NORTHERN TECHNOLOGIES INTERNATIONAL CORP

Previous wording

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.

Current wording

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.

Previous wording

Highlights of NTIC’s financial results for the three months ended November 30, 2023 include the following, with increases or decreases in each case as compared to the prior fiscal year quarterly period:

Current wording

Highlights of NTIC’s financial results for the three and six months ended February 29, 2024 include the following, with increases or decreases in each case as compared to the respective prior fiscal year quarterly period:

Previous wording

The following table sets forth NTIC’s results of operations for the three months ended November 30, 2023 and 2022.

Current wording

The following table sets forth NTIC’s results of operations for the three and six months ended February 29, 2024 and February 28, 2023.

Previous wording

Net Sales. NTIC’s consolidated net sales increased 1.1% to $20,181,675 during the three months ended November 30, 2023 compared to the three months ended November 30, 2022. This increase was primarily a result of an increase in sales of Natur-Tec® products.

Current wording

Net Sales. NTIC’s consolidated net sales increased 14.1% and 7.3% to $20,842,538 and $41,024,213 during the three and six months ended February 29, 2024, respectively, compared to the three and six months ended February 28, 2023. These increases were primarily as a result of an increase in sales and demand for Natur-Tec® and ZERUST® oil and gas products and stable sales of and demand for ZERUST® industrial products.

Previous wording

The following table sets forth NTIC’s net sales by product segment for the three months ended November 30, 2023 and 2022:

Current wording

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

Previous wording

During the three months ended November 30, 2023, 76.3% of NTIC’s consolidated net sales were derived from sales of ZERUST® products and services, which increased 0.2% to $15,405,745 during the three months ended November 30, 2023 compared to $15,370,001 during the three months ended November 30, 2022. This increase was primarily a result of increased demand in North America.

Current wording

During the three and six months ended February 29, 2024, 73.0% and 74.6% of NTIC’s consolidated net sales, respectively, were derived from sales of ZERUST® products and services, which increased 5.3% and 2.7% to $15,218,095 and $30,623,840, respectively, compared to $14,458,747 and $29,828,748 during the three and six months ended February 28, 2023, respectively. These increases were primarily a result of increased demand in North America of both ZERUST® industrial and ZERUST® oil and gas products.

Previous wording

The following table sets forth NTIC’s net sales of ZERUST® products for the three months ended November 30, 2023 and 2022:

Current wording

The following table sets forth NTIC’s net sales of ZERUST® products for the three and six months ended February 29, 2024 and February 28, 2023:

Previous wording

NTIC’s total ZERUST® net sales increased during the three months ended November 30, 2023, compared to the same prior fiscal year period, primarily due to increased demand in North American ZERUST® industrial business. 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.

Current wording

NTIC’s total ZERUST® net sales increased during the three and six months ended February 29, 2024, compared to the prior fiscal year periods, primarily due to increased demand in North American both ZERUST® industrial business and ZERUST® oil and gas business. 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.

Previous wording

ZERUST® oil and gas net sales decreased 7.4% during the three months ended November 30, 2023 compared to the same period last fiscal year primarily as a result of timing on the delivery of various orders that were not shipped prior to the end of the quarter. NTIC anticipates that its sales of ZERUST® products and services to the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized. 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.

Current wording

ZERUST® oil and gas net sales increased 20.1% and 7.1% during the three and six months ended February 29, 2024 compared to the prior fiscal year periods primarily as a result of increased demand in markets in which NTIC sells its products. NTIC anticipates that its sales of ZERUST® products and services to the oil and gas industry will continue to remain subject to significant volatility from quarter to quarter as sales are recognized. 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.

Previous wording

During the three months ended November 30, 2023, 23.7% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products, compared to 23.0% during the three months ended November 30, 2022. Sales of Natur-Tec® products increased 4.2% to $4,775,930 during the three months ended November 30, 2023 compared to $4,582,765 during the three months ended November 30, 2022 as a result of increased global demand. The demand for Natur-Tec® products in most markets has returned to pre-pandemic levels; however, there are lingering effects of COVID-19 in the apparel industry, as well as corporate office complexes.

Current wording

During the three and six months ended February 29, 2024, 27.0% and 25.4% of NTIC’s consolidated net sales were derived from sales of Natur-Tec® products, compared to 20.9% and 22.0% during the three and six months ended February 28, 2023, respectively. Sales of Natur-Tec® products increased 47.5% and 23.9% to $5,624,443 and $10,400,373 during the three and six months ended February 29, 2024, respectively, compared $3,812,078 and $8,394,843 during the three and six months ended February 28, 2023 as a result of increased global demand. The demand for Natur-Tec® products in most markets has returned to pre-pandemic levels; however, there are lingering effects of COVID-19 in the apparel industry, as well as corporate office complexes.

Previous wording

Cost of Goods Sold. Cost of goods sold decreased 5.5% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 primarily as a result of lower raw material prices overall. Cost of goods sold as a percentage of net sales decreased to 63.7% for the three months ended November 30, 2023 compared to 68.2% for the three months ended November 30, 2022 primarily as a result of these lower raw material prices. NTIC has taken certain actions to address inflationary pressures and pass on related cost increases to its customers and some improvements from these actions, as well as some improvements in gross margin, were realized during the three months ended November 30, 2023.

Current wording

Cost of Goods Sold. Cost of goods sold increased 4.5% and decreased 0.8% for the three and six months ended February 29, 2024, respectively, compared to the three and six months ended February 28, 2023 primarily as a result of lower raw material prices overall. Cost of goods sold as a percentage of net sales decreased to 60.0% and 61.8% for the three and six months ended February 29, 2024, respectively, compared to 65.5% and 66.9% for the three and six months ended February 28, 2028, respectively, primarily as a result of these lower raw material prices and the insourcing of various production of products. NTIC has taken certain actions to address inflationary pressures and pass on related cost increases to its customers and some improvements from these actions, as well as improvements in gross margin, were realized during the six months ended February 29, 2024.

Previous wording

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures decreased 7.3% to $1,102,241 during the three months ended November 30, 2023 compared to $1,189,404 during the three months ended November 30, 2022. This decrease was primarily due to a decrease in net income at NTIC’s joint venture in Germany, partially offset by increases at the majority of the other 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 $513,453 attributable to EXCOR during the three months ended November 30, 2023 compared to $871,144 attributable to EXCOR during the three months ended November 30, 2022. This decrease was primarily a result of a decrease in net sales by EXCOR compared to the same prior fiscal year period, due primarily to the loss of a customer and softer demand within the region related to higher energy prices and other externalities linked to the war between Ukraine and Russia. NTIC had equity in income from all other joint ventures of $588,788 during the three months ended November 30, 2023, compared to $318,260 during the three months ended November 30, 2022.

Current wording

Equity in Income from Joint Ventures. NTIC’s equity in income from joint ventures increased 4.4% during the three months ended February 29, 2024 to $1,177,990 compared to $1,128,731 was to primarily due to efforts to enhance profitability at the Company’s joint ventures, partially offset by lower joint venture sales. NTIC’s equity in income from joint ventures decreased 1.6% during the six months ended February 29, 2024 to $2,280,231 compared to $2,318,135 during the six months ended February 28, 2023 primarily due to a decrease in net income at NTIC’s joint venture in Germany, partially offset by increases at the majority of the other 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 $1,204,335 attributable to EXCOR during the six months ended February 29, 2024, compared to $1,547,944 attributable to EXCOR during the six months ended February 28, 2023. These decreases were primarily a result of a decrease in net sales by EXCOR compared to the same prior year fiscal periods, due primarily to the loss of a customer and softer demand within the region related to higher energy prices and other externalities linked to the war between Ukraine and Russia. NTIC had equity in income from all other joint ventures of $1,075,896 during the six months ended February 29, 2024, compared to $770,191 during the six months ended February 28, 2023.

Previous wording

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,248,958 during the three months ended November 30, 2023 compared to $1,181,805 during the three months ended November 30, 2022, representing an increase of 5.7%, or $67,153. 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 which was experienced by certain joint ventures during the three months ended November 30, 2023. Total net sales of NTIC’s joint ventures decreased to $23,560,661 during the three months ended November 30, 2023 compared to $24,730,289 for the three months ended November 30, 2022, representing a decrease of 4.7%. This decrease was primarily a result of decreased demand during the three months ended November 30, 2023 at NTIC’s joint venture in Germany due primarily to the loss of a customer and softer demand within the region, as described above. 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 $205,643 were attributable to EXCOR during the three months ended November 30, 2023 compared to $193,828 attributable to EXCOR during the three months ended November 30, 2022

Current wording

Fees for Services Provided to Joint Ventures. NTIC recognized fee income for services provided to joint ventures of $1,303,059 and $2,552,017 during the three and six months ended February 29, 2024, respectively, compared to $1,252,746 and $2,434,551 during the three and six months ended February 28, 2023, respectively, representing increases of 4.0% and 4.8%, 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 that was experienced by certain joint ventures during the three and six months ended February 29, 2024. Total net sales of NTIC’s joint ventures decreased 7.9% and 6.3% to $23,479,980 and $47,040,641 during the three and six months ended February 29, 2024, respectively, compared to $25,482,590 and $50,212,879 during the three and six months ended February 28, 2023, respectively. These decreases were primarily a result of decreased demand during the three and six months ended February 29, 2024 at NTIC’s joint venture in Germany due primarily to the loss of a customer and softer demand within the region, as described above. 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 $412,383 were attributable to EXCOR during the six months ended February 29, 2024, compared to $396,792 attributable to EXCOR during the six months ended February 28, 2023.

Previous wording

Selling Expenses. NTIC’s selling expenses increased 5.1% for the three months ended November 30, 2023 compared to the same period in fiscal 2023 due primarily to an increase in personnel expense during the current fiscal year period compared to the same prior fiscal year period. Selling expenses as a percentage of net sales increased to 18.3% for the three months ended November 30, 2023 compared to 17.6% during the three months ended November 30, 2022 primarily due to increased selling expenses, as noted above.

Current wording

Selling Expenses. NTIC’s selling expenses increased 15.0% and 10.1% for the three and six months ended February 29, 2024, respectively, compared to the same respective periods in fiscal 2023 due primarily to an increase in personnel expense during the current fiscal year period compared to the same prior fiscal year periods. Selling expenses as a percentage of net sales increased to 19.7% and 19.1% for the three and six months ended February 29, 2024, respectively, from 19.7% and 18.6% for the three and six months ended February 28, 2023, respectively, primarily due to the increased selling expenses as noted above.

Previous wording

General and Administrative Expenses. NTIC’s general and administrative expenses increased 12.3% for the three months ended November 30, 2023 compared to the same period in fiscal 2023 primarily due to increased professional services and travel and personnel expenses during the current fiscal year period compared to the same prior fiscal year period. As a percentage of net sales, general and administrative expenses increased to 17.4% for the three months ended November 30, 2023 from 15.7% for the three months ended November 30, 2022 primarily due to the increase in general and administrative expenses, as noted above.

Current wording

General and Administrative Expenses. NTIC’s general and administrative expenses increased 3.3% and 7.8% for the three and six months ended February 29, 2024, respectively, compared to the same respective periods in fiscal 2023 primarily due to increased professional services and travel and personnel expenses during the current fiscal year periods compared to the same prior fiscal year periods. As a percentage of net sales, general and administrative expenses decreased to 15.5% and increased to 16.5% for the three and six months ended February 29, 2024, respectively, from 17.2% and 16.4% for the same respective periods in fiscal 2023 primarily due to the changes in general and administrative expenses, as noted above.

Previous wording

Research and Development Expenses. NTIC’s research and development expenses decreased 12.0% for the three months ended November 30, 2023 compared to the same period in fiscal 2023 primarily due to the timing of expenses incurred and a decrease in expenses associated with development efforts.

Current wording

Research and Development Expenses. NTIC’s research and development expenses increased 8.9% and decreased 2.1% for the three and six months ended February 28, 2023, respectively, compared to the same respective periods in fiscal 2023 primarily due to the timing of expenses incurred and changes in expenses associated with development efforts.

Previous wording

Interest Income. NTIC’s interest income increased to $46,442 during the three months ended November 30, 2023 compared to $6,168 during the three months ended November 30, 2022 primarily due to changes to the invested cash balances at subsidiaries.

Current wording

Interest Income. NTIC’s interest income increased to $29,210 and $75,652 during the three and six months ended February 29, 2024, respectively, compared to $3,451 and $9,619 during the three and six months ended February 28, 2023, respectively, due primarily to changes in the invested cash balances at subsidiaries.

Previous wording

Interest Expense. NTIC’s interest expense increased to $111,138 during the three months ended November 30, 2023 compared to $91,331 during the three months ended November 30, 2022 primarily due to increased average interest rates during the current fiscal year period.

Current wording

Interest Expense. NTIC’s interest expense decreased to $77,758 and $188,896 during the three and six months ended February 29, 2024, respectively, compared to $115,144 and $206,475 during the three and six months ended February 28, 2023, respectively, due primarily to decreased borrowings during the current fiscal year periods.

Previous wording

Income Before Income Tax Expense. NTIC had income before income tax expense of $1,311,737 for the three months ended November 30, 2023 compared to income before income tax expense of $744,413 for the three months ended November 30, 2022.

Current wording

Income Before Income Tax Expense. NTIC had income before income tax expense of $2,157,723 and $3,469,460 for the three and six months ended February 29, 2024, respectively, compared to $701,863 and $1,446,276 for the three and six months ended February 28, 2023, respectively.

Previous wording

Income Tax Expense. Income tax expense was $226,796 during the three months ended November 30, 2023 compared to $110,733 during the three months ended November 30, 2022. Income tax expense was calculated based on management’s estimate of NTIC’s annual effective income tax rate.

Current wording

Income Tax Expense. Income tax expense was $289,195 and $515,991 for the three and six months ended February 29, 2024, respectively, compared to $181,795 and $292,528 during the three and six months ended February 28, 2023, respectively. Income tax expense was calculated based on management’s estimate of NTIC’s annual effective income tax rate.

Previous wording

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 $23,654,848 and $20,493,861 as of November 30, 2023 and August 31, 2023, 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.

Current wording

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 $23,645,685 and $20,493,861 as of February 29, 2024, and August 31, 2023, 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.

Previous wording

Net Income Attributable to NTIC. Net income attributable to NTIC increased to $895,521, or $0.09 per diluted common share, for the three months ended November 30, 2023 compared to $502,242, or $0.05 per diluted common share, for the three months ended November 30, 2022. This increase was primarily due to the increase in gross profit, partially offset by the increase in operating expenses.

Current wording

Net Income Attributable to NTIC. Net income attributable to NTIC increased to $1,868,528, or $0.17 per diluted common share, for the three months ended February 29, 2024, compared to $411,497, or $0.04 per diluted common share, for the three months ended February 28, 2023. Net income attributable to NTIC increased to $2,596,90, or $0.27 per diluted common share, for the six months ended February 29, 2024, compared to $913,739, or $0.09 per diluted common share, for the six months ended February 28, 2023. These increases were primarily due to the increase in gross profit, partially offset by the increase in operating expenses.

Previous wording

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 months ended November 30, 2023 compared to the same period in fiscal 2023.

Current wording

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 29, 2024 compared to the same respective periods in fiscal 2023.

Previous wording

Sources of Cash and Working Capital.** **NTIC’s working capital, defined as current assets less current liabilities, was $22,415,145 as of November 30, 2023, including $6,094,032 in cash and cash equivalents, compared to $22,950,184 as of August 31, 2023, including $5,406,173 in cash and cash equivalents.

Current wording

Sources of Cash and Working Capital. NTIC’s working capital, defined as current assets less current liabilities, was $23,975,459 as of February 29, 2024, including $4,835,031 in cash and cash equivalents, compared to $22,950,184 as of August 31, 2023, including $5,406,173 in cash and cash equivalents.

Previous wording

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 three months ended November 30, 2023.

Current wording

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 29, 2024.

Previous wording

Credit Agreement with JPMorgan Chase Bank, N.A.*** ***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, and replaced NTIC’s prior loan agreement with PNC Bank, National Association. The Credit Facility includes a $5.0 million sublimit for standby letters of credit. Borrowings of $3,000,000 were outstanding under the Credit Facility as of November 30, 2023.

Current wording

Credit Agreement with JPMorgan Chase Bank, N.A. 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, which includes a $5.0 million sublimit for standby letters of credit. Borrowings of $1,192,645 and $3,600,000 were outstanding under the Credit Facility as of February 29, 2024 and August 31, 2023, respectively.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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 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.

Previous wording

Other Credit Arrangements.*** ***On each of April 10, 2023 and May 30, 2023, the Company’s wholly-owned subsidiary in China, NTIC China, entered into a loan agreement with China Construction Bank Corporation. Each term loan provided NTIC China with a RMB 10,000,000 (USD $1.45 million). Each of the term loans matures after one year with the principal due at that time, after which an extension of the loan agreement is required. Both term loans have an annual interest rate of 3.25% with interest due monthly. Both term loans are secured by an office building owned by NTIC China and the loan agreements contain certain financial and other covenants. NTIC was in compliance with the covenants as of November 30, 2023. The current outstanding balance as of November 30, 2023 for both term loans is USD $2,810,686.

Current wording

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

Previous wording

Uses of Cash and Cash Flow. Net cash provided by operating activities during the three months ended November 30, 2023 was $3,076,892, which resulted principally from a decrease in dividends receivable from joint venture and trade receivables, NTIC’s net income, dividends received from joint ventures, a decrease in inventories, depreciation and amortization expense, and stock-based compensation, partially offset by equity in income from joint ventures and an increase in prepaid expenses and other, technical fee receivables and accounts payable. Net cash provided by operating activities during the three months ended November 30, 2022 was $2,002,543, which resulted principally from dividends received from joint ventures, NTIC’s net income, an increase in inventories, depreciation and amortization expense, and stock-based compensation, partially offset by equity in income from joint ventures and an increase in accounts payable.

Current wording

Uses of Cash and Cash Flow. Net cash provided by operating activities during the six months ended February 29, 2024 was $5,643,007, which resulted principally from NTIC’s net income, dividends received from joint ventures, dividend receivables 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, 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.

Previous wording

NTIC experienced a decrease in trade receivables and a decrease in inventory as of November 30, 2023 compared to August 31, 2023. Trade receivables, excluding joint ventures, as of November 30, 2023 decreased $1,405,769 compared to August 31, 2023, primarily related to the timing of collections.

Current wording

NTIC experienced a decrease in trade receivables and a decrease in inventory as of February 29, 2024, compared to August 31, 2023. Trade receivables, excluding joint ventures, as of February 29, 2024, decreased $844,538 compared to August 31, 2023, primarily related to the timing of collections and increases in sales.

Previous wording

Outstanding trade receivables, excluding joint ventures balances, decreased an average of 4 days to an average of 67 days from balances outstanding from these customers as of November 30, 2023 from an average of 71 days as of August 31, 2023.

Current wording

Outstanding trade receivables, excluding joint ventures balances, decreased an average of 5 days to an average of 66 days from balances outstanding from these customers as of February 29, 2024 from an average of 71 days as of August 31, 2023.

Previous wording

Outstanding trade receivables from joint ventures as of November 30, 2023 increased $590,713 compared to August 31, 2023 primarily due to the timing of payments and orders. Outstanding balances from trade receivables from joint ventures increased an average of 49 days to an average of 83 days from balances outstanding from these customers as of November 30, 2023 from an average of 34 days as of August 31, 2023. The average days outstanding of trade receivables from joint ventures as of November 30, 2023 were primarily due to the receivables balances at Japan, Thailand and South Korea.

Current wording

Outstanding trade receivables from joint ventures as of February 29, 2024 increased $704,017 compared to August 31, 2023, primarily due to the timing of payments and orders. Outstanding balances from trade receivables from joint ventures increased an average of 97 days to an average of 131 days from balances outstanding from these customers as of February 29, 2024 from an average of 34 days as of August 31, 2023. The average days outstanding of trade receivables from joint ventures as of February 29, 2024 were primarily due to the receivables balances at Thailand and South Korea.

Previous wording

Outstanding receivables for services provided to joint ventures as of November 30, 2023 decreased $75,194 compared to August 31, 2023, and the average days to pay increased an average of 3 days to an average of 89 days from an average of 86 days as of August 31, 2023.

Current wording

Outstanding receivables for services provided to joint ventures as of February 29, 2024 decreased $68,883 compared to August 31, 2023, and the average days to pay decreased an average of 1 days to an average of 85 days from an average of 86 days as of August 31, 2023.

Previous wording

Net cash used in investing activities for the three months ended November 30, 2023 was $423,871, which was primarily the result of the purchases of property and equipment, and investments in patents. Net cash used in investing activities for the three months ended November 30, 2022 was $453,539, which was primarily the result of the purchases of property and equipment, and investments in patents.

Current wording

Net cash used in investing activities for the six months ended February 29, 2024 and February 28, 2023 was $1,505,927 and $1,923,336, respectively, which was primarily the result of the purchases of property and equipment, and investments in patents.

Previous wording

Net cash used in financing activities for the three months ended November 30, 2023 was $2,019,836, which resulted from dividends paid to shareholders, the repayment of borrowings under the line of credit, and dividends received by non-controlling interests, partially offset by proceeds from NTIC’s employee stock purchase plan. Net cash used in financing activities for the three months ended November 30, 2022 was $730,386, which resulted from dividends paid to shareholders, the repayment of borrowings under the line of credit, and dividends received by non-controlling interests, partially offset by proceeds from the exercise of stock options and proceeds from NTIC’s employee stock purchase plan.

Current wording

Net used in financing activities for the six months ended February 29, 2024 was $4,762,201, which resulted from dividends paid to shareholders, the repayment of borrowings under the line of credit, and dividends received by non-controlling interests, partially offset by proceeds from NTIC’s employee stock purchase plan. 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.

Previous wording

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 three months ended November 30, 2023. As of November 30, 2023, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Current wording

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 29, 2024. As of February 29, 2024, up to $2,640,548 in shares of NTIC common stock remained available for repurchase under NTIC’s stock repurchase program.

Previous wording

Cash Dividends. On October 18, 2023, the Company’s Board of Directors declared a cash dividend of $0.07 per share of the Company’s common stock, payable on November 15, 2023 to stockholders of record on November 1, 2023. On October 20, 2022, the Company’s Board of Directors declared a cash dividend of $0.07 per share of the Company’s common stock, payable on November 16, 2022 to stockholders of record on November 3, 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.

Current wording

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.

Previous wording

Capital Expenditures and Commitments. NTIC spent $390,729 on capital expenditures during the three months ended November 30, 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 $1,600,000 to $2,100,000 on capital expenditures during fiscal 2024, which it expects will relate primarily to the installation of new Enterprise Resource Planning (ERP) software system and the purchase of new equipment and facility improvements.

Current wording

Capital Expenditures and Commitments. NTIC spent $1,443,762 on capital expenditures during the six months ended February 29, 2024, which related primarily to facility improvements to the warehouse facility NTIC purchased during fiscal 2023 and associated equipment. NTIC expects to spend an aggregate of approximately $1,600,000 to $2,100,000 on capital expenditures during fiscal 2024, which it expects will relate primarily to the installation of new Enterprise Resource Planning (ERP) software system and the purchase of new equipment and facility improvements.

Previous wording

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 quarter of fiscal 2024. NTIC believes there is some seasonality in its business. NTIC anticipates its net sales in the second fiscal quarter may be adversely affected by the long Chinese New Year, the North American holiday season and overall less corrosion taking place at lower winter temperatures worldwide.

Current wording

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 second quarter of fiscal 2024. NTIC believes there is some seasonality in its business. NTIC anticipates its net sales in the second fiscal quarter may be adversely affected by the long Chinese New Year, the North American holiday season and overall less corrosion taking place at lower winter temperatures worldwide.