Northern Technologies International Corp (NTIC) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Northern Tech International Corporation fourth-quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mr. Patrick Lynch. Sir, you may begin.

Good morning. I'm Patrick Lynch, NTIC's Chief Executive Officer, and I'm here with Matt Wolsfeld, NTIC's Chief Financial Officer.

Please note that our fiscal 2015 full-year financial results were included in a press release issued earlier this morning, a copy of which is now available at NTIC.com.

During this call, we will review various key aspects of our fiscal 2015 financial results, give a brief business update, comment on our fiscal 2016 sales and earnings guidance, and then conclude with a short question-and-answer session.

As part of the discussion today, we will be making certain forward-looking statements regarding NTIC's future financial and operating results, as well as our business plans, objectives and expectations. Please be advised that these forward-looking statements are covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and that NTIC desires to avail itself of the protection of the Safe Harbor for these statements.

Please also be advised that actual results could differ materially from those stated or implied by our forward-looking statements due to certain risks and uncertainties, including those described in our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and our press releases. Please read these reports and other future filings that we will make with the SEC, including our annual report on Form 10-K for fiscal 2015, which we intend to file with the SEC during the next few days. We disclaim any duty to update or revise our forward-looking statements.

In fiscal 2015, which ended on August 31, 2015, each of NTIC's business units showed a significant year-over-year net sales increase. During the same period, we also commenced operations at our new subsidiary in the PRC, which we refer to as NTIC China. The transition away from our former joint venture in China has been a difficult one, which had significant adverse effect on our financial results for fiscal 2015. However, considering the circumstances, we believe that NTIC China is making good progress and will continue to grow aggressively going forward.

NTIC's total net sales increased over 13% in fiscal 2015 to over $30.3 million compared to fiscal 2014. This growth was largely attributable to sales of our industrial ZERUST products, to new and existing customers in North America, as well as significant sales growth in Natur-Tec products in North America and India.

As announced in January, on December 31, 2014, NTIC terminated its license agreement with Shenzhen ZERUST, our former joint venture in China, and since January 1 of this year, NTIC Shanghai Company Limited, our wholly-owned subsidiary in China, is the only authorized source of ZERUST and EXCOR branded products and services in the PRC.

Extensive litigation against our former Chinese partner continues and should ultimately allow for, amongst other things, an orderly liquidation of the previous joint venture company. While this significant shift in our China strategy was unavoidable, we believe it has also given us the opportunity to more aggressively invest in and grow our business in this important market. NTIC China continues to transition more and more ZERUST customers from our former joint venture while also aggressively developing new business.

Our consolidated financial statements now include the financial results of NTIC China. The largest impact to our financials resulting from our operations in China was $1.64 million of expense incurred for the termination -- terminating our license agreements with Shenzhen ZERUST, the litigation we initiated against our former Chinese joint venture in the course of Shenzhen, and the formation and ongoing operations in NTIC China. The pace of these expenses is expected to slow considerably in fiscal 2016, and we also expect the profitability of NTIC China to grow in fiscal 2016. Future variable expenses by NTIC related to this matter will be primarily dependent on the cost of the related litigation.

Additionally, during the second, third and fourth quarters of fiscal 2015, NTIC did not record any royalty or equity income from Shenzhen ZERUST. The net impact to NTIC after subtracting out the minority income was $1,270,000 as Shenzhen ZERUST contributed over $2.73 million of royalties and equity income to NTIC during fiscal 2014 compared to only $694,000 of royalties and equity income to NTIC during the first quarter of fiscal 2015 immediately prior to the termination of the license agreement.

The pretax impact on NTIC's earnings for fiscal 2015 of both the direct expenses associated with China and the absence of the royalty and equity income amounted to $2.9 million or $0.63 per share. This obviously caused a very significant impact to the earnings of NTIC and is a major reason why NTIC was not as profitable in fiscal 2015 as it was in prior years.

I want to reassure all of NTIC's shareholders that the decision to terminate our license agreement with our former Chinese joint venture and to commence direct operations in China through NTIC China was necessary and appropriate. We understand that it may take a little longer to reach certain milestones in China than we previously anticipated, but long-term we see huge opportunities to expand. We believe that our new subsidiary in China will soon be hitting its stride, and when it does, things will be very exciting for NTIC.

Sales by our joint ventures, which are not consolidated with our financial results, decreased almost 17% to $99 million during fiscal 2015 compared to last fiscal year. This decrease was mostly attributable to the termination of our license agreement with Shenzhen ZERUST. Sales at Shenzhen ZERUST in fiscal 2014 were almost $16 million compared to only $4.3 million during 2015, immediately prior to the termination of a license agreement in the first quarter of fiscal 2015.

The remainder of the decrease in sales at our joint ventures was primarily attributable to the continued weakening of the US dollar as compared to the euro and other major currencies. If we take out the negative impact of the China joint venture license termination and various foreign currency exchange rate fluctuations, the total sales by our joint ventures actually increased on a weighted average basis when compared in their respective local currencies.

All said, NTIC earned $0.38 per diluted common share during fiscal 2015 compared to $0.90 per diluted share during fiscal 2014, which is a 56% decrease.

Now moving to our oil and gas business. In fiscal 2015, our oil and gas team continued to focus its sales efforts primarily on protecting the bottom plates of oil storage tanks in North America from corrosion. Naturally, this effort became much more difficult when crude oil prices started plunging in September 2014 and quickly caused oil companies worldwide to slash their short-term plans for infrastructure expansion and maintenance.

Nevertheless, our oil and gas team continued to acquire new and repeat businesses, both in the United States and other regions including India, the Middle East and Africa.

More recently, key ZERUST clients in the oil and gas industry have been easing their budgetary restrictions. Starting in June 2015, new ZERUST oil- and gas-related requests in North America started coming in at a pace almost faster than our staff could handle. Now as we enter fiscal 2016, we have a healthy order backlog.

Having seen this renewed surge in demand for our proprietary technologies, despite the continuing malaise of the oil industry as a whole, we expect this market segment to be a strong growth opportunity for us. Nevertheless, as we have repeatedly mentioned, this is still a relatively new market for us, so we expect that any associated benefits to our financial results will not be immediate and may be choppy with spikes in sales over the next few years.

Now turning to our Natur-Tec bioplastics business. Net sales of Natur-Tec products increased almost 44% during fiscal 2015 compared to the prior fiscal year. This increase was due to finished product sales through NTIC's majority-owned subsidiary in India, as well as increased sales to North America through our domestic distribution network. We continue to see strong demand for finished products such as compostable bags and cutlery in North America as a direct result of increases in zero-waste initiatives, as well as favorable local and state level waste management regulations. We expect both regions to continue to be strong growth areas, and we intend to continue to target and convert additional manufacturers to the use of Natur-Tec sustainable packaging solutions in Asia and worldwide.

I will now turn over the call to Matt Wolsfeld to summarize in more detail our financial results for fiscal 2015.

Thanks, Patrick. Sales of NTIC's ZERUST products increased across both our industrial and oil and gas market segments during fiscal 2015 compared to fiscal 2014. Sales of industrial ZERUST corrosion inhibiting products increased almost 13% as we experienced increasing demand from both existing and new customers.

Sales of ZERUST oil and gas solutions increased almost 11% in fiscal 2015 as we completed implementations at multiple new and existing customer sites in North America. It's important to note that due to the recent weakening of the Brazilian economy and related political instability, oil and gas sales in Brazil declined significantly. In sharp contrast to this, sales of ZERUST oil and gas products and services in North America increased almost 64% in fiscal 2015.

Income provided by our joint venture operations decreased by 17% to $11.7 million during fiscal 2015 compared to the prior fiscal year. However, that was mostly attributable to the termination of our joint venture license agreement with Shenzhen ZERUST, our former joint venture in China, as previously discussed and a significant weakening of various foreign currencies, including the euro compared to the US dollar in fiscal 2015. We estimate that the pretax impact of the weakening euro and other currencies compared to the US dollar on our joint venture operating income was approximately $1.3 million or the equivalent of $0.29 per share in fiscal 2015.

Lastly, sales of Natur-Tec products increased almost 44% to $4.3 million during fiscal 2015 compared to 2014.

Our total operating expenses increased 11% to $18.3 million during fiscal 2015 compared to 2014, primarily due to an increase in selling, general and administrative expenses and expenses incurred in support of joint ventures, which, as previously mentioned, were related primarily to the change in our Chinese operations.

Overall net income attributable to NTIC decreased 56% to $1.8 million or $0.38 per diluted common share for fiscal 2015 compared to $4.1 million or $0.90 per share during fiscal 2014. As of August 31, 2015, working capital was $15.6 million, including $2.6 million in cash and cash equivalents and $2 million in available-for-sale securities compared to $17.8 million, including $2.5 million in cash and cash equivalents and $5.5 million in available-for-sale securities as of August 31, 2014.

Turning now to NTIC's annual guidance, for the fiscal year ending August 31, 2016, NTIC expects its sales to range between $40 million and $40.2 million (Sic-see press release �$40m and $42m�)and expects net income of between $3.2 million and $4.5 million or between $0.70 per share and $1.00 per diluted common share. The wide range of this guidance is due to the significant risks and uncertainties facing our business, including without limitation those related to the change in NTIC's China operation and pending litigation against NTIC's former Chinese joint venture partner.

With that update, we will now answer any questions you may have.

(Operator Instructions). Tim Clarkson, Van Clemens.

Hey, guys. Just want to get a little bit update on the China deal. I know that your initial goal was to obviously get that deal to a breakeven. Are we at that level right now? Is China operationally profitable at a standalone basis right now?

Certainly during -- it's kind of on a month by month basis that we are looking at China. Previously we are at a point where we were close to breakeven with what we were currently spending from an operations standpoint. One thing that we did in fourth quarter was continue to build, let's say, the China group to have, as far as the sales team, as far as the different people we needed to hire from an administrative standpoint, to, let's say, shift and much more aggressively go after the new markets rather than just converting the old business. So we are hovering close to profitability. In some months, it's over. In some months, it is under. But really what we're doing is figuring out how do we get up to the $8 million and the $16 million and significantly grow the business. We are close, but it kind of varies on a month by month basis depending on expenses.

How much are you doing approximately per month in revenue?

We are not really putting out a month by month revenue.

Okay. And just to get back to kind of the goals, so the first goal is breakeven profitability. You're right about that goal. The next level would be to kind of be the equivalent to the profitability on China. How much revenues would you have to be doing to make up for the business profitability you were getting out of China but before you discontinued your joint venture with those guys?

Well, the short answer is it depends. I mean we are operating on a slightly different -- I want to say kind of on a slightly different base expense level than what the former joint venture was we're operating on, and what we're finding is that we are operating at different -- slightly different margins than what the previous joint venture was operating on.

So as that kind of -- I think as we end up converting the business and we figure out what margins we're going to be converting the business at, we will have a better idea. But I would say that's going to be somewhere in probably the $10 million, $10 million to $12 million range.

Okay. Moving to the oil and gas business, are you guys -- if you guys hit the kind of number that you're expecting, would you be making money in that oil and gas business at this point, or would it be at breakeven, or are we getting close to profitability there?

We would be making money.

You would be making money, okay. And in terms of the perception in that industry where it's gone from being kind of a cool new technology to a point where these guys are willing to kind of make it more of a standard, are you starting to get a few of those guys looking at this as sort of, well, we'll just do it as kind of a standard deal, or is it still a question mark and they're trying it out?

I would say that it's becoming a more generally accepted solution. So we are getting significantly larger inquiries, both from new customers and from the existing customers that are basically saying this is what we're going to be doing to all of our tanks as they come up for maintenance. The only thing that really impacted us from hitting these -- our target numbers in fiscal 2015 was the drop in oil prices that at least for a while caused all the oil companies to kind of say, hey, wait a second, we have to reassess our budgets before we decide what we're going to be spending on maintenance and infrastructure. But as I mentioned earlier in the call, right around June of this year, they started reassessing all that and started -- and now we've got orders and are doing implementations as fast as we can.

And I assume -- I know the refiners, are they probably your best source of orders at this point?

It's the tank farms, not the refiners by themselves.

Okay. The what?

The tank farms. It's not the refineries themselves, but the storage facilities near refineries or (multiple speakers)

Okay. I will have to get some more backdrop on that. On the compostable part of the business, what's -- was there good growth in the fourth quarter again on that?

Yes. And we are expecting some nice additional businesses, especially in India, and in that region.

Is that business approaching profitability? What's that about in terms of profitability?

India has been running profitably, and Natur-Tec as a whole is essentially breakeven at this point.

Okay. Well, I'm done. Thanks.

Scott Billeadeau, Walrus Partners.

Hi, guys. Just to maybe reiterate -- kind of go back in the numbers, so currency cost you $0.29 and China essentially cost you $0.63. And you add that together with the $0.38 -- again, this isn't pure, but looking at about $1.40. Again, you are ramping up on China. But going into next year, the $0.29 kind of goes away, is that right? Given -- is that a fair assumption?

That depends on how the currencies move.

Right. But at least they have been -- they haven't been moving too much from -- I guess you are still at a year over year, but pretty soon you're going to lap that. Lap most of the fall. Is that correct?

Well, no, because that would be -- if we saw the euro go back to where it was during our fiscal 2014, then that $1.3 million impact would essentially go away. But if it stays at the current level, we would be down at that level.

Yes, I understand. And then so there isn't any net, and I guess you just bring back the JV income, your port revenue just as a sidelight, right? You don't consolidate that revenue. So there is no natural hedge at all. It's pure. You just take the hit on the income translation. So you're right. That is compact. All right. And then on (multiple speakers) I'm sorry, what?

If you look at significant impact was to the euro, we saw a high -- in the February/March/April/May timeframe, there were about four months the difference between 2014 and 2015. It was up in the 25% to 28% range of variance that we are seeing now that it's come back down to a level that -- it's getting -- it's back down in the 15% range compared to the 30% range. So we are seeing somewhat of a rebound. So at least a large -- at least half of the $1.3 million, if the euro were to stay consistent with where we were now, at least some of that would be moving in the right direction or in a more favorable direction.

Right. I Hear you. And then so Natur-Tec as a whole is roughly breakeven, you are kind of bouncing around on China on whether that's kind of ebbing and flowing based on more on your expense decisions over there. And anything else I know in the past, there's been R&D projects. A couple years ago Natur-Tec was an R&D pure expense and even some of the tank bottom stuff. What else are you doing on the R&D side now? Is there anything that you can talk about where you are spending something on some future things?

We are always investing in future R&D. We have several interesting new technologies, some that are being just currently in the pace of commercialization, some that are still in trials, specifically in the oil and gas sector that are very promising. We prefer not to disclose them in detail at this time, though.

Okay. And then in the guidance on the revenue guidance and on the EPS, what are the expectations for China built into that number?

The expectations for China built into that number is that they would certainly cross into profitability during the year and from a revenue standpoint, that they would get into the -- get up into the -- somewhere between -- if you would really put out specific numbers from a revenue standpoint for China, but certainly from an earning standpoint is that China is at a profitable level. Not back up to a level where it's contributing the $1.6 million that we were taking in from the previous joint venture, even though that's where we would like to get to during the year on a monthly run rate. But it's definitely less than that.

The issue I have with the guidance is that there's -- with having 4.5 million shares outstanding, a 30% range is a very wide range. And I understand that, and I'd like it if we could have it narrowed down to a $0.10 range or something even less. But at this point in time as I look forward, there are so many variables right now that could impact the earnings that getting it into a range of $1.3 million is even difficult. Could it be higher than that? There are certainly things that could happen that could make us significantly outperform guidance. So we wanted to provide a wide range, and then as we move forward during the year to narrow that range and hopefully increase the guidance as we go.

Great. And then just on a year-over-year basis, what would you expect litigation and -- again, you may not know the exact number, but the litigation on 2016 versus 2015? Any thoughts on general bar parts for those numbers could be?

Well, it's going to depend. We certainly expect to have a significant amount of litigation in 2016, just given what we're going through in North America and what we are going through in China. Given the situation there, we take it very seriously, and we see -- it's something that we are not going to let up on, and we're going to certainly very aggressively go after people that are infringing on areas where we feel we are certainly -- certainly in the right. And we certainly feel that both cases that we have in North America and in China we have very solid footing on, and ultimately we are going to end up in a favorable situation with both of those.

So our expectations are that we are going to move forward. If we have to spend money on litigation, we are prepared to do that.

And in 2015, how much -- is there a ballpark number of what was spent on litigation for 2015?

If I had to guess, I would look at several hundred thousand dollars in China and probably $300,000, $400,000 in the United States. But that was fiscal 2015 from a litigation standpoint was -- was high compared to what we normally spend for litigation. (multiple speakers)

Ultimately our goal would be to have zero litigation, and for the past few years, we've been at only having small cases and small litigation issues that we've been faced with. We ultimately want to get back to that position. If we can somewhat get to an orderly transition of the China business and we are kind of right in the middle of the litigation matters right now, it's something that could go away relatively quickly if certain things were settled or agreed to. But it's also something that with the court system, it could stick around for a long time. So that's one of the key areas with providing a large range of guidance that has a huge impact for us. Our goal is certainly to get rid of it, but it takes both parties to agree.

Okay. Great. And then just one other question on China. You mentioned you are kind of looking obviously the original is, hey, let's try to convert the business we had in the past, and now it's certainly, hey, let's think bigger than that. Maybe you could let us know, what were the things you saw, and is that five new salespeople and six new partners or two new salespeople -- maybe give us a little idea of what you saw that made that decision? I think obviously a good decision in a large market, but wanted to kind of see what you saw there that made you guys make that decision.

Just based on statistics of industrial production in China and the percentage of exports from China, kind of gives us an indication of what the market potential there is. And also, there are quite a number -- quite a range of industries that we have supply to in other countries that we had not even -- that our former joint venture partner had not even approached in China. So we know market potential that exists in other countries that must also exist in China and that's what we are focusing our efforts on now also.

We are running into similar situations in China that we ran into in the United States 15 to 20 years ago where it's not just a matter of who is using VCI and having a better product than your competitors, it's running the situations where potential applications are currently using VCI and they've never heard of VCI. And that potentially makes the sales process a little bit longer, but it's also something where you are finding entirely new markets that are still using oils and greases, the technology from years and years ago. And so that's really when we saw a lot of significant growth in North America, and I think we're going to see a little bit of that in China, which is exciting for us.

Okay. Great, guys. Thanks.

Gregg Hillman, First Wilshire Securities Management.

Good morning, gentlemen. Could you talk about nature -- well, first of all, just your core business, your industrial business, which are like the top four verticals? I know auto is one, but what are some of the other ones that are served?

Heavy industry and when I say heavy industry, I am talking construction and agricultural equipment is -- I guess it would be a big number, too. Then you have got just machine tools, and then it winds up being a bunch of other smaller industries. It's quite diversified.

Okay. And have you ever said -- I take it auto is the lion's share of it.

Yes.

Have you ever said what percentage?

It depends on the country. But, let's say, on a global average, it is probably 60% to 70% of our business.

Okay. And I guess auto is strong right now, so that's positive for your company.

Moving to Natur-Tec, what percentage of your sales are to California?

A lot. When you say West Coast, and -- in fact, on the West Coast, probably about 50% of our sales.

And the rest is in India?

Well, you've got other states in the United States that are also buying from us. If you break it down by India versus United States, the numbers are --

We did about $3.3 million in the United States and just shy of $1 million in India to come to about $4.3 million in sales. Out of that $3.3 million and out of $3.3 million in North America, I'm guessing probably 50% in California and probably an additional 20% in the Washington/Oregon area. So I'd say probably closer to 70% of it is West Coast-based. That's just where the market is right now.

Let's just take California, for example, and just talk about how the regulations -- when they first went into effect, and are they being implemented and enforced. What's the potential to grow -- to double in California?

I wouldn't have a good feeling on how to answer that right now.

I can certainly say that looking -- our largest customer from Natur-Tec is a West Coast-based janitorial sanitation supplier, and what we are seeing from them is still significant growth that's coming out of what are the legislative initiatives as far as what's being mandated in California. When talking to Vineet, he spends an awful lot of time out in the Bay area, now out in LA. He's down in San Diego. What we are seeing is definitely a larger push in California because of the initiatives and what's being mandated for the companies out there. Gregg, I'm assuming you see that every day, being in the LA area, more so than people in the rest of the country. But it certainly California still has an awful lot of potential as far as we see it.

Okay. And how about the government contracts? Are you bidding on any big government contracts to move the needle for the Navy or other things? (multiple speakers)

What we saw during the year is the government initiatives and the grants that we had previously to develop some of the government business is that the government stopped their -- they exhibited the project that we were looking at, because of budget cuts and things like that, put the project on hold.

Okay. So this is all commercial that you're selling pretty much now?

Correct. It's all commercial.

Okay. And do you have any idea what the market size is and also if you've been able to sell Natur-Tec outside the United States?

The main areas where we focus Natur-Tec outside of the United States is the garment industry in India, as we talked about. There's been other smaller applications. But what we are seeing is the majority of our joint ventures are much more focused on ZERUST industrial and potentially looking at oil and gas applications rather than looking at Natur-Tec applications, I think which is understandable kind of given the continued growing markets in those areas and the margins that you get on the ZERUST products compared to the Natur-Tec products.

So there certainly are some sales that we have through two other countries. But given the size of our Natur-Tec group and given the opportunity that they have in the United States on the West Coast in other states that are kind of coming online from a compostability standpoint, we are still seeing the majority of the growth in North America, and then as I said, in India through the garment industry because of what are the -- driven mostly by the US companies' demands of where they are manufacturing their garments and how they want to package them. So it is certainly a US initiative.

In the future, I certainly think, given what you -- if you look at Europe and what they are doing kind of on the forefront of compostability, there is certainly a market there, but there are also some very large players in the European market right now, and we just kind of felt that given the size of our operations and where we are located, that North America is lower hanging fruit for us.

Okay. And I remember in the past you used to talk about Petrobras a lot. Is there (inaudible) and is there anything else going on with Petrobras or other state oil companies you think that you could win a large order in the year that would cause you to do a press release?

Let's address those issues one by one. Specifically if you've been following the Brazilian economy and political situation and just the oil industry in general, you can see that Brazil as -- in total, Brazilian government specifically and Petrobras specifically have been in a world of hurt for the last -- at least the last 12 months.

So yes, Petrobras continues to buy from us, but at significantly lower numbers than originally projected. We also have additional projects going on with Petrobras again at a much smaller scope and scale than we originally projected. We expect obviously that they will rebound at some point in the future, but I would guess that until Brazil gets its act together, it might be another two or three years before we really see Petrobras moving the needle in any significant manner from our previous projections.

So what we really expect right now is we'll get some interest from various national oil companies here and there in the next year or two. Certainly we have a couple of projects in the works in other countries, but nothing that would really make us do a high five or issue a press release in the short-term. We are really expecting to see most of our growth, as I mentioned before, coming from tank farm operators in North America with some growth coming from the new projects in the Middle East, India and Africa.

Okay. So the real thing and variable for the entire company that would move the needle is just China and how fast you get that together. And I take it the guy is -- I guess it's kind of a relationship business. A lot of things in China to get this done, and I mean, do you have the right contacts in China, let's say that to ramp up the business, or do you just have to do it by normal marketing and knocking on doors?

I think we are getting into a position to have the right relationships.

In other words, identifying the right people, the right distributors, the right consultants and things like that. The right intermediary people relative to the end customers that can help you ramp a little bit faster. Is that correct?

Yes.

Okay. So once you get that, then, China should be in fast growth mode for you at some point, like (multiple speakers). Okay. And how long do you think it will take to get those relationships so you can ramp up the growth a little bit faster?

It depends obviously, but certainly our expectation is we should start seeing significant increases in sales within the next six months.

Okay. Great. But it's something you wouldn't do a press release on. You would just report it in the quarter as you report the quarters about how things are going. Is that correct? If you got a really large distributor in China, would you do a press release on it?

I doubt it. Why draw attention to ourselves and give competitive information away.

Okay. Thanks very much, gentlemen.

(Operator Instructions). [Dick Seldon], Axiom Capital.

Good morning. I've got a couple of questions. The first is could you go into one of the substantive issues as far as the litigation is concerned, both in the United States and in China?

Given that there is ongoing litigation, it might be a little premature for us to comment at this time. Certainly the majority of the claims against our former joint venture partner are basically in China, specifically port of China, are ourselves dealing basically embezzlement from the joint venture company.

And how did this dispute, which was a result of what was going on in China, turn into something that is being carried out in North America?

Again, that's a very long story that's probably not suitable for this call.

Do you have any sense as to the timing on when you can solve these issues, and to what extent are the legal issues impeding your marketing progress?

I would say at this point our legal issues are not impeding our marketing progress in China. (multiple speakers) Oh, I'm sorry, let me -- I guess what I would say is the legal issues in China as far as the termination of the liquidation of the joint venture and the case against our former joint venture partner are not impeding our market progress in China. The litigation that we have in the United States, which we are a little bit vague about right now as far as communicating to you exactly what the nature of the litigation is, is something that is impeding our progress in China, and that's the reason why we are in litigation in the United States. Sorry we can't be more specific, but --

Okay.

That's why we are in litigation.

In the Natur-Tec business, I believe you've had some limited success in dealing with urban stadiums. Is that a market that has considerable potential for you?

It certainly is a market that has potential for us. I want to say that we've been looking at the marketing -- some of the different marketing literature that showed just in the past week, there were six different stadiums in California and Washington that were listed there. It seems like every stadium that I go into now, you see separate composting. They all have different sustainability initiatives, I think because of the PR associated with each team, and so certainly as that is spread more and more around the country, that's the kind of thing that we see as a very good step. Because not only is that good business for us, but having composting in stadiums is something that educates the general public. When they start to see it out in public and they start to see it at major stadiums and they start to see it at various schools, that's something that tends to drive -- let's say local legislative initiatives.

As far as if this place can do it, why can't we do it? So all of a sudden it goes from have an individual initiative at -- whether it's the Twins stadium, whether it's Pac Bell Park, whether it's Safeco Field, that's almost a very good advertising and marketing system for us.

The stadium business that you are seeing, is that being driven by green initiative PR, or is it also being driven by economics?

Economics. Because strictly in California, the total cost of ownership -- or in a closed loop system where you can send your waste stream to a compost site is cheaper than sending it to a landfill.

The other benefit you have at some of these stadiums is the input and the ability to segregate out the waste from the composting is relatively easy compared to if you're going to do this with the general public. What's thrown away at a baseball stadium or a football stadium is going to be whatever is given to the consumers inside of the stadium.

So whatever you hand to them is essentially going to be thrown away. As long as you control what you hand to them, it's an easy market to be able to separate and segregate out what can be composted.

Have you been able to gauge how large a potential market this is for you?

Not specifically. The stadium market is what we see are the same distributors and the same companies that handle the stadium business. They also handle entire college campuses, large campuses for large corporations. It's a similar marketing strategy going after these. It's a similar proposal that you would have for a stadium that you would have for an entire college campus or a cafeteria system in a corporation or things like that. So it's not as if you have to develop one specific program just to go after the stadiums.

One of the significant wins that we had in the past three or four months was Madison Square Garden, and that's something -- if you look at New York, New York is certainly not at the forefront of compostability. But if you look at the number of people that go through Madison Square Garden, whether it's for a Knicks game or for a convention or for something else, that's something that from what we're seeing is the first time a lot of people see composting and see that it's actually a solution and see that these guys are doing it. Is it something that is going to start spreading around the rest of New York? So we are starting to see other initiatives inside of New York City where composting is slowly starting to get pushed out to the -- through various companies and through various green initiatives.

And so that's what we are -- that's the kind of initial efforts that we are seeing that as it spreads through the rest of the country is the reason why we want to be in that space. And that's why we are pushing forward and continue to push forward with Natur-Tec, because as it continues to grow, that is certainly the market that we want to be in.

Shifting gears to a more global view of the Company, it would appear that if you were successful with China and you continue to have good momentum in the oil and gas and Natur-Tec operations, that in spite of the current difficulties, the shares may be materially undervalued. I wonder if you could update us on the stock buying initiatives.

As far as the Company's stock buying initiatives?

Yes.

We had a share repurchase in place during probably the past three or four months where we have purchased the maximum amount that we are allowed to on a daily basis at the price that we picked. And when we were in that range, as all of you as shareholders know, it's not the most liquid stock on the market. So we did have some share repurchasing before August 31 and more share repurchasing that took place in the first quarter. But the difficulty we have is based on the rules of what we can repurchase is you're talking about various days it would be 2000 shares or 1000 shares or 500 shares. It wouldn't be -- there's no point in time when the Company was able to all of a sudden pick up blocks of 20,000 shares or something like that.

Our goal wasn't to significantly reduce the number of shares. It was more along the lines of it's an opportunity because of where the stock is trading that we could buy back some shares, given what we think is going to be in the next two or three years where we think the stock is capable of going. I mean without question, Patrick and I see that within two or three years, we would be able to significantly grow the Company's sales and the Company's earnings. It's without question it's not our goal to be at $0.60 or $1.00 from an earnings-per-share standpoint, nor do we want to be at $1.00 and then growing beyond that by 10% or 15% per year.

We are approaching this from the standpoint of how do we grow this to be $2.00, $3.00, $4.00, $5.00 in earnings per share, and we think that we are addressing markets where we have the capability to get there. And that's really how does the Company go from being a $70 million to $80 million market cap company to being a $200 million benefit, then a $400 million and then $800 million market cap company. And to be honest, it's going after the markets that we are going after because they have -- the market is there, and we feel like we have a plan to get there. We certainly had some issues this year as we talked about with China and with foreign currency, but those certainly aren't two situations that we ran into that are going to be limiting us going forward.

Okay. So basically what you are saying is you view these issues as hopefully transitory, and which to what extent does your focus on China prevent you from perhaps being more regressive in exporting some of the other opportunities that you may have?

I don't necessarily think there's anything that we are doing in China. Given the team that we have in China, the majority of the effort that we had to put forward this year was management time, was traveling back and forth, was educating and training the new people that we've hired. But going forward in China, it's going to be operating similarly to how some of our joint ventures operate, except that we own 100% of it.

So going forward we see management time and expansion time shifting away from China and back on the development of the new markets. But I mean I can say that there's nothing we were doing in China that impacted how aggressively we went after the oil and gas market or the Natur-Tec market or the ZERUST industrial market. (multiple speakers)

I have one more question. Are there any court dates coming up that are pivotal for the resolution of the China issues?

There are several court dates that are coming up that are pivotal, both in the next three months and six months. There is several cases on different levels that pertain to us going after the individual, us trying to liquidate the business. It is something that we could clear up relatively quickly, but it's not something that -- we are optimistic, but we are at the same time we are prepared to be in it from a longer standpoint. But the litigation in China and the setting up of everything in China was something that as we said certainly occupied a lot of our time in 2015. But at this point in time, it's a lot of just going through the legal -- the legal process in China. It isn't taking away from growing the business specifically.

Okay. Thanks for answering my questions and good luck.

[Jerry Well], private investor.

Good morning, guys. First of all, I want to say as a shareholder I think you did the right thing in China. It's been obviously not very positive on an earnings perspective, but I applaud that you did the right thing and not to mention the growth in Natur-Tec and the tank business.

So my questions are two. One is, if you would, I would appreciate it as a shareholder that when and if you settle this suit, legal action with China, that if you would have a separate announcement to that effect, it would be appreciated and you can comment on that.

And the second thing is the tank business. It sounds like that's going extremely well, and I congratulate you on that. But a concern would be what is your capacity to meet this demand coming? What's the restrictions there relating to meeting the growth?

Interesting. First of all, yes. If we have a resolution to the litigation, we will certainly be happy to issue press releases to that effect.

As for the tank business, it's a little bit premature to name names, but we are working very closely with a very large oil service provider in partnership at this point, and they are not only supporting us through offering their sales team to help promote our products but also their implementation crews.

So we basically feel at this point, at least in the short-term, we feel we have all the capacity that we need to both A), increase our sales rapidly because we have the, I guess, additional boots on the ground for drumming up business, and they have also much more extensive relationships with various oil industry majors that they can trade on. And at the same time, they can help us do the actual installations and implementations, so we're looking very favorably in that direction.

Appreciate it. Well, you guys are doing a great job of growing the business and longer-term very optimistic about what you'll get accomplished, so I appreciate that, guys.

Charles Pine, Van Clemens & Co., Inc.

Good morning, guys. I'll try to be a lot less long-winded than a few of the other people here. I just have a couple very brief questions on the oil and gas business. First of all, how many -- what did you end the year at? How many in the tank for the tank customers, how many discrete companies do you have now implementing your tank solution?

How many different companies -- I would say a dozen or so? I don't have the exact number, but I would say about a dozen or so.

Was that about the number that you were targeting for the year, or was it above or a little light from where you thought you would be at the end of the year?

I would say it's a little bit light because some of the customers that were basically going to be new customers, as I mentioned earlier, had basically put some of their projects on delay mode while they were reassessing their budgets. But even just in the last month or two, they have come back to us and said, okay, fine, we will go ahead. So we are already doing installations in the next month or two of new customers with new projects.

Okay. Something that we've had conversations on in the past, are you starting to see some of the repeat customers now beginning to do not just onesie-twosies but significant sort of multiple tank installations? Is that any of these dozen or so moved up the ladder at that point?

I would expect that to start really ramping up later this year, this fiscal year, so more toward the middle of 2016.

Okay. So, at this point, a lot of the companies that you have in the oil and gas business that are using solution, what one company -- you don't need to name a name -- but how many tanks does any one customer install the solution on at this point? What's the most?

I don't have an accurate number for you. I believe one company alone did like 10 or 15 tanks, but they were very small tanks.

Okay. All right. That's what I wanted to ask. Thanks a lot.

And I'm showing no further questions at this time. I'd like to pass the call back to Patrick Lynch for any closing remarks.

Alright. I would just like to thank everybody for participating today and for your interest in NTIC. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.