increases of 0.5% and a decrease of 2.8%, respectively. Fee income for services provided to joint ventures is traditionally a function of the sales made by NTIC’s joint ventures; however, at various joint ventures, the fee income for services is a fixed amount that does not fluctuate with the change in sales experienced by certain joint ventures. Net sales at the joint ventures increased 3.6% and decreased 2.7% to $25,482,590 and $50,212,879 during the three and six months ended February 28, 2023, respectively, compared to $24,601,767 and $51,624,762 during the three and six months ended February 28, 2022, respectively. Net sales of NTIC’s joint ventures are not included in NTIC’s product sales and are not included in NTIC’s consolidated financial statements. Of the total fee income for services provided to joint ventures, fees of $396,792 were attributable to EXCOR during the six months ended February 28, 2023, compared to $435,422 attributable to EXCOR during the six months ended February 28, 2022.

 

Selling Expenses. NTIC’s selling expenses increased 15.1% and 11.5% for the three and six months ended February 28, 2023, respectively, compared to the same respective periods in fiscal 2022 due primarily to an increase personnel expense during the current fiscal year period compared to the prior fiscal year period, and expenses incurred during the current fiscal year periods in connection with the startup of a new indirect, majority owned subsidiary formed to assume the operations of a former joint venture in Taiwan, partially offset by payroll tax credits. Selling expenses as a percentage of net sales increased to 18.7% and 18.1% for the three and six months ended February 28, 2023, respectively, from 17.7% and 17.8% for the three and six months ended February 28, 2022, respectively, primarily due to the increased selling expenses as noted above.

 

General and Administrative Expenses. NTIC’s general and administrative expenses increased 22.4% and 21.5% for the three and six months ended February 28, 2023, respectively, compared to the same respective periods in fiscal 2022 due primarily to increased professional services and travel and personnel expenses during the current fiscal year periods compared to the prior fiscal year periods, as well as expenses incurred during the current fiscal year periods in connection with the startup of a new indirect, majority owned subsidiary formed to assume the operations of a former joint venture in Taiwan, partially offset by payroll tax credits. As a percentage of net sales, general and administrative expenses increased to 16.9% and 16.3% for the three and six months ended February 28, 2023, respectively, from 15.0% and 14.6% for the same respective periods in fiscal 2022 primarily due to the increase in general and administrative expenses as noted above.

 

21

 

Research and Development Expenses. NTIC’s research and development expenses decreased 18.4% and 8.3% for the three and six months ended February 28, 2023, respectively, compared to the same respective periods in fiscal 2022 primarily due to decreases in expenses associated with development efforts.

 

Interest Income. NTIC’s interest income decreased to $3,451 and $9,619 during the three and six months ended February 28, 2023, respectively, compared to $9,909 and $20,852 during the three and six months ended February 28, 2022, respectively, due primarily to changes in the invested cash balances.

 

Interest Expense. NTIC’s interest expense increased to $115,144 and $206,475 during the three and six months ended February 28, 2023, respectively, compared to $7,404 and $10,295 during the three and six months ended February 28, 2022, respectively, due primarily to increased outstanding borrowings under the line of credit and increased interest rates, in each case during the current fiscal year periods compared to the prior fiscal year periods.

 

Remeasurement Gain on Acquisition of Equity Method Investee. Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings. As such, since NTIC acquired the remaining 50% ownership interest of Zerust India effective September 1, 2021, NTIC recognized a gain of $3,951,550 during the six months ended February 28, 2022. This gain is included in “Remeasurement gain on acquisition of equity method investee” on NTIC’s consolidated statements of operations. There was no comparable gain during the current fiscal year period.

 

Income Before Income Tax Expense. NTIC had income before income tax expense of $1,175,614 and $1,920,027 for the three and six months ended February 28, 2023, respectively, compared to $447,728 and $5,673,941 for the three and six months ended February 28, 2022, respectively.

 

Income Tax Expense. Income tax expense was $181,795 and $292,528 for the three and six months ended February 28, 2023, respectively, compared to $151,743 and $656,123 during the three and six months ended February 28, 2022, respectively. Income tax expense was calculated based on management’s estimate of NTIC’s annual effective income tax rate.

 

NTIC considers the earnings of certain foreign joint ventures to be indefinitely invested outside the United States on the basis of estimates that NTIC’s future domestic cash generation will be sufficient to meet future domestic cash needs. As a result, U.S. income and foreign withholding taxes have not been recognized on the cumulative undistributed earnings of $20,493,861 and $21,256,923 as of February 28, 2023, and August 31, 2022, respectively. To the extent undistributed earnings of NTIC’s joint ventures are distributed in the future, they are not expected to result in any material additional income tax liability after the application of foreign tax credits.

 

Net Income Attributable to NTIC. Net income attributable to NTIC increased to $885,248, or $0.09 per diluted common share, for the three months ended February 28, 2023, compared to $182,847, or $0.02 per diluted common share, for the three months ended February 28, 2022. This increase was a result of the increase in gross profit and joint venture income contribution, partially offset by the increase in operating expenses. Net income attributable to NTIC decreased to $1,387,490, or $0.14 per diluted common share, for the six months ended February 28, 2023, compared to $4,676,606, or $0.48 per diluted common share, for the six months ended February 28, 2022. This decrease was primarily due to the $3,951,550 remeasurement gain on acquisition of equity method investee recognized during the prior fiscal year periods, which did not repeat this fiscal year, and to a lesser extent, the increase in operating expenses, partially offset by the increase in gross profit.

 

22

 

NTIC anticipates that its earnings will continue to be adversely affected to some extent by COVID-19, inflation and worldwide supply chain disruptions, among other factors. Additionally, NTIC anticipates that its quarterly net income will continue to remain subject to significant volatility primarily due to the financial performance of its subsidiaries and joint ventures, sales of its ZERUST® products and services into the oil and gas industry, and sales of its Natur-Tec® bioplastics products, which sales fluctuate more on a quarterly basis than the traditional ZERUST® business.

 

Other Comprehensive Income - Foreign Currency Translations Adjustment. The changes in the foreign currency translations adjustment were due to the fluctuation of the U.S. dollar compared to the Euro and other foreign currencies during the three and six months ended February 28, 2023 compared to the same periods in fiscal 2022.

 

Liquidity and Capital Resources

 

Sources of Cash and Working Capital. NTIC’s working capital, defined as current assets less current liabilities, was $23,998,313 as of February 28, 2023, including $5,451,111 in cash and cash equivalents, compared to $23,169,480 as of August 31, 2022, including $5,333,890 in cash and cash equivalents and $5,590 in available for sale securities.

 

On January 6, 2023, NTIC entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPM”), which provides NTIC with a senior secured revolving line of credit (the “Credit Facility”) of up to $10.0 million. The Credit Facility includes a $5.0 million sublimit for standby letters of credit. Borrowings of $7,100,000 were outstanding under the Credit Facility as of February 28, 2023.

 

Unless terminated earlier, the Credit Facility will mature on January 6, 2024, and the principal amount thereunder, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on such date. Borrowings under the Credit Agreement bear interest at a floating rate, at the option of NTIC, 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 NTIC) 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 to 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 NTIC’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 NTIC 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 NTIC 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.

 

23

 

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. As of February 28, 2023, NTIC was in compliance with all debt covenants under the Credit Agreement.

 

In connection with the execution of the Credit Agreement described above, on January 6, 2023, the Amended and Restated Loan Agreement dated August 31, 2021 between Northern Technologies International Corporation and PNC Bank, National Association was terminated.

 

NTIC believes that a combination of its existing cash and cash equivalents, available for sale securities, forecasted cash flows from future operations, anticipated distributions of earnings, anticipated fees to NTIC for services provided to its joint ventures, and funds available through existing or anticipated financing arrangements will be adequate to fund its existing operations, investments in new or existing joint ventures or subsidiaries, capital expenditures, debt repayments, cash dividends, and any stock repurchases for at least the next 12 months. During the remainder of fiscal 2023, NTIC expects to continue to invest directly and through its use of working capital in Zerust India, NTIC China, Zerust Mexico, NTI Europe, its joint ventures, research and development, marketing efforts, resources for the application of its corrosion prevention technology in the oil and gas industry, and its Natur-Tec® bio-plastics business, although the amounts of these various investments are not known at this time.

 

NTIC also expects to use some of its capital resources to continue to transition some of its joint ventures as needed or appropriate, which may include additional acquisitions by NTIC of the remaining ownership interests of joint ventures not owned by NTIC, the formation of one or more new subsidiaries to assume the operations of a joint venture, and dissolutions or liquidations of one or more of its joint ventures. Some of these joint venture transitions may materially impact NTIC’s results of operations for a particular reporting period. For example, the formation of a new indirect, majority owned subsidiary of NTIC to assume the operations of a former joint venture increased NTIC’s operating expenses during the six months ended February 28, 2023.

 

NTIC traditionally has used the cash generated from its operations, distributions of earnings from joint ventures and fees for services provided to its joint ventures to fund NTIC’s new technology investments and capital contributions to new and existing subsidiaries and joint ventures. NTIC’s joint ventures traditionally have operated with little or no debt and have been self-financed with minimal initial capital investment and minimal additional capital investment from their respective owners. Therefore, NTIC believes there is limited exposure by NTIC’s joint ventures that could materially impact their respective operations and/or liquidity.

 

In order to take advantage of new product and market opportunities to expand its business and increase its revenues and assist with joint venture transitions, NTIC may decide to finance such opportunities by additional borrowing under its revolving line of credit or raising additional financing through the issuance of debt or equity securities. There is no assurance that any financing transaction will be available on terms acceptable to NTIC or at all or that any financing transaction will not be dilutive to NTIC’s current stockholders.

 

24

 

Uses of Cash and Cash Flows. Net cash provided by operating activities during the six months ended February 28, 2023 was $2,204,834, which resulted principally from NTIC’s net income, dividends received from joint ventures, depreciation and amortization expense, and stock-based compensation, partially offset by equity in income from joint ventures. Net cash provided by operating activities during the six months ended February 28, 2022 was $2,118,728, which resulted principally from NTIC’s net income, dividends received from joint ventures, deferred income tax, depreciation and amortization expense, and stock-based compensation, partially offset by the remeasurement gain on acquisition of equity method investee and equity in income from joint ventures.

 

NTIC’s cash flows from operations are impacted by significant changes in certain components of NTIC’s working capital, including inventory turnover and changes in receivables and payables. NTIC considers internal and external factors when assessing the use of its available working capital, specifically when determining inventory levels and credit terms of customers. Key internal factors include existing inventory levels, stock reorder points, customer forecasts and customer requested payment terms. Key external factors include the availability of primary raw materials and sub-contractor production lead times. NTIC’s typical contractual terms for trade receivables, excluding joint ventures, are traditionally 30 days and 90 days for trade receivables from its joint ventures. Before extending unsecured credit to customers, excluding NTIC’s joint ventures, NTIC reviews customers’ credit histories and will establish an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers and other information. Accounts receivable over 30 days are considered past due for most customers. NTIC does not accrue interest on past due accounts receivable. If accounts receivables in excess of the provided allowance are determined uncollectible, they are charged to selling expense in the period that the determination is made. Accounts receivable are deemed uncollectible based on NTIC exhausting reasonable efforts to collect. NTIC’s typical contractual terms for receivables for services provided to its joint ventures are 90 days. NTIC records receivables for services provided to its joint ventures on an accrual basis, unless circumstances exist that make the collection of the balance uncertain, in which case the fee income will be recorded on a cash basis until there is consistency in payments. This determination is handled on a case-by-case basis.

 

NTIC experienced an increase in trade receivables and a decrease in inventory as of February 28, 2023, compared to August 31, 2022. Trade receivables, excluding joint ventures, as of February 28, 2023, increased $538,087 compared to August 31, 2022, primarily related to correlating increases to sales.

 

Outstanding trade receivables, excluding joint ventures balances, increased an average of 8 days to an average of 75 days from balances outstanding from these customers as of February 28, 2023 from an average of 67 days as of August 31, 2022.

 

Outstanding trade receivables from joint ventures as of February 28, 2023 increased $917,073 compared to August 31, 2022, primarily due to the timing of payments. Outstanding balances from trade receivables from joint ventures increased an average of 166 days to an average of 256 days from balances outstanding from these customers as of February 28, 2023 from an average of 90 days as of August 31, 2022. The significant increase in outstanding balances from trade receivables from joint ventures was due to the timing of a large order, that was subsequently collected. The average days outstanding of trade receivables from joint ventures as of February 28, 2023 were primarily due to the receivables balances at NTIC’s joint ventures in Sweden, France, South Korea and Thailand.

 

Outstanding receivables for services provided to joint ventures as of February 28, 2023 decreased $656,210 compared to August 31, 2022, and the average days to pay increased an average of 4 days to an average of 80 days from an average of 84 days as of August 31, 2022.

 

25

 

Net cash used in investing activities for the six months ended February 28, 2023 and 2022 was $1,923,336 and $5,792,833, respectively, which was primarily the result of the purchase of property and equipment, and investments in patents, and in the case of the prior year period, the purchase of the remaining 50% ownership interest in Zerust India.

 

Net cash used in financing activities for the six months ended February 28, 2023 was $111,605, which resulted from dividends paid to shareholders and dividends received by non-controlling interests, partially offset by proceeds from the exercise of stock options, borrowings under the line of credit and proceeds from NTIC’s employee stock purchase plan. Net cash used in financing activities for the six months ended February 28, 2022 was $2,786,371, which resulted from borrowings under the line of credit and proceeds from NTIC’s employee stock purchase plan and the exercise of stock options, partially offset by dividends paid to shareholders and dividends received by non-controlling interests.

 

Share Repurchase Plan. On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors at any time. No repurchases occurred during the six months ended February 28, 2023. As of February 28, 2023, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

 

Cash Dividends. During the six months ended February 28, 2023, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of NTIC’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 28, 2022, NTIC’s Board of Directors declared cash dividends on the following dates in the following amounts to the following holders of NTIC’s common stock:

 

Declaration Date

 

Amount

 

Record Date

 

Payable Date

October 20, 2021

 

$0.07

 

November 3, 2021

 

November 17, 2021

January 21, 2022

 

$0.07

 

February 2, 2022

 

February 16, 2022

 

The declaration of future dividends is not guaranteed and will be determined by NTIC’s Board of Directors in light of conditions then existing, including NTIC’s earnings, financial condition, cash requirements, restrictions in financing agreements, business conditions, and other factors, including without limitation the effect of COVID-19 on NTIC’s business, operating results and financial condition.

 

Capital Expenditures and Commitments. NTIC spent $1,871,903 on capital expenditures during the six months ended February 28, 2023, which related primarily to a new warehouse facility, equipment and facility improvements, including the purchase of the property immediately adjacent to NTIC’s headquarters in Circle Pines, Minnesota, which includes a 26,000 square foot industrial building, and related renovations. The building will be used primarily for warehousing space and light industrial production. NTIC expects to spend an aggregate of approximately $2,000,000 to $2,500,000 on capital expenditures during fiscal 2023, which it expects will relate primarily to the purchase of the new warehouse facility, equipment and facility improvements, including approximately $700,000 in renovations on the property and building described above.

 

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Inflation and Seasonality

 

Although inflation in the United States and abroad historically has had little effect on NTIC, inflationary pressures adversely affected NTIC’s gross margins during the first six months of fiscal 2023 and are expected to persist into at least the third quarter of fiscal 2023. NTIC believes there is some seasonality in its business. NTIC’s net sales in the second fiscal quarter were adversely affected by the long Chinese New Year, the North American holiday season and overall less corrosion taking place at lower winter temperatures worldwide.

 

Market Risk

 

NTIC is exposed to some market risk stemming from changes in foreign currency exchange rates, commodity prices and interest rates.

 

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese Yen, the Indian Rupee, the Chinese Renminbi, the South Korean Won, and the English Pound against the U.S. Dollar. NTIC’s fees for services provided to joint ventures and dividend distributions from these foreign entities are paid in foreign currencies and, thus, fluctuations in foreign currency exchange rates could result in declines in NTIC’s reported net income. Since NTIC’s investments in its joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment and would not change NTIC’s equity in income from joint ventures reflected in its consolidated statements of operations. NTIC does not hedge against its foreign currency exchange rate risk.

 

Some raw materials used in NTIC’s products are exposed to commodity price changes. The primary commodity price exposures are with a variety of plastic resins.

 

Any outstanding advances under NTIC’s Credit Facility with JPM bear interest at a floating rate, at the option of NTIC, equal to either the CB Floating Rate or the Adjusted SOFR Rate, as defined above. Borrowings of $7,100,000 were outstanding under the Credit Facility as of February 28, 2023.

 

Critical Accounting Policies and Estimates

 

There have been no material changes to NTIC’s critical accounting policies and estimates from the information provided in “Part II. Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and Estimates” included in NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2022.

 

Accounting Pronouncements

 

See Note 2 to NTIC’s consolidated financial statements for a discussion of accounting pronouncements.

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements 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. These forward-looking statements are subject to the safe harbor created by those sections. In addition, NTIC or others on NTIC’s behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on NTIC’s Internet web site, or otherwise. All statements other than statements of historical facts included in this report or expressed by NTIC orally from time to time that address activities, events, or developments that NTIC expects, believes, or anticipates will or may occur in the future are forward-looking statements, including, in particular, the statements about NTIC’s plans, objectives, strategies, and prospects regarding, among other things, NTIC’s financial condition, results of operations and business, the anticipated effect of COVID-19 and its acquisition of Zerust India on NTIC’s business, operating results and financial condition, the outcome of contingencies, such as legal proceedings. NTIC has identified some of these forward-looking statements in this report with words like “believe,” “can,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” or “continue” or the negative of these words or other words and terms of similar meaning. The use of future dates is also an indication of a forward-looking statement. Forward-looking statements may be contained in the notes to NTIC’s consolidated financial statements and elsewhere in this report, including under the heading “Managements Discussion and Analysis of Financial Condition and Results of Operations.”

 

27

 

Forward-looking statements are based on current expectations about future events affecting NTIC and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to NTIC. These uncertainties and factors are difficult to predict, and many of them are beyond NTIC’s control. The following are some of the uncertainties and factors known to us that could cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements:

 

 

The effect of worldwide disruption in supply issues on NTIC’s business, operating results and financial condition, which will likely continue through the end of fiscal 2023, regardless of the status of COVID-19;

 

 

The effect of COVID-19 on NTIC’s business, operating results and financial condition, including in particular in China, and disruption to our customers, suppliers and subcontractors, as well as the global economy and financial markets;

 

 

The effect of current worldwide economic conditions, inflation, recessionary indicators and any turmoil and disruption in the global credit, financial and banking markets or the perception of adverse conditions on NTIC’s business and the business of NTIC’s customers, supplier, vendors and other third parties with whom NTIC conducts business;

 

 

The effect of the ongoing war between Russia and Ukraine, and the effect of the war and the resulting sanctions by U.S. and European governments on commodity price fluctuations, which have decreased our margins and the margins of our joint ventures and resulted in decreased joint venture profitability, which will likely continue through the end of fiscal 2023;

 

 

NTIC’s operations in China and the risks associated therewith, including trade or other issues that may result from increasing tensions between the U.S. and China;

 

 

Variability in NTIC’s sales of ZERUST® products and services to the oil and gas industry and Natur-Tec® products and NTIC’s equity income of joint ventures, which variability in sales and equity in income from joint ventures, in turn, subject NTIC’s earnings to quarterly fluctuations;

 

 

Risks associated with NTIC’s international operations and exposure to fluctuations in foreign currency exchange rates, import duties, taxes, and tariffs;

 

 

The effect of the United Kingdom’s process to exit the European Union on NTIC’s operating results, including, in particular, future net sales of NTIC’s European and other joint ventures;

 

 

The effect of the health of the U.S. automotive industry on NTIC’s business and the evolution of the automotive industry towards electric vehicles;

 

 

NTIC’s dependence on the success of its joint ventures and fees and dividend distributions that NTIC receives from them;

 

 

Risks associated with NTIC’s acquisition of the remaining 50% ownership interest in its Indian joint venture, Zerust India;

 

28

 

 

NTIC’s relationships with its joint ventures and its ability to maintain those relationships, especially in light of anticipated succession planning issues, and risks associated with possible future acquisitions of the remaining ownership interests of certain joint ventures;

 

 

Fluctuations in the cost and availability of raw materials, including resins and other commodities, including supply chain disruptions and weather related impacts;

 

 

The success of and risks associated with NTIC’s emerging new businesses and products and services, including in particular NTIC’s ability and the ability of NTIC’s joint ventures to sell ZERUST® products and services to the oil and gas industry and Natur-Tec® products and the often lengthy and extensive sales process involved in selling such products and services;

 

 

NTIC’s ability to introduce new products and services that respond to changing market conditions and customer demand;

 

 

Market acceptance of NTIC’s existing and new products, especially in light of existing and new competitive products;

 

 

Maturation of certain existing markets for NTIC’s ZERUST® products and services and NTIC’s ability to grow market share and succeed in penetrating other existing and new markets;

 

 

Increased competition, especially with respect to NTIC’s ZERUST® products and services, and the effect of such competition on NTIC’s and its joint ventures’ pricing, net sales, and margins;

 

 

NTIC’s reliance upon and its relationships with its distributors, independent sales representatives, and joint ventures;

 

 

NTIC’s reliance upon suppliers;

 

 

Oil prices, which may affect sales of NTIC’s ZERUST® products and services to the oil and gas industry, and which may be impacted by the ongoing war between Russia and Ukraine;

 

 

The costs and effects of complying with laws and regulations and changes in tax, fiscal, government, and other regulatory policies, including rules relating to environmental, health, and safety matters;

 

 

Unforeseen product quality or other problems in the development, production, and usage of new and existing products;

 

 

Unforeseen production expenses incurred in connection with new customers and new products;

 

 

Loss of or changes in executive management or key employees and the need to hire and train local support in a timely manner in order to support customer needs;

 

29

 

 

Ability of management to manage around unplanned events;

 

 

Pending and future litigation;

 

 

NTIC’s reliance on its intellectual property rights and the absence of infringement of the intellectual property rights of others;

 

 

NTIC’s ability to maintain effective internal control over financial reporting, especially in light of its joint venture arrangements;

 

 

Changes in applicable laws or regulations and NTIC’s failure to comply with applicable laws, rules, and regulations;

 

 

Changes in generally accepted accounting principles and the effect of new accounting pronouncements;

 

 

Fluctuations in NTIC’s effective tax rate;

 

 

The effect of extreme weather conditions on NTIC’s operating results; and

 

 

NTIC’s reliance upon its management information systems.

 

For more information regarding these and other uncertainties and factors that could cause NTIC’s actual results to differ materially from what NTIC has anticipated in its forward-looking statements or otherwise could materially adversely affect its business, financial condition or operating results, see NTIC’s annual report on Form 10-K for the fiscal year ended August 31, 2022 under the heading “Part I. Item 1A. Risk Factors.”

 

All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. NTIC wishes to caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results due to the uncertainties and factors described above and others that NTIC may consider immaterial or does not anticipate at this time. Although NTIC believes that the expectations reflected in its forward-looking statements are reasonable, NTIC does not know whether its expectations will prove correct. NTIC’s expectations reflected in its forward-looking statements can be affected by inaccurate assumptions NTIC might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive, and further information concerning NTIC and its business, including factors that potentially could materially affect its financial results or condition, may emerge from time to time. NTIC assumes no obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. NTIC advises you, however, to consult any further disclosures NTIC makes on related subjects in its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K that NTIC files with or furnishes to the Securities and Exchange Commission.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

NTIC is exposed to some market risk stemming from changes in foreign currency exchange rates, commodity prices and interest rates.

 

Because the functional currency of NTIC’s foreign operations and investments in its foreign joint ventures is the applicable local currency, NTIC is exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. NTIC’s principal exchange rate exposure is with the Euro, the Japanese Yen, the Indian Rupee, the Chinese Renminbi, the South Korean Won, and the English Pound against the U.S. Dollar. NTIC’s fees for services provided to joint ventures and dividend distributions from these foreign entities are paid in foreign currencies, and, thus, fluctuations in foreign currency exchange rates could result in declines in NTIC’s reported net income. Since NTIC’s investments in its joint ventures are accounted for using the equity method, any changes in foreign currency exchange rates would be reflected as a foreign currency translation adjustment and would not change NTIC’s equity in income from joint ventures reflected in its consolidated statements of operations. NTIC does not hedge against its foreign currency exchange rate risk.

 

30

 

Some raw materials used in NTIC’s products are exposed to commodity price changes. The primary commodity price exposures are with a variety of plastic resins.

 

Any outstanding advances under NTIC’s Credit Facility with JPM bear interest at a floating rate, at the option of NTIC, equal to either the CB Floating Rate or the Adjusted SOFR Rate, as defined above. Borrowings of $7,100,000 were outstanding under the Credit Facility as of February 28, 2023.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

NTIC maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that information required to be disclosed by NTIC in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to NTIC’s management, including NTIC’s principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. NTIC’s management evaluated, with the participation of its Chief Executive Officer and its Chief Financial Officer, the effectiveness of the design and operation of NTIC’s disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, NTIC’s Chief Executive Officer and Chief Financial Officer concluded that NTIC’s disclosure controls and procedures were effective as of the end of such period to provide reasonable assurance that information required to be disclosed in the reports that NTIC files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to NTIC’s management, including NTIC’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There was no change in NTIC’s internal control over financial reporting that occurred during the quarter ended February 28, 2023 that has materially affected or is reasonably likely to materially affect NTIC’s internal control over financial reporting, other than changes implemented to continue integrating Zerust India’s internal controls with NTIC’s internal controls.

 

 

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PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

See Note 12 to NTIC’s consolidated financial statements in Part I. Item 1. Financial Statements of this report.

 

ITEM 1A.

RISK FACTORS

 

Although Item 1A. is inapplicable to NTIC as a smaller reporting company, NTIC hereby discloses the following revised risk factor described in its annual report on Form 10-K for the fiscal year ended August 31, 2021:

 

The operations of NTIC China may be adversely affected by Chinas evolving economic, political, and social conditions as well as increasing tensions between the United States and China.

 

The results of operations and future prospects of NTIC China may be adversely affected by, among other things, changes in China’s political, economic, and social conditions, changes in the relationship between China and its western trade partners, changes in policies of the Chinese government, changes in laws and regulations or in the interpretation of existing laws and regulations, changes in foreign exchange regulations, measures that may be introduced to control inflation, such as interest rate increases, changes in the rates or methods of taxation, and increasing tensions between the United States and China. In addition, changes in demand could result from increased competition with local Chinese manufacturers who have cost advantages or who may be preferred suppliers for Chinese end users. Also, Chinese commercial laws, regulations, and interpretations applicable to non-Chinese owned market participants, such as NTIC China, are continually changing, and such changes may require NTIC China to change how it conducts its business. These laws, regulations, and interpretations could impose restrictions on NTIC’s and NTIC China’s ownership or operations or NTIC’s interests in China and could adversely affect NTIC’s business, results of operations, and financial condition.

 

Local regulations in China related to the electric power shortage that began in 2021 may adversely affect NTIC China’s operations or the operations of our suppliers with facilities in China. For example, these regulations could result in partial or complete factory shutdowns due to a lack of continuous supply of electrical power. Additionally, the price of electric power may be increased, and peak-demand periods during which prices are higher may be extended by local governments. Certain of our resin suppliers with facilities in China were adversely impacted by these regulations, which contributed to constrained supply. Although NTIC China’s operations have not been significantly impacted by regulations related to electric power shortages to date, such regulations may in the future decrease or shut down production or increase product costs, which could adversely affect NTIC’s business, results of operations, and financial condition.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Equity Securities

 

During the three months ended February 28, 2023, NTIC did not issue any shares of its common stock or other equity securities of NTIC that were not registered under the Securities Act of 1933, as amended.

 

 

32

 

 

Issuer Purchases of Equity Securities

 

The following table shows NTIC’s second quarter of fiscal 2023 stock repurchase activity.

 

Period

 

Total Number

of Shares

(or Units)

Purchased

   

Average

Price Paid

Per Share

(or Unit)

   

Total Number of

Shares (or Units)

Purchased As Part

of Publicly

Announced Plans

or Programs

   

Maximum

Number of Shares

(or Units) that

May Yet Be

Purchased Under

the Plans

or Programs

 

December 1, 2022, through December 31, 2022

    0       $0       0       (1)  

January 1, 2023, through January 31, 2023

    0       $0       0       (1)  

February 1, 2023, through February 28, 2023

    0       $0       0       (1)  

Total

    0       $0       0       (1)(2)  

_________________

(1)

On January 15, 2015, NTIC’s Board of Directors authorized the repurchase of up to $3,000,000 in shares of NTIC common stock through open market purchases or unsolicited or solicited privately negotiated transactions. This program has no expiration date but may be terminated by NTIC’s Board of Directors at any time.

 

(2)

As of February 28, 2023, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.

OTHER INFORMATION

 

Not applicable.

 

33

 

 

ITEM 6.

EXHIBITS

 

The following exhibits are being filed or furnished with this quarterly report on Form 10-Q:

 

Exhibit No.

 

Description

     

3.1

 

Restated Certificate of Incorporation of Northern Technologies International Corporation, dated January 31, 2023 (filed herewith)

     

10.1

 

Credit Agreement between JPMorgan Chase Bank, N.A. and Northern Technologies International Corporation, dated December 19, 2022 (filed herewith)

     

31.1

 

Certification of President and Chief Executive Officer pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

     

31.2

 

Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

     

32.1

 

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

     

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

     

101

 

The following materials from NTIC’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2023, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Consolidated Balance Sheets, (ii) the unaudited Consolidated Statements of Operations, (iii) the unaudited Consolidated Statements of Comprehensive Income, (iv) the unaudited Consolidated Statements of Equity, (v) the unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements (filed herewith)

     

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

34

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities 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
   
  /s/ Matthew C. Wolsfeld
Date: April 13, 2023 Matthew C. Wolsfeld, CPA
  Chief Financial Officer
  (Principal Financial and Accounting Officer and
  Duly Authorized to Sign on Behalf of the Registrant)

 

 

 

 

35