S&W Seed Co (SANW) 2015 Q1 法說會逐字稿

Good afternoon and welcome to the S&W Seed Company reports first-quarter fiscal year 2015 financial results conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions).

Please also note, today's event is being recorded. At this time, I would like to turn the conference call over to Mr. Robert Blum. Mr. Blum, please go ahead.

Thank you, Jamie, and thank you all for joining us to review the financial results of S&W Seed Company for the first quarter and fiscal year 2015, which ended September 30, 2014. With us on the call representing the Company today are Mr. Mark Grewal, President and Chief Executive Officer; Mr. Matthew 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 from the Company's website at www.swseedco.com or numerous financial websites.

Before we begin with prepared remarks, we submit for the record the following statement. 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 27-A of the Securities Act of 1933 as amended and Section 21-E 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, 2014, 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 afternoon to all of you. As always, we thank you for taking the time to participate on today's call. Before we begin, for all the brave women and men of our armed forces on this Veterans Day, from all of us at S&W, let me say thank you for your service.

I will first review some of the challenges that we have faced over the past year along with some of our accomplishments and initiatives going forward. Matt Szot, our Chief Financial Officer, will also review some of the financials in greater detail, and then I will conclude with a few remarks before we turn the call over for your questions.

Clearly, a number of challenges presented themselves over the past 12 to 15 months in the agricultural markets. As many of you are aware, corn and wheat prices have been on a roller coaster due to the bumper crops the last couple of years, sending certain ETFs into multi-year lows. Alfalfa has had its own share of ups and downs as well.

While hay prices in the Western US are near all-time highs, there are other dynamics at play around the world that we have put pressure on seed prices -- that have put the pressure on the seed prices in certain regions. The main catalyst for this was Australia's robust alfalfa seed harvest in 2013, which resulted in a glut of lower-priced alfalfa seed hitting the market over the last 12 to 15 months.

Additionally, when Argentina's recent economic issues hit with the resulting depression of its currency, seed that typically would have been sold into the Argentine market was diverted into other markets, namely the Middle East, where a large portion of our seed is sold. But when you couple an increased supply of lower-priced seed from Australia with an Argentina market that has been hampered due to currency issues resulting in dramatically decreased relative demand, you have a near-term disruption in the overall market.

We have communicated these issues to you as they became apparent. However, it is clear that the timeframe in which this market dislocation would work itself out shifted. In discussions with our customers, there was a belief in certain markets that there would be a resolution and flushing out of the imbalance by this recent selling season, which is what our expectations were based on.

While we did see a return of more normal purchasing patterns in certain markets, including parts of northern Africa and Mexico, as a whole it still has not returned to the optimal levels, but is headed in the right direction. As we talked about on last quarter's call, the market in Saudi Arabia essentially remains somewhat on the sidelines during the first quarter and contributed to the shortfall compared with last year's revenues. When you look at the revenues from last year's first quarter to what we reported in this year's quarter first, the shortfall is largely attributed to what we had earmarked for Saudi Arabia.

All of that said, there are always ways to sell seed to try and hit a revenue number. If we were to drop prices, I am confident we would have been able to move seed into a number of markets, including the Middle East, and hit a number. However, I believe this would have both near-term and longer-term negative implications that are not beneficial to S&W.

We certainly understand the implications to investors that occur with uneven quarter to quarter fluctuations, and we are dedicated to do everything we can to become an organization that better balances the delicate line of meeting expectations of those on Wall Street, while doing what we believe is in the best long-term interest of S&W.

Where we need to improve, in my opinion, is not on dropping our seed prices to move seed during dynamic markets like others have done, but to further expand the sales and distribution channels that we have in place in order to lessen our reliance on certain markets. Markets such as northern Africa and Mexico remain strong, while others such as Saudi had remained soft and are now just starting to really strengthen. We need to do a better job of bringing on new distributors in certain markets.

At the core, we need to expand the addressable market demand equation to meet the increased supply capabilities that have occurred over the last 24 months with our acquisitions of Imperial Valley Seeds, and Seed Genetics International. I believe that we have made some very good strides in the last few months to move in that direction.

We recently signed a joint venture in Argentina with one of its leading agricultural biotech firms, Bioceres. We also signed a new distribution agreement at Pakistan with Maxim. And, going back a couple of quarters, we signed an agreement with one of the leading ag input companies in the western US. And we continue to be working on additional arrangements to further expand our distribution capabilities.

While we do not expect these new agreements to have a sizable impact immediately, we are confident that they will be a driver to improve operational performance as we move forward.

At the end of the day, we do not want to incorrectly tell the market S&W Seed is nothing more than a commodity supplier by dumping seed at less than desirable prices. We believe that the capabilities of our seed genetics provides us superior benefits compared to those of the competition that we do not warrant that type of discount pricing. There is a value calculator on our website, and when you compare our S&W varieties to CUB, you could theoretically drop CUB pricing to zero, and it would still make more sense to plant S&W varieties because of the increased yield capabilities that you attain with them.

We have not successfully communicated this benefit widely enough and need to do a better job of marketing going forward. But we take a 30,000-view foot of the marketplace. We see the indications of a market that will become more normalized in the near future and that we are well positioned to benefit as conditions improve.

I know that there are those of you that have a much shorter timeline based on quarterly results. I certainly appreciate that, and by no means discount your obligation to you as shareholders. However, I also hope that we can take a step back from the quarter to quarter variability to understand what we are building at S&W. We are building what we expect to be a leader in the alfalfa seed industry for many years to come.

We are well-positioned to address an enormous challenge and, at the same time, avail ourselves of a monumental opportunity in meeting the demands of an expanding global population desiring higher amounts of protein in their diets with increasing arable land represents. Alfalfa is a gateway to that higher level of protein and we have the most effective varieties in the world.

We have done an excellent job of increasing our seed production capabilities with strong geographic diversification. We have increased our capabilities to include not only non-dormant, but also dormant seed production. We have a strong product development pipeline to include tropical varieties and multiple biotech initiatives. And all of this is backstopped by what we believe is the most elite alfalfa seed genetics available in the world with our S&W varieties.

Much has been accomplished over the past four years and I believe much more will be accomplished going forward. The reality is that agricultural companies will continue to be subject to a certain amount of risk, and consequently, fluctuations. We recognize the need to better manage those risks and market fluctuations and to do everything in our power to become a company that we can accomplish a level of quarter to quarter consistency without negatively impacting the long-term interest of the Company.

As shareholders, you can be sure that we take this seriously. While revenues for the first quarter were below last year's first quarter, our outlook for the second quarter appears to be improved. If we are able to see more normalized purchasing patterns in the back half of the year, and don't run into any significant obstacles, we should be able to achieve our goal of approximately a 10% organic increase in revenue [gross] over last year.

We recognize that there is an uphill battle to get there based on the performance of the first quarter, but we are clearly focused on accomplishing this objective. Let me turn the call over to Matt for a review of the quarter in more detail before I conclude with some closing remarks. And then we will turn the call over for any of your questions. Matt?

Thanks, Mark. Since everyone should have access to the summary of financials in the press release, let me provide some additional details on a few areas.

For the first quarter, revenues totaled $8.2 million compared to $12.4 million a year ago. As Mark just indicated, the decrease in revenue from a year ago is largely attributable to shipments in the Middle East that did not materialize during the quarter, but we expect to ship later this year.

Gross margins in the first quarter totaled 16.1% compared to 18.6% in Q1 of the prior year. As we have communicated during recent quarters, gross margins will vary quarter to quarter based on the mix of seed sold. During the first quarter, there was a higher percentage of lower margins seed sold, which bought the overall gross margins down.

There will continue to be core fluctuations in gross margins based on revenue mix in any particular quarter. However, with the initiatives in place, we expect to see continued improvement in gross margins on an annual basis as we move forward.

SG&A for the first quarter totaled $1.8 million, which was in line with our previous guidance and compared to $1.6 million in the comparable period of the prior year. The increase from Q1 of the prior year was primarily due to increased expenses associated with the potential acquisition. We estimate that SG&A for the second quarter is going to be approximately $1.8 million as well.

Now, let me spend a little time discussing our inventory balances and receivables. Regarding inventory, we ended the quarter with approximately $29 million of inventory on hand, which is basically consistent with inventory levels at the same time a year ago, which were $28 million. This number includes new inventory from the California harvest which was just concluded. But, not included in this number is seed that we anticipate sourcing in a just-in-time format, which is part of the IBS business model. And, likewise, it does not include the contracted grower seed from the Australian harvest which we'll incur in the May and June 2015 timeframe.

While we would like to see our inventory turn quicker than it has over the past 12 month, our overall inventory levels are at an appropriate level, given our fall and spring harvest and the sales growth we are expecting. Remember, we need to have the appropriate level of inventory to capitalize on demand, which our sales team is expecting during this fiscal year and into the next year. And seed can only be produced once a year in California and once per year in Australia.

Now, turning to accounts receivable for a moment, our accounts receivable decreased approximately $3 million from the June 30 quarter. We continue to experience an orderly collection of receivables.

To provide some further details on this, at the end of June, we had $24 million of receivables outstanding. And during Q1, we collected approximately $10 million of these particular receivables, and since then, in Q2, have collected an additional $5 million of these particular receivables. The remaining June receivables are expected to be collected this quarter.

Now, I do want to reiterate that the existing balances are consistent with our historical payment terms and terms that are offered by our competition. I will turn the call back over to Mark.

Thank you, Matt. On our Stevia development front, we remain on track to file our patent we have previously discussed, by the end of this month, by November, barring some unforeseen circumstance. We believe that most companies involved in Stevia have focused on production, processing, products, or other downstream uses for Stevia.

As we talked about, we have been advised that there is only one Stevia plant patent currently in effect in the United States. We potentially have a unique opportunity to develop improved Stevia varieties with unique characteristics. I believe strongly that we have positioned S&W and will continue to position S&W to be the leader in the alfalfa seed industry for many years to come.

There will certainly be quarter to quarter fluctuations, but I believe there will also be year-over-year growth and long-term appreciation. We thank you for your support. And those who support we have lost, we are dedicated to re-earning that support all over again.

With that said, Jamie, I am going to open -- let you take it over and open the call for any questions.

(Operator Instructions) Brett Wong, Piper Jaffray.

First, on the delayed seed shipments to the Middle East, just wondering if you can provide any color when you might expect to see those shipments recognized.

Well, I will start out. We are shipping in this quarter. Matt can give you some more. We actually are working on our optimization program a little bit in more strength and so our main distributor has already ordered maybe 11 containers. Is that correct, Matt?

And then, Brett, we are expecting this year the sales into Saudi -- to our main customer in Saudi with the S&W product line to happen in various quarters. We're going to be shipping product in Q2, Q3, and Q4 to them. Now, we will continue to attack the Saudi market with other product lines through IBS and SGI, and those will also happen, but primarily loaded into Q4.

So Brett, we are seeing it start to shift and become more positive. We can also note that Australian seed, more of the public variety types, is slightly increasing the pricing, and so some of this has worked out of the inventories and is gone. So we are cautiously optimistic.

Excellent. Thanks for that color. Looking into the communication of the value proposition I know you talked about, Mark; I know it has been an ongoing effort to successfully communicate that value proposition. And I'm just kind of wondering if you can talk to more specifics on how that is going and what needs to happen to further improve adoption.

Okay. The adoption side, as far as to the grower, I don't think is as critical to actually getting the product lines and branding of the blend registered in each country, and then the consistency of being able to supply that blended product year-over-year. So we are very certain that -- if we take a certain brand and we have got a 50% blend of Australian versus S&W, we believe that the optimization will continue to be enhanced as we move forward and get those products continually registered and be more enhanced.

So, as an example, if we took Supersonic and another proprietary variety like Catalina, we are in the process right now of creating a blended product for a certain customer. That has to be registered. But then, a year down the road or two years down the road, we still have to be able to maintain that exact mix to that customer. And that is where we have to continue to revamp our acreage, ship product lines into those varieties from California to Australia, and continue to enhance what we have started just a year ago.

Okay. That's really helpful on the optimization piece. On the communication to the actual farmer about the value that your proprietary seeds bring over public varieties, you had talked about that in your prepared remarks a little bit, Mark. What needs to happen there? That has been something that we have talked about for a while now. What has to happen there for that to really grab hold?

You said you have a calculator on your website. I mean, are they using it? Does it need more guys out in the field? What needs to happen for that to happen?

A big educational move in text sheets, material, readers, going physically to different distributors from both Middle East into Argentina, and also educational of distribution and new distributors and getting that information so they understand how to convey it in their culture, and for us to culturally present the data that is necessary so they understand it and understand why this value is there. And we have really just started that program.

(multiple speakers) to be doing more trials in particular foreign markets. But we are doing lots of trials in the universities here in the United States. The more we can do trials in Saudi Arabia, the easier it is going to be to communicate that message.

Okay. And so, it is more of a timing piece rather than a workforce piece.

Well, it is also we are upgrading -- we are creating new brands with additional from elite germplasm, both Australia and in California, to get that optimization margin enhanced. And so you have to get out with those trialings whether they are in Arizona or whether they are in Saudi Arabia or Argentina. So we are working continuously on -- with our breeding staff and our agronomics on getting those set up.

Of course, what Matt just brought out is very important because, in some areas, they don't believe in university trials, even if you have a number of them. They want to see it on their own geographic locations. And so those types of things have to be implemented across really the Middle East and North Africa.

Okay. That makes sense, thanks. Then, one last one for me. When you talked about expanding into new distribution partnerships and that there may be some smaller agreements coming on the pipeline, just wondering if there are large agreements in the works in new geographies.

Brett, I would just state that we are constantly looking at the globe and methods in ways that we can participate in new joint ventures that are going to enhance the market share. And you will just have to see what occurs as we move forward.

Mike Maloof, Craig Hallum Capital Group.

Can you give us, Mark, little bit of color on the timing when you get registered? I mean, what is the process of that?

It varies from country to country. The process is actually text sheets. And, for example, let's just take -- let's take one product I know we are working on.

Say the S&W component is already registered. Now it is taking another component and actually showing them what that is, and the blend, and that it is actually certified and that all the sort of certifications are correct. So it could be anywhere from a couple of months to maybe six months for each product.

Okay. Great. And I came on just a little bit late. Did you give an update on what is going on, on your dormant side? And, if not, could you expand on that?

Currently, we only have approximately about 300 acres in Manitoba. We will definitely continue to enhance that acreage and get more. There is a big crunch in those mid-dormants, Mike. They are very short -- short supply.

There is a lot of companies looking for those products right now, so you're going to see some increase in spring planting contracts coming in. And so we will have to look at what those pricing levels are to determine if Canada is the right place, or maybe we move some mid-dormant production into Australia or other areas. But the bottom line is that it is slowly tightening -- the seed industry is slightly slowly tightening. It is very beneficial.

Interesting. How dormant can you go in Australia, I guess, based on that number? Or I just -- I thought it was mostly non-dormant there.

Well, I used to grow quite a bit of dormant for a number of companies in my past pharma operations, Mike, and we went down as low as fours ourselves. But you could go to any number and produce the seed. The problem we have is not growing the seed there; is that if you are not in the right environmental conditions, your seed deals can be lower.

So if we just took a non-dormant variety that you and I might grow in California, in the San Joaquin Valley, and we could get 1000 pounds per acre off of it on a good year, we might only get 400 pounds of the same -- on the same field with a dormancy four or five type variety. So it is not going to yield as much.

And the other thing to really understand is that you are going to need extremely high intensity pollination, because they don't pollinate as quickly, and that takes high-cost leaf cutter bees. So your cost to do it in a non-dormant area can be more. So you have got to look at what the price differentials are to make sure that that is where you want to be. But if you needed to ramp it quickly, then you could.

(Operator Instructions) Philip Shen, ROTH Capital.

It is Matt on for Phil. Thanks for taking our questions. Just wanted to discuss margin improvement for the year. I think in the release you guys said you expect year-over-year margin improvement.

So could you just kind of break it down a bit by quarter? Maybe if you could talk about, are you relying on a significant improvement in the second half of this fiscal year to meet the goal? Or do you think it is going to be kind of a steady margin improvement each quarter after this one?

Well, Matt, I think one thing I want to just re-stress is that when we look to this year's margin improvement over last year's, the main driver to that margin improvement is going to be the execution of our optimization strategy. We have a number of other gross margin expansion initiatives, but those really won't start playing out until the following year.

Us producing S&W genetics in Australia is something that will start coming to fruition in Q4 this year. But we have 1000 acres planted. So that is maybe going to bring roughly 400,000 or 500,000 pounds of S&W lead genetics at a lower price point in Q4. But, besides that, optimization is really the path for gross margin improvements throughout this year.

And we do think that margins will be better for the remainder of this year. Again, they are going to vary quarter to quarter just based on revenue mix. But certainly we would think the back half of this year, where a lot more of our revenue is concentrated, is where our margin uptick is going to be more prevalent.

Okay. That's helpful. And just want to discuss your visibility into inventory and in the Middle East market and then, maybe just more generally, visibility into inventory levels globally. You guys had thought that the lower-priced seed would work its way through the market by fiscal Q4 or Q1. It seems a little later now.

So, two questions around this. What better data are you guys getting this time around that tells you that the Q2, Q3 is kind of the end of the inventory workdown? And then, second, are there any steps that you guys could take to improve visibility in the Middle East, or any other market for that matter, into other geographic markets? I will take that.

Compound question there, Matt. Can you break up the first part again for me?

Yes. Sure. So the first part was really just what better data are you guys getting this time around that tells you that the Q2, Q3 the end of the inventory workdown (multiple speakers) Middle East.

Let's look at overall global acreage and what is occurring in the world right now. In California, where a majority of your seed is produced, there were 6000 less acres of production of seed that stayed in hay. In Australia, we had a lower crop overall in the entire country than what was anticipated or what occurred the year before.

Hay is very strong, so guys stayed in the hay in some areas where they would normally maybe go seed production at the end of the year. Canada is about out of seed. Italy's lower quality type stuff has gone and the public varieties like Cy River in Australia have increased by $0.40 a kilo in price.

So what that indicates, the bell curves are searching in whatever markets are looking at is the low-end of the market is coming back up. And it is coming back up roughly 10% over where it was four or five months ago. But we see that is going to continue to get improved, depending on -- coming into next March, April, May when we start getting some Australian crop back off to see where they are.

So again, we are very cautiously optimistic. It is improving. It is going the right way. And I personally believe that the amount of inventory is very low now.

Okay. That's really helpful. And then I guess the second part of it was, are there any steps you can take to improve visibility either in the Middle Eastern market or other significant geographic markets?

Again, we are always looking at marketing strategies on how we can improve the knowledge and the base of what we have available versus the others. I think we are pretty strong in Saudi Arabia and have been there a long time, and really everybody talks about different types of seed.

What is very important for us to do it a Company is to continue to improve our mix of seed and get the higher end stuff growing in larger acres and get more seed production of that. And so, once we can do that, it is really going to help the optimization, go to margin enhancements, and our abilities to have more control over quarterly fluctuations. But we are continuing to work on that and we have got a long ways to go.

Okay. Great. And then one more here; you guys recently announced that the share back -- share buyback program was going to be reinstated. So could you just talk to us about how you think about share repurchases? Are you comfortable buying back some shares at these current levels?

We are calculating you might be able to retire about 5% of outstanding shares, given the authorization for about $2 million a year. Give us your general thinking on the timing of buybacks and how you might potentially go about doing this.

Matt, this is Matt here. The share buyback program is a program that is really managed by our Board and those decisions are driven at that level. And that is all we can really comment at this point in time.

Dave Hansen, DRH Investments.

We are just curious on a couple of questions. First of all, looking at the total operating expenses, how significant of a portion of that is legal expenses related to filing a Stevia patent? Or perhaps it is nonexistent and it's a future expense that is going to be incurred.

The patent cost that is filing of Stevia, filing the Stevia patent are roughly south of $50,000, David.

Okay. And do you guys anticipate, once filing here in the US with the US PTO, filing a patent in any international markets as well?

It just depends if we were doing -- if we couldn't control the IP or we were worried about moving seed production into another geography, we would need to do that. I don't see that as an issue at this time, Dave. We are really after a US patent on a variety and controlling whatever we do with that in the States right now.

And we will certainly be consulting with our IP counsel to make sure that we are -- if there is a need to do that in international markets, we will make any appropriate steps.

Any update on any GMO seeds for domestic use in terms of timeline or potential IP involved in that, in the future?

Dave, we are wrapping up our final discussions with Monsanto right now. We expect to have a larger amount of acres; I will say roughly 200-plus acres, maybe more, for harvest of first commercialization of sales on two varieties of Roundup Ready a year from now.

Ian Gilson, Zacks Investment Research.

I have got a couple of questions, one for Matt. The tax credit was rather surprising given the reported losses over the last, say, couple of years. Whether that credit, how did you calculate that and what is left of any NOL? And where is that NOL, is it all the US? And then, for a (multiple speakers)

(multiple speakers) tax credit are you referring to? I am not sure I'm entirely understanding your question.

Your tax payment was a negative. In other words, you had a credit for taxes of $438,000.

Oh, right. Right. Well, that is because our pretax losses totaled $1.3 million. So we had an effective rate of roughly 33%, which is consistent where we expect it to be. And that is just a combination of our income tax rate in Australia and our income tax rate in the United States.

But, if I remember correctly, you can only accrue a credit if you had a prior profit for which you paid taxes.

No, no. You can absolutely build up deferred tax assets or NOLs in the United States. In California, there is limitations on your NOL that you can build up in California. But certainly from a federal level, you can build up NOLs, which is what we are doing. And we have got over $3 million worth of deferred tax assets on our balance sheet which we look to tap into here very shortly. Does that answer your question, Ian?

No, but I think we should -- I would like to talk to you about that off-line because I am a bit confused about that.

Sure. I can give you a call and we can go through the details.

Yes. Why don't we do that? And then, looking at Stevia, you mentioned when you were asked by the prior question, about growing seed or sending seed for growth of product in the US. Am I correct here?

Well, the ultimate goal is we are a seed company. We are looking at a number of different initiatives on varieties from quality, taste, yield, leaf capabilities and seed. So we are looking at all of those things and have been for quite a while.

And we are very -- again, we are cautiously optimistic on all of the data that has been collected. And as we prepare for the first patent here this month, hopefully that will lead to more new types of products and things that we can look at as we go on into the future.

I thought that the strategy on Stevia would have changed somewhat, in that you are going to be primarily a seller of seed and not a seller of leaf.

We are not -- we have to sell -- we have to get a plant that would be contracted just like our alfalfa seed production with outside growers, that would be growing that plant for leaf production for a company that wants a liquid, granular, or powder process into a product that is going to go into a commodity. So yes, no matter what you do, you're going to have to come up with a way to grow plants through seed and then contract that out. But, the main product use is the processing of leaf from a grower base to a company. We are not going to be the ones physically farming the leaf.

Okay. Okay. So when might we expect some Stevia -- meaningful Stevia revenue?

It is -- we get the variety patented. We go out and start production. It is a slow ramp up at the beginning and then it kind of goes logarithmic. So substantial or significant -- Matt, what do you think; three years?

I mean, I don't think we have exact visibility on that, Ian. I can tell you that there is opportunities to do collaboration work where we could, in essence, do R&D collaboration with other companies or we could be -- someone would be accessing our germplasm. That could potentially happen in the next 12 to 24 months. In terms of generating revenues outside of R&D collaborations, that is probably at least two to three years out.

(multiple speakers)

I would -- I just want to err on the side of caution, conservatism, that I would say it's at least a couple of years out.

Keith Gill, JHS Capital Advisors.

Question regarding China; if you could give us some update on China, perhaps what you are anticipating in terms of pounds being awarded and how you might be able to ramp up and where you would ramp up to fill the orders.

That is a lot easier ramp up. We already have the seed of a number of varieties like Rhino, Trophy, Runner, Monument, Multi-Leaf. There is trialing that is now going into its third season in China in four different regions. That is all being analyzed by breeders.

We do have a distribution with one company that we haven't really announced yet and we will work on that towards bringing more product in there. And we are slowly expanding our dormant acreage to meet those demands when those sales are there.

So, as an example, if we knew -- we are going to start with the end in mind, so if we have a big sale, then we can ramp up. We have, say, 30,000 pounds of Rhino. We could go out literally and plant 10,000 acres or more, which would be millions of pounds.

So that is a very -- that is a faster ramp up than any of the other discussions that we have talked about as far as like a Roundup Ready in that acreage, or what Matt was discussing on the Stevia to get the plants because you don't have the planting stock. We have the planting stock to ramp up on dormant as we move forward and get those markets enhanced as far as what people want from the testing. So the big phase was actually getting in there and getting products registered, getting distribution and making sure you can always control your IP.

And you have gotten that done.

We are satisfied.

Okay. And is there any update you could offer on your opportunities in India?

Not at this time. We are always looking hard at geographies. I hope at some point we can get some of those things discussed, but nothing right now.

Okay. And last, but almost important, how is it being married again, big guy?

It is outstanding. So, very happy with (multiple speakers).

Keeping you out of trouble?

You bet (laughter).

Frank Smith, Investment Group Management.

Regarding the Saudi Arabia market, is that a two growing cycle market or is it a single growing cycle?

No. They will grow -- the big market normally is the fall for planting. So it is that fourth quarter, end of the first, you have to get the product over there. A smaller market, historically speaking, is the spring. But it is a two-planting market, similar to California.

Okay. And are there any -- are they having any issues with water over there like we were having in California?

They have been having low -- when you say issues, their issues are little bit different than in California. California is more of a political drought. Although we have had no rain, we do have the ability to save water. But in California they tend to -- environmental regulations tend to push water out the delta or (multiple speakers). And so we lose a lot of water that could be captured for farmers' growth.

In Saudi Arabia, they have more groundwater restrictions. They're always looking at their groundwater or over drafting and so they have those types of things to look at. But the dairy industry, their needs for their animals, they are going to get that feed somewhere.

So whether a company is farming in the actual country or they purchase ground in another geography, they are shipping back -- that alfalfa hay back to their country. They are still feeding those animals. So we are not particularly as concerned of the actual place. But the sale is being made, we want to make sure we get the sale.

Right. Okay. Great. Well, I will just fall off here and appreciate it.

Well, I don't think there is -- there another call?

Any more questions, Jamie?

Sir, at this time, I am showing no additional questions.

Okay. Well, then, again, my thanks to everyone for participating on today's call. We look forward to talking with you again at the conclusion of the current quarter. Have a good evening.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines.