Northern Technologies International Corp 10-K for FY2023

Northern Technologies International Corp (NTIC)

10-K 2023-11-21 For: 2023-08-31

Added on April 06, 2026

About this 10-K

Northern Technologies International Corp filed this 10-K on November 21, 2023, covering the fiscal year ended August 31, 2023 (FY2023).

Headline figures

Fiscal year ended August 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $79.9M; up 7.7% from $74.16M a year earlier
Net income: $2.91M; down 54.0% from net income of $6.32M a year earlier
Diluted EPS: $0.30; down 54.5% from $0.66 a year earlier

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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

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

PART I		1
Item 1.	BUSINESS	1
	INFORMATION ABOUT OUR EXECUTIVE OFFICERS	13
Item 1A.	RISK FACTORS	15
Item 1B.	UNRESOLVED STAFF COMMENTS	36
Item 2.	PROPERTIES	36
Item 3.	LEGAL PROCEEDINGS	37
Item 4.	MINE SAFETY DISCLOSURES	37
PART II		38
Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	38
Item 6.	[RESERVED]	38
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	53
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	54
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	81
Item 9A.	CONTROLS AND PROCEDURES	81
Item 9B.	OTHER INFORMATION	82
Item 9C.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	82
PART III		83
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	83
Item 11.	EXECUTIVE COMPENSATION	83
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	83
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	85
Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	85
PART IV		86
Item 15.	EXHIBIT AND FINANCIAL STATEMENT SCHEDULES	86
Item 16.	FORM 10-K SUMMARY	89

Subsidiary Name	Country	NTIC Percent (%) Ownership
HNTI Limited	India		100	%
Natur Tec Lanka (Pvt) Ltd	Sri Lanka⁽¹⁾		75	%
Natur-Tec India Private Limited	India		75	%
NTI Asean LLC	United States		60	%
NTIC (Shanghai) Co., Ltd	China		100	%
NTIC Europe GmbH	Germany		100	%
Zerust Prevenção de Corrosão S.A.	Brazil		85	%
Zerust Singapore Pte Ltd	Singapore⁽²⁾		60	%
Zerust Vietnam Co. Ltd	Vietnam⁽³⁾		60	%
Zerust Taiwan Co., Ltd	Taiwan⁽⁴⁾		60	%
ZERUST-EXCOR MEXICO, S. de R.L. de C.V.	Mexico		100	%

Joint Venture Name	Country	NTIC Percent (%) Ownership
ACOBAL SAS	France		50	%
CHONG WAH-NTIA SDN. BHD.	Malaysia⁽¹⁾		30	%
EXCOR KORROSIONSSCHUTZ – TECHNOLOGIEN UND PRODUKTE GMBH	Germany		50	%
EXCOR SP. Z.O.O.	Poland		50	%
EXCOR-ZERUST S.R.O.	Czech Republic		50	%
KOREA ZERUST CO., LTD.	South Korea⁽¹⁾		30	%
PT. CHEMINDO – NTIA	Indonesia⁽¹⁾		30	%
TAIYONIC LTD.	Japan		50	%
ZERUST – DNEPR	Ukraine		50	%
ZERUST (U.K.) LTD.	United Kingdom		50	%
ZERUST A.Ş.	Turkey		50	%
ZERUST AB	Sweden		50	%
ZERUST CONSUMER PRODUCTS, LLC	United States		50	%
ZERUST OY	Finland		50	%
ZERUST SPECIALTY TECH CO. LTD.	Thailand⁽¹⁾		30	%

Name	Age	Position with NTIC
G. Patrick Lynch	56	President and Chief Executive Officer

Matthew C. Wolsfeld	49	Chief Financial Officer and Corporate Secretary

	●	NTIC’s reliance upon patents, trademark laws, trade secrets, and contractual provisions to protect its proprietary rights may not be sufficient to protect its intellectual property.
	●	NTIC has identified a material weakness in its internal controls, and cannot provide assurances that this weakness will be effectively remediated or that additional material weaknesses will not occur in the future.

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
April 21, 2023	$0.07	May 3, 2023	May 17, 2023
July 17, 2023	$0.07	August 2, 2023	August 16, 2023

	Fiscal 2023		% of Net Sales			Fiscal 2022		% of Net Sales			$ Change			% Change
Net sales	$	79,902,952		100.0	%	$	74,158,890		100.0	%	$	5,744,062			7.7	%
Cost of goods sold		52,099,121		65.2	%		51,090,298		68.9	%		1,008,823			2.0	%
Equity in income from joint ventures		6,452,719		8.1	%		4,725,918		6.4	%		1,726,801			36.5	%
Fees for services provided to joint ventures		5,189,185		6.5	%		5,767,682		7.8	%		(578,497	)		(10.0	%)
Selling expenses		15,290,897		19.1	%		13,038,180		17.6	%		2,252,717			17.3	%
General and administrative expenses		13,166,270		16.5	%		10,600,603		14.3	%		2,565,667			24.2	%
Research and development expenses		4,967,922		6.2	%		4,775,334		6.4	%		192,588			4.0	%

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID # 23)	55
Consolidated Balance Sheets as of August 31, 2023 and 2022	56
Consolidated Statements of Operations for the years ended August 31, 2023 and 2022	57
Consolidated Statements of Comprehensive Income for the years ended August 31, 2023 and 2022	58
Consolidated Statements of Equity for the years ended August 31, 2023 and 2022	59
Consolidated Statements of Cash Flows for the years ended August 31, 2023 and 2022	60
Notes to Consolidated Financial Statements	61 - 80

	August 31, 2023			August 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,406,173		$	5,333,890
Available for sale securities		-			5,590
Receivables:
Trade excluding joint ventures, less allowance for doubtful accounts of $533,000 and $439,000 as of August 31, 2023 and 2022, respectively		15,645,130			14,136,930
Trade, joint ventures		187,912			697,861
Fees for services provided to joint ventures		1,296,594			1,765,117
Dividend receivable from joint venture		1,986,027			-
Income taxes		34,202			-
Inventories		13,096,489			16,341,729
Prepaid expenses		2,019,029			1,953,764
Total current assets		39,671,556			40,234,881

PROPERTY AND EQUIPMENT, NET		14,065,354			12,170,493

OTHER ASSETS:
Investments in joint ventures		23,705,714			21,814,754
Deferred income tax, net		530,944			-
Intangible asset, net		5,500,733			5,923,867
Goodwill		4,782,376			4,782,376
Patents and trademarks, net		658,752			710,011
Operating lease right of use assets		428,874			557,571
Total other assets		35,607,393			33,788,579
Total assets	$	89,344,303		$	86,193,953
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Line of credit	$	3,600,000		$	5,900,000
Term loan		2,757,176			-
Accounts payable		6,056,329			7,796,494
Income taxes payable		13,053			30,742
Accrued liabilities:
Payroll and related benefits		2,305,400			2,297,543
Other		1,648,615			667,292
Current portion of operating leases		340,799			373,330
Total current liabilities		16,721,372			17,065,401
LONG-TERM LIABILITIES:
Deferred income tax, net		1,836,059			1,700,015
Operating leases, less current portion		88,075			184,241
Total long-term liabilities		1,924,134			1,884,256

COMMITMENTS AND CONTINGENCIES (Note 15)
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; issued and outstanding 9,424,101 and 9,232,483, respectively		188,482			184,650
Additional paid-in capital		21,986,767			19,939,131
Retained earnings		51,004,427			50,716,613
Accumulated other comprehensive loss		(6,823,403	)		(7,245,132	)
Stockholders’ equity		66,356,273			63,595,262
Non-controlling interests		4,342,524			3,649,034
Total equity		70,698,797			67,244,296
Total liabilities and equity	$	89,344,303		$	86,193,953

	2023			2022
NET SALES:
Net sales	$	79,902,952		$	74,158,890
Cost of goods sold		52,099,121			51,090,298
Gross profit		27,803,831			23,068,592

JOINT VENTURE OPERATIONS:
Equity in income from joint ventures		6,452,719			4,725,918
Fees for services provided to joint ventures		5,189,185			5,767,682
Total joint venture operations		11,641,904			10,493,600

OPERATING EXPENSES:
Selling expenses		15,290,897			13,038,180
General and administrative expenses		13,166,270			10,600,603
Research and development expenses		4,967,922			4,775,334
Total operating expenses		33,425,089			28,414,117

OPERATING INCOME		6,020,646			5,148,075

REMEASUREMENT GAIN ON ACQUISITION OF EQUITY METHOD INVESTEE		-			3,951,550
INTEREST INCOME		28,490			49,241
INTEREST EXPENSE		(461,805	)		(89,096	)

INCOME BEFORE INCOME TAX EXPENSE		5,587,331			9,059,770

INCOME TAX EXPENSE		1,349,600			1,873,836

NET INCOME		4,237,731			7,185,934

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS		1,325,455			861,234

NET INCOME ATTRIBUTABLE TO NTIC	$	2,912,276		$	6,324,700

NET INCOME ATTRIBUTABLE TO NTIC PER COMMON SHARE:
Basic	$	0.31		$	0.69
Diluted	$	0.30		$	0.66

WEIGHTED AVERAGE COMMON SHARES
ASSUMED OUTSTANDING:
Basic		9,359,504			9,216,216
Diluted		9,693,482			9,635,028
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.28		$	0.28

	STOCKHOLDERS’ EQUITY
										Accumulated
					Additional					Other			Non-
	Common Stock				Paid-in		Retained			Comprehensive			Controlling			Total
	Shares		Amount		Capital		Earnings			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		42,071		842		197,798		—			—			—			198,640
Stock issued for employee stock purchase plan		5,601		112		73,533		—			—			—			73,645
Stock option expense		—		—		931,532		—			—			—			931,532
Dividends paid to stockholders		—-		—		—		(2,581,179	)		—-			—			(2,581,179	)
Dividend received by non-controlling interest		—		—		—		—			—			(402,729	)		(402,729	)
Net income		—		—		—		6,324,700			—			861,234			7,185,934
Other comprehensive loss		—		—		—		—			(3,720,102	)		(192,026	)		(3,912,128	)
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		184,432		3,689		634,581		—			—			—			638,270
Stock issued for employee stock purchase plan		7,186		143		75,321		—			—			—			75,464
Stock option expense		—		—		1,337,734		—			—			—			1,337,734
Dividends paid to stockholders		—-		—		—		(2,624,462	)		—-			—			(2,624,462	)
Dividend received by non-controlling interest		—		—		—		—			—			(655,574	)		(655,574	)
Net income		—		—		—		2,912,276			—			1,325,455			4,237,731
Other comprehensive gain		—		—		—		—			421,729			23,609			445,338
BALANCE AT AUGUST 31, 2023		9,424,101	$	188,482	$	21,986,767	$	51,004,427		$	(6,823,403	)	$	4,342,524		$	70,698,797

	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,237,731		$	7,185,934
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		1,337,734			931,532
Depreciation expense		1,042,505			938,489
Amortization expense		588,454			629,843
Loss on disposal of property and equipment		(8,534	)		-
Remeasurement gain on acquisition of equity method investee		-			(3,951,550	)
Change in allowance for doubtful accounts		94,000			57,000
Equity in income from joint ventures		(6,452,719	)		(4,725,918	)
Dividends received from joint ventures		5,639,198			5,723,176
Deferred income taxes		(395,001	)		(81,500	)
Changes in current assets and liabilities:
Receivables:
Trade, excluding joint ventures		(1,956,234	)		(2,091,353	)
Trade, joint ventures		509,949			(73,053	)
Fees for services provided to joint ventures		468,523			(259,550	)
Dividends receivable from joint venture		(1,986,027	)		-
Income taxes		(34,202	)		284,025
Inventories		3,030,665			(4,818,860	)
Prepaid expenses and other		(3,061	)		3,111
Accounts payable		(1,509,226	)		3,010,526
Income tax payable		(16,077	)		(493,091	)
Accrued liabilities		953,541			(1,122,683	)
Net cash provided by operating activities		5,541,219			1,146,078

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			(956	)
Investment in joint venture		-			(341,392	)
Purchases of property and equipment		(3,247,652	)		(1,496,674	)
Proceeds from sale of property and equipment		13,000			-
Investments in patents		(114,062	)		(207,149	)
Net cash used in investing activities		(3,343,124	)		(7,108,174	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend received by non-controlling interest		(655,574	)		(402,729	)
Repayments on the line of credit		(2,300,000	)		-
Proceeds from line of credit		-			5,900,000
Proceeds from term loan		2,812,504			-
Dividends paid on NTIC common stock		(2,624,462	)		(2,581,179	)
Proceeds from employee stock purchase plan		75,464			73,645
Proceeds from exercise of stock options		638,270			198,640
Net cash (used in) provided by financing activities		(2,053,798	)		3,188,377

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(72,014	)		426,968

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		72,283			(2,346,751	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		5,333,890			7,680,641

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	5,406,173		$	5,333,890

Buildings and improvements	5-30 years
Machinery and equipment	3-10 years

	August 31, 2023		August 31, 2022
Production materials	$	4,960,355	$	6,496,656
Finished goods		8,136,134		9,845,073
	$	13,096,489	$	16,341,729

	August 31, 2023			August 31, 2022
Land	$	496,965		$	310,365
Buildings and improvements		17,250,392			14,778,759
Machinery and equipment		5,984,364			5,643,320
		23,731,721			20,732,444
Less accumulated depreciation		(9,666,367	)		(8,561,951	)
	$	14,065,354		$	12,170,493

	As of August 31, 2023
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents and trademarks	$	3,339,717	$	(2,680,965	)	$	658,752
Customer relationships		6,347,000		(846,267	)		5,500,733
Total intangible assets, net	$	9,686,717	$	(3,527,232	)	$	6,159,485

	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

Fiscal 2024	$	642,951
Fiscal 2025		543,721
Fiscal 2026		517,990
Fiscal 2027		492,221
Fiscal 2028		479,012
Thereafter		3,483,589
Total	$	6,159,485

	As of August 31, 2023
	Total		EXCOR		OTHER
Current assets	$	55,339,662	$	27,862,458	$	27,477,204
Total assets		59,729,348		30,054,277		29,675,071
Current liabilities		11,464,247		2,687,064		8,777,183
Noncurrent liabilities		323,762		-		323,762
Joint ventures’ equity		47,941,339		27,367,213		20,574,126
Northern Technologies International Corporation’s share of joint ventures’ equity		23,705,714		13,683,608		10,022,106
Northern Technologies International Corporation’s share of joint ventures’ undistributed earnings		20,493,861		12,075,524		8,418,337

	Fiscal Year Ended August 31, 2023
	Total		EXCOR		OTHER
Net sales	$	100,682,316	$	39,642,380	$	61,039,936
Gross profit		40,096,561		19,016,389		21,080,172
Net income		8,934,198		5,730,311		3,203,887
Northern Technologies International Corporation’s share of equity in income of joint ventures		6,452,719		2,852,229		3,600,490
Northern Technologies International Corporation’s dividends received from joint ventures		5,639,198		2,459,500		3,179,698

	Fiscal Year Ended August 31, 2022
	Total		EXCOR		OTHER
Net sales	$	104,077,748	$	42,853,162	$	61,224,586
Gross profit		41,030,647		20,312,400		20,718,247
Net income		9,302,237		6,487,855		2,814,382
Northern Technologies International Corporation’s share of equity in income of joint ventures		4,725,918		3,236,989		1,488,929
Northern Technologies International Corporation’s dividends received from joint ventures		5,723,176		4,255,200		1,467,976

Numerator:	August 31, 2023		August 31, 2022
Net income attributable to NTIC	$	2,912,276	$	6,324,700

Denominator:
Basic-weighted shares outstanding		9,359,504		9,216,216
Weighted shares assumed upon exercise of stock options		333,978		418,812
Diluted – weighted shares outstanding		9,693,482		9,635,028

Basic net income per share:	$	0.31	$	0.69
Diluted net income per share:	$	0.30	$	0.66

	Fiscal Year 2023			Fiscal Year 2022
Dividend yield		2.44	%		1.65	%
Expected volatility		45.2	%		45.4	%
Expected life of option (years)	10			10
Weighted average risk-free interest rate		3.31	%		0.77	%

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2021		1,426,651		$	9.30
Options granted		174,840			16.97
Options exercised		(51,218	)		6.60
Options terminated		(5,546	)		18.23

Outstanding at August 31, 2022		1,544,727		$	10.23
Options granted		277,613			11.41
Options exercised		(265,209	)		6.46
Options terminated		-			-

Outstanding at August 31, 2023		1,557,130		$	11.08	$	4,240,525

Exercisable at August 31, 2023		1,079,897		$	10.77	$	3,329,061

	Fiscal 2023		Fiscal 2022
ZERUST® net sales	$	61,728,364	$	57,459,382
Natur-Tec® net sales		18,174,588		16,699,508
Total net sales	$	79,902,952	$	74,158,890

	Fiscal 2023		Fiscal 2022
Direct cost of goods sold
ZERUST®	$	35,297,352	$	34,673,146
Natur-Tec®		13,645,992		12,859,343
Indirect cost of goods sold		3,155,777		3,557,809
Total net cost of goods sold	$	52,099,121	$	51,090,298

	Fiscal Year Ended August 31,
	2023		2022
Inside the U.S.A. to unaffiliated customers	$	28,554,354	$	25,301,067
Outside the U.S.A. to:
Joint ventures in which the Company is a shareholder directly and indirectly		3,401,910		2,968,089
Unaffiliated customers		47,946,688		45,889,734
	$	79,902,952	$	74,158,890

	Fiscal 2023		% of Total Fees for Services Provided to Joint Ventures			Fiscal 2022		% of Total Fees for Services Provided to Joint Ventures
Germany	$	816,089		15.7	%	$	834,725		14.5	%
Poland		810,977		15.6	%		730,523		12.7	%
Japan		658,934		12.7	%		669,371		11.6	%
Sweden		498,463		9.6	%		447,441		7.8	%
France		479,515		9.2	%		448,579		7.8	%
Finland		388,627		7.5	%		340,783		5.9	%
Czech Republic		365,018		7.0	%		300,257		5.2	%
Thailand		340,657		6.6	%		344,649		6.0	%
United Kingdom		283,418		5.5	%		342,488		5.9	%
South Korea		266,562		5.1	%		270,309		4.7	%
Indonesia		130,081		2.5	%		156,476		2.7	%
Other		150,844		3.0	%		882,081		15.2	%
	$	5,189,185		100.0	%	$	5,767,682		100.0	%

	At August 31, 2023		At August 31, 2022
China	$	5,729,080	$	5,826,898
Other		745,469		565,022
United States		7,590,805		5,778,573
Total property and equipment	$	14,065,354	$	12,170,493

	Fiscal Year Ended August 31, 2023		Fiscal Year Ended August 31, 2022
China	$	13,469,075	$	15,754,051
Brazil		5,969,314		5,160,572
India		19,916,834		18,555,603
Other		11,993,375		9,387,597
United States		28,554,354		25,301,067
Total net sales	$	79,902,952	$	74,158,890

	August 31,
	2023			2022
Stock-based compensation	$	556,700		$	547,200
Foreign tax credit carryforward		4,036,000			4,892,100
Capitalized research and experimentation		1,106,000			—
Other credit and loss carryforward		6,034,000			5,455,500
Other		1,048,800			1,095,300
Total deferred tax assets		12,781,500			11,990,100
Valuation allowance		(11,933,700	)		(11,592,900	)
Total deferred tax assets after valuation allowance		847,800			397,200
Right-of-use asset		(66,200	)		(98,300	)
Intangible assets		(1,670,700	)		(1,777,200	)
Unremitted foreign earnings		(214,800	)		(163,200	)
Other		(201,215	)		(58,500	)
Total deferred tax liabilities		(2,152,915	)		(2,097,200	)
Net deferred tax liabilities	$	(1,305,115	)	$	(1,700,000	)

	August 31, 2023		August 31, 2022
Right-of-use assets, net	$	428,874	$	557,571

Current portion of lease liability		340,799		373,330
Lease liability, less current portion		88,075		184,241
Total lease liability	$	428,874	$	557,571

	Fiscal Year Ended August 31,
	2023		2022
Cash paid for income tax	$	1,064,894	$	1,218,467
Cash paid for interest		461,805		89,096
Cash paid for operating leases		373,330		272,336