REX American Resources Corp (REX) 2008 Q1 法說會逐字稿

Welcome to the Rex Stores first quarter results conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded Thursday June 5th, 2008.

I would now like to turn the conference over to Mr.

Doug Bruggeman, Chief Financial Officer.

Please go ahead sir.

Good morning, and thank you for joining the Rex Stores fiscal 2008 first quarter conference call.

We'll get to our presentation and comments momentarily as well as your questions and answers, but first I'll review the Safe Harbor disclosure.

In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risk and uncertainties within the meanings of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements reflect the Company's current expectations and beliefs but are not guarantees of future performance.

As such actual results may vary materially from expectations.

The risk and uncertainties associated with the forward-looking statements are described in today's announcement and the Company's filing with the Securities and Exchange Commission including the Company's reports on Form 10-K and 10-Q.

Rex Stores assumes no obligation to publicly update or revise any forward-looking statements.

With that I'll turn the call over to Stuart Rose, Chairman of the Board.

Thank you, Doug, and thank everyone for being on the call.

Sales for the first quarter were $47.1 million versus $48.9 million in continuing sales last year.

Earnings, $1.5 million this year versus $7.5 million last year.

On the-- in the retail sector earnings were roughly $0.9 million versus $1.9 million, comps were down 0.3%.

Earnings were down mostly in the margin category.

Reasons for that we're cutting margins a little bit to keep our volume-- we feel it's during a slower economy it's better during tough times it's better to cut margins a little bit, trying to keep the volume steady.

And also during this quarter there were less opportunistic buying opportunities than we have had-- than we've had in the past, mostly due to less close out items in big screens, tube TVs, things like that.

And product shortages or model change over shortages, I should say in LCD and Plasma where the dealers, or where the manufacturers didn't have the overstocks this time of year that they've generally had in the past.

Done a better-- they've done a better job controlling their inventories which presented us with less opportunistic buying opportunities.

For the month of May, the rebate checks started going out.

Our core business was, meant by core business our business excluding air conditioners which is tied to the hot weather, comps were up a little over 2%.

And for the -- we seem to be getting some benefit from these rebate checks, the economy of course is still very tough.

Also, the signal change that's going to take place at the end of the year, we expect to drive our business on the video side, and we're looking forward to that.

In terms of where we are, the breaking down product categories, appliances were down during the quarter about 0.4-- 0.04% for [choice flat], audio down.

This was cause of the audio-- this is in relation to our overall volume audio caused our comps will be down about 1.2%, television caused our comps to be up about 2.2%, video caused our comps to be down about 0.8%.

In terms of synthetic fuel, as everyone knows that business ended at the end of last year.

We've still had some residual income about $670,000 that was versus $6.7 million last year, that's the biggest cause of our shortfall in earnings.

That business is now over.

We do not anticipate anymore income this year.

And if we do get anymore income it would be a bonus.

Although, again that's not anticipated.

In terms of Ethanol, we have four partnerships in operation.

Levelland, our 40 million gallon plant in Texas is now in production.

We continue to make money at the Big River operation, we had some net income.

And our belief in Ethanol is that with oil prices where they are, that business our feeling has to turn around.

Things are-- we're still making some money.

Most or many in the Ethanol field are not making money.

Our feeling is that there's going to be some realistic evening out of prices.

Wholesale-- Ethanol is traditionally sold much more closer to wholesale gasoline than it is today.

We-- even with-- if that does take place and Ethanol does get to a more historical spread versus wholesale gasoline, we feel that'll be a very profitable business for our Company, assuming corn prices stay relatively close to where they are today.

And again, with oil where it is today I can't imagine that it's going to continue to be forever a tough business.

In terms of our strategy, we think it's a better strategy than anyone else in the Ethanol business.

It's partnerships with farmers, they have a vested interest in our plants doing well, not just in getting the best price for their corn but keeping our plant in business and our doing well.

And they have put money into these plants, and we so far have nothing to say but good things about our former partners.

In terms of our balance sheet today, we have $90 million in cash that's not tied-- basically free cash not tied to any investment in the Ethanol-- or had at end of the quarter $90 million not tied to any investment in the Ethanol or retail.

It's available to us to use to look for other opportunities or to -- or for other corporate purposes.

We announced today we have an awkward Company, we know it.

We have a retail side, we have a very, very good real estate side and we have an Ethanol side.

And it's our intention now to take positive steps to both maximize value and do it's best for our-- to try to do it's best for our employees and separate these businesses if possible.

And do -- both to maximize, like I said, value for shareholders and also to take care of our employees in the best way possible.

It's very, like I said, awkward the way it is today where for a small cap Company, it's an odd -- and we've been this way for 10 years.

It's an odd combination alternative energy and retail, and we are now going to do what we can to stop the odd combination and make things a little bit easier for everyone to understand our-- a little bit easier for everyone to understand our Company.

On that, I'll leave it open for questions.

Thank you.

(OPERATOR INSTRUCTIONS) And our first question comes from the line of Rick Weinhart of BMO Capital Markets.

Please proceed.

Please proceed.

Good morning.

Hi, Rick, how are you?

Good thank you.

Good.

Wanted to start with the retail business.

Can you tell me what the -- what TVs did?

You gave the 2.2 as the impact on the comps.

But what were TVs overall, the growth rate there?

What I do is -- I can give it to you basically by category if you want it that (inaudible) and it probably is the best thing to do.

Projection TVs were down 54.5%, this is year quarter-over-quarter.

Plasma was up about 15%.

Small screen LCDs were down 60% by 13 to 15, 16 to 20-inch down 54%, 28 to 32 up 50%, 33 to 42 up 9.4-- 9%, 43 to 47 up 64%.

And most important for us, 48-inch and larger were up 128%.

But analog TVs went from virtually zero from a couple million dollars last year.

Okay.

Rick, it was up about 4% just the category itself.

Category itself, okay.

In the comp, (inaudible) in the comps.

Like comps, right, okay.

And the-- thanks, thanks for that.

In your interesting-- when you broke it out this way I-- I mean the declines that you're seeing in LCD and the small screen, was that supply related or is that something else?

It's mostly supply related.

There's the LCD, the lower end stuff is extremely promotional and there is business out there.

But they have a specialists selling televisions like we do, it's very hard to compete in those lower end models.

Again some mass market people the Costcos and people of that nature where there's not-- and once you get to a bigger television, a more expensive television, a special-- a TV salesman, a specialist can show how good he is.

Okay.

And again there'e not a huge amount.

What-- the volume was not -- just to give you an idea wasn't in the 13 to 15-inch category, did $339,000 last year.

This year $135,000.

Okay.

Okay.

Great.

And you mentioned the 2% comps in May X air--

Inaudible.

What's -- how is air conditioning doing?

I assume not too well given the--

We had a wet cold May but it's hot now.

I think overall if I put in air, sales were virtually-- comps were virtually flat.

Okay.

It wasn't huge.

I mean it was a couple percent.

Okay.

Comp store sales were virtually flat.

Okay.

And just the discussion this morning in the press release regarding looking at strategic options now for the retail business, I mean what, what types -- I mean because you've always been pretty clear that you would only be in the retail business as long as it's profitable.

And I think you've always looked at these businesses as -- trying to get to the best value for them.

So I mean what is changing?

Or what are you doing exactly?

Well, our intention is to hire a firm to actively go out and help us analyze what is best to do for this Company.

And whether it's sell the real estate separately.

Whether it's to sell the retail business and combine with the real estate --

Okay, got it.

We want to do what's best for our employees and we also want to do what's best for our shareholders.

Okay.

And a couple more things, on our properties does these few stores that were closed in the quarter, were any of those owned properties, or were they all leased?

They were all the leased properties that were on short-term leases, Rick.

Okay, okay.

Okay and Doug, the unrealized gain on derivatives that 4.72 gain that you had, is that related to interest rate changes then still on the (inaudible)?

That's correct.

Okay.

And so we'll continue to see those move back and forth, depending on where interest rates go, until we-- until all the plants are online?

Well (inaudible) will continue even when the plant is online until the swap completely unwinds itself.

And-- but the swap is-- so the swap is for--

Like-- it's for the-- once the construction is completed -- and it's for the term loan, the Levelland/Hockley is a two year swap.

And the One Earth is a five year swap.

But they'll continue out there.

Okay, but the-- but once the construction is completed, you'll start flowing interest cost through so those will kind of offset each other, right?

Well yeah--

(Inaudible)

It will still be a separate line item.

But yes, to your point, they do offset each other, but it'll continue to be a separate line item.

Okay, okay.

And Doug, the-- you mentioned what the cash was.

How much of the debt was on the balance sheet was related to the Ethanol facilities?

Or how much was the mortgage if you wanted to do it that way?

Yeah, Rex has $13 million left of long-term debt and the $32 million was for Levelland and Hockley.

$32 million for Levelland.

Okay, and was there-- did the CapEx in the quarter -- do you have that number?

Yes, I do.

Here it is.

For Levelland/Hockley it was $23 million-- I'm sorry Levelland/Hockley $5.5 million and One Earth was $23 million.

Okay.

Great.

And I have a bunch of questions on the Ethanol.

But I'll get back in the queue.

Thanks.

Thanks, Rick.

Our next question comes from the line of Mike Neary of Neary Asset Management.

Please proceed.

Hi, I might have missed this.

But did you sell any stores in the quarter or close any?

We didn't sell any stores, we did close for leased locations.

Okay.

And how many stores were currently on the market as vacant to be sold?

We currently have six or seven stores on the market to be leased or sold.

Okay.

And so you have not yet hired a firm that would help you analyze the best way to do this, or--?

We're in the process, we just haven't completed the contract.

Okay.

We have identified a firm.

We just haven't completed the contract.

Okay.

And are they going the look at everything?

Or are they just going to look at the store and real estate -- ?

The retail side.

Retail.

Okay.

And again we have $90 million in cash, depending on what we do, the retail side, in our opinion, especially the real estate is worth significantly more than it's on the books.

And even retail without real estate due to the service policies and the fact that it's profitable.

Okay.

And the remaining shares on the purchase are 124,000?

142, but yeah.

142.

And would your intention be to re-up that if you purchased all those shares?

Or are you -- I mean--?

Our history has always been when the stock sells below book value to look at doing some sort of a buyback.

What the next one will be I don't know, or whether there will be-- there's no guarantee submitted and the Board would have to approve that.

But our history has always been to do something of that nature.

Yes, and that's been very good for shareholders.

Thank you very much.

Okay, thank you.

Our next question comes from the line of Arnold Brief of Goldsmith & Harris.

Please proceed.

Hi, Arnold.

Good morning.

I just got a couple -- I'll ask them one at a time.

You've bet a lot of this Company on the Ethanol business.

We have a Republican nominee for President who has a reasonably good chance of winning who has taken a pretty negative posture on Ethanol.

Has that influenced your thinking at all?

We have a Democratic candidate from Illinois who likes Ethanol, so-- and $0.01 of our-- our biggest plant is in Illinois.

So I don't think that this country can afford to just shut down basically a 15 million gallon a year business.

If they did and they really analyzed it through, yes, it does use corn, but it also-- the bi-product also is used to-- as a feed stock.

And the protein is still left in the -- and if we weren't-- if we didn't have Ethanol the price per barrel of oil would even be higher.

And we'd have a worse balance at trade.

And I think if -- I refuse to accept that the industry should go away.

I think there'll be better seeds coming along.

I think there'll be-- we have one of the few sorghum plants in the United States.

Sorghum grows in much dryer conditions and all sorts of new feed stock coming along in that area.

There's cellulosic Ethanol.

This isn't an industry as much as loss -- some people in Wall Street would like to see it disappear.

It's not going to disappear.

And if you look at it in terms of helping our balance at trade.

And if you look at it in terms of lessening our dependence on foreign oil, it is a great benefit to this country.

And the Democratic candidate, at the moment, sees it.

I think the Congress, they just passed in their latest farm bill, they see it, pass some things to benefit cellulosic Ethanol.

And I don't think, and I don't think that even if the President wanted to get rid of it, and he wasn't Republican, I don't think he would have that capability.

Okay.

I -- I agree with you.

But I -- he makes me nervous.

Could you -- I might be able to do this on my own going through the 10-K.

But could you give us a summary your real estate in terms of the number of stores that you are operating, that you still own, number of stores that are closed that you own, number of stores that are-- that you lease, number of stores that are closing, that kind of thing?

You manage your warehouse space that you still have, et cetera?

Give us some metrics that we can evaluate your real estate.

I don't think you're going to do it for us, but maybe you can give us some numbers.

Of the 111 stores we operate, 39 are owned and 72 are leased.

Besides the 39 operated stores there's about another 10 stores that are closed that we either have leased out to another party or are vacant and we're looking to get a tenant or to sell the property.

Do you own those, those 10?

Yes.

Okay.

And then in addition we do still have our three distribution centers in Dayton, Ohio, 470,000 square feet, Pensacola 180,000 square feet and in Cheyenne 145,00 square feet.

700, close to 800,000 square feet.

Is it -- I mean, if you can put different numbers on warehouse space in different areas of the country, I guess.

But is it conceivable that that space is worth less than $40 million?

The warehouse space?

Yes.

It's conceivable it's worth less than $40 million, yeah.

But it's only on the books-- what's it on the books for, Doug?

In total, it's on the book for about $12 million.

Is it conceivable it's worth less than $40 million?

Yeah, because Dayton is a tough warehouse market, Cheyenne's a good warehouse market, Pensacola's a good warehouse market.

But our opinion is it's what worth significantly more than book value.

How much-- what that number is as part of this process we hope to find out.

Okay.

And then your comments about -- at this point intending to rationalize the Company, you mentioned the three categories, retail, real estate and the Ethanol.

How do you separate the real estate from the retail?

I mean it's --

We've done that in the past.

Somebody buys the real estate and they choose to use it for a sale lease back to us, or they choose to use at for--

Yeah, a store at a time but as--

No, we've done it last year, we did it a lot more than a store at a time.

We did it-- we had that big real-- if you remember, Arnold, that big real estate transaction last year.

So you could do a real estate transaction and then do a retail transaction later if you --

Absolutely, or (inaudible).

Right, but that's why we're hiring this firm to-- that's what we will hire a firm to help us work on all that stuff.

To work actively, before we've done it-- one-- we've done a couple of real estate transactions, but never tied in with the retail.

This time we're tying it all together.

Okay.

All right thank you very much.

Thanks Arnold.

(OPERATOR INSTRUCTIONS)

Any other questions?

Yes, our next question comes from the line of Richard Dearnly of Longport Partners.

Please proceed with your question.

Good morning.

Hi, Richard.

The, the discussion about the tender of the exercise price of the options on page 75 of the annual report, what's going on there?

Is -- are you exercising options?

No we are-- I --

What does that mean?

No that-- but I exercised a bunch of options at a higher price.

And I had-- I used shares that I owned to pay for that, although I paid a larger amount of the taxes in cash.

And I think that's what that's about.

I-- so--and does-- do if-- does the, the shares that you used to exercise the option to the Company then count as a, a share repurchase?

That does not count against our share repurchase, but it does reduce the number of shares outstanding.

Yeah, I guess it would count on our financials as share repurchase.

It goes into our--

It doesn't go against our-- how much cash we're spending to repurchase.

So it does count against the cashes?

And does that count --

It does not count against the cash.

It was in-- it does not count at all against the cash.

No cash was involved.

Oh, okay.

So that--

It just goes in-- it goes on a treasury.

Right.

All right.

Then the -- on -- in the annual report, there's a paragraph that discusses the possibility of a dividend and the -- oh the availability under your credit agreements.

I don't remember that being in previous annual reports.

Which gets to the question of if you rationalize the retail and it generates cash, what would you do with the money?

Well --

Dividend discussion --

There's lots of opportunities, just throwing a few things out there.

Not that we're committed.

One is paying a dividend.

Second one is doing some sort of dutch auction.

Third is some sort of tender offer.

We'll have virtually our whole market value assuming we could get just book value for the rest of the Company, our whole market value will be-- for today's market value almost will be equal to-- will be all in cash.

So we'll -- the other thing is again, our history in alternative energy.

And we think we know what we're doing.

And we proved it over 10 years.

Now it's been very, very good.

We'll see what happens in Ethanol.

But we do look for opportunities, right now we don't have any to present to our shareholders.

But we're our there looking all the time.

There's $1Congress came up with $1 per gallon tax credit on cellulosic Ethanol.

That's a huge incentive to try and-- for us or anyone else to find something that works in that category.

We're -- our Ethanol plants -- again, we think we have a lot better way of doing Ethanol plants than most of the other ones because of our farmer partners, which gives us in our opinion a huge edge in the buying of the raw materials.

So we hope to be able to take advantage of that.

We'll see what happens.

Right, the-- One thing about our Ethanol projects, so you know, they are not tied to Rex in any way.

Each one stands on it's own.

Right.

On the subject of Ethanol plants, is the $20 million investment in Big River, does that cover the operating plant for say $10 million and a $10 million to equity contribution or participation in the second plant?

Or was the $20 million all for the first operating plant?

It puts us into both of the plants.

We put $20 million into it for that--

And gives you 10% of both of them?

Yes.

Also included in the expansion of the first plant.

And they continue to make money as you saw in the first quarter.

Yeah, well

During a very, very difficult period for Ethanol.

Yeah, it looks like your 9.2 million gallon participation in -- which is-- your 10% net earns you $2.4 million.

Is that --

And that doesn't even count -- that's does--Doug, do you want to go over that and explain that it doesn't even count, that a lot of that $20 million -- well the way-- you're looking at it $10 million and $10 million, it's probably-- Anyway, Doug, do you want to go over that?

I mean we put $10 million, I'm sorry, we put $20 million in there's a 92 million gallon plant that's operating.

They're building a 100 million gallon plant.

Actually the earnings in the first quarter I thought were more like $1 million, I'm not sure of the $2.4 million--

That was --

The answer to your question, I think what you're getting at, is we're at the moment during the first quarter got a very good return on that part of the investment.

Sorry, the $2.4 million was for the year back on-- in the annual report.

Oh, yeah, last year, yes, I'm sorry, yes.

It was a very-- it's been a very good investment so far.

Last year also we made another good investment in Ethanol.

We were-- again many companies struggling, we sold one of our plants and made $24 million that is now been monetized and is sitting on our balance sheet.

We actually-- that pure profit $24 million for an investment of less over 100% return in less than a year.

It looks as if --

Or approximately 100%.

My calculation looks-- suggests you sold the U.S.

bio stock at around $7.60, is that in the ballpark?

No, I think it was higher.

Doug, do you have the number exactly?

I do not have that number.

How about from memory?

I think it was close -- the bottom line, our profit was $24 million.

I thought we sold it closer to $9.

Okay.

That's close enough.

We-- I think the number you're -- you're bringing up is the number -- the market value the last time we put down the market value of the U.S.

bio stock.

But then the stock went-- they merged with [Verison] and for a short period the stock went up significantly, and during that period we sold our shares.

Okay.

We -- I've got it now.

We averaged out at about $9.40 a share.

Okay.

When we sold it.

Now, is that $9.40 for the U.S.

bio or $9.40 for the (inaudible)?

It was U.S.

bio.

Okay.

We did not sell-- we never took -- we never --

You never got (inaudible).

Right.

And the -- you mentioned -- oh while we're on -- you wrote up, not by very much, but the-- wrote up the holding carrying value of some of the plants, One Earth, I think, maybe more.

This is in the annual report again on -- and what -- and it -- the numbers are trivial, I mean it was $1 million or $3 million or something like that.

Do you recall what happened there?

We had an initial calculation subject to finalization.

And as the things did finalized, I think the numbers did move around a little bit.

But I don't remember there being anything much beyond that.

All right, we'll worry about that one later.

Okay, I'll regroup and get back in line.

Thank you.

Thank you, appreciate it.

Our next question comes from the line of Rick Weinhart from BMO Capital Markets.

Please go proceed.

Hi, guys again.

Hi, Rick.

Hi, again.

Wanted to, if we could just, I'm trying to walk through the P&L and get a sense of what some of these components were in terms of Ethanol versus retail.

First of all, just the 1.-- the a little over 1 million that you got from the partnerships that you're invested in, was that all Big River, or were there some-- was there any meaningful expenses associated with if from some other projects, or does that just get capitalized at this point?

The only other project would have been Patriot, but the vast majority of that was for Big River.

And Patriot would have been a drag at this point still, right, as an expense?

Yeah, except for whatever happened on their swap.

Okay, so this-- okay, so the majority of this is Big River in gains from Bid River?

That's correct.

And can you break out for us some -- just some details on what Levelland did in the quarter?

I mean where you were-- you were producing, do you have similar to what other -- Sorry.

They did not produce too much.

Our revenues from Levelland for the quarter were about $1.1 million.

They produced about 400 -- well, they sold about 428,000 gallons at $2.05 a gallon was the biggest number that I have at my fingertips.

And then the DDGs again would not have been a significant number for the quarter.

They got into production very late on the quarter.

And their GP was down quite a bit in the first quarter, to start the plant up we had to use corn, which was at a higher cost to the plant.

So going forward we expect it to perform a little better.

But at startup, it used corn instead of sorghum.

Have you made the switch to sorghum in the second quarter?

Yes, we have.

Okay.

And just in terms of the details regarding like I mean a lot of the Ethanol companies provide what their average cost of corn was and what they're getting on DDGs.

Do you plan on reporting that information in the Q's at all?

We will over time, Rick, but in the first quarter it's so--

Just not material.

Yeah.

Yeah, okay.

Okay, so that $1.1 million that is DDGs and Ethanol total, right?

Total revenues?

Right, yes.

Okay, all right.

And I would assume that's a -- was it profitable in the quarter though or was it --?

No, because of the startup it was not profitable.

It was not profitable, okay.

Okay, do you have what the, what the-- because you did provide with us a number which I think -- I forget the number to you put in the press release in terms of what the total profits were from the alternative energy, but I'm just wondering what went into that?

Did that include the 6.7 for synthetic fuel, did that include the,or the gain on the derivative?

Yes, it would include the derivative, it would not include the synthetic fuel, that gets reported in corporate and other.

So you had the Big River profit of about $1 million.

Levelland generated a loss of I think of $500,000 to $600,000 because of the startup.

We'd had corporate costs go against that, certain corporate allocated costs go against it.

And then you would of have had the swap change in value.

Got it.

Okay, great.

And then just in terms of looking forward now into second quarter with Levelland, any idea what-- I mean assuming that -- what your run rate is right now either on a revenue basis or any information you want to, that you feel comfortable providing, on what the components will be?

It's -- it should be generating -- it should be a full production, it's a 40 million-gallon plant.

So it should be at full production and be doing the DDGs and I think could use -- today I think or yesterday Ethanol was about 230 on the spot market I believe.

Okay, but you did-- you haven't hedge any of these or sold into the future for any of that stuff yet?

We've not done too much into the future.

We've done mostly spot.

Okay.

Okay, that's helpful.

Thanks very much.

Thank you very much, Rick.

Our next question comes from the line of Mike Neary of Neary Asset Management.

Please proceed.

Hi, just a quick question on the Ethanol partnerships.

How and when do you get cash for your income?

It would have to be in the form of a dividend payment.

Currently they're-- (inaudible) really paying out is enough for everyone to pay their taxes.

So it would just be in the form of a dividend payment over time from the partnerships.

So are you getting -- are there regular dividends scheduled every quarter or every year or is it something where there's more --?

They normally have done it more on annual basis again toward a time when people need to pay their taxes.

Okay and are there restrictions on the payment of dividends for the payer debt terms?

Yeah, there normally is, yes.

Okay.

So One Earth for instance, once that plant comes in production, then the income from that, although it'll be on our balance sheet, we won't be getting cash out of it.

We'll be able to declare -- that one we control.

So we'll be able to decide what we want to do on that.

Yeah each -- within the covenants that the-- of the bank -- but it's after the covenants are met and assuming it's making a lot of money, then we'll control.

It will be our call on how much to pay out in dividends.

Okay, and I guess the only two that are not that way are Patriot and Big River?

Right.

And in the past has Big River paid a dividend to you?

It has.

It's not been to the amount of what the income has been, but there have been dividend payments out.

Roughly to the extent of what the taxes were?

Yeah, but roughly.

Okay.

All right, thank you.

Thank you, MIke.

If I could make a correction, Rick, the number I gave you on Levelland, that was overall once you net out minority interest, the lost was more like $400,000 for the quarter.

Just a minor correction.

And our last question comes from the line of Richard Dearnly of Longport Partners.

Please proceed with your question.

Thanks.

To follow up on the -- you were saying you were selling your Ethanol mostly on the spot market.

But you also talked about hiring a commodities marketing firm, and I think maybe the same group was doing Ethanol risk management.

We have a very, very good one.

The thing that-- the reason we're selling most of it on-- we're still in the startup part of the operation at this plant, you can get caught pretty good if your production-- what you -- when you sell long-term, you have to deliver.

And if the price were to go up and you sold cheap you'd have to actually go out and buy on the open market and deliver.

And it would be really hard to buy in the open market in Texas to deliver.

So we'd have to pay a lot of freight to get it where it needs to go and so we've been very cautious and just-- and have not taken that risk.

Now once we're more-- once our plant -- and it is now going full production.

And we will work with that company to decide what risks to take.

What I, what I think the best strategy to do is when possible, lock up our product.

Because they also are the people selling us the raw material.

So if we can lock the profit in, then that's a great situation.

Now wait the-- I thought the raw material was largely coming from your firmer partners.

It is, it is but we-- they are the middle man-- they come from our farmer partners, but our farmer partners are a diverse group.

So they sell to them, and then they resell to us, should they choose to sell to them.

Is-- are Fagen or ICM partners in any of the your plants?

They-- Fagen owns-- in the ones that they're building they always keep some small percentage.

Okay.

And but it's a small percentage?

From Fagen's standpoint it's a rounding error.

From our standpoint it's okay, but--

But it's noticeable.

Right, from our standpoint they're a shareholder, but from Fagen's standpoint, it's -- it's nothing.

Irrelevant.

Yeah.

I understand.

Correct.

Did you all figure-- ever figure out what the surge in volume in your stock was back in May, I think it was?

The mystery to me -- I-- we've asked.

We didn't see any in the filings on the institutions.

There was material-- there was no one that just stood out as selling like crazy.

We really don't understand it to this day.

Okay.

And the -- on Cellulosic, various -- some here locally or somewhat near here, one partner just dropped out of a cellulosic project leaving far less recognizable names in the project.

Where would you say the-- we are on the science project of making cellulosic efficiently?

Well, I'm not sure on the science project.

I think my own opinion, that it's going to come from the seed side.

And that there's going to be super sorghums develop that'll work cellulosically instead of trying to take the corn stock and all that other stuff.

My own opinion is sorghum grows in virtually, especially what I call super sorghum grows in all-- in very arid conditions that aren't suitable for other crops.

I thinks that's going to be-- in the long-term that would be the direction that I would bet on.

And again having one of the few sorghum operated plants in the U.S.

, that to me is very, very

Right.

Okay, thank you.

Okay, thank you.

And there are no further questions at this time.

All right, well thank you for listening everyone.

I appreciate it very much.

Thank you.

Ladies and gentlemen, that concludes the conference call for today.

We thank you for your participation and ask that you please disconnect your line.