BNB Plus Corp (BNBX) 2018 Q1 法說會逐字稿

Good afternoon, and welcome to the Applied DNA Sciences' Fiscal First Quarter 2018 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Clay Shorrock. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us for our first fiscal quarter 2018 financial results conference call. I am Clay Shorrock, General Counsel at Applied DNA. A copy of the company's earnings press release and accompanying PowerPoint presentation to this call are available for download under the Events and Presentations section to the Investors page of the Applied DNA website. With me on the call are today are: Dr. James Hayward, Chairman and CEO; and Beth Jantzen, Chief Financial Officer. As a reminder, please note that some of the information you will hear today during our discussion may consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expense, stock-based compensation expenses, taxes, earnings per share and future products. Actual or -- actual results or trends could differ materially. For more information, please refer to the risk factors discussed in Applied DNA Sciences Form 10-K filed on December 20, 2017, and our subsequent quarterly report filed on Form 10-Q filed today. Applied DNA Sciences assumes no obligation to update any forward-looking statements or information.

Before starting the call, I'd like to remind you that Applied DNA will hold its annual meeting of the stockholders on February 27 in Stony Brook, New York. Additional details can be found on the IR calendar portion of Applied DNA's website.

Further, management will be presenting at Roth Capital markets 30th annual investor conference in Dana Point, California during the second full week in March. For those unable to attend management's approved presentation, it will be live streamed. Clients of Roth should contact their institutional sales representatives to schedule a one-on-one with the management.

Now it is my pleasure to introduce our first speaker to today's call, Beth Jantzen.

Thank you, Clay. Good afternoon, everyone, and thank you for joining us today. I would like to begin with the review of the financial performance for our fiscal first quarter of 2018, which will include a summary of our financial results as well as our financial condition following the completion of our financing during December of 2017. Dr. James Hayward, our President and CEO will then provide you with an update on the company's progress, activities and strategies for the balance of this fiscal year. Starting with the statement of operations. Total revenues for the first fiscal quarter ended December 31, 2017, were $648,000. This represents an approximate 28% decrease compared to $903,000 reported in the first fiscal quarter of 2017 and down approximately 43% compared to $1.1 million in the fourth quarter of fiscal 2017 revenue. The year-over-year and quarter-over-quarter decrease in revenues resulted primarily from decreased sales to the textile industry. The decrease in textile revenues was primarily the result of the timing of shipments and the recognition of deferred revenue related to our cotton contracts.

Products revenues declined approximately 50% for the first fiscal quarter of 2018 to $350,000 compared to $704,000 in the same quarter of fiscal 2017 and decreased approximately 59% compared to the fourth quarter of fiscal '17. The decrease in year-over-year and quarter-over-quarter product revenues were driven primarily by decreased sales to the textile industry for protecting cotton supply change as mentioned above.

Service revenues increased 50% to approximately $298,000 during the fiscal first quarter ended December 31, 2017, compared to approximately $199,000 for the same period in fiscal 2017 and was flat on a sequential basis with the fiscal fourth quarter of 2017. The increase in service revenues on a year-over-year basis was due to an increase in revenue from a government contract award of approximately $187,000, which began during June of 2017. To remind you of the breakout between products and service revenues, service revenues include our pilot projects and any research and/or development contracts as well as authentication and fiberTyping services. All other revenues are recorded as product revenues and cost of revenues relates only to product revenue. Costs for service revenues are reflected in R&D and SG&A expenses.

Cost of revenue as a percentage of product revenue in our fiscal first quarter was 95% as compared to 39% for the year-ago period. This increase in cost of revenues as a percentage of product revenues is due to the product sales mix as sales during the prior year's fiscal first quarter consisted primarily of textile sales, which are at a high margin. Also, due to low product revenue during the quarter ended December 31, 2017, our production decreased and as a result, our fixed production costs, primarily comprised of payroll and other building costs allocated to production were not absorbed by product sales.

Total operating expenses declined in the fiscal first quarter of 2018 to $3.5 million compared to $4.6 million in the first fiscal quarter of 2017 and remained fairly consistent compared to $3.7 million in the fourth fiscal quarter of 2017. The decrease on a year-over-year basis is primarily attributable to a decrease in stock-based compensation expense, offset by an increase in R&D expenses in relation to the government development contract award.

For the first fiscal quarter of 2018, adjusted EBITDA was a negative $2.8 million compared to a negative $2.3 million in the first fiscal quarter of 2017. The increase in adjusted EBITDA loss year-over-year is primarily attributable to the decreased revenue for the first quarter of fiscal 2018.

Turning to the balance sheet. Cash and cash equivalents totaled approximately $4.8 million at December 31, compared with approximately $3 million at September 30, 2017. The increased cash balance is primarily the result of approximately $4.2 million of net proceeds received from a registered direct offering, which closed on December 22. The offering strengthened our balance sheet and gives us the capital with which to pursue our goals for this fiscal year. Warrants associated with this offering have a strike price of $2 per warrant and are currently out of the money.

As of December 31, 2017, we had a total accounts receivable balance of approximately $2.2 million. Of this amount, we collected approximately $2 million subsequent to the quarter-end. As of December 31, 2017, our average monthly cash burn rate for fiscal 2018, excluding the proceeds from the financing, was approximately $879,000 compared to approximately $756,000 for the same period in the prior fiscal year, an increase of approximately 16%. The increase in monthly burn rate for the fiscal -- first fiscal quarter of 2018 compared to the first fiscal quarter of 2017 is mainly due to lower cash receipts and slightly higher disbursements during the first quarter of fiscal 2018. As of January 31, 2018, our cash position is approximately $5.5 million.

We continue to closely monitor our spending and intend to remain disciplined and continue to strategically manage costs in line with our current and near future market opportunities. As of December 31, 2017, we estimate that our cash and cash equivalents along with the collection of our current receivables and the proceeds from the recent financing discussed are sufficient to fund operations for the next 12 months. Thank you for joining us today, and I would now like to turn it over to Jim for his comments.

Well, thank you, Beth. Good afternoon, everyone, and thank you for attending our quarterly investor call. To begin, our first quarter was characterized by significant progress made in executing our growth strategy, including growth within existing verticals like textiles and expansion into new verticals, following the completion of initial pilots, such as in pharmaceutics and cannabis. Our financial results, however, do not reflect these recent successes. On our December call, we provided our first annual financial guidance, built on a base of recurring revenue, we projected a minimum for revenues of $6.5 million for fiscal 2018. Included in this guidance is approximately $4 million of cotton revenue and the seasonality inherent in those revenues. Seasonality of cotton revenue will abate to a small degree with the onboarding of new international regions through which -- although we anticipate that most of our cotton revenue will be generated in our fiscal third and fourth quarters, which are our peak quarters for U.S. cotton. Now although we have started slowly, we still believe our guidance is achievable and recent contracts serve only to strengthen our belief. And with this as a backdrop, I'd like to share with you the reasons for our continued optimism.

Now beginning first with our most established vertical, textiles, we moved to broaden our base of activity with our cotton partner Himatsingka and announced our first international foray with the sale of our DNA Transfer System to an overseas cotton market subsequent to the close of the quarter. Just like made in the USA, the labels that we're all familiar with and with the presumption of quality that it stands for, this overseas market's cotton has quality, environmental, economic and social standards that are derived from its origin. Our DNA Transfer System and the protocols that we use will ensure proof of origin and ensure that the tagged cotton fibers stay pure all the way through the supply chain to the finished goods. And while we are restricted from naming this market, we can say that it is a top 7 global producer of cotton. The implementation of our system puts us in a position to fulfill orders for our molecular taggant, as the demand evolves. We're also making progress in expanding our base of business in non-cotton or synthetic textiles. We recently announced that we will be attending the upcoming New York Home Fashion Week in conjunction with several of our CertainT licensees, including GHCL and our polyester supplier and partner Reliance Industries.

Now we're especially encouraged by Reliance's participation at this biannual event as it highlights the growing awareness of and interest in our CertainT supply chain authentication platform by synthetic fiber and finished goods manufacturers. Reliance is the world's largest integrated producer of polyester fiber and yarn in the world. And they also manufacture the world's most eco-friendly fibers.

Reliance is currently creating tagged fiber for GHCL's needs and our hope is that Market Week will demonstrate that demand will grow. But we are also actively engaged in rayons and other polymers, which are huge markets. To update you on our leather opportunity, we have been developing and demonstrating the methods for tagging and authenticating leather from farm to finished goods in conjunction with BLC Leather Technology Limited on a pilot project that was sponsored by 8 brands and manufacturers. I am pleased to report that the project is on schedule and that the results have exceeded everyone's expectations. The project is expected to conclude at the end of March, and we are already planning to introduce the technology at a commercial large tannery as a large scale pilot.

Now an adjacent market opportunity in agriculture is the tagging of legal cannabis and its derivatives. Subsequent to the close of the quarter, we announced a $1 million contract to integrate our molecular tagging and testing technology into TheraCann's blockchain-based seed-to-sale enterprise resource planning platform for legal cannabis operations. Earlier this week, we announced that we had generated successful initial results of our ability to detect our taggant through raw materials and some processed goods in the legal cannabis supply chain. And as I noted in our last investor call, our molecular tags can be the immutable link between the physical and the digital, and our contract with TheraCann demonstrates that we are well positioned to benefit from such a need. Be it in the legal cannabis blockchain or any blockchain that requires a physical link. We believe that the link between the digital and physical worlds within distributed ledger implementations is actually an Achilles' heel that's open for opportunity to us. That is the bad guy could counterfeit or switch good product for bad, even though the digital transaction would track it as it's secure from beginning to end. Our molecular tags sit invisibly in or on the goods through their life cycle, are designed to be unique to the application and can provide blocks of CSI-like authentication of goods to a distributed ledger at each node. Over the past year, we've focused on prototyping a blockchain-ready system and simulating business processes with our partners and our largest supply chain vertical to get a feel for what's ahead. Separately, we are working with TheraCann International to establish a blockchain-based platform for the legal cannabis industry from seed-to-sale. Imagine a molecular level identity that is applied at the grow stage tracked via an industrial Internet of Things and cloud-based platform with forensic authentication at processing and dispensary steps. Stakeholders gain confidence in authenticity and law enforcement gains the means to forensically detect origin in criminal situations.

Now with Videojet, our strategic partnership brings a considerable set of capabilities to amplify the value of our tag, test and track technology in the high-speed inkjet printing market. Ours is a universal platform, in essence, a turnkey solution that has been seamlessly integrated into Videojet's newly introduced secure printing platform for manufacturing lines in industries such as pharmaceuticals, personal care and industrial products. We have begun to jointly approach initial customers on our solution, supplemented by lead-generation marketing programs and joint presentations at industry events and a presence in Videojet's marketing communications, such as our participation this week in Videojet's WestPack trade show.

Now turning to our fertilizer vertical. The Republic of Turkey's mandate to DNA tag all domestically produced fertilizers went into effect on the 1st of January, 2018. We are actively working on sales opportunities in Turkey, both for cotton and for fertilizer, but for streak -- strategic reasons, we want to ensure that we choose our customer and our partners wisely. But the opportunity for tagging fertilizer is much larger than what Turkey offers. The primary driver of demand for tagged fertilizer is the prevention of fertilizer adulteration and the security of supply chains to prevent the use of fertilizer in improvised explosive devices. These are global issues and they can be resolved with our technology platform. With our partner Rosier, we have identified initial markets for DNA tagged fertilizer sales in Turkey, Asia and Africa, and Rosier is establishing the team to identify specific demand.

Our pharmaceutical market initiative is moving ahead with mounting momentum. We have completed our Drug Master File and are now awaiting Colorcon's review before filing it with the FDA. It's we who file with the FDA. Although our filing date is later than we initially expected, Colorcon's review is necessary as our DMF is a reference linked to their product offering among others. To remind you, ours will be a Type IV DMF filing that will consist of confidential information about our product, its stability in varied environmental conditions and our manufacturing process. The DMF requires no FDA review and resides with the FDA until such time as a prospective pharmaceutic customer indicates that it will DNA tag one of its drugs, at which point, we give FDA permission to review the proprietary information in our DMF before the FDA grants permission for the pharmaceutical company to implement our technology. Now in parallel, we are working on securing a definitive agreement with Colorcon that will trigger certain revenue to Applied DNA. The longer-term revenue opportunity with Colorcon, however, has the potential to be much more substantial and impactful on Applied DNA. Colorcon is the market leader in tablet coatings with approximately a 60% market share. By integrating our DNA molecular taggant with Colorcon's film coatings, we will be able to offer a seamless solution to pharmaceutical customers, who are already using Colorcon's film coatings. Once the definitive agreement is signed, the next step is to partner with Colorcon to secure our first mutual customer, which will represent another source of recurring revenues for Applied DNA.

We are beginning our deep dive commercial engagement with Colorcon this month to lay out the customer landscape together with their sales and marketing colleagues, who work with all of big pharma. This process already well underway with our sales leadership, will begin to position us in a credible way with the right decision makers within pharmaceutical companies.

Now tablets represent 1 of 2 ways to deliver a solid oral dosage form. The second way is by capsule. We have recently finalized our initial negotiations with one of the world's largest pharmaceutic and nutraceutical capsule manufacturers. We expect to announce news about this complementary direction shortly. On the flip side of the pharma coin, sometimes approaching the same customers is our biopharma practice, which holds the potential to be a large long-term opportunity for Applied DNA. On our December investor call, we spoke of opportunities and current projects for functional DNA in gene therapies and for vaccines. Last year, we entered into an agreement to supply bulk DNA to a leading chemical company serving the in vitro diagnostics market. We began shipping product in the fourth quarter, and we are making large-scale shipments each quarter. We expect our relationship with this customer to grow as our customer solutions expand into new markets. With regard to biotherapeutics, our agreement with [Evivax], which we announced in the fourth fiscal quarter of 2017 is progressing well. And we expect that our success in demonstrating our competitive differentiation in this project will open up opportunities in the growing DNA vaccine market for animals and eventually humans. The DNA vaccine market for animals alone is greater than $2 billion a year and growing at a double-digit compound annual growth rate.

In therapeutics, there is a need for more complex DNAs, such as those that are used in the ever-growing field of immuno-oncology. Companies are entering this field with novel therapies that require immune cells to be removed from a patient. Those cells then have to be armed to produce new proteins that allow them to recognize a cancer, and then, those cells are given back to the patient in large numbers, larger than they were withdrawn from the patient after expansion. These cells persist in the body, becoming a kind of living drug. These therapies are time-limited, and if you don't put the therapeutic DNA back into the patient as quickly as possible, you don't really have a viable therapy, and therefore, a viable biotech company. And we're talking about our customers here. We are cultivating opportunities in immuno-oncology for our PCR produced DNA that is cleaner and faster and more easily modified than DNAs made from legacy technologies.

Now as you can hear, there are many reasons for our continued optimism. This is reflected in the establishment of the DNA laboratory in India that will officially open next week. This is a strategically important facility for us, given the amount of business that we conduct in that region already and the amount of business potentially available to us in that region. Its proximity to customers should incent them to test more while enabling faster quality control and assurance and at a lower cost than is currently associated with shipping samples here at Stony Brook. In addition, this will also free up some of our skilled scientists in the U.S. for other opportunities. So in conclusion, our business development is active, awareness of our company and its technologies is growing and market dynamics and customer demands are increasingly shifting in our favor. We have a base of recurring business and our every effort seeks to add to that base to the benefit of the company and to our shareholders. Now to quote Dr. James Watson, the Nobel laureate and co-discoverer of the structure of DNA, who recently visited our Stony Brook facility, where he said, "Imagine an American company, whose fundamental selling premise is the honesty of DNA tags. The honest world needs Applied DNA". Well, thank you for your time, attention and your continued support of Applied DNA. And operator, can you now please open the call to questions from the audience.

(Operator Instructions) The first question is from Brian Kinstlinger at Maxim Group.

So I was wondering, I just want to be clear on the wording for base-case revenues of $6.5 million. Last quarter you said that was the recurring revenues that you were exiting the year at. So I'm wondering if, a, if they're the same? And b, do you have $6.5 million in commitments to revenue or is that not necessarily the case?

I think it's a hybrid of what you said. So some of that is based on commitments and historical orders we have received or are based on annual minimums from contracts. That's how we're building our recurring revenue base. Due to the timing of -- I'm sorry, go ahead.

So what would have to happen in order for you to -- what could happen that leads to less than $6.5 million of revenue. Is it going to be the timing that we've talked about of deferred recognition, I mean, just maybe take me through if the end of the year ends up at $5 million, what could go wrong that could not allow you to hit that bogey?

The revenue we receive from cotton is lumpy at best, and as a consequence, we can't be absolutely certain when the end customer in a supply chain for cotton is going to seek the demand for finished goods. And it's the demand for finished goods that percolates all the way up to the sale of cotton fiber and the sale of cotton fiber that's been DNA tagged. So the only thing that would alter that in a negative direction would be if demand diminished. We don't see that trend as likely, and the reason is we are in steady dialogue with more big-box retailers, with more brands, with more manufacturers, and we see great opportunities for growth. Now those are not completed sales as yet and so we can't be absolutely certain of how they would impact the revenue for the year, but we have only reason for optimism.

Great, okay. And then, if capital were not an issue, and say, you had another $10 million to $15 million in the bank. What would be one of your -- what would be your 2 top investment priorities?

Well, I think we would continue to grow our textile business. We'd increase our commitments to sales and marketing to grow it faster than it is. We see a great opportunity in pharmaceutics, and once we have all of our agreements in place and our initial customers. The beauty of that business is, if you'll pardon the pun, it's a cloneable sale. So moving from tablet to tablet, drug to drug, manufacture to manufacturer should be a straightforward event, because we're tagging the same material. And we believe that it's the best solution that's available in the marketplace to sell the problem that FDA has been trying to resolve for the last 4 years with serialization. So we think that that market will grow. And with Videojet, we have an off-the-shelf product that requires no modification, just installation, and then we have the Gillette model for the supply of DNA-based inkjet cartridges thereafter. So that's where we'd focus.

Got it. And then you mentioned the year will be back-end loaded, obviously, cotton sales have seasonality. Should we expect 2Q is going to look something similar to 1Q, meaning, $1 million or $7 million in revenue?

I mean typically, Q3 and Q4, we are expecting to be higher, because of the higher 2 quarters of the fiscal year.

So 2Q is going to look something similar to 1Q?

No, I'm not sure I understood...

Meaning, you put up, what, $600,000 to $700,000 of revenue.

Are you asking what our second quarter will be?

Will it look similar, I am saying, to the first quarter or is there a stronger demand, you think, generally in the second quarter than the first quarter?

I'd say, we've never provided guidance in the midst of a quarter. I don't think we will now. But we have a good pipeline and many of our opportunities in the quarter as for many businesses like ours are realized towards the end of the quarter. So we remain optimistic, but it's too soon to say.

Okay. So I want to talk about quickly, and this is my last one, it's a wide variety of topics, but I think for many quarters I've asked when certain businesses will hit about $1 million in revenue per year. And I think right now, I think it's only cotton. So we've talked about synthetics for a while. Now we're -- we've been talking about pharmaceuticals and Colorcon, which sounds like an interesting opportunity. Cannabis and fertilizer, those seem to be 4 opportunities and just I'm curious, which one hits that $1 million run rate first? And do they all get there at that run rate by the end of the year? Could a couple of them generate $1 million this year? How you kind of think about those 4 in terms of revenue and timing?

We expect that will cross over the $1 million mark in pharma pretty rapidly. We announced already that our contract with TheraCann in cannabis provided $1 million in cash flow over the next 4 quarters, including this one, however, that revenue will be recognized over the course of 8 quarters. So -- and that is without -- in many ways, TheraCann is a business opportunity not dissimilar to Colorcon, pharmaceutics and cannabis. The irony is clear, but -- and that is because Colorcon is our partner, TheraCann is our partner. Together with our partners, we will be seeking mutual customers that we will be servicing together and as we do that the first time, as I said a moment ago for Colorcon, it's a cloneable experience we should be able to repeat. And as long as the federal government does not change its position with the states permitting cannabis to different degrees, we believe that we offer the best solution for the states to monitor compliance with the permitting program and to ensure the federal government that they're on top of those supply chains.

Right. And so -- and -- so you think by early fiscal -- next fiscal year, do you think each of these are -- in position to be generating $1 million or more in revenue, including like cannabis and fertilizer and synthetics?

Well, you're asking me to provide guidance and at this stage...

I guess I'm just trying to understand the timing of when these are moving towards commercialization, not so much an actual number that can be much higher, right? I'm just trying to understand...

Let me put it to you this way. How quickly we cross over $1 million, whether it's in which week, which month or which quarter will be a function of how quickly we find the first customers. I can tell you that in pharmaceutics, working closely with Colorcon we have already begun the mining of the sales opportunities here in the United States and we're talking to some impressive folks. We think that the opportunity should mature at a pretty good pace. The awareness of the company is much broader than it was 5 years ago, and the sales cycle we've seen gets shorter and shorter, industry by industry. So I'm very hopeful.

The next question is from Craig Pierce at Morgan Stanley.

Colorcon last was -- when last discussed, I understood that you were hesitant to talk about milestone payments, the data as for not getting into that, also I was under the impression that definitive agreement was fairly near at hand yet you're not -- I've not heard those words vis-à-vis Colorcon. Where do you stand with that? And any sense of -- well, where do you stand with that?

Well, we did speak to the Colorcon definitive agreement in the course of my presentation. We expect we'll sign the definitive agreement shortly. And we'll announce that as soon as we do. And of course, we're just as anxious to make sure that we complete the filing of our DMF with FDA. Those 2 steps then are the keys to opening the marketplace for sales to the customers who would eventually be using the technology we're developing or we have developed with our partner.

In the last call, you had expressed pharmaceuticals as being potentially the next area where you could begin to make firm predictions, or in terms of -- you've got a sense of what cotton's doing. And when I asked where do you think the next one where you can have high confidence on numbers, you'd mentioned pharmaceuticals. Is that still, at this point, your best guess? And I'm putting the word guess on here because I realize until it's -- realize it's a guess.

Right. So realize that once a pharmaceutic company has taken on our platform that they will have to notify FDA, they have to make a very small change to the way they manufacture their product. It's almost negligible, but it's, of course in pharmaceutics, immutable. So once that change is made without refiling with the FDA, that combination of molecular tag with pharmaceutic is going to be there for the long haul. So those contracts and supply arrangements will not respond to the fickle aspects of fashion the way textiles do. Instead, these will be much stickier and we think longer term, and we believe that the barrier to entry for other pharmaceutics will lower very rapidly once we achieve our first successes.

So -- all right. I was going to pull on a parallel example, but not coming in mind. So Colorcon is tablets and you mentioned -- and then there're capsules. Is that -- do I understand that you're developing a relationship with an un-yet named additional company for the capsule side of things.

You do.

Okay. And how far along of the path to, let's say, in having an agreement of understanding that you have currently with Colorcon. How far out do you think with the capsule company you would be potentially getting -- crossing that line?

We're optimistic that you should be reading an announcement before too long, touch wood.

Okay, I heard that and I'll knock back. Last call, the number, I think it was $6.5 million was what was discussed and the term had been used an x number of dollars as baked in, if I remember correctly. One, confirm that. Two, is that a number that's changed, that baked in number from, say...

That's a great question. So I believe, I'm just working from memory that what you're referring to is the fact that we said we had $6.5 million of recurring revenue and approximately $4 million of that was baked in from cotton and that is still the case, but as I pointed out in my answer just a moment ago, cotton is a seasonal, cyclical business that responds to the demand of an ever-changing marketplace. Now if it didn't have some stability, farmers wouldn't be growing cotton. So there is the stability there. But when farmers grow cotton, they have the benefit of having it ginned and baled and stored. And then when the market has a demand, it's shipped just in time to the spinners. So we are involved in that same kind of JIT response to changes in fashion and demand by the various customers that we have in cotton. We think it's very predictable over the long term, but if you look at it with enough granularity, there is a certain spikiness. So we are comfortable with the $4 million of cotton sales being baked in, but exactly when in the course of 4 quarters we see those sales, we can't quite say. And that's really been the nature of the cotton business since we began it.

I mean, I know that you've shortened dramatically the payday so to speak from the shipment out of the markings and the -- through the new contracts with Himatsingka, I believe.

Yes. So one aspect of our revenue recognition has been much better controlled. But the other aspect is when the manufacturer, when the retailer actually needs the product and that decision comes from the consumer.

I wanted to see if at this point -- I mean, you're talking about moving on to the first international order for SigNature T DNA Transfer System. At this point, can you talk about hemisphere. I mean, obviously, if you were talking the Southern Hemisphere, that would be on a totally different harvest cycle than the Northern Hemisphere, and I wanted to see if you could at least give us guidance if that is just going to be potentially adding to third and fourth quarter type numbers in the future or potentially filling in the calendar so to speak with harvest in the winter and spring of the Northern Hemisphere.

Right. I can tell you that this location will help smooth out some of the lumpiness from cotton.

Okay, so not a specific hemisphere, but it will stretch beyond the normal timeframe, I mean, the United States is experiencing in cotton harvest?

Yes, that's correct. I can tell you our customer would be comfortable with me saying, it is on planet Earth.

I will definitely keep that between you and me, Jim.

Okay, I think that opportunity is now gone.

Yes, okay. So it's not on a car circling the world right now. Okay. All right. Well, good to know, good to know. Wanted to ask just conceptually, starting out this first quarter. Your feelings about where the numbers were going to fall. Let's say, at the end of September, looking out 3 months. Here we are reporting at this point. Do you feel that the numbers were coming in with where you felt they would be coming in revenue-wise? I know that's a touchy-feely question. But I just -- I realize that I've probably gotten a little ambitious in terms of my thinking in terms of how things have smoothed out. And I'm disappointed in my own analysis. I wanted to just see what your feelings were if you were feeling comfortable that this fell within the range that you were personally expecting for quarter 1.

Well, to be perfectly simple and frank about it. We were disappointed, and we were hoping for a better performance and there are several reasons that Beth discussed for why we didn't see that. We don't believe that that is a reflection of our inability to forecast or our inability to read the market. We think it's just a matter of maturing within our various verticals and establishing more consistent demands that we can predict more reliably. But we don't believe, as we said at the very opening, that the poor performance in quarter 1 is a reflection on fiscal '18.

Do you feel that, and again, we're getting conceptual -- that where the disappointment in revenue, that amount, and again it's a conceptual number not asking for it. Do you think that a lot of that will be falling into the second quarter that you thought would be in the first quarter?

That's coming uncomfortably close to guidance, and I would be uncomfortable answering that question. As it is, I don't think we have the basis to forecast that. All I can say is I'm very optimistic and remain bullish on our performance.

Okay. Well, having the person that has the highest personally purchased shares at the helm of the company, and knowing your cost basis is much higher, I appreciate that, and I know you're doing everything you possibly can for everybody's benefit, and thank you for that.

I appreciate your support. Thanks very much, Craig.

(Operator Instructions)

Operator, I think we can close for questions now.

Would you like to make any closing remarks?

Sure, we'd like to express our gratitude for the dedication and enthusiasm of all of our investors, particularly those on the call and look forward to talking with you and providing better news in the next quarter. Thanks very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.