Northern Technologies International (NTIC) - 2021 Q4 - Annual Report

Part I Business Overview NTIC develops and markets ZERUST® corrosion prevention and Natur-Tec® bio-based products globally, expanding into oil and gas and strengthening bioplastics market presence Overview NTIC operates globally, offering ZERUST® corrosion prevention and Natur-Tec® bio-based products, including specialized solutions for oil and gas - NTIC operates globally in over 65 countries, offering ZERUST® corrosion prevention and Natur-Tec® bio-based products[17] - ZERUST® products include plastic/paper packaging, liquids, coatings, rust removers, cleaners, diffusers, and engineered solutions for the oil and gas industry[18] - Natur-Tec® biopolymer resin compounds are certified fully biodegradable and used for various finished products like bags and foodservice items[22] Impact of COVID-19 Pandemic and Worldwide Supply Chain Disruptions The COVID-19 pandemic and supply chain disruptions negatively impacted NTIC's fiscal 2021 operations and are expected to continue - The COVID-19 pandemic negatively impacted the global economy, disrupted supply chains, and caused financial market volatility[24] - In fiscal year 2021, NTIC experienced shipping issues (freight container shortages, delays, increased costs) and supply chain issues (longer lead times, raw material cost increases)[24] - These disruptions are expected to continue in fiscal 2022, potentially having a material adverse effect on NTIC's business, operating results, and financial condition[25] NTIC's Subsidiaries and Joint Venture Network NTIC operates through 10 subsidiaries and 18 joint ventures, receiving fees and dividends, with Harita-NTI becoming wholly-owned - NTIC holds ownership interests in 10 operating subsidiaries and participates in 18 active joint venture arrangements across North America, South America, Europe, and Asia[26][28] - Harita-NTI Limited became a wholly-owned subsidiary as of September 1, 2021, and its results will be fully consolidated thereafter[27][31] - NTIC receives funds from joint ventures as fees for services (flat fee or percentage of sales) and dividend distributions, with EXCOR (Germany) being individually significant to consolidated assets and income[30][32] Products ZERUST® sales increased while Natur-Tec® sales decreased in fiscal 2021, with both segments offering diverse product lines Consolidated Net Sales by Product Segment (Fiscal 2021 vs. 2020) | Product Segment | Fiscal 2021 Sales ($) | Fiscal 2020 Sales ($) | Change ($) | Change (%) | | :---------------- | :------------------ | :------------------ | :--------- | :--------- | | ZERUST® Solutions | $45,554,434 | $34,474,535 | $11,079,899 | 32.1% | | Natur-Tec® Products | $10,939,385 | $13,164,156 | $(2,224,771)| (16.9)% | | Total Net Sales | $56,493,819 | $47,638,691 | $8,855,128 | 18.6% | - ZERUST® corrosion prevention solutions include plastic/paper packaging, liquids/coatings, rust removers/cleaners, diffusers, and specialized engineered solutions for the oil and gas industry[35][36][38][40][41][43] - Natur-Tec® bio-based and compostable plastics are manufactured using proprietary technologies, optimized for various applications (film, extrusion, injection molding), and certified biodegradable[22][48][50][52][53][54] Sales, Marketing, and Distribution NTIC utilizes direct sales, distributors, and international JVs for ZERUST® and Natur-Tec® products, with growth anticipated from plastic bans - ZERUST® products are sold in the U.S. through a direct sales force and independent distributors, with international sales via subsidiaries and joint ventures[60][61][62] - Sales to the oil and gas industry involve long cycles and strategic partnerships, with direct marketing and trade show participation[63] - Natur-Tec® products are marketed in North America through distributors and direct sales, and internationally through subsidiaries (India, Sri Lanka, China) and distributors, with anticipated growth due to bans on single-use plastics in India and China[64][65] Competition NTIC faces regional competition for ZERUST® and established players for Natur-Tec®, competing on innovation, quality, and price - NTIC faces regional competition for ZERUST® products, competing on innovation, quality, reliability, support, service, reputation, and price, leveraging technical innovation and value-added services[67] - Competition in the oil and gas industry includes established players and new suppliers, with primary barriers to entry being conservatism and complexity of buying organizations[68] - Natur-Tec® products compete with established companies having greater resources, focusing on performance, brand awareness, distribution, product availability, shelf life, and price, often with lower margins due to price competition and supply constraints for base resins[69] Research and Development NTIC's R&D focuses on product improvement, new development, and cost reduction, with projected spending of $4.4-$4.8 million in fiscal 2022 - NTIC's R&D focuses on improving existing products, developing new ones, reducing costs, and enhancing quality assurance, conducted at facilities in Minnesota, Ohio, and Germany[70] - NTIC anticipates spending between $4.4 million and $4.8 million on R&D activities in fiscal 2022[71] Intellectual Property Rights NTIC protects its technology and brands globally through patents, trademarks, and confidentiality agreements for proprietary know-how - NTIC protects its technology through patents and trademarks globally, owning several patents in corrosion inhibiting technologies and other areas, and maintaining an extensive trademark portfolio[73][74][75] - Employees, consultants, and advisors with access to confidential information are required to execute confidentiality agreements to protect trade secrets and proprietary know-how[76] Manufacturing NTIC's ZERUST® and Natur-Tec® products are manufactured by sub-contractors and in-house, with the company being ISO 9001 certified - ZERUST® products are primarily manufactured by independent sub-contractors under trade secrecy/license agreements, with select liquids and powders produced at NTIC's Minnesota headquarters[77] - Natur-Tec® resin compounds and finished products are produced in India, China, Malaysia, and the United States, with finished products manufactured by select sub-contractors using NTIC's resins[78] - NTIC is ISO 9001 certified, ensuring product consistency and providing competitive advantages[79] Availability of Raw Materials Natur-Tec® faces limited raw material suppliers and cost increases, with sole-sourced materials posing supply interruption risks - NTIC typically does not carry excess raw materials, but Natur-Tec® products face limited suppliers for base resins, leading to cost increases and supply issues, exacerbated by COVID-19 and extreme weather in fiscal 2021[80] - A few raw materials for ZERUST® and Natur-Tec® are sole-sourced, posing a risk of supply interruption if alternative suppliers cannot be found quickly[81] Backlog NTIC's order backlog increased by $599,000 (16.7%) in fiscal 2021, with sales expected in the first quarter of fiscal 2022 Order Backlog (as of August 31) | Year | Backlog Amount ($) | | :--- | :------------- | | 2021 | $4,192,000 | | 2020 | $3,593,000 | - The backlog increased by $599,000 (16.7%) from fiscal 2020 to fiscal 2021, with sales expected in Q1 fiscal 2022[82] Governmental Regulation ZERUST® and Natur-Tec® products comply with U.S. FDA regulations for food contact materials and packaging - ZERUST® ICT® packaging products are approved by the U.S. FDA for use with metal food containers and processing equipment[83] - Natur-Tec® resin compounds and finished products comply with FDA regulations for substances used in food packaging materials[83] Employees As of August 31, 2021, NTIC had 78 full-time employees in North America and 64 in subsidiaries, with 58 added from Harita-NTI acquisition - As of August 31, 2021, NTIC had 78 full-time employees in North America (sales/marketing, R&D, administration, production) and 64 employees across its wholly-owned/majority-owned subsidiaries in China, Brazil, and India[84] - Effective September 1, 2021, the acquisition of Harita-NTI Limited added 58 full-time employees in India[84] Health, Safety and Environment NTIC is committed to Health, Safety, and Environment (HSE), guided by a policy to ensure quality management and prevent harm - NTIC is committed to HSE, guided by a policy statement to ensure activities align with quality management standards and HSE programs, prevent harm, and protect health and safety[85][86] Diversity and Inclusion NTIC's Human Rights Policy aligns with the UN Global Compact, promoting a discrimination-free environment and diverse workforce - NTIC's Human Rights Policy aligns with the United Nations Global Compact, committing to a discrimination-free environment, equal opportunities, and a diverse workforce[87] Education NTIC offers educational assistance and training programs to enhance employee knowledge and support work-related education - NTIC offers an educational assistance benefit program for eligible full-time employees pursuing work-related education and arranges training programs to enhance technical, commercial, or financial knowledge[88] Compensation and Benefits NTIC's compensation program aims to attract and retain talent with competitive pay and benefits based on local markets - NTIC's compensation program aims to attract and retain talent with competitive pay and benefits based on local markets and job descriptions, ensuring fair and living wages[89] Values and Ethics NTIC operates under a Code of Ethics, requiring employees, officers, and directors to uphold honesty and the highest ethical business standards - NTIC operates under a Code of Ethics requiring employees, officers, and directors to uphold honesty, trustworthiness, conscientiousness, and the highest ethical business standards, abiding by applicable laws[90] Available Information NTIC makes its annual, quarterly, and current reports available free of charge on its website and through the SEC's website - NTIC, a Delaware corporation, makes its annual, quarterly, and current reports available free of charge on its website and through the SEC's website[91][92] Forward-Looking Statements The report contains forward-looking statements subject to safe harbor provisions, with actual results potentially differing due to various uncertainties - The report contains forward-looking statements subject to safe harbor provisions, addressing future activities, events, or developments related to NTIC's financial condition, operations, and business[94] - Key uncertainties and factors that could cause actual results to differ include the impact of COVID-19, supply chain disruptions, economic conditions, variability in sales to the oil and gas industry, and risks associated with international operations and joint ventures[94][97] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially due to various described and unanticipated factors[96] Information About Our Executive Officers This section provides biographical information for NTIC's executive and corporate officers as of November 15, 2021, detailing their positions and backgrounds Executive Officers (as of November 15, 2021) | Name | Age | Position | | :------------ | :-- | :----------------------------- | | G. Patrick Lynch | 54 | President and Chief Executive Officer | | Matthew C. Wolsfeld | 47 | Chief Financial Officer and Corporate Secretary | Other Corporate Officers (as of November 15, 2021) | Name | Age | Position | | :------------ | :-- | :------------------------------------- | | Vineet R. Dalal | 52 | VP & Director – Global Market Development – Natur-Tec® | | Gautam Ramdas | 48 | VP & Director – Global Market Development – Oil & Gas | | Brian Haglund | 37 | Vice President of Operations – North America | Risk Factors NTIC faces material risks from global economic weaknesses, COVID-19, supply chain disruptions, JV dependence, competition, international operations, and regulatory compliance - Weakness in global economies, particularly in the U.S., Europe, India, and China, and in the automotive industry, can negatively impact NTIC's business and operating results[109][113][114] - The COVID-19 pandemic and persistent worldwide supply chain disruptions are expected to continue adversely affecting NTIC's business, increasing costs, and potentially interrupting manufacturing and sales[109][115][118] - NTIC's reliance on joint ventures for liquidity and earnings, and on key suppliers for raw materials, exposes it to risks of interrupted supply, increased costs, and fluctuations in equity income[109][120][122][131][132] - International operations carry risks such as foreign currency fluctuations, political instability, trade regulation changes, and difficulties in enforcing intellectual property rights[109][133][135][149] - Intense competition in all product lines, the need for continuous product enhancement, and the inherent risks of expanding into new markets (like oil and gas for ZERUST® and bioplastics for Natur-Tec®) could harm operating results[111][151][153][154][155] Unresolved Staff Comments This section indicates no unresolved staff comments from the SEC Properties NTIC owns facilities in Minnesota and Ohio, leases international spaces, and NTIC China acquired a new Shanghai headquarters effective February 2022 - NTIC owns its main facilities in Circle Pines, Minnesota, and Beachwood, Ohio, used for offices, production, R&D, laboratory, and warehouse space[190] - International subsidiaries in Brazil, India, Mexico, and China lease office, warehouse, and laboratory space[191] - NTIC China acquired an industrial building in Shanghai in July 2021 for approximately $5.1 million, with an additional $1.6 million anticipated for renovations, to serve as its new corporate headquarters starting February 2022[191][273] Legal Proceedings Information on NTIC's legal proceedings is incorporated by reference from Note 15 to its consolidated financial statements - NTIC is subject to various claims and legal actions in the ordinary course of business, with management's opinion that current liabilities will not materially affect financial results[425] Mine Safety Disclosures This item is not applicable to NTIC Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NTIC's common stock trades on Nasdaq, reinstated quarterly dividends in fiscal 2021, and has $2.64 million remaining in its stock repurchase program - NTIC's common stock is listed on the Nasdaq Global Market under the symbol 'NTIC'[196] Cash Dividends Declared (Fiscal 2021) | Declaration Date | Amount ($) | Record Date | Payable Date | | :--------------- | :--------- | :------------- | :------------- | | January 15, 2021 | 0.065 | February 3, 2021 | February 17, 2021 | | April 23, 2021 | 0.065 | May 5, 2021 | May 19, 2021 | | July 21, 2021 | 0.065 | August 4, 2021 | August 18, 2021 | - As of August 31, 2021, $2,640,548 remained available for repurchase under NTIC's stock repurchase program, with no shares repurchased in fiscal 2021 or 2020[199][382][383] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes NTIC's fiscal 2021 financial condition and results, highlighting increased net sales, joint venture income, and net income, while addressing COVID-19 and supply chain impacts Business Overview NTIC's core business segments are ZERUST® and Natur-Tec®, with strategic initiatives focused on expanding into oil and gas and strengthening bioplastics distribution - NTIC's core business segments are ZERUST® corrosion prevention and Natur-Tec® bio-based/compostable products, marketed globally through various channels[202] - Strategic initiatives include expanding ZERUST® into the oil and gas industry and strengthening the Natur-Tec® bioplastics distribution network[206][208] NTIC's Subsidiaries and Joint Venture Network NTIC operates through 10 consolidated subsidiaries and 19 equity-method joint ventures, generating revenue from fees and dividend distributions - NTIC has 10 operating subsidiaries (fully consolidated, except Harita-NTI Limited from Sept 1, 2021) and 19 active joint ventures, accounted for using the equity method[210][211][212] - Revenue from joint ventures includes fees for services (flat or percentage of sales) and dividend distributions, with profitability subject to quarterly variability[211] Impact of the COVID-19 Pandemic The COVID-19 pandemic caused global economic slowdown, supply chain disruptions, and softened demand in fiscal 2021, with impacts expected to persist - The COVID-19 pandemic caused global economic slowdown, supply chain disruptions, and softened demand in various regions and markets during fiscal 2021, adversely affecting operating results and financial condition[213][218] - NTIC implemented safety measures and continued operations as an 'essential business,' though facilities operated at reduced capacity due to social distancing and decreased demand[215][216] - Supply shortages, raw material price increases, and increased shipping costs are expected to persist into fiscal 2022[218] Worldwide Supply Chain Disruptions Supply chain disruptions led to longer lead times, increased raw material and shipping costs in fiscal 2021, with these issues expected to continue - Supply chain disruptions, initiated by COVID-19, continued in fiscal 2021, leading to longer raw material lead times, new supplier searches, and increased raw material costs[220] - Significantly longer shipping times and higher container prices due to ocean freight capacity issues are expected to continue in fiscal 2022, potentially impacting NTIC's financial results[220] Financial Overview NTIC's fiscal 2021 saw increased net sales and net income, driven by ZERUST® and joint ventures, despite a decrease in working capital Key Financial Highlights (Fiscal 2021 vs. 2020) | Metric | Fiscal 2021 ($) | Fiscal 2020 ($) | Change ($) | Change (%) | | :-------------------------------------- | :--------------- | :--------------- | :------------- | :--------- | | Consolidated Net Sales | $56,493,819 | $47,638,691 | $8,855,128 | 18.6% | | ZERUST® Sales | $45,554,434 | $34,474,535 | $11,079,899 | 32.1% | | Natur-Tec® Sales | $10,939,385 | $13,164,156 | $(2,224,771) | (16.9)% | | Cost of Goods Sold (% of Net Sales) | 65.4% | 66.4% | -1.0% | | | Equity in Income from Joint Ventures | $7,465,214 | $4,270,327 | $3,194,887 | 74.8% | | Total Operating Expenses | $24,679,626 | $23,324,453 | $1,355,173 | 5.8% | | Net Income (Loss) Attributable to NTIC | $6,281,238 | $(1,337,709) | $7,618,947 | N/A | | Diluted EPS | $0.64 | $(0.15) | $0.79 | N/A | | Working Capital (as of Aug 31) | $25,230,893 | $27,104,746 | $(1,873,853) | (6.9)% | - The increase in net income was primarily due to increased global demand from COVID-19 recovery and higher income from joint venture operations[226] - Working capital decreased due to property and equipment purchases, partially offset by increased dividends from joint ventures and receivable collections[227][257] Sales and Expense Components NTIC's sales are categorized by direct and joint venture channels, with revenue recognized upon shipment and expenses including COGS, JV income, and operating costs - Net sales are categorized into 'excluding joint ventures' (direct/distributor sales) and 'to joint ventures,' with revenue recognized primarily upon product shipment[229][230] - Cost of goods sold primarily reflects third-party vendor invoices or direct labor, overhead, raw materials for manufactured products, with Natur-Tec® having lower margins than ZERUST® industrial products[231] - Equity in income from joint ventures represents NTIC's share of JV profitability, subject to quarterly variability, while fees for services provided to JVs are based on licensing agreements, often a percentage of JV net sales[233][234] - Operating expenses include selling, general and administrative, and research and development costs, with R&D expenses recognized as incurred[235][236] Results of Operations NTIC's fiscal 2021 results show significant increases in net sales and income, driven by ZERUST® growth, while Natur-Tec® sales declined Consolidated Statements of Operations Summary (Fiscal 2021 vs. 2020) | Metric | Fiscal 2021 ($) | Fiscal 2020 ($) | Change ($) | Change (%) | | :-------------------------------------- | :--------------- | :--------------- | :------------- | :--------- | | Net sales, excluding joint ventures | $53,470,623 | $45,666,045 | $7,804,578 | 17.1% | | Net sales, to joint ventures | $3,023,196 | $1,972,646 | $1,050,550 | 53.5% | | Cost of goods sold | $36,920,814 | $31,609,274 | $5,311,540 | 16.8% | | Equity in income from joint ventures | $7,465,214 | $4,270,327 | $3,194,887 | 74.8% | | Fees for services provided to joint ventures | $5,964,260 | $4,612,885 | $1,351,375 | 29.3% | | Selling expenses | $12,016,974 | $10,656,689 | $1,360,285 | 12.8% | | General and administrative expenses | $8,262,173 | $8,688,309 | $(426,136) | (4.9)% | | Research and development expenses | $4,400,479 | $3,979,455 | $421,024 | 10.6% | | Income before income tax expense | $8,458,642 | $1,739,875 | $6,718,767 | 386.2% | | Income tax expense | $1,461,905 | $2,674,635 | $(1,212,730) | (45.3)% | | Net income (loss) attributable to NTIC | $6,281,238 | $(1,337,709) | $7,618,947 | N/A | - Total ZERUST® net sales increased 32.1% to $45.55 million in fiscal 2021, driven by increased demand across all geographies, despite decreased demand from the automotive industry due to microchip shortages[242] - Natur-Tec® sales decreased 16.9% to $10.94 million, primarily due to reduced demand from the apparel industry and large bioplastics users (e.g., college campuses, restaurants) impacted by the COVID-19 pandemic[245] Liquidity and Capital Resources NTIC's liquidity includes working capital, cash, and an increased $5.0 million revolving credit line, with significant capital expenditures in fiscal 2021 Working Capital and Cash Position (as of August 31) | Metric | August 31, 2021 ($) | August 31, 2020 ($) | | :----------------------------------- | :-------------- | :-------------- | | Working Capital | $25,230,893 | $27,104,746 | | Cash and Cash Equivalents | $7,680,641 | $6,403,032 | | Available for Sale Securities | $4,634 | $5,544,722 | - NTIC's revolving line of credit with PNC Bank was increased from $3.0 million to $5.0 million as of August 31, 2021, with no outstanding amounts[258][379] Cash Flows from Operating Activities | Fiscal Year | Net Cash Provided by Operating Activities ($) | | :---------- | :-------------------------------------- | | 2021 | $2,892,940 | | 2020 | $4,912,070 | - Capital expenditures for fiscal 2021 totaled $5,532,750, primarily for the acquisition of real estate and a building in China, with $2.2-$2.5 million projected for fiscal 2022 for renovations and equipment[273][275] Inflation and Seasonality Inflation has historically had minimal impact on NTIC, but the business now experiences seasonality, with Q2 net sales adversely affected by holidays and winter - Inflation has historically had little effect on NTIC, but the business now experiences some seasonality[277] - Net sales in the second fiscal quarter are adversely affected by the Chinese New Year, North American holiday season, and lower winter temperatures globally reducing corrosion[277] Market Risk NTIC is exposed to market risks from foreign currency exchange rates, commodity prices (plastic resins), and interest rates, impacting net income - NTIC is exposed to market risks from foreign currency exchange rates (Euro, Yen, Rupee, Renminbi, Won, Pound vs. USD), commodity prices (plastic resins), and interest rates (LIBOR-based revolving credit line)[278][279][280] - Foreign currency fluctuations can impact reported net income, but changes in equity income from joint ventures are reflected as translation adjustments[279] Related Party Transactions NTIC's joint ventures are considered related parties, with sales and fees for services reported separately and recognized upon product shipment - NTIC's joint ventures are considered related parties, with sales to JVs and fees for services provided to JVs reported separately on financial statements[281] - Fees for services are based on licensing agreements, either a flat fee or a percentage of JV sales, and are recognized when products are shipped from JV facilities[283] Off-Balance Sheet Arrangements NTIC has no off-balance sheet arrangements with unconsolidated entities, thus not materially exposed to related financing or market risks - NTIC does not have relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements, thus not materially exposed to related financing, liquidity, market, or credit risks[285] Critical Accounting Policies and Estimates NTIC's critical accounting policies include consolidation, JV investments, revenue recognition, and income taxes, relying on management estimates and assumptions - Critical accounting policies include Principles of Consolidation, Investments in Joint Ventures (equity method, annual impairment assessment), Revenue Recognition (five-step model, control transfer at shipment), Accounts Receivable (allowance for doubtful accounts), Recoverability of Long-Lived Assets, Foreign Currency Translation, Stock-Based Compensation, Inventory Valuation (lower of cost or net realizable value), and Income Taxes (asset and liability method, deferred tax assets/liabilities, valuation allowance)[286][287][288][291][293][296][297][299][301][302] - Management's estimates and assumptions in these areas are based on available information, but actual results may differ significantly[286][368] Recent Accounting Pronouncements NTIC is evaluating ASU No. 2016-13 regarding credit losses, while other recent pronouncements are not expected to have a material impact - NTIC is evaluating the impact of ASU No. 2016-13 (Measurement of Credit Losses on Financial Instruments), effective for fiscal years beginning after December 15, 2022[369] - Other recently issued or proposed accounting pronouncements are not expected to have a material impact on NTIC's financial position or operating results[370] Quantitative and Qualitative Disclosures About Market Risk NTIC is exposed to market risks from foreign currency, commodity prices (plastic resins), and interest rates, which can impact net income and product costs - NTIC's primary market risks include foreign currency exchange rates (Euro, Yen, Rupee, Renminbi, Won, Pound vs. USD), commodity prices (plastic resins), and interest rates (LIBOR + 2.50% on its revolving credit line)[306][307][308] - Fluctuations in foreign currency exchange rates can lead to declines in reported net income, though equity in income from joint ventures is reflected as a translation adjustment[307] Financial Statements and Supplementary Data This section presents NTIC's audited consolidated financial statements for fiscal years 2021 and 2020, including balance sheets, income statements, cash flows, and detailed accounting notes Report of Independent Registered Public Accounting Firm Baker Tilly US, LLP issued an unqualified opinion on NTIC's fiscal 2021 and 2020 consolidated financial statements, conforming to U.S. GAAP and PCAOB standards - Baker Tilly US, LLP audited NTIC's consolidated financial statements for fiscal years ended August 31, 2021 and 2020, expressing an unqualified opinion that they present fairly, in all material respects, the financial position and results of operations in conformity with U.S. GAAP[313] - The audit was conducted in accordance with PCAOB standards, and no critical audit matters were identified[315][317] Consolidated Balance Sheets NTIC's consolidated balance sheets show an increase in total assets and equity, driven by property and equipment and joint venture investments Consolidated Balance Sheet Highlights (as of August 31) | Asset/Liability/Equity | 2021 ($) | 2020 ($) | | :--------------------- | :----------- | :----------- | | Total Current Assets | 33,747,089 | 33,202,350 | | Property and Equipment, Net | 11,821,458 | 7,110,789 | | Investments in Joint Ventures | 27,623,768 | 24,090,826 | | Total Assets | 74,370,879 | 66,074,488 | | Total Current Liabilities | 8,516,196 | 6,097,604 | | Total Equity | 65,750,581 | 59,704,441 | - Total assets increased by $8.29 million (12.5%) from 2020 to 2021, primarily driven by increases in property and equipment and investments in joint ventures[319] - Total current liabilities increased by $2.42 million (39.7%) from 2020 to 2021, mainly due to higher accounts payable and accrued payroll[319] Consolidated Statements of Operations NTIC's consolidated statements of operations reflect a return to net income in fiscal 2021, driven by increased sales and joint venture profitability Consolidated Statements of Operations (Fiscal 2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Total Net Sales | 56,493,819 | 47,638,691 | | Gross Profit | 19,573,005 | 16,029,417 | | Total Joint Venture Operations | 13,429,474 | 8,883,212 | | Total Operating Expenses | 24,679,626 | 23,324,453 | | Operating Income | 8,322,853 | 1,588,176 | | Income Before Income Tax Expense | 8,458,642 | 1,739,875 | | Net Income (Loss) Attributable to NTIC | 6,281,238 | (1,337,709) | | Diluted EPS | 0.64 | (0.15) | - NTIC returned to a net income of $6.28 million in fiscal 2021, a significant improvement from a net loss of $1.34 million in fiscal 2020, driven by increased sales and joint venture profitability[320] Consolidated Statements of Comprehensive Income (Loss) NTIC's comprehensive income significantly improved in fiscal 2021, despite a negative foreign currency translation adjustment Consolidated Statements of Comprehensive Income (Loss) (Fiscal 2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Net Income (Loss) | 6,996,737 | (934,760) | | Other Comprehensive Income (Loss) – Foreign Currency Translation Adjustment | (92,562) | 1,150,138 | | Comprehensive Income (Loss) Attributable to NTIC | 6,166,646 | (154,969) | - Comprehensive income attributable to NTIC significantly improved to $6.17 million in fiscal 2021 from a loss of $0.15 million in fiscal 2020, despite a negative foreign currency translation adjustment[321] Consolidated Statements of Equity NTIC's total equity increased by $6.05 million (10.1%) in fiscal 2021, primarily due to net income and stock option exercises Consolidated Statements of Equity Highlights (as of August 31) | Metric | 2021 ($) | 2020 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Common Stock | 183,696 | 182,000 | | Additional Paid-in Capital | 18,736,268 | 17,415,043 | | Retained Earnings | 46,973,092 | 42,472,810 | | Accumulated Other Comprehensive Loss | (3,525,030) | (3,410,438) | | Total Stockholders' Equity | 62,368,026 | 56,659,415 | | Non-Controlling Interests | 3,382,555 | 3,045,026 | | Total Equity | 65,750,581 | 59,704,441 | - Total equity increased by $6.05 million (10.1%) in fiscal 2021, primarily due to net income and stock option exercises, partially offset by dividends paid[323] Consolidated Statements of Cash Flows NTIC's net cash from operating activities decreased in fiscal 2021, while net cash used in investing activities significantly declined, leading to a doubled cash increase Consolidated Statements of Cash Flows (Fiscal 2021 vs. 2020) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Net Cash Provided by Operating Activities | 2,892,940 | 4,912,070 | | Net Cash Used in Investing Activities | (103,316) | (2,784,682) | | Net Cash Used in Financing Activities | (1,522,209) | (1,518,005) | | Net Increase in Cash and Cash Equivalents | 1,277,609 | 546,274 | - Net cash provided by operating activities decreased in fiscal 2021, while net cash used in investing activities significantly decreased due to lower purchases of available-for-sale securities and property/equipment[324] - The net increase in cash and cash equivalents more than doubled in fiscal 2021 to $1.28 million[324] Notes to Consolidated Financial Statements Notes detail NTIC's business segments, joint ventures, credit facilities, and income tax, with JVs contributing significantly to equity income - NTIC's business segments are ZERUST® and Natur-Tec®, with 18 active joint ventures accounted for using the equity method, and 10 consolidated subsidiaries[325][326][328] - Investments in joint ventures are assessed for impairment annually, with EXCOR (Germany) being individually significant[354][376] - Total net sales of NTIC's joint ventures increased 39.0% to $120.95 million in fiscal 2021, contributing $7.47 million in equity income to NTIC[248][377] - NTIC's revolving line of credit with PNC Bank was increased to $5.0 million, with no outstanding balance as of August 31, 2021, and the company was in compliance with all debt covenants[379] - Income tax expense was $1.46 million in fiscal 2021 (17.3% effective rate) compared to $2.67 million in fiscal 2020 (153.7% effective rate), with a valuation allowance recorded against domestic deferred tax assets[253][407][408][412] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section states no changes in or disagreements with accountants on accounting and financial disclosure matters Controls and Procedures NTIC's management concluded that disclosure controls and internal control over financial reporting were effective as of August 31, 2021 - NTIC's disclosure controls and procedures were deemed effective as of August 31, 2021, ensuring timely and accurate reporting of information required by the Securities Exchange Act of 1934[435] - Management concluded that NTIC's internal control over financial reporting was effective as of August 31, 2021, based on the COSO framework[439] - No material changes in internal control over financial reporting occurred during the quarter ended August 31, 2021[442] Other Information This item states no other information to report Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item states no disclosures regarding foreign jurisdictions that prevent inspections Part III Directors, Executive Officers and Corporate Governance Information on NTIC's directors, executive officers, corporate governance, and annual bonus plan is incorporated by reference from its definitive proxy statement - Information on directors, executive officers, corporate governance, and audit committee is incorporated by reference from NTIC's proxy statement[447][448][450] - NTIC has a Code of Ethics applicable to its principal executive, financial, and accounting officers, as well as other employees and directors[448] - The annual bonus plan for fiscal 2022 is tied to Adjusted EBITOI and individual performance objectives, with payouts potentially in cash and common stock[422] Executive Compensation Information regarding executive compensation is incorporated by reference from NTIC's definitive proxy statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates security ownership information from NTIC's proxy statement and details securities authorized under equity compensation plans - As of August 31, 2021, 1,426,651 shares were issuable upon exercise of outstanding options under equity compensation plans, with a weighted-average exercise price of $9.30[455] - A total of 954,178 shares remained available for future issuance under equity compensation plans, including 879,356 shares under the 2019 Stock Incentive Plan and 74,822 under the Employee Stock Purchase Plan[455][456] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from NTIC's definitive proxy statement Principal Accountant Fees and Services Information regarding principal accountant fees and services, including audit and tax fees, and audit committee pre-approval policies, is incorporated by reference Part IV Exhibit and Financial Statement Schedules This section lists financial statements from Item 8, notes the omission of schedules for smaller reporting companies, and provides a comprehensive list of exhibits - NTIC's consolidated financial statements are included in Item 8 of this report[460] - All financial statement schedules are omitted because NTIC is a smaller reporting company[461] - The section includes a list of exhibits, such as the Restated Certificate of Incorporation, Amended and Restated Bylaws, various stock incentive plans, executive employment agreements, and the Amended and Restated Loan Agreement with PNC Bank[464][466][468][469] Form 10-K Summary This item indicates no Form 10-K summary is provided