Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2020 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As part of the discussion today, the representatives from NTIC will be making certain forward-looking statements regarding NTIC’s future financial and operating results as well as their 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 protections of the Safe Harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in NTIC’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and recent press releases. Please read these reports and other future filings that NTIC will make with the SEC. NTIC disclaims any duty to update or revise its forward-looking statements. I would now like to hand the conference over to NTIC’s CEO, Patrick Lynch. Please go ahead.

Good morning. I am Patrick Lynch, NTIC’s CEO and I am here with Matt Wolsfeld, NTIC’s CFO. Please note that the financial results for our fiscal 2020 third quarter were included in a press release issued earlier this morning. A copy of which is available at ntic.com. During this call, we will review various key aspects of these financial results, provide a brief business update and then conclude with a question-and-answer session. The COVID-19 pandemic had a material impact on our fiscal 2020 third quarter. Although our operations were deemed essential and remained open, many of our global customers operated at significantly lower capacities or were locked down altogether. As a result, global demand has declined for all of our products and services. As the COVID-19 crisis continues to evolve, global economies are reopening and orders have started increasing, but at this time, the pace of our recovery remains uncertain. We are closely monitoring our markets and intend to continue providing uninterrupted order fulfillment and customer service, while simultaneously ensuring the safety of our customers, joint ventures and employees. Our experienced management team, compelling product portfolio, strong balance sheet and business model are helping us navigate this challenging period, while providing us with significant flexibility to continue investing in our long-term growth plans. In addition, we are proactively managing expenses and intend to further adjust our cost structure when necessary and appropriate. So, with this overview, let’s examine the drivers for the quarter. For the third quarter ended May 31, 2020, our total consolidated net sales decreased 34.6% to $9.7 million as compared to the third quarter ended May 31, 2019. Broken down by business unit, this included a 51.9% decrease in ZERUST oil and gas net sales, a 50.4% decrease in Natur-Tec net sales, a 29.1% decrease in net…

Thanks, Patrick. NTIC’s consolidated net sales decreased 34.6% in the fiscal 2020 third quarter because of the trends Patrick reviewed in his prepared remarks. A 32.4% decline in sales across our joint ventures impacted joint venture operating income, which decreased 49% for the fiscal 2020 third quarter compared to the prior fiscal year period. As expected, total operating expenses improved during the third quarter and totaled $5.7 million compared to $3.6 million for the same period last year. The 10.2% year-over-year decrease was primarily due to lower [Technical Difficulty] operating expenses are up less than 1%. As a note, we incurred approximately $210,000 of one-time expenses during the third quarter, which include impairments to certain assets and a write-down associated with inventory obsolescence. We experienced good collections during the quarter and our accounts receivable balance at May 31, 2020 improved 22.9% over the past 3 months. We continue to closely watch receivables and work with customers who have been impacted by the crisis. NTIC reported a net loss attributed to NTIC of $965,000 or a loss of $0.10 per diluted share for the fiscal 2020 third quarter compared to net income of $1.5 million or $0.16 per diluted share for the fiscal ‘19 third quarter. As of May 31, 2020, working capital was $28.1 million, including $5.1 million in cash and cash equivalents and $5.5 million in available-for-sale securities compared to nearly $25.5 million, including $5.9 million in cash and cash equivalents and $3.6 million in available-for-sale securities as of August 31, 2019. On May 31, 2020, the company had $21.9 million of investments from joint ventures, of which $10.8 million is in cash with the remaining balance primarily invested in other working capital. With this overview, Patrick and I are happy to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Joe Furst with Furst Associates. Your line is now open.

Good morning, gentlemen.

Good morning.

I am just curious about which segments of your business do you think will be the first to recover in this environment?

The ZERUST industrial will be the first to recover.

Okay, good. Thank you.

Thank you. Our next question comes from the line of Tim Clarkson with Van Clemens. Your line is now open.

Thanks. Good morning, Patrick. Good morning, Matt.

Good morning.

Hey, so I thought the loss was pretty good considering that everything that could have gone long kind of went wrong, so good job there. Two questions. One, in the – some of these new industrial applications, what are some of the new industrial applications that are selling well?

Do you mind if we pass on that question, because we don’t want to share the best opportunities out there.

Okay. So, that’s fair. And in terms of this new compostable product that you mentioned that’s the one where you have the – I guess the machine with spinning out the forks and knifes, why don’t you explain a little bit more about how you ended up getting their contract and why they chose to do business with you guys?

Well, we were approached by – as we mentioned a very large plastic cutlery manufacturing company. They had for several years tried to develop their own compostable cutlery solution. They were not successful. And then came to us and particularly, we managed to add some technology that improved the cycle time for manufacturing, which also resulted in a stronger finished product, mechanically – maybe in a mechanical strength. So, we were able to provide – we were able to manufacture the product they needed at a lower cost with a better product performance.

I assume that they are pleased with the how it’s working?

They are very pleased with how it’s working and have suggested that they will be increasing their order levels at some time in the future when this economy recovers.

Alright. Okay, thanks.

Thank you. Our next question comes from the line of Gus Richard with Northland. Your line is now open.

Yes, thanks for taking my questions. When you look at ZERUST industrial, what roughly is the split between the auto and other applications?

We are guessing that – or actually not – I mean based on our internal figures, we would say we are about 50%, 45%, 50% automotive and the rest is other applications.

And then in the recovery of the industrial business, which one is improving auto or the other – the pile of other applications?

The automotive is a little bit slower than some other segments right now, but as people are restarting their factories and getting back to work, we are seeing orders really from everybody, just at very smaller levels than they used to be.

Got it. And then in the other category, I am assuming that, that is – is the other category growing because of the addition of new customers or…

It’s other categories I am just saying non-automotive applications.

Right. So other categories other than automotive, is that bucket of revenue growing or is it recovering faster because of growing customers and applications or is it just recovering because those applications that you already have are improving faster than auto?

It’s a combination of – and particularly in China, where I mean right now our Chinese operation is operating we want to say about 90% of what they were pre-pandemic, but some of that is the combination of new customers and new applications.

Got it. Got it. And then turning to Natur-Tec sort of the same line of questioning, what’s the split between garment bags and cutlery and other applications in that product line?

Matt, you have those figures handy?

Yes. So if you are looking at I would say about 50% of the business that we have from Natur-Tec and the majority of the Natur-Tec business that we sell in North America is related to the trash bags, the cutlery and resin. Probably about 70% of the business that we have at Natur-Tec India, which was one of the hardest hit areas because of the shutdown, is related to the garment industry. So probably 80% of the India, Natur-Tec India business is garment related.

And do you have those figures overall?

As far as the total percent of business for each one?

Correct.

Yes. If you look at – so let’s just look, it might be easier to look at the pre-COVID numbers for each one. So, if you look you know what Natur-Tec India did last year of about $8.1 million, Natur-Tec in North America did $7.8 million and Natur-Tec China did $1.6 million, you are at about $17.6 million in revenue, so probably $6 million of that $17 million is related to the garment industry, maybe $6 million to – probably $6 million to $8 million of it is related to the garment industry business in Southeast Asia, which include product standpoint India, Pakistan, Bangladesh, China, Sri Lanka.

Got it. That’s very helpful. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Joe Vidich with Manalapan Oracle. Your line is now open.

Yes, good morning. Thanks for taking my question. I wasn’t quite sure if I heard you guys correctly, but it sounds like you said you expect Natur-Tec sales to – did you say Natur-Tec sales were going to recover above pre-pandemic levels sometime in the next two quarters or?

We did not specify in the next two quarters. Certainly, our domestic markets for Natur-Tec products, particularly stadiums, university cafeterias, office complexes and all that, a lot of those we don’t have an exact time period yet as to when they will reopen. So, it might be past two quarters for that really to return to pre-pandemic levels. However, certainly within the next 12 to 16 months, we certainly think that we will recover to pre-pandemic levels and beyond.

Okay. And what percentage of the U.S. business would be college campuses and large venues?

Almost all of it.

Almost all of it.

You are talking about industrial users of plastic, compostable plastic products in the form of basically trash bags and bin liners and compostable cutlery and straws.

Right, right. And then just I just have a question on your cash flows, could you tell us what the cash flow for the quarter was?

The cash flow we put out with the Q which will be published tomorrow morning, but I mean in general what you have seen is there is a little bit of some of the bigger items are kind of the standard items that we expected as far as we continue to collect cash from the prior quarter. So cash collections were strong. We had a lot of Natur-Tec inventory that was in the kind of the production pipeline given the long-term production cycle of our Natur-Tec products. There is a little bit of a buildup in inventory that we saw during the third quarter and with the slowdown of sales, we still expect that product to be able to – we won’t want have any issues with the sale of those products that they are good products that we sell to multiple, multiple customers. And so all in all, we have got a pretty healthy – we have maintained our cash flow pretty well. We have obviously had a – we expect to have a negative cash burn for a couple of months as the April, May and June months were kind of the three worst months that we have seen from a pandemic standpoint, we have started now seeing kind of a come out of that what we hope are the, is the bottom of the trough. Certainly, we expect that to be in the May-June timeframe. We have seen it kind of come out of those levels.

Okay, that’s great. I appreciate and I’ll obviously review the Q. That’s all I got. Thank you very much.

Thank you. [Operator Instructions] We do have a question from the line of Tim Clarkson with Van Clemens. Your line is now open.

Yes, one last question, I know that you initially thought about getting some of that government money and then I forget the exact technical phrase for all that stuff, PPL, I guess and then you decided to send it back. And I just want to confirm that?

We originally were going to apply for a PPP loan and then we decided not to do that, because of the kind of where we were from a cash position standpoint. And so we have never officially applied for a PPP loan. There are going to be other – there are other – there is employee retention credits because of the decline that we saw in our sales during the second calendar quarter that we should be available to get some employee retention credits, which will be somewhere between $300,000 to $400,000 is what I am expecting, but I don’t – we did not get a PPP loan.

How about in terms of a stock buyback, is that a consideration?

At some point, we would certainly – we kind of want to wait and see how the stock recovers and kind of where we are from a cash position similarly from a dividend that we want to kind of see where things are going to be from looking forward, we want to see where we are from a recovery stand point over the next few months to determine what we want to do from a dividend standpoint or from a stock buyback standpoint. But those are secondary actions that are going to be – certainly things that are on the table that the company and the board is considering.

Great. Thank you. I am done.

Thanks, Tim.

Thank you. And we have no further questions in the queue at this time.

Alright. Then I would like to thank everyone for participating today and thank you for your interest in NTIC. Have a great week.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.