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Note 1 - Interim Financial Information | 6 Months Ended
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Feb. 28, 2023
Notes to Financial Statements |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] |
1. | INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, and present fairly the consolidated financial position of Northern Technologies International Corporation and its subsidiaries (the Company) as of February 28, 2023 and August 31, 2022 and the results of the Company’s operations for the three and six months ended February 28, 2023 and 2022, the changes in stockholders’ equity for the three and six months ended February 28, 2023 and 2022, and the Company’s cash flows for the six months ended February 28, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K for the fiscal year ended August 31, 2022. These consolidated financial statements also should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section appearing in this report. Operating results for the three and six months ended February 28, 2023 are not necessarily indicative of the results that may be expected for the full fiscal year ending August 31, 2023. The Company evaluates events occurring after the date of the consolidated financial statements requiring recording or disclosure in the consolidated financial statements. Restatement of Previously Issued Financial Statements On November 17, 2023, the management and Audit Committee of the Board of Directors of the Company determined that the Company’s consolidated financial statements for the three and six months ended February 28, 2023 and three and nine months ended May 31, 2023 require restatement to correct the accounting treatment of employee retention credits (ERCs)and disclosures, which ERCs were incorrectly recognized as income during such periods. In the course of preparing the Company’s consolidated financial statements for the fiscal year ended August 31, 2023, the Company determined that although the Company believes the collection of the ERCs are still “more likely than not,” the Company is not able to deem the receipt of the ERCs “probable” under U.S. generally accepted accounting practices (U.S. GAAP), therefore, requiring the restatement of the Company’s previously issued consolidated financial statements for the three and six months ended February 28, 2023 and three and nine months ended May 31, 2023 and amendments to the Company’s related previously filed quarterly reports on Form 10-Q. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law providing numerous tax provisions and other stimulus measures, including ERCs, which are refundable tax credits against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of ERCs. The Company engaged tax advisors of a Big 4 accounting firm which determined the Company qualified for ERCs. The Company qualified for ERCs based on qualified wages paid in the first and second quarters of 2021 and filed for and recognized $573,751 and $566,006, respectively, of income from the ERCs in the second and third quarters of fiscal 2023. In connection with the preparation of its consolidated financial statements for the fiscal year ended August 31, 2023, the Company concluded that it should have accounted for the ERCs as government grants in accordance with International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance (IAS 20) since U.S. GAAP does not provide for the accounting of government grants. Pursuant to IAS 20, the Company cannot recognize any income from the grant until it is “reasonably assured” (similar to the “probable” threshold in U.S. GAAP) that the grant conditions will be met and that the grant will be received, at which time grant income is recorded on a systematic basis over the periods in which the Company recognizes the payroll expenses for which the grant is intended to compensate. In connection with the preparation of the Company’s consolidated financial statements for the fiscal year ended August 31, 2023, the Company determined that although it believes the collection of the ERCs are still “more likely than not,” the Company is not able to deem the credits “probable,” and, therefore, cannot be reasonably assured that the grant conditions will be met, requiring the restatement of the Company’s previously issued consolidated financial statements for the three and six months ended February 28, 2023 and three and nine months ended May 31, 2023. The following tables summarize the effects of the restatements on select consolidated statements of operations, balance sheet and cash flow amounts as reported as of and for the periods stated and are unaudited: Consolidated Balance Sheet:
|  | As of February 28, 2023 |
|  | As Reported |  |  | Adjustments |  |  | As Restated |
Receivables: Trade, excluding joint ventures, less allowance for doubtful accounts of $439,000 as of February 28, 2023 |  | $ | 14,675,017 |  |  | $ | (573,751 | ) |  | $ | 14,101,266 |
Total current assets |  |  | 40,176,602 |  |  |  | (573,751 | ) |  |  | 39,602,851 |
Total assets |  |  | 86,710,505 |  |  |  | (573,751 | ) |  |  | 86,136,754 |
Accrued liabilities: Payroll and related benefits |  |  | 1,304,717 |  |  |  | (100,000 | ) |  |  | 1,204,717 |
Total current liabilities |  |  | 16,178,289 |  |  |  | (100,000 | ) |  |  | 16,078,289 |
Retained earnings |  |  | 50,792,813 |  |  |  | (473,751 | ) |  |  | 50,319,062 |
Stockholders’ equity |  |  | 65,264,351 |  |  |  | (473,751 | ) |  |  | 64,790,600 |
Total equity |  |  | 68,707,994 |  |  |  | (473,751 | ) |  |  | 68,234,243 |
Total liabilities and equity |  |  | 86,710,505 |  |  |  | (573,751 | ) |  |  | 86,136,754 |
Consolidated Statements of Operations:
|  | Three Months Ended February 28, 2023 |
|  | As Reported |  |  | Adjustments |  |  | As Restated |
Cost of goods sold |  | $ | 11,867,639 |  |  | $ | 100,118 |  |  | $ | 11,967,757 |
Gross profit |  |  | 6,403,186 |  |  |  | (100,118 | ) |  |  | 6,303,068 |
Selling expenses |  |  | 3,418,717 |  |  |  | 177,000 |  |  |  | 3,595,717 |
General and administrative expenses |  |  | 3,084,189 |  |  |  | 50,000 |  |  |  | 3,134,189 |
Research and development expenses |  |  | 994,450 |  |  |  | 146,633 |  |  |  | 1,141,083 |
Total operating expenses |  |  | 7,497,356 |  |  |  | 373,633 |  |  |  | 7,870,989 |
Operating income |  |  | 1,287,307 |  |  |  | (473,751 | ) |  |  | 813,556 |
Income before income tax expense |  |  | 1,175,614 |  |  |  | (473,751 | ) |  |  | 701,863 |
Net income |  |  | 993,819 |  |  |  | (473,751 | ) |  |  | 520,068 |
Net income attributable to NTIC |  |  | 885,248 |  |  |  | (473,751 | ) |  |  | 411,497 |
Net income attributable to NTIC per common share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 0.10 |  |  |  | (0.06 | ) |  |  | 0.04 |
Diluted |  |  | 0.09 |  |  |  | (0.05 | ) |  |  | 0.04 |
|  | Six Months Ended February 28, 2023 |
|  | As Reported |  |  | Adjustments |  |  | As Restated |
Cost of goods sold |  | $ | 25,467,281 |  |  | $ | 100,118 |  |  | $ | 25,567,399 |
Gross profit |  |  | 12,756,310 |  |  |  | (100,118 | ) |  |  | 12,656,192 |
Selling expenses |  |  | 6,926,151 |  |  |  | 177,000 |  |  |  | 7,103,151 |
General and administrative expenses |  |  | 6,214,788 |  |  |  | 50,000 |  |  |  | 6,264,788 |
Research and development expenses |  |  | 2,251,174 |  |  |  | 146,633 |  |  |  | 2,397,807 |
Total operating expenses |  |  | 15,392,113 |  |  |  | 373,633 |  |  |  | 15,765,746 |
Operating income |  |  | 2,116,883 |  |  |  | (473,751 | ) |  |  | 1,643,132 |
Income before income tax expense |  |  | 1,920,027 |  |  |  | (473,751 | ) |  |  | 1,446,276 |
Net income |  |  | 1,627,499 |  |  |  | (473,751 | ) |  |  | 1,153,748 |
Net income attributable to NTIC |  |  | 1,387,490 |  |  |  | (473,751 | ) |  |  | 913,739 |
Net income attributable to NTIC per common share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 0.15 |  |  |  | 0.05 |  |  |  | 0.10 |
Diluted |  |  | 0.14 |  |  |  | 0.05 |  |  |  | 0.09 |
Consolidated Statements of Comprehensive Income:
|  | Three Months Ended February 28, 2023 |
|  | As Reported |  |  | Adjustments |  |  | As Restated |
Net income |  | $ | 993,819 |  |  | $ | (473,751 | ) |  | $ | 520,068 |
Comprehensive income |  |  | 1,528,532 |  |  |  | (473,751 | ) |  |  | 1,054,781 |
Comprehensive income attributable to NTIC |  |  | 1,640,490 |  |  |  | (473,751 | ) |  |  | 1,166,739 |
|  | Six Months Ended February 28, 2023 |
|  | As Reported |  |  | Adjustments |  |  | As Restated |
Net income |  | $ | 1,627,499 |  |  | $ | (473,751 | ) |  | $ | 1,153,748 |
Comprehensive income |  |  | 2,108,295 |  |  |  | (473,751 | ) |  |  | 1,634,544 |
Comprehensive income attributable to NTIC |  |  | 2,358,478 |  |  |  | (473,751 | ) |  |  | 1,884,727 |
Consolidated Statements of Cash Flows:
|  | Six Months Ended February 28, 2023 |
|  | As Reported |  |  | Adjustments |  |  | As Restated |
Net income |  | $ | 1,627,499 |  |  | $ | (473,751 | ) |  | $ | 1,153,748 |
Receivables: Trade, excluding joint ventures |  |  | (911,765 | ) |  |  | 573,751 |  |  |  | (338,014 | )
Accrued liabilities |  |  | (388,221 | ) |  |  | (100,000 | ) |  |  | (488,221 | )
In addition, the following footnotes have been updated to reflect the restated amounts:
| ● | Note 9 – Net Income per Common Share
| ● | Note 11 – Segment and Geographic Information

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