Robert Blum – Investor Relations, Managing Partner at Lytham Partners Mark Wong – President and Chief Executive Officer Matthew Szot – Chief Financial Officer.

Sarkis Sherbetchyan – B. Riley FBR Mike Malouf – Craig-Hallum Capital Group Ben Klieve – NOBLE Capital Markets Keith Gil – Carter, Terry.

Hello everyone and welcome to the S&W Seed Company Reports Second Quarter Fiscal Year 2018 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 note that event is being recorded.

I would like to turn the conference call over to Mr. Robert Blum with Lytham Partners. Please go ahead, sir..

Thank you Steven and thank you all for joining us today to discuss the financial results for S&W Seed Company for the second quarter of fiscal year 2018 ended December 31, 2017. With us on the call representing the company today are Mark Wong, President and Chief Executive Officer and Matthew Szot, Chief Financial Officer.

At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. 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 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, 2017 and other filings made by the company with the Securities and Exchange Commission.

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

Mark?.

Thank you, Robert and good afternoon to all of you on the phone today.

When I first spoke with you in September, I talked about the tremendous opportunity I thought we had at S&W to create a unique middle market agricultural company that would leverage off our existing base of strong assets and expanding our key crops, integrating and developing new trait technologies and becoming more customer centric.

I also mentioned that we would take the first six months and further analyze our strengths and weaknesses, as well as our opportunities and threats, to create an overall strategy that would maximize return while managing our risk profile.

After careful analysis of our current products, including alfalfa, sorghum, sunflower and stevia, our current operational capabilities and footprint and review of our regional markets across the globe, our management team and advisors along with our board is aligned on our way to go forward.

Without going into certain aspects that might be a hindrance to our success from a competitive standpoint, let me provide the conclusion of our analysis. Number one, we will push – we will continue our push into trait technology. As I have mentioned on the last two conference calls, trait development will be a key driver for S&W going forward.

I think there is a large opportunity for us to build and integrate seed biotech platform that can bring significant value to the marketplace. There are certain classes of genes that we are currently evaluating with a high degree of interest, including digestibility, insect disease and herbicide resistance.

Over the last six months, we have been working on a number of pathways and collaborations to advance this initiative. Some, we have discussed in the past such as our agreement with Calyxt, where we will be moving plant into the field this summer, focused on enhancing digestibility in our alfalfas.

We also have discussed and our agreement with Generic Genetics, which we are focused on patent traits and technologies emphasizing gene editing and non-regulated technologies. Beyond these two previously announced agreements, we are advancing multiple other collaborations that we are not going to discuss in any specific detail at this time.

During the last six months, we have focused on analyzing the markets and better understanding the traits that we believe will be most desirable to our customers. The coming 12 months will be focused on the field and lab work based on the strategic directions we have chosen. We will share more with you about our progress in the future.

Second major conclusion of our analysis, we’re going to build alfalfa, sorghum and sunflower business in Australia. Beyond trait development, we are moving forward with more specific commercialization strategies for our current crops. First, we are going to look to build out our alfalfa, sorghum and sunflower programs in Australia.

As many of you are aware, we have a strong presence in Australia with our alfalfa seeds acquisition of Seed Genetics in 2013 and our sorghum and sunflower acquisition of SV Genetics in 2016. Now that we have focused on three crops, we have the opportunity to build a more customer- centric approach to our product sales development.

As you saw from our enhancement a couple of weeks ago, we have hired David Callachor as our Commercial Manager of Hybrid Crops. David will be based in Southeast Queensland in Australia will overseas sales and marketing and future development of our hybrid sorghum and sunflower seed businesses.

David has over 20 years experience in the agricultural industry, including extensive international experience in hybrid seeds, traits and new technology. He joined us from Limagrain and has also worked for Landmark an Agrium Company, for several years in Australia.

This was an important hire for S&W as we look to build our commercial focus within Australia. Australia is important for us as a focal point for many different reasons. First, the political and regulatory environment is stable compared with many of our global markets that we operate in.

Second, much of our germplasm across the three crops I mentioned were in fact specifically developed for the Australian market and thus performed very well given the characteristics of the geography. We see this as a key commercial development point.

Third, we believe the size of the market provides us with exciting opportunities to drive revenues relative to our emerging market opportunities. Fourth and perhaps most importantly, it is one of our home markets. There is no acquisition required to enter Australia with existing troops already on the ground and facilities already operating there.

Again, I want to reiterate our focus is on maximizing return while minimizing risk. We believe Australia will play a key role for us going forward. Third strategic conclusion, build alfalfa and sorghum in the U.S. Our key focal point will be expanding our U.S.-based operations within sorghum and alfalfa.

On the alfalfa side, we already have a distributor agreement in place with Pioneer, where we will provide them with our seed – where we will provide them with seed production through 2024.

We have made strides to expand distribution with others such as Wilbur-Ellis, but we believe there is still a significant opportunity to expand our share of the U.S. market. Key to the market share growth will be development of trait technologies.

The alfalfa seed market is transitioning to key traits such as herbicide disease insect and seed digestibility. As I discussed in the past, more value per pound of seed is garnered from the traits that from this actual seed itself. More specific to sorghum market in the U.S.

we believe, there is an opportunity to leverage our assets to further expand in this – in that market. But I believe it is appropriate to pursue an acquisition that might accelerate our penetration into this market. I do not want to get into too many specifics.

But we will be focused on all options for maximizing return while minimizing our risk profile and while driving value. Fourth strategic conclusion, we’re going to build stevia in the U.S. All stevia currently grown is produced in Asia.

In speaking with stevia customers, we believe that there is significant demand for Stevia produced in the United States. Our goal is to use our proprietary germplasm in stevia and our farmer grower network to create a U.S.-based stevia production industry of high-quality stevia sweetener with superior taste profiles.

I’ll provide more details of this plan over the next two or three quarters. Evolving beyond recap. One of our themes for S&W since I took over as CEO has been evolving beyond recap. The four key items I just discussed will be keys to our strategy going forward.

Number one, evolve beyond our dependence on alfalfa seed operations, which have comprised of vast majority of our business since inception. Number two, evolve beyond our dependence on key geographic markets, which carry higher political, regulatory and economic risks.

Number three, evolve beyond our classic trait development capabilities with the latest biotechnology tools to develop higher value products. And fourth, lastly, evolve beyond our historical marketing and distribution approaches to become a more customer-centric focused marketing and sales operation. Let me now recap a little bit from the quarter.

Not all of our focus obviously has been on these strategic evaluations and decisions. We are also focused on our current operations. After all, we have a day-to-day business to operate. During the first quarter, we executed against our distribution plan with Pioneer, to whom we shipped approximately $15.3 million worth of alfalfa seed.

Overall, revenue during the second quarter fiscal 2018 was $20.8 million compared with $24.2 million in the second quarter of the prior year. We continue to successfully execute on our gross profit margin initiatives, where margins improved by 130 basis points to 22.8% compared to 21.5% in the second quarter of – fiscal 2017.

The Saudi Arabia market continues to be volatile and uncertain as dairy and hay farmers determine what the new equilibrium in the market will look like.

We believe that Saudi customers will continue to demand fresh milk and forges for their livestock, which we require for importation of alfalfa hay from surrounding regions in the Middle East and Northern Africa as well as countries around the world. Ultimately, milk demand for fluid milk, cheese, butter and other dairy products will continue to grow.

However, producing dairy cows will relocate to geographic regions with available water. Our job at S&W is to find and service these new markets, both with alfalfa and for sorghum. Also as Matt will talk about in some detail, we continue to strengthen the balance sheet with a successful completed rights offering in December.

When coupled with our private placement in July of 2017, we have a significantly improved our balance sheet position. I want to personally thank our exiting shareholders – existing shareholders – excuse me, for their continued support and look forward to driving value for them in the years to come.

I’m going to recap the strategy before I turn it over to Matt. Overall, I believe we have a very strong strategy in place. One that places a balance and a long-term evolution of our business into a leading middle market agricultural company, with a near-term focus on driving cash flows to becoming more accretion across our entire business.

We are focused on maximizing our opportunities, minimizing our risks, emphasizing our strengths and managing our weaknesses. Nothing in agriculture happens overnight, but I’m extremely pleased with the progress we may have made in the last seven months since I took over as CEO.

Let me now turn the presentation over to Matt Szot for review of our quarterly results..

Great. Thank you, Mark. And thanks to everyone on the call today. For the second quarter, revenue was $20.5 million compared to $24.2 million in the second quarter of the prior year. We experienced a $1.3 million decrease in revenue to Saudi Arabia, largely due to regulatory uncertainty for water use restrictions.

We also had a $1.1 million decrease in shipments to the domestic market, primarily driven by timing in shipments to Pioneer. Gross margins in the second quarter were 22.8%, an improvement of 130 basis points compared to gross margins of 21.5% in the second quarter of the prior year.

This increase is consistent with our expectations in our previously discussed initiatives to drive improvements in gross margins. This improvement was primarily due to product sales mix during the current period, where we had a higher concentration dormant seed sales as a percentage of total revenue coupled with the reduction of product cost.

As we look to the full year of fiscal 2018, we expect gross margin to increase over the prior year. This year-over-year improvement will likely be in the 150 basis points to 200 basis point range. Total operating expenses for the second quarter were $4.2 million, which is flat compared to the second quarter of the prior year.

SG&A expenses were down nearly 150,000, primarily due to cost reduction initiatives and a decrease in stock-based compensation, while R&D expenses were up about 100,000 due to our continued investment in hybrid sorghum and sunflower programs.

Adjusted EBITDA for the second quarter was $1.6 million compared to $2.2 million in the second quarter of the prior year.

Now, as Mark mentioned, during our second quarter, we did successfully complete a fully backed authorized offering raising a total of $12.25 million and this on the back of the several other recent initiatives to strengthen the balance sheet.

In November, we completed the $12.5 million term debt refinance, which we’ve used to repay our outstanding promissory note to the DuPont Pioneer. And then in September, we also closed on a new two-year $35 million working capital facility with KeyBanc. And also on July 2017, we completed a $11 million private placement.

All of these actions have resulted in the deleveraging of our balance sheet and have really positioned us for further flexibility of the periods to come. Now there’s one other balance sheet item I do want to point out and that’s our inventory levels. You’ll see that our inventory levels are up $31 million from the same time last year.

As we’ve communicated over the last year, we increased our acreage dedicated to seed production for crop year 2017. In addition, yields were higher in North America and particularly in Canada.

So our year-over-year production increase represents about 60% of the increase in inventory levels and the other increase relates to higher carryover going into the season and a decline in shipments to Saudi.

While this inventory increase does require additional working capital and we will be carrying higher levels of inventory over the next year, it also positions us to capture as many as sales opportunities as possible. Please keep in mind that our seed is not perishable and quality will not deteriorate as long as it’s under proper storage conditions.

So I do want also provide clarity that we planted very few new acres for crop year 2018. Accordingly, we do expect our production volumes from the 2018 U.S. harvest decline, and we expect our inventory balance to decrease over the next 12 to 18 months and certainly become more in line with historical carrying levels.

From a guidance standpoint and to recap our guidance. Based on information currently available to management, we expect to be at the low end of our previous guidance. And for the third quarter of fiscal 2018, we expect revenues to be approximately $19 million to $20 million. I know I went through a lot of data here.

So if you have any questions, please feel to ask. Now, let me turn it back over to Mark..

Thank you, Matt. Let me just conclude the last few minutes here by giving you all some comments on the board and some additions that we’ve made. I really feel we have a great team here at S&W and I’m excited about some of the new board members that we’ve added to help drive trait development and new crop market strategies going forward.

In particular, I believe S&W will benefit tremendously from the addition of – on our board of several experienced ag executives like Consuela Madere, Consuela has experienced across a diverse product in geographic set.

She was a member of the 11-person Monsanto Executive team responsible for development and implementation of the company’s overall strategy – company’s strategy as well as management of the day-to-day business operations. Consuela joined another fellow Monsanto Executive David Fischhoff who joined our board last year.

Considered by many as one of the founders of agricultural biotechnology, David’s 33-year career with Monsanto company covered a broad range of technologies, product development and business development in biotechnology, plant breeding, genomics, precision agriculture and data science.

As we look forward, we will look to expand our expertise in trait and market development. As I said at the beginning of the call, I’m excited about the opportunity S&W has before it is our unique, middle market agricultural company.

We have gone through an extensive strategic planning process and believe we have laid out a pathway that allows us to maximize our upside while minimizing our risk profile and ultimately creating shareholder value. Thank you for your continued support. Thank you to all of our employees for their hard work over these past seven months.

I know that I have asked a lot of many of them. And I now will open the call up for your questions. Thanks again..

Thank you. [Operator Instructions] And our first question comes from Sarkis Sherbetchyan with B. Riley FBR. Please go ahead..

Good afternoon guys and thanks for taking my question here..

Hey, Sarkis..

So, just first question really revolves around the expansion for your hybrid sorghum and sunflower seed programs. You mentioned that to maximize return, you’re going to go ahead and kind of focus on that.

Can you maybe give us a little bit color on may be the time line on some of the initial targets for that set of crops?.

Sure. I mean, understand first structurally these hybrid crops are a bit different than traditional alfalfa that we have built the company on. These crops have a little bit higher margin and they’re planted every year. And so, we’re looking forward to closer interaction with our farmer customers, either directly or through distributors and dealers.

That’s why we’re focusing on being more customer-centric as we believe we have valuable information that we need to convey to our farmer customers about the performance of our seed varieties, whether it be alfalfa, but specifically, sorghum and sunflower.

So we expect margins to begin to on a percentage basis improve as our product mix shifts to a larger and larger piece of sorghum and sunflower.

Not that we expect alfalfa sales to go down, but we don’t expect alfalfa sales because we have such a big market share to improve or grow at the same rate that we have – that we figure sorghum and sunflower do where we obviously have a smaller market share. So that’s out the math works we will kind of know that. But we’re very excited about the crops.

And we’re really very excited as I mentioned in the talk about how when you have three distinct product lines going now to many, many more different markets. Just the opportunity that gives us and it gives our sales force. We like to be a fact-based company.

We want to have farmers and users of our products, because sometimes we sell to an industrial user that’s not a farmer, but we want them to understand what value to our products.

And we want to demonstrate that value either through field trials or trials with the particular company if it might be for instance on oil company in the sunflower business, oil quality is obviously another area that we’re looking at trait development. So we’re really excited. I mean, it’s a fun to be in these markets.

It’s fun to be in some new markets that we have historically not had strengthen and while maintaining the stevia and alfalfa businesses, which we’ve over the years built the company on and obviously like a lot.

Hopefully, that answered your question?.

It helps. I guess, just kind of following up on that, right.

If we take the low end of this year’s annual sales guidance, right, call it, $75 million on the low end?.

Yes..

What percentage of that sales would you say this year would be attributable to the hybrid sorghum and sunflower seed program? Maybe just kind of help us understand?.

Yes, Sarkis, that probably about 2% of that annual number would be attributed to both of those product categories, both hybrid sorghum and sunflower combined..

Okay.

And then, with regard to just kind of the expected growth rate of that, I mean, any color there on how either quickly that piece can grow? Or if it’s more of a linear path or long path can you just kind of help frame the growth pattern there?.

Yes. So just remember the basics of the seed industry. It is hard to gain momentum in these products. There is a lot of work that your technical people and your sales people have to do to demonstrate these products and field trials and have customers see in their own geography what the performance is.

Because depending on climate, soil type, latitude, because plants are very day light sensitive. All these things can affect the performance and yield of our seed crops and of all seed company seed crops. So it is always slow going at the beginning, but hopefully you start to gain momentum and sales start coming at a rapidly more rising pace.

Matt, you might want to just talk a little bit about the actual sales numbers that we have for the next couple of years looking at these crops..

I mean – and again, Sarkis, this is – these numbers are certainly subject to change. But last year, we did roughly $1 million and in FY 2018, we’ll do close to $1.5 million to $2 million. And then we think that FY2019 will be sort of closer to that $3.5 million and from then there, we’ll start seeing more pronounced ramp from there.

But over the next two years, its steady progress, but the dollars here are really where you see the significant ramp..

Understood. That’s helpful. And then, if I can kind of touch on the gross margin profile. Obviously, as you start to throttle the sales in that program, gross margin should likely go upward. Maybe switching gears you’re talking about the alfalfa business.

Do you expect fiscal 2019 versus fiscal 2018 year-over-year improvement in alfalfa gross margins again?.

Well, in 2018, we’re definitely expecting margin improvement probably 150 basis points to 200 basis points. As we look to 2019 there’s a lot of factors in play at this point. Certainly, over the long-term, we think we’ve got a clear path for how we continue to expand margins based on initiatives we previously laid out.

But any – that’s not to say that we’re going to consistently put up 150 basis points or 200 basis point improvement in each and every year. But I think as we look at over the long period of time, there is a pretty clear path..

Got it. One more from me and I’ll hop back in the queue. So looking at your quarter OpEx run rate, I think for G&A, it was posted at $2.4 million or something like that.

Is that the right level to kind of think about our model going forward? And if not, what would the variances be for us to kind of think about?.

Well, Sarkis, cost control is going to continue to be a focus for us. But we will – we typically you do run higher in Q3 and Q4 where we have a higher concentration of sales. So you will see an increase in our SG&A versus Q2. You’re probably getting closer to that $2.8 million number in Q3 and Q4..

Understood. I will hop back and thank you guys..

Thank you..

Our next question comes from Mike Malouf from Craig-Hallum Capital Group. Please go ahead..

Great. Thanks for taking my question.

Can we fill a little bit more detail on what’s going on in the Saudi market? How much did it actually impact you guys? And any update on any regards to the water issues over there? Or how you think this will play out over the next year or two?.

Sure. Great question, Mike. So as you know from the public press, Saudi is going through some significant changes whether it be trying to decide if they’re going to take their basically Statoil company public to being put into the Ritz Carlton and ask for a contribution to the government offers. There is just a lot of things happening there.

And agriculture is a place where they’re trying to also make improvements. So we see the water reduction is a permanent reduction. It takes some years for that to make its mark on the milk production in the country. But on the seed production, it can be quickly felt as it is being sold by us.

So the normal cycle for dairy cow is to basically milk them for three years even though they have a much longer production cycle, they can have calves for up to 10 years. The calves get to a place where there inefficient in their conversion of feed to milk.

And so, most dairies around the world in year three or four, the cows are taken out of production of milk and new cows are brought in – younger cows are brought in to replace them. So that’s happening in Saudi Arabia. As you remember from previous calls, dairies there are incredibly modern and efficient.

There’s a biggest integrated dairies in the world. The largest dairy there is milking somewhere in the number of 135,000 cows and in the U.S. just for round numbers, 35,000, 40,000 cows, it’s the biggest dairy. So the Saudi dairy is three times bigger than the U.S. biggest dairy. And the Saudi second biggest dairy is milking about 100,000 cows.

So it’s two times bigger than the biggest U.S. dairy. So they’re very sophisticated. They buy alfalfa seeds. They raise all their own cows. They feed them. They milk them three times a day.

They take the milk to a processing plan that they own, they package it in a one and two liter containers for fluid milk and they make products butter, yogurt, cheese to the taste of local Middle Eastern and Saudi markets out of that milk. And so they’re realigning all of that.

In the short run, it was probably an over inventory of seed in the country because distributors were concerned that Saudi’s would not allow any seed imports in the country.

So they kind of loaded up the pipeline in sort of the expectation that would be changes and not knowing what they would be that they’ve preferred to have seed in country and out of country, and the companies that produce hay. So there are companies who produce the alfalfa and the dairies themselves are in production.

But independent farmers are also producing alfalfa hay and selling it to the dairies or holding in their own inventory for future sales to the dairies. So in the short run, that hay inventory has to be used up by the existing cows in Saudi Arabia.

So even though you cut back on water and even you cut back on newly seeded acres of alfalfa, may be not total acres of alfalfa yet, although, we expect that to be coming down too. Farmers are reluctant to buy seed and seed new acres.

They are reluctant to invest in that incremental investment because they don’t really know how long water rights are going to be maintained in Saudi Arabia and therefore, how long they can produce hay on a local basis. So all of those things are changing, right.

And everybody is trying to get used to what it’s going to really mean to have a dairy industry in Saudi Arabia, where water restrictions change the kind of business structure that the company has in the dairy industry. So that’s an incredibly long-winded answer to your incredibly good question.

But that gives you some insight to why for us as seed company, seed sales are pretty much cut off and very difficult to do right now. While the cow is still might be existing and even the acres of alfalfa still may be in production, but no new acres are being planted right in for us is a seed company, that’s really the key to our sales..

Yes. Got it. Okay. And then just a quick question on the stevia side.

How proprietary do you think your stevia plant is when we – I know we have ever sweet coming out, which is really a targeted RebM and RebD fermentation product from cargo? I mean just kind of wondering what – how you see that market shifting over the next year or two if that comes out and kind of disrupts the stevia market? Thanks..

Yes. So Cargill would be one of our customers, right. So Cargill takes the raw stevia leaf and makes these new products that you described. And everyone is trying to manage the Reb profile. There’s many – I don’t know how many Rebs are together, but there’s probably 10 at least.

And people are trying to maintain the sweetness of their products once cut down on that sort of funny bitter taste that sometimes you get from stevia when you use it as a sweetener. To me personally my just – my personal point of view, I think you can manage that profile a little bit.

But part of that bitter taste, I believe comes from the fact that it’s so much sweeter than sugar that your mouth – the taste buds in your mouth really aren’t made to appreciate sweetness at that level even if you sort of mix other things in with it to dilute that sweetness and spread that stevia through more units of production.

But I think it’s going to be a good product. I think the fact that Cargill is a key customer of the industry Cargill provides stevia materials to Coke and Pepsi who are obviously key users of stevia in their diet beverages. And the diet beveraged market share seems to be going up every year. So we think that stevia has a hugely exciting future.

What we’re trying to do though is not only manage that Reb profile, but we’re trying to make Stevia into a crop that you can grow in America. So what that means is, you’re not going to be to be able to hand harvest it like you do in Asia where all of the stevia is really produced today. So it’s produced like a tea.

You harvested in a couple of times over its life, couple of years and many times may be in that year and you – and it’s done by hand. And so the crop comes to the U.S. It’s not going to be probably economic to have enough people in the field to harvest it by hand.

So you’re going to have – at the time same, you develop proprietary varieties with the right Reb profile, you’re going to have to have a plant that’s much more resilient to weather conditions that can stand up to some of the conditions we would grow stevia here in the U.S and is going to be machine harvestable. So we’re working on those problems.

We believe that we have proprietary expertise there. We’ve been granted three U.S. patents on stevia. We think that’s an indication of the power and breadth of our germplasm base. We like stevia. I like stevia personally.

The company like stevia, we think it’s a big great opportunity for the sweetening industry and for S&W is a very small part of that industry, but important base part, right? Because we go – we grow the seeds and as the ASTA says, everything starts with the seed, that’s the American Seed Association, that’s the model..

Yes. Great that’s helpful. And then….

I’m really excited about the crop. I love it. I mean, so I can do this and sit here and not go out and like work on stevia..

Well, let’s keep you focused on the other stuff too..

We try..

The last question I had is just on sorghum you’ve talked about acquisitions.

Do you have to identify what kind of size are we talking about? Do you have the balance sheet in place to do this type of thing? So just can you give us a little bit of color to the strategy there?.

Yes, good question again. So we actually have three candidates that we’re currently looking at. And I can’t really tell you any more than that, because I don’t what to illicit competition from other seed companies. But I think the industry knows that we’re in the market.

And so the deals that might be out there are coming our way that’s always a good price to be when people really believe that you want to stick out a position in a crop. So we’re excited about the opportunities. We’re looking at due diligence and trying to understand the candidates that are before us. So we’re pretty far along the way.

We’re – I’m not going to make any projections on timeline because we’re only half of the negotiations, other half is obviously the selling company, but we’re pretty optimistic.

As far as capital, we’ve – our board – management has conveyed to the board that our strategy, which I described in the comments that I made some minutes ago, that acquisition was one of our primary ways to grow our business.

And they are on board if we get the right acquisition at the right price obviously with earnings potential and growth potential, they would consider raising more capital to fund it. Obviously, it’s unfair to ask people to fund things specifically till you have deal on the table.

So I can’t sort of say to you that there is a pool of funds that’s been committed of X or Y. I think that we’ll have to wait until we see what kind of deals we want to do and what the price of those deals is..

Got it. Okay, great. Thanks for the color. I appreciate it..

Yes. Thank you, Mike..

[Operator Instructions] And our next question comes from Ben Klieve with NOBLE Capital Markets. Please go ahead..

Hey guys, thanks for all your comments here. Mark, especially thanks for the comments in start of the call. You guys have lot of – lot going on and we appreciate the color that you’ve provided. Couple of things. What, I’m curious regarding your customer-centric initiatives you’ve been working on for the last couple of months.

I’m wondering if your distributors have noticed any changes in the dialogue with your customers yet? Or if that’s still something that is still a few quarters away?.

Sure. I think it’s too early for people to see the effect of that. Distribution, getting closer to customers may through lots of different structural mechanisms, right. While we are absolutely pleased this punch with our relationship with Pioneer and having them distribute our dormant alfalfa through their formal dealer network.

When I say getting close to the customer, I mean, I’d love to have a farmer dealer network like Monsanto has to the cow or Pioneer has to their farmer dealers. But you’ve got to be a big company in corn and soybeans to be able to afford the economics of that. But it gives you incredible reach and access to your farmer customers.

So we’re trying to indicate that without having a farmer dealer network.

Because we’re not a basic company in corn or soybeans, nor as you can tell from our plan do we plan to be in the sense that we picked our three crops and we’re going to focus on them, is that the say that if germplasm company came along and we saw an opportunity for non-GM corn in international markets that we already have a significant share in, that maybe we consider that? Yes, but I come from a household where we stick to the plan.

And the plan is sorghum, sunflower, alfalfa and stevia. We’re going to try to stick to that as close as we can without leaving any opportunities pushing them off the table with that at least looking at them. So we’re trying to get closer to farmer. We believe as farmers consolidated, that there is a fewer and fewer of them.

And that they are smart people and they make good decisions. And that they make it based on good data the performance of our seed varieties and other companies seed varieties in their local markets. And that’s the kind of thing that we want to show that we want to demonstrate and show that we can be a good partner with our customers..

That makes a whole lot of sense. Another question I have is what the shift of hybrid operations for Australia and bringing David on board.

I’m curious if your earlier estimates of kind of five-year targeting the $30 million range are still appropriate? Or did you make those initiatives because you think that similarly may be a bit higher than that $30 million range in the long term?.

Now you’re just trying to get me the fair number higher than $30 million. I’m not going to do it. I’m just not to do it Ben. You are a persuasive guy, but I’m not going to do it. I mean, we made 30 gigantic target. We’re going to be the happiest group of managers and sales and our research people in the whole world, we get to $30 million.

We’re going to Australia because frankly the timelines are a bit shorter, right. The materials been chosen for Australia conditions. We’re in the – what the seed company does, they do their plant breeding and then they evaluate those hybrids in the field with farmers for a couple of years and then they decide what they’re good ones are.

And they raise what we call foundation seeds, which are the mother seeds that we grow all the commercial seeds from. And then, we have to put commercial seeds in the field and harvest those, clean those bag those and sell them to customers. So that’s why Matt said, the process is always slower at the beginning. And then, hopefully gain some momentum.

And we think that momentum is a couple of years more advanced in Australia than it is for instance in the U.S. for us. But we’re going to be in high content so to speak if we hit $30 million in five years..

And you can’t blame a guy for trying, but I appreciate the color..

You’re good, Ben..

Next question I have is with regards to the Stevia development. I’m curious on the last call you’ve talked about the development agreement that negotiations are ongoing for kind of the next generation.

I’m curious if you could update us on the status of that?.

Yes. So we haven’t made an announcement yet. So there is really not anything officially I can say and – but we’re pretty close to a multiyear agreement with one of the big customers in the stevia market. And that’s about all I can say, right now. But no one could be as excited as me so there almost as excited as me.

And – but we think we’re getting there. We’re going to have to put little bit of money into stevia. Some of our breeding programs have some places where we need to work. We do need to bring some markets has to breeding there in a way that we haven’t done it before.

We’re working on some new analyses techniques on HPLC and MacSpec and to make sure that our varieties have the performance we think they have. It’s a little bit more difficult. So this is one of the difficulties to stevia. It’s a little bit more difficult than just going after yields.

Because I think as Mike asked, you have to manage this Reb profile RebA, RebM, RebL [ph] whatever they are. Okay, I think there is, you have to manage that case profile as well as yield. So you’re looking at total yield, but you’re also looking at the quality of the yield. And that’s why these analysis techniques are so important.

And we just want to make sure that on a science basis, we’re up actually up to speed with everything that we can be doing very to maximize the efficiency of our breeding program..

Okay. Very good. And then, a question regarding Saudi. The level of uncertainty on the Saudi market seems unchanged over the past few quarters.

And it seems that you’re customers are kind of looking at one of the dozen different things they can do in the aftermath here, but there is no clarity today than there was a couple of quarters ago from what I can tell on your comments.

Do you have any sense that you’re customers are gaining any clarity? Or is it truly uncertain today – is the strategy uncertain to do as it was a few quarters ago?.

No. I think, that they are gaining clarity. I mean, just make sure that we all understand here what we’re talking about structurally right. These are huge dairies. The biggest in the world and they are vertically integrated, right.

So you are in a vertically integrated business where you’ve have got the production of the feed, the cows, the bottling plants, the distribution trucks that go to all the grocery stores.

You’ve got at least four the steps, you’re not selling the milk directly to customers yourself, because you’re going through grocery stores, but you’re basically doing everything else about that.

And for them we all like to understand and wreak the profits of vertical integration, because there are cost savings and you get to the market probably faster, even more innovative in your understanding of what new products need to look like. But you can investment in that vertical stack of assets.

And so when somebody basically kicks the basement window out, they tell you that you can’t have any water to grow the crop. It’s not exactly in all the respect of these big companies.

It’s not the easiest thing to go to the think through your vertically integrated strategy and figure out, which pieces at the least cost and profitability can come out of your stack – of your vertical stack to allow you to continue to be a profitable company. So I’m not going to mention names because would just get me in touch with some people.

But it’s clear that some of the companies are doing better than others at managing this issue is that when you talk to them that’s kind of what we some companies we hear with the pretty good understanding of what their issues are and what their options to solve those issues are and others are still frankly, a bit caught in the deafness of the hanger net going off next to them in the sense that their basic business assumption that are vertically integrated business was the most efficient way to address the dairy markets in Saudi has been thrown on here.

And it’s very difficult. I might take my head off to them. I think they’re already doing a great job and I just don’t – if I was in their place, I don’t know what I did – what I would necessarily do.

And I’m coming from not just my seed background or the CEO of S&W, but I have been in the dairy business, I am in the diary business, my partners operate at dairy and I have some direct experience with what happens at dairy day to day.

And it still incredibly difficult figure out what there is to do when you have this vertical stack of added value that’s built on getting high quality milk and milk products to a local market. And then, that’s turned on its year, because water is taken away from you. I think it’s. I’ll just add that this water problem is a problem around the world.

And I think Saudi is may be brave in the sense that they have been one of the first countries to take this head on and try to make a decision. And I just wonder what other countries including parts of the U.S.

need to go through the same kind of hard decision-making to get to a situation where we’ve got an equilibrium environment and water usage for agriculture..

I could certainly see that, I certainly emphasize what the position there. Last question from me, quick one, I’ll jump back in queue. The $15 million Pioneer number that you have discussed.

Could you remind us what that was Q2 last year?.

It’s roughly the same number little bit of variability, but there year-over-year for Pioneer it will be pretty much be in line with the prior year number and year-to-date we’re roughly in line with where we’re at last year..

Okay, thanks Matt and, thanks Mark and I’ll jump back in queue guys..

Yes. Thank you Ben..

Our next question comes from Keith Gil with Carter Terry. please go ahead..

Thank you, good afternoon, Mark, Mat, how are you?.

Hey Keith..

Hey Keith, good to hear from you..

My question was already answered previously. Thank you very much..

You’re welcome..

And this concludes our question-and-answer session. I’d like the turn the conference back over to Mark Wong for any closing remarks..

Yes. I would just again like to thank all who around the call today especially the analysts who follow S&W without your support the public would not know about us and we value your questions, your commitments due understanding our company and we look forward to obviously working with you all in the future.

Again I want to thank our new board members, our all board members, our employees, I hope everyone feels like I give that there is some momentum gaining in the company. We’re all learning from each other. We’re all learning from the difference skill sets that we bring to the table for all of these problems that we’re trying to address.

We’re not trying to – we’re doing something that is not easy. We’re creating a new kind of company in these middle market crops. And we think we have the skill set to do it. And we certainly have the support of our shareholders, but these things are never easy.

And you can depend on our commitment and our intelligence and our work ethic to try to get this done the best of the abilities of our organization. So thank you everybody. So its great being these calls, I obviously enjoy them and thank you all for your following of S&W..

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