S&W Seed Co (SANW) 2012 Q4 法說會逐字稿

Good morning and welcome to the S&W Seed Company reports fourth quarter and fiscal year 2012 financial results. All participants will be in listen-only mode. (Operator instructions) after today's presentation there will be an opportunity to ask questions. (Operator instructions). Please note this event is being recorded. I would now like to turn the conference over to Robert Blum of Lytham Partners. Please go ahead.

Thank you, Amy, and thank you all for joining us to review the financial results of S&W Seed Company for the fiscal year ended 2012, which ended June 30, 2012. As the conference call operator indicated, my name is Robert Blum. I am with Lytham Partners. Where the investor relations consulting firm for S&W.

With us on the call representing the Company today are Mr. Mark Grewal, President and Chief Executive Officer; Mr. Matt Szot, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the release, you can retrieve it off numerous financial websites.

Before we begin with prepared remarks, we submit for the record the following statements. Statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the Company's 10-K for the fiscal year ended June 30, 2011, as well as 2012, and other filings made by the Company with the Securities and Exchange Commission.

With that said, let me turn the call over to Mark Grewal, Chief Executive Officer for S&W Seed Company. Mark?

Thank you, Robert, and good morning to all of you. All of us at S&W Seed Company thank you for taking the time to participate on today's call. We appreciate your continued interest in S&W Seed Company.

Fiscal year 2012 was a record year for S&W Seed Company from an alfalfa seed sales perspective. Our alfalfa seed revenues totaled $13.3 million for fiscal year 2012 compared to $2.7 million in the prior year, an increase of 398%.

We also made a tremendous amount of progress on our stevia development program. We increased our acreage dedicated to stevia by over 100% with approximately 250 acres of stevia plants growing in the San Joaquin Valley as we speak. We have also made great strides in our stevia breeding program, including the announcement of our, quote, monster plant. All in all, fiscal year 2012 was a great year for S&W Seed Company.

Let me now turn to a few of the activities that took place during the quarter that are setting the stage for the Company going forward. This last year, we secured over 4600 acres of alfalfa seed production through a combination of contracted acreage and leased land. This was a 94% increase from the previous year. This will help us increase revenues in fiscal year 2013 and offset the higher beginning inventory balances that we had going into fiscal year 2012.

As we announced last month, we have commenced the alfalfa seed harvest and are currently in the process of receiving the seed at our mill in Five Points in California. The harvesting season started a bit later in the year than in the past years, so we are currently processing the seed and shipping it out the door to our customers as quickly as possible.

At the moment, we believe that we will certainly see revenues for the first and second quarters of fiscal year 2013 combined greater than the first and second quarters of fiscal year 2012. The demand for our seed remains strong and our customers continue to be lining up to obtain their varieties.

Due to the strong demand for our alfalfa seed varieties as we have opened up new and emerging markets through our increased sales and marketing efforts and an overall shortage of seed in the marketplace, we continue to see increases in the average selling price for our varieties. We are currently anticipating that the average selling price for our varieties will increase by approximately 10% compared to last year. However, we are seeing an increase in production costs that will offset much of our price increase. Our goal is to maintain the margin spread while at the same time rewarding our long-term customers.

As many of you who follow the Company actively know, a key for us in driving increased sales going forward is the securing of additional acreage for production of our alfalfa varieties. In May, we announced the acquisition and lease of 1880 acres of land in Imperial Valley. The increased production -- Imperial Valley, California, for those that don't know that -- but for the increased production of our alfalfa seed varieties.

The agreement in Imperial Valley provides us not only an increase in dedicated acreage, but also fits squarely into our long-term strategic plans to diversify our seed production geographically. We have been working over the last few months to get the land prepared for alfalfa seed production, and recently we just started planting, and so the process has begun. As a reminder, approximately 1500 acres will be available for production in year one, while 1880 acres total available acres thereafter. So we are extremely pleased with this land acquisition and lease agreement.

Additionally, we are currently in the process of securing additional acreage for our fall 2013 harvest. As a reminder, we're losing approximately 1400 acres of leased land in the San Joaquin Valley. The increases from Imperial Valley already more than offset that decrease and we're looking to significantly increase overall levels from the 4600-plus acres from last year.

We're looking at a combination of contracted and leased farmland as well as the purchase of land like we did in Imperial Valley. The upcoming few months will be the period of time where we will be securing our dedicated acreage for the next year. So, while I don't have specific numbers of acres that I can share with you at the moment, our goal is to continue to expand the dedicated acreage to take advantage of the increased demands for alfalfa seed varieties. We do anticipate providing you with an update as soon as we can on our first or second quarter conference calls regarding the details of acreage. But we will be securing land through February of next year, so we won't have solid numbers until it is completed.

Now let me turn to the important acquisition we made of the dormant alfalfa genetics. As a reminder, we have historically operated in the non-dormant alfalfa seed market. Non-dormant means that you are continuously growing throughout the year, getting anywhere from 6 to maybe 10 cuttings each year. This occurs in warm weather areas such as the Middle East, North Africa, the southern part of the United States and into Mexico, all the way down to South America.

Overall, there are more than 75 million pounds of seed sold annually into this non-dormant market. However, we have not really participated in the dormant side of the marketplace, where approximately another 75 million pounds of seed is sold, primarily in the US, Canada, Europe and into Asia. What we acquired were a series of dormant varieties and germplasm, some of which have been in production for a number of years, some of which are very interesting, like the multi-leaf varieties.

Our goal is to leverage our breeding expertise to cross the traits that we have become famous for, including our salt tolerance, into these dormant varieties. This process is starting immediately. And, while we don't anticipate that our dormant business will be a significant contributor of revenues in the near-term, we do believe that it has the capability to be a driver of revenues in the future. As we have stated before, we are looking to expand upon the expertise and platform that we have to build a strong and sustainable business into the future, and that is what this acquisition provides for.

Overall, we are expecting continued revenue growth in fiscal year 2013 from our alfalfa seed business and beyond. We have a number of initiatives in place to rapidly accelerate the business into the future, leveraging our core business and assets.

Now, let me turn the call over to Matt Szot for a review of the financials, and then I will then provide an update on the progress of our stevia program, and we will take any questions that you might have. Matt?

Thanks, Mark. I'd like to review the pertinent details of the year.

Revenue for the year totaled $14.1 million compared to $3.6 million in the prior year. This is an increase of $10.5 million or 289% and was largely driven by our continued penetration into the Middle East and Africa markets as well as an increase in demand in our domestic markets as well.

This increase reflects the success of our initiative to sell directly in international markets, coupled with strong demand for our proprietary seed both international and domestic. International revenues totaled $9.9 million in the current year compared to $600,000 last year, an increase of over 1400%. International sales accounted for 70% of our current-year revenues compared to 18% in the prior year.

Domestic revenues totaled $4.3 million in the current year versus $3 million in the prior year, an increase of 44%. Revenue for the current year included $886,000 of milling and other services compared to $977,000 in the prior year. From a margin perspective, we were pleased with our results. Gross profits totaled $3.9 million. This was an increase of 187% versus the prior year. Now included in the results for the fourth quarter and fiscal year 2012 was the write-down and loss of $277,000 related to lower-than-anticipated yields on our non-core, nonrecurring wheat and (inaudible) crops which were primarily used for land reclamation to prepare for alfalfa seed production.

Gross profit margins totaled 27.6% versus 37.4% in the prior year. Excluding the effects of the nonrecurring loss, current year margin totaled 29.6%. The decrease in our overall gross profit percentage is due to a change in mix whereby our higher-margin milling services represented only 6% of the revenue in the current year versus 27% in the prior year.

With an anticipated seed shortage in the market, we are experiencing an overall increase in our average sales price. Our ASPs in the fiscal year 2013 are expected to be at least 10% above the prior year. As Mark mentioned, while our ASP is increasing, we are also seeing an increase of in the cost of our seed, although we are hopeful we might maintain a comparable spread on a per-pound basis.

From an operating expense standpoint, we were pleased with our results and our expense control. Operating expenses totaled $3,288,000 for the current year versus $2,859,000 in the prior year, an increase of 15%. Operating expenses represented 23% of revenue in the current year versus 79% in the prior year. These trends are an indication of the salability of our business, and that continued top-line revenue growth should translate into net incremental margin growth.

Operating income totaled $620,000 for the year. This is an improvement of $2.1 million from the last year, which was a loss of approximately $1.5 million. EBITDA, which is a non-GAAP measure, totaled $868,000 for the year, an improvement of $2.1 million versus the prior-period loss of $1,262,000. Net income totaled $375,000 for the year, an improvement of $1.2 million versus the prior year.

For the current year, EPS was $0.06 per share versus a loss of $0.14 per share in the prior year. Excluding the effects of our nonrecurring loss, net income for the year would have been $556,000 or $0.09 per basic and diluted share.

Now, as many of you are aware, the fourth quarter of our fiscal year is traditionally the slowest period in terms of sales, while being very heavy on preparations being made for the upcoming fall harvest. Our revenue for the fourth quarter was $755,000 compared to $1.4 million in the fourth quarter of last year. The results for the quarter were largely driven by the Company's limited seed availability as well as our view of the current marketplace being that of increasing average sales prices.

We are currently in the process of harvesting seed. And as Mark mentioned, we're shipping that newly harvested seed as we speak. We recorded a net loss of $612,000 for the quarter at $0.10 per share. Excluding the nonrecurring loss, net loss for the fourth quarter would have been $431,000 or $0.07 per basic and diluted share.

From a balance sheet perspective we ended the year in a very strong position. We had $8.2 million in cash, approximately $17.4 million in current assets including $2.7 million in receivables and $6.1 million in inventory. Now, that inventory number includes approximately $1.9 million of finished seed inventory and over $4.1 million of crop and ground inventory.

Net working capital totaled $15.5 million, and we ended the year with zero debt. Subsequent to the year end, we secured a long-term mortgage with Wells Fargo and we also recently raised $3.5 million in a private placement transaction, where we sold 600,000 shares of restricted stock. During the current year, we sold approximately 3.5 million pounds of seed compared to 700,000 pounds last year. Our on-hand inventory balances at June 30 include approximately 650,000 pounds of alfalfa seed. As Mark mentioned earlier, we are taking several steps to increase our seed production, including our previously announced agreement to acquire and lease over 1800 acres in Imperial Valley.

Overall, we are well positioned to continue to take advantage of the market opportunity that we are seeing as well as executing on strategic acquisitions. I will now turn the call back over to Mark.

Thank you, Matt. Let me now discuss the significant progress we're making in our stevia development program. As I mentioned in the press release, we are in the process of finalizing our second harvest from our first-generation field in the heart of California's San Joaquin Valley. Once we complete the infield portion of the harvest we will then dry the plant, de-stem it and ship the dried stevia leaf to our partners at PureCircle. As we indicated in the release, since our first-generation field is where we continue to do the bulk of our R&D efforts, we harvested approximately 75% of the field during its first harvest and anticipate harvesting 100% of the 114-acre field during a second harvest to be completed later this fall. This is the second harvest from the same stevia plants, which reaffirms our belief that, unlike China, the California climate is suited for harvest on a multiple-year basis.

Additionally, we continue to gain valuable insight as our agronomists experiment with various planting and harvesting techniques. We are also seeing positive results from our second-generation field. We expect to harvest almost 150 acres of stevia currently growing there by the end of the year as well. These three total anticipated harvests during calendar year 2012 should clearly put S&W in a leadership position in the US production of stevia plants.

However, our first goal continues to be to provide our partners with the highest-quality stevia. We are dedicated to investing in the research and development side of our operations to ensure that the end product that we plant in the ground, which will be harvested for many years, is highly desirable in terms of taste characteristics. So, while we continue to increase acreage as quickly as possible, we want to ensure that all quality controls are in place first. Our near-term proof comes from the executives at PureCircle as well as leading beverage manufacturers who have been on the fields and are very excited by the progress that we are making.

We believe the outlook for our stevia operations is very good. We will be recognizing increased revenues during fiscal year 2013. But more important, we believe we have the proprietary breeding program to take these efforts to the next level.

We would like to thank everyone for joining us on the call today. And if there are any questions, we would be happy to take them now. Operator?

(Operator instructions) David Wolfson, Wm. Smith.

My first question, Mark -- you mentioned you're currently securing acreage. I was just wondering if you could help quantify that for us. How much more acreage can we expect you to secure before this coming planting season is over?

We want to do very similar things to last year. It's just that it's going to take us a while to get all this together. We are doing it right now. We currently have more acres already than we did last year. But you've got to give me till February to give you a concrete answer on that, David.

Okay, no problem.

Then I'll give you the answer.

Okay. With regards to your current inventory, I know you decided to hold back selling inventory during Q4 because prices were increasing. But, given strong pricing now, how much of that existing inventory -- I think you said it was about 650,000 pounds -- can we expect you to push through during the first half of this fiscal year?

I would expect the vast majority of our on-hand balances at the end of June would be sold off through December. We did see a nice price increase in August, which Mark had expected. I'm glad we did what we did.

We made a good decision on holding that and bringing it in. What you really want to do, David, is have product that your overseas guys can start with because this year we didn't have a very large inventory. And so you want to be able to sustain them at the right time that they are starting to plant, while you are bringing in the new crop and you are trying to mill it and ship it over. So timing is really important. You want to make sure you get stuff done. But at the same time, we do not want to give up margin.

Okay, and my last question -- what type of deals are you seeing right now from your current harvest?

Well, we are in it right now, David. If you give me a little bit of time we will have a better answer. But the real key, though, is the clean out. And we've got a long ways to go on milling. So we are still harvesting. We are going to be milling for quite a while. And we are shifting. So we've got to get the turnouts. What's the dirt weight; what's the clean weight? So again, if you just give us a little bit of time, we will try to get those answers to you as fast as we can. But we are harvesting right now.

That sounds good. Thank you, guys.

Joe Munda, Sidoti.

Mark, what is the current market price of seed, per pound?

It's anywhere -- it's roughly in the low $4 to mid $4 range, so somewhere between $4, $4.10, $4.25, $4.50, depending on the variety and the marketplace you are in. But it's in the $4s now. So we are definitely at least a $0.25 per-pound increase from where we were just a few months ago.

Okay. And you are expecting how much of a price increase next year? You are expecting 10%, roughly?

We are already at a 10% increase in our ASP, and we are not going to be waving the victory flag yet. But there is certainly a possibility for a further price increase from here.

Okay. And the $9.9 million in international sales -- is it safe to assume that was sales to Saudi Arabia?

Mostly, yes -- the Middle East and then their partners into Africa, but yes, that is correct.

And that brings me to my next question. With what is going on there right now -- a lot of instability within countries in the Middle East -- how are you guys strategizing? Are you going to see any effects on the business? Can you give us some insights there?

We just see it as stronger. Remember the population demand and food needs of people that really don't have anything to do with these atrocities. They have to eat. So we are just feeding cows to get milk to the normal person in the world. And the population of these countries is exploding. So the demand is on the product. Somehow, it's going to get there, regardless of the channel.

So people -- wars are over food, and people are going to eat, and so they're going to need this. And you know, a lot of these countries have never tasted milk, Joe. They've had goat milk; they've had powdered milk. They want dairy milk.

No; I mean, do you anticipate more bureaucracy or red tape or anything like that, that could slow you guys down?

No. I think we've got people on the ground floor in those countries. We've set up a good network. But we are really going into the Saudi market that I feel like -- I fly in there and land; our Chairman flies in there and lands. We have no issues there. It's extremely safe. I think that country is safer than a lot of our cities in the US. They are going to take that product to different places that they need to go. But it's a strong place. There's over 24 million pounds of seed a year that needs to be delivered into Saudi Arabia. So it's going to get there one way or the other. I don't see any more red tape than we currently have.

Okay. And Mark, what is the numbers as far as land owned versus leased when it comes to alfalfa?

We don't own that much land. We have a section that we own now in Imperial Valley. We have our 40-acre site that we own. And to my knowledge, that's it. The rest --

We recently purchased 640 acres, and the rest of it is either leased land or contractor/grower base.

Okay. I've just got one more question and then I'll hop back in the queue. I think you guys talked about the recent land acquisition that you guys did. And then you are expecting to lose acreage this year. I'm a little confused. The total acreage is going to stay the same; it's going to offset? You are going to finish this year with the same acreage despite the loss?

Strategically -- no, we are going to have more acres than we had in 2012. But for the guys that do all the detailed analysis like you do, Joe, we want to make sure that they know we are planting 1500 acres, but we lost 1400. So there's a net gain already of 100 acres or so, 150 acres. We just didn't want somebody to say, well, you had this amount of acres and now you've added 1500. We wanted to make sure that they understand that in the San Joaquin valley we are making a strategic shift to shift seed down into the Imperial Valley, where there's a very large percentage of alfalfa ground. Okay? And it's earlier, Joe. Historically speaking, it's going to come up in July, so our strong export team can get that going into the Middle East sooner than we can in the San Joaquin Valley, which doesn't come off until August.

Okay, and then -- I'm sorry. What is the price of stevia, per pound?

Well, we have a confidential contract on that, that we cannot disclose that. I'll just say that we are continually working with our contracts and continually negotiating with our partners. But we will do everything we can to continue to increase our pricing capabilities.

Okay, thanks, guys, I'll hop back in the queue.

(Operator instructions) Ian Gilson, Zacks Investment.

A number of (technical difficulty) that go all over the place. Why the poor yield on the wheat crop that you planted. I can understand that you are getting the field ready, but why was that so bad?

You know, agronomically, we can speak on this for hours, you and I, but I'll give you the most simplistic approach. We've got a new branch we leased out for four years on 800 acres. We laser-leveled the entire ranch. Some of it we thought could take production; other stuff we knew we just had to grow some type of reclamation crop on that ground because we lost the topsoil. And our goal was to set it up for three to four years of alfalfa, seed alfalfa, behind that crop. So we were never intending to be making money on that field.

And we could have actually done this differently. Like I did at Boswell, we would have thousands of acres that we would reclaim, maybe even put title lines in. We would plant grain on it just to get organic matter back into the soil so you don't have zinc and iron tie up into the soil, Ian. And so that's just the preparation for the crops that are coming in next to it.

So at Boswell, what we would have done is we would have actually taken that write-off and spread it over three or four years. But we just decided, because we are having such a great year and we are going into a better year, just to write it off.

Okay. Of the seed you have in inventory currently, what was the seed amount that you held back in pounds, roughly?

Well, Ian, we had demand to ship a lot more than we even held at the end of June. So if that answers your question --

Well, you might to give the 600,000 --

We had 650,000 pounds of seed, and we --

That was all what was held back? That generates to about $2.5 million in lost revenue. Right?

That's correct. But that will be picked up --

Well, no, it's not lost revenue.

No, it's not lost.

I'm sorry, I'm sorry. $2.5 million moved from the fourth quarter into the first quarter?

Right.

Right.

We could have shown a fourth-quarter profit, but we wouldn't have shown as big a profit for the Company. We had increase in margins because we knew pricing was going up.

Okay, okay. Even if you take the loss from wheat out of the numbers for the fourth quarter, your gross profit margin was still very low, only 14.6% versus 25% a year ago.

Yes, Ian, what happened there was in Q4, for the 120,000 pounds that we did ship in the quarter, which was a pretty small amount -- that consisted of a blend of some lower-quality seed and had a (technical difficulty) margin to it.

Okay. The line of credit with Wells Fargo -- even though you haven't used it, you are still paying a fee; correct?

There is a 0.5% fee for the unused portion of the line. That's correct. But we think it's well worth while to spend that money to have that flexibility so we can jump on these opportunities as we are seeing opportunities every day.

Okay. You said that the expenses -- or, you said costs looking at fiscal 2013 would offset the 10% increase in ASPs. Now, that's a significant increase in cost. What is behind it?

Do you want to -- farming costs from fertilizer, what was behind it? This current season, Ian, was leaf cutter bees doubled in price or even tripled. Fertilizer has gone out of -- has just gone way high, so phosphates more than doubled. And so the farmer is pressed with higher costs to farm. We are going to expect our margins -- we're going to work hard on maintaining our spread. So we will do everything we can to get that even down. And as we build team and change the face of the team from the old core to the new core, which we are transitioning all the time, Ian, we will continually improve that.

Yes. But with the cost of natural gas being down about 80% in some areas, the nitrogen costs should have gone down proportionately.

We are not using nitrogen. We are using phosphate.

Well, phosphate has a fair residual life.

Yes, phosphate has extremely -- blasts it up high, very high pricing. It has literally doubled. The other thing is, if you have the ability to store it in the off-season, maybe you could get a little price break. But when you need it and everybody needs it, the price really escalates.

Okay, okay. We have heard a lot about the corn harvest and its impact on the cattle herd. Now, I know that milk, dairy cattle are more important to you. But, given that farmers are cutting back on their herd, is this likely to impact your dormant variety of revenue going forward?

Well, we don't really have any moment variety revenue yet. We do have semi-dormant variety of revenue. So we do have a 4 dormancy that's making money. We just developed a new 5. We have a 6 and 7. So those are your mid-dormants, and they are doing quite well. In fact, our 6330 and our 7410 are some of the highest-yielding varieties in those dormancy ranges.

Your non-dormancy is really 8, 9s and 10s. And of course, that's our core market. But we are really going to blow up the lower ends. And we've purchased the Rhino and the Trophy varieties that are very well-known in Wisconsin, in Minnesota. And so these are really going to -- we think it's like a baseball team and you pick up Henry Aaron for a couple of seasons. It's going to help us out quite a bit.

But on the livestock question, when the feed costs get so high, they kill them because they can't afford to feed them. So if you look at what is going to happen with hogs, what's going to happen with livestock in the Midwest with the drought and everything, with the price of commodities, their herd sizes will shrink for a while.

But that bodes well for the West Coast because we have to -- people are still eating and they want meat or they want dairy. And so what that's really going to do is that's going to be a plus for the West Coast guys because they will be supplying the beef that's not there in the Midwest. And so that increases the needs of feed to us, and we are not in the drought. So we feel that that's a very big positive for California.

So the 30% of your revenue that's not in Africa/Middle East is basically West Coast US?

That's correct. And the margins are really good and we see them improving. In fact, with the Imperial Valley problems with the weather, they are not going to have the crop that they thought they were going to have. That's actually going to put pressure on the inventories of alfalfa going into the fall.

Okay, that pretty well does me. Thank you very much.

[Andrew O'Connor], Harris Investments.

Congratulations on your progress, guys. I wanted to know how much cash does S&W have at the moment? The Company remains debt-free including the private placement earlier this week. How much cash do you guys have on hand?

Well, Andy, I can't speak specifically to that. But we did end the quarter with $8.2 million and we raised an additional $3.5 million earlier this week. But subsequent to the year end, we did spend about $2.6 million for the payment on our land purchase in Imperial Valley.

Okay, so --

So other than that, it's going to be really dependent on collection of receivables.

Got you.

But we are in a strong cash position at this point.

Right. Okay, and then you've already spoken to this differently. But if S&W sold 3.5 million pounds of alfalfa seeds in 2012, can you take a stab at 2013 seed sales and what portion will come from international and domestic?

Andy, we can answer part of it. Exports continuing to be the big player in the marketplace. I think we are roughly 70/30, in that range. It could end up being possibly 80/20, depending on the market, but somewhere 70/30 to export. We are doing everything we can on the margin side. The margins -- it's our job to make sure that our proprietary varieties are sold for the highest price they can be sold. We do see -- I'm using this, so don't hold me on this, but somewhere between a $3.50 to $2.75 price range from last year to a $4 to $4.25 price range this year, so a lower volume of seed is going to net you a lot more money this year going in. So we think sales are going to be pretty strong and the numbers are going to be really strong

Okay, but in terms of a volumetric forecast, are you able to take a stab at that, Mark, or maybe even a range for 2013?

Can you give us a couple months? And we will really give you a better forward-looking type of deal there.

All right, thanks again. Good luck, guys.

Richard Keim, Kensington Partners.

Hi there, I have a couple of questions. I got on a little late, so first thing I was wondering -- at this point, are you -- I know you did a private placement and you've done a public offering. At this point, are you anticipating any other needs for financing? It seems to me that you have a lot of cash.

At the present time, no, we don't have any near-term plans. We are going to make sure we've got enough of cash to quickly jump on opportunities that are presenting themselves.

So if there was an opportunity to purchase more land or such, would you guys be back in the market?

We don't have any specific plans. But if an exciting opportunity presented itself, then we would explore all options.

Okay. I'm not quite sure of the relationship between PureCircle, which I guess is your partner in this stevia market. Can you just tell me what is the arrangement of PureCircle? I guess they bought -- they give you the plants and then you grow the plants and then they buy the product?

We have a combination. We're using some of their breeding material and plant material for propagation. We are also developing our own plants. And the relationship is -- we have approximately three years left on a sourcing agreement that was a five-year agreement. And we are currently working on improving the agreement together. They are very impressed with what we are doing. But we are going to be producing our own plants in our ground, and they are trying to do everything they can to be a part of that relationship.

But, basically, it's like just if we were selling to tomatoes to Hunts or Heinz Catsup, we've got a product and we are selling it to them right now under a contract.

All the production of stevia at this point is sold to PureCircle?

Yes. There is a volume amount. So if we obtain past that, then we could go out and take that to other markets. But currently, we are just providing their volume amount.

If you do more volume, what would that do to your markets?

I didn't hear the question?

If you do more volume than the agreement calls for, and that frees you up to sell it to other locations, what would that do to markets?

I don't think -- most of those markets are small markets. But I think they would definitely be high-end markets where there are more direct uses than through a process refiner. And we are looking at those. So there are opportunities. And as we grow, there will be more pressure on the contracting because of those opportunities.

Okay. You mentioned your production in Paraguay and Kenya, and I guess it's called Bertoni is -- Bertoni would be a competitor to stevia?

This is my opinion, and my opinion only. I don't see any competition in the natural sweetener market with zero calories against stevia. As an agronomist, I believe this thing is going to take over the market. I believe our Board feels that way. We are putting a lot of infrastructure and research into this. I've worked on a lot of crops, my entire life, for many, many years, and I haven't seen anything as exciting as what this product can bring for the world.

Production out of Paraguay and Kenya goes -- where does that go?

Paraguay has a process plant. To my knowledge, there's only about 400 acres in all of Paraguay, and PureCircle is the main player. I know nothing about the other country you talked about.

Paraguay.

No, Paraguay has 400 acres.

Oh. And Kenya?

We have been there. Our agronomists have been there. Those guys are hand watering with buckets. They are hand watering plants with buckets. They don't have a chance against what we are doing with drip technology and the technology we are using in the field.

Okay, okay. But the product Bertoni -- is that the type of stevia? Where does this fit in?

I really don't -- I'm not a scientist on that level of knowing what the refined product ends up, if it's a -- what type of actual finished product that you have is. How many calories does it have?

That's what I'm asking you.

Yes. I don't know.

Okay, thank you.

Yes. I don't know.

[Keith Gill], [JHS] Capital.

Good morning, congratulations on a record year. A question regarding the mill. The current capacity that the mill is operating at, and how can you improve on that and the margins thereof?

Well, Keith, the mill is definitely a high-margin potential. We are constantly looking at co-packing for others. What that means in a competitive standpoint -- we do have some relationships with other mills, and so we will slowly ramp up the production as the deal works. So at some point, we will be 50% at capacity. But these things are all relationship buildings. We are working on them all the time, around the clock. And we have a lot of hopes of really doing some things. But it's going to take a little bit of relationship building. We could be cleaning other seed alfalfa -- we could be cleaning for a genetic seed. We could be cleaning Dairyland Seed for some of these other companies, if we chose to do that. And we have done it in the past. But right now, we've got a hot market. We've got to take care of us first and get that product over early into the Middle East and Africa. So sometimes, there's a timing issue, Keith.

But we're doing everything we can to slowly get more grains into that mill, more alfalfa into that mill and some exotic crops. Our stevia -- we've got a big stevia harvest that's sitting in a warehouse there because we can't de-stem it right now because we are too busy getting the alfalfa going. So it could have a line doing de-stemming in the mill, too. And so all of these additive things at some point will continue to ramp up that production number and that price that you are looking at.

So if you've got any detailed questions later on, please give Matt Szot a call, and he can probably run you through some of that, Keith.

Thank you, and again, congratulations.

[John Zeligman], Carpe Diem Management.

I'm relatively new to your story and maybe have some very basic questions. The first one is, in the past, there has been some issues with alfalfa in terms of bacteria or whatnot. So can you confirm that that has happened in the past and what precautions you have taken to not have it happen to your crops?

And then secondly, back to a follow-up question from somebody else's earlier regarding the drought in the Midwest, I'm wondering if the increase in prices that you are seeing on the West Coast might be temporary in nature, if next year we don't have such a severe drought or we get back to normal crops. Those are my two questions.

Okay. I don't know about the bacteria. Are you talking about like biotech? Or are you actually talking about bacteria? Did you hear me?

I heard you.

But do you know what that is?

No, I don't. I just recall reading some time in the past about, it was salmonella or something affecting alfalfa crops.

Okay, I'm not aware of anything where we are with that type of issue. We have never had that issue.

Has it occurred with other people?

Not to my knowledge. I really don't know about a bacteria issue with alfalfa.

All right, I'm just off on that. I apologize. So let's just deal with the second question.

Okay, can you re -- it's about the drought and temporary --

Yes, somebody asked the impact on your pricing (multiple speakers) --

Okay, I see no impact on our pricing as far as a negative on proprietary varieties. Where there can be temporary increases is in the non-proprietary market where, because there's such a demand and there's not enough proprietary seed, the non-proprietary market rides the coattails of the proprietary and gets a higher price at times, which will drop when that situation changes.

But our goal is to take our varieties with their traits and have a higher price, period, and continue to increase that as we add traits and enhance yields for the world population.

Great.

This concludes the question-and-answer session. I would like to turn the conference back over to Mark Grewal for closing remarks.

I just would like to thank everybody for participating on today's call. We look forward to talking to you again. I know there are some questions that we didn't specifically get to, but they are timing. And we will answer those as soon as possible. We really thank you for the support of our investors. You can see the start of the change; it's going to continue. We are really rocking it, so we thank you very much. Have a good day.

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