Northern Technologies International Corporation (NTIC) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Northern Tech International Corporation fourth quarter 2015 earnings conference call. [Operator Instructions] I'd now like to introduce your host for today's conference, Mr. Patrick Lynch. Sir you may begin.

Good morning. I am Patrick Lynch, NTIC's Chief Executive Officer. And I am 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 NTIC desires to avail itself for the protections 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 recent 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 a 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 Tianjin-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 terminating our license agreement with Tianjin-Zerust, the litigation we initiated against our former Chinese joint venture partner in the court of Tianjin 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 Tianjin-Zerust. The net impact to NTIC after subtracting out the minority income was $1,270,000, as Tianjin-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 pre-tax impact on NTIC's earnings for fiscal 2015 of both, 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 Tianjin-Zerust. Sales at Tianjin-Zerust in fiscal 2014 were almost $16 million compared to only $4.3 million during 2015, immediately prior to the termination of the 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 U.S. 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 continue 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 it caused oil companies worldwide to slash their short-term plans for infrastructure expansion and maintenance. Nevertheless, our oil and gas team continue to acquire new and repeat business, 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 Americas 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 Tianjin-Zerust, our former joint venture in China, as previously discussed, and a significant weakening of various foreign currencies, including the euro compared to the U.S. dollar in fiscal 2015. We estimated that the pre-tax impact of the weakening euro and other currencies compared to the U.S. dollar and 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 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, and expect net income of between $3.2 million and $4.5 million or between $0.70 per share and $1 per diluted common share. The wide range of this guidance is due to the significant risks and uncertainties facing in our business, including without limitation those related to the change in NTIC's China operations 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] And our first question comes from Tim Clarkson from Van Clemens.

Just wanted 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 on a standalone basis right now?

It's kind of on a month-by-month basis that we're looking at China. Previously we were at a point where we were close to breakeven with what we were currently spending from an operation standpoint. One thing that we did in fourth quarter was continue to build the, 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's under. But really what we're doing is figuring out how do we get up to the $8 million and $16 million, and significantly grow the business for 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're not really putting out a month-by-month revenue.

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

Well, the short answer is, it depends. We're 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 operating on. And we're finding, as we're operating at slightly different margins than what the previous joint venture was operating on. I think as we end up converting the business and we figure out at what margins we're going to be converting the business at, we'll have a better idea. But I would say that's going to be somewhere in the probably $10 million to $12 million range.

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

No, we'll be making money.

And in terms of the perception on that industry where it's gone from being kind of a cool new technology to appoint, where these guys are willing to kind of make it more of a standard. Are you starting to get a few of those guys to 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 enquiries, both from new customers and from the existing customers that are basically saying, this is what we're going to be doing to all our tanks as it come up for maintenance. The only thing that really impacted us from hitting our target numbers in fiscal 2015 were 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 in maintenance and infrastructure. But as I mentioned earlier in the call, right around June of this year, they started reassessing all that and now we've got orders and are doing implementation as fast as we can.

And 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.

Why?

The tank farms. It's not the refineries themselves, but the storage facilities near refineries or around it.

All right. I'll have to get some more backdrop on that. On the compostable part of the business, was there good growth in the fourth quarter again on that?

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

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

India has been running profitably. And Natur-Tec as a whole is potentially breakeven at this point.

And our next question comes from the line of Scott Billeadeau from Walrus Partners.

Just to kind of go back on the number. So currency cost you $0.29 and China essentially cost you $0.63. And if you add that together with the $0.38, again this isn't pure, but I'm looking at about $1.40. Again, you're still ramping up on China, but when I look going into next year, meaning the $0.29 kind of goes away, is that right, is that a fair assumption?

That depends on how the currencies move.

Right. But I mean at least they have been moving too much -- I guess you are still at a year-over-year, but pretty soon you're going to lap most of the fall, is that correct?

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

So there isn't any match. And I guess, you just bring back the JV income. You report revenue just as a sidelight, right?

Correct.

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 translations. So, yes, you're right, that doesn't come back. I'm sorry what?

No, I was going to say, if you look at where the significant impact was to the euro, we saw a high in the February, March, April, May timeframe, thereabout four months, where the difference between 2014 and 2015 was up in the 25% to 28% range of a variance. So we're seeing now that it's come back down to a level that it's back down into the 15% range compared to the 30% range. So we are seeing somewhat of a rebound. So at least half of the $1.3 million, if it were the euro were to stay consistent with, with where we were now, at least some of that would be moving in the right direction or in a favorable direction.

Yes, I hear you. And then, I think you said so, the Natur-Tec as a whole is roughly breakeven. You're 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 has been in R&D projects, when a couple of years ago Natur-Tec was an R&D 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're spending something on some future things?

We are always investing in future R&D. We have several interesting new technologies, some that are being currently in the phase 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.

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

The expectations for China built in to that number is that they would certainly cross into profitability during the year. And from a revenue standpoint that it can get up into somewhere between -- actually, we don't really put out specific numbers from revenue standpoint for China. But certainly from an earnings 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 its definitely less than that. The issue we have with the guidance is that, we're 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 narrow 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 would 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.

And then just on a year-over-year basis, what would you expect litigation? And again, you may not know the exact number, but litigation on '16 versus '15, any thoughts on general ballparks, where numbers could be?

Well, it's going to depend. We certainly expect to have a significant amount of litigation in '16, just given what we're going through in North America and what we're going through in China. Given the situation there, we take it very seriously, and it's something that we're not going to led up on, and we're going to certainly very aggressively go after people that are infringing on areas where we're 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're going to end up in a favorable situation with both of them. So our expectations are that we're going to move forward. If we have to spend money on litigation, we're prepared to do that.

And in '15, is there a ballpark number of what was spent on litigation for '15?

If I had to guess, I would look at several hundred thousand dollars in China and probably $300,000 to $400,000 in the United States. But fiscal 2015 from a litigation standpoint was high compared to what we normally spend for litigation. Ultimately our goal would be to have zero litigation. And for the past few years, we've been at only having some small cases and small litigation issues that we've been faced with. We ultimately want to get back to that position, if we could somehow get to an orderly transition of the China business. And we're 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 that could stick around for a long time. So that's one of the key areas we are 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.

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

Well, 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 range of the industries that we have supplied to in other countries that our formal 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're focusing our efforts now also.

We're 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 products than your competitors. It's running the situations where potential applications aren't currently using VCI and they never heard of VCI. And that potentially makes the sales process a little bit longer, but it's also something where you're 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.

And our next question comes from the line of Gregg Hillman from First Wilshire Securities Management.

Could you talk about -- 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 there?

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

And have you ever said what percent -- I'll take it auto is a lion's share of it for the core?

Yes.

Have you ever said, what percentage it's or you rather not?

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

And I guess auto is strong right now, so that's positive in for your company. Moving to you Natur-Tec. What percentage of sales are for California?

Well, when you say West Coast, in fact on the West Coast probably about 50% of our sales.

And the rest is in India?

Well, you've got other states and United States that are also fine from us. We can break it down by India versus United States, the numbers are --

Well, I mean, 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 the $3.3 million in North America, I am guessing probably 50% in California and probably additional 20% in the Wash and Oregon area. So I'd say probably close to 70% of it is West Coast based. I mean it's just where the market is right now.

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

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

I can certainly say that looking at our largest customer for Natur-Tec is a West Coast based janitorial sanitation supplier. And what we're 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. We're talking in terms of need, he spends an awful lot of time out in the Bay Area, now out in L.A., he's down in San Diego, and what we're seeing is definitely a larger push in California because of the initiatives and what's being mandated for the companies out there. I mean, Greg, I'm assuming you see that everyday, being in the L.A. area, more or so than people in the rest of the country. But certainly, California still has an awful lot of potential as far as we see it.

And how about the government contracts, are you bidding on any like big government contracts that could move the needle for the navy or other things?

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 staffed their -- they delivered the project that we were looking at because of budget cuts and things like that put the project on hold.

And so this is all commercial, that you're selling pretty much now?

Correct, it's all commercial.

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 for Natur-Tec outside of United States is the garment industry in India as we've talked about. There has been other smaller application. But what we're seeing is that 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 product compared to the Natur-Tec products. So there certainly are some sales that we have through to 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 and other states that are kind of coming online from a compostability standpoint, we're 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 driven mostly by the U.S. company demands of where they are manufacturing their garments and how they want to package them. So it's certainly a U.S initiative. I mean in the future I certainly think, given 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're located that the North America is lower hanging fruit for us.

And remember, in the past you talked about Petrobras a lot. Is there anything else going on with Petrobras or other state oil companies you think that you could win a large order here and that would cause you do a press release?

Well, let's address those issues one by one, specifically if you've been following the Brazilian economy and political situation or just the oil industry in general, you can see that Brazil in total, Brazilian government specifically and Petrobras specifically have been in a hurt for the last, at least last for last 12 months. So yes, Petrobras continues to buy from us, but at significantly lower numbers than originally projected. And 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 rebalance at some point in future, but I would guess that until Brazil gets back together, there 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're 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.

So the real thing and in variable for the entire company that would move the needle is just China and how fast you get that together. And I think I guess it's kind of a relationship business, a lot of newer things in China to get this done. And I mean, do you have the right contact in China? Let's say that, to ramp up the business or 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 could help you ramp a little bit faster, is that correct?

Yes.

So once you get that, then China should be in a fast growth mode for you at some point like [multiple speakers].

In that regard and space, yes.

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 that we should start seeing significant increases in sales within the next six months.

But it's something you wouldn't do a press release on, you just report it in the quarter, as you report the quarters that that 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 competitors information away.

Our next question comes from Dick Feldman from Axiom Capital.

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

Given that there is ongoing litigation, it might be a little bit 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, in Greater China is our sales dealing basically in betterment from the joint venture company.

And how did this dispute, which was a result of what was going on in China, turned 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 resolve 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. I am sorry. Let me --

I guess, I could have said 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 were a little bit vague about right now as far as communicating to you exactly, what the nature of litigation is, it's something that is impeding our progress in China, and that's the reason why we're in litigation in the United States. Sorry, we can't be more specific, but that's why we're 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 mean I want to say that looking at the marketing, some of the different marketing literature that Vineet showed me 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 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 stadium is something that educates the general public. When they start to see it out in public and they start to see it in major stadium, 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 almost setting the goals from having an individual initiative at whether it's the twin stadium, whether it's a packed up park, whether it's Safeco Field, that's almost a very good advertising and marketing system for us.

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

Economics; because certainly in California, the total cost of ownership in a closed loop system where you can send your waste stream to a compose site is cheaper than sending it to a landfill.

The other benefit you have at some of these stadiums is that 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. And so whatever you hand to them is essentially going to be thrown away. So as long as you control what you hand to them it's an easy market to be able to separate and to 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, because 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 at 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 where we're seeing is the first time a lot of people see composting, and see that it's actually a solution and see that what these guys are doing it, is it something that is going to start spreading around the rest of New York. And so we're starting to see other initiatives inside of New York City, where compositing is slowly starting to get pushed out to through various companies and through various green initiatives. And so that's the kind of initial efforts that we're seeing that as it spread to the rest of the country, it is the reason why we want to be in that space. And that's why we're pushing forward and continue to push forward with Natur-Tec, because as it continues to grow that's 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 are successful with China and you continue to have good momentum in oil and gas, Natur-Tec operations, that in spite of the current difficulties the shares maybe materially undervalued. I'm wondering if you could update us on the stock buying initiative.

Sorry, the company 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're allowed to on a daily basis at the price that we picked, and when we are 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. You're talking about at various days it would be 2,000 shares or 1,000 shares or 500 shares, 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 will 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 a $1 from an earnings per share standpoint, nor do we want to be at $1 and then growing beyond that by 10% or 15% per year. We're approaching this from the standpoint of how do we grow this to be $2, $3, $4, $5 in earnings per share, and we think that we're 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 be in a $200 million, then a $400 million, then an $800 million market cap company. And to be honestly, it's going after the markets that we're going after, because 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.

So basically what you're saying is you view these issues as hopefully transitory. And to what extent does your focus on China prevent you from perhaps being more aggressive in exploiting some of the other opportunities that you may have?

Well, I don't necessarily think there's anything that we're 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 a 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 market. But I mean I can say that there is nothing that 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.

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

There is 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're optimistic, but at the same time we're 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, and as I 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 process in China isn't taking away from growing the business specifically.

Our next question comes from the line of [ph] Jerry Wells a Private Investor.

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 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 as a shareholder, that when and if you settle the suit legal action with China that if you would have a separate announcement to that affect, 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's your capacity to meet this demand coming? What's the restrictions there relating to meeting the growth?

First of all, yes, if we have a resolution to the litigation, we'll certainly be happy to issue press releases to that affect. 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 to offering their sales team to help to promote our product, but also their implementation crews. So we basically feel, at this point, at least in the short-term we have all the capacity that we need to both, a, increase our sales rapidly, because we have I guess these 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're going to accomplish. So I appreciate that, guys.

Thanks.

Our next question comes from the line of Charlie Pine from Van Clemens & Co.

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

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 this above or a little light from where you thought you'd be at the end of the year?

I would say it was 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 in just in the last month or two, they've come back to us and said, okay, fine, we'll go ahead. So we're already doing installations in the next month or two of new customers with new projects.

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

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

So at this point of all the companies that you have in the oil and gas business that are using the solution, what one company, you don't need to name the name, but how many tanks is any one customer installed 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.

And I'm showing no further questions at this time. I would like to pass the call back to Patrick Lynch for any closing remarks. End of Q&A

All right. I'd 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.