BNB Plus Corp. (BNBX) Q1 2018 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Applied DNA Sciences Fiscal First Quarter 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Clay Shorrock. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for our first fiscal quarter 2018 financial results conference call. I am Clay Shorrock, General Counsel at Applied DNA. A copy of the company's earnings press release and accompanying PowerPoint presentation to this call are available for download under the Events and Presentations section to the Investors page of the Applied DNA website. With me on the call today are Dr. James Hayward, Chairman and CEO; and Beth Jensen, Chief Financial Officer. As a reminder, please note that some of the information you will hear today during our discussion may consist of forward-looking statements, including without limitation those regarding revenue, gross margins, operating expenses, other income and expense, stock-based compensation expenses, taxes, earnings per share and future products. Actual results or trends could differ materially. For more information, please refer to the Risk Factors discussed in Applied DNA Sciences Form 10-K filed in December 2017 and our subsequent quarterly report filed on Form 10-Q filed today. Applied DNA Sciences assumes no obligation to update any forward-looking statements or information. Before starting the call, I would like to remind you that Applied DNA will hold its annual meeting of the stockholders on February 27 in Stony Brook, New York. Additional details can be found on the IR calendar portion of Applied DNA's website. Further, matter that will be presenting at Roth Capital Markets 30th Annual Investor Capital in Dana Point, California during the second full weekend March. For those unable to attend management's pre-presentation it will be a live stream. Clients are asked to contact our institutional sales representers to schedule a one-on-one with the management. Now it is my pleasure to introduce our first speaker to today's call, Beth Jantzen.

Thank you, Clay. Good afternoon, everyone, and thank you for joining us today. I would like to begin with the review of the financial performance for our fiscal first quarter of 2018 which will include a summary of our financial results as well as our financial condition following the completion of our financing during December 2017. Dr. James Hayward, our President and CEO will then provide you with an update on the company's progress, activities and strategies for the balance of this fiscal year. Starting with the statement of operations total revenues for the first fiscal quarter ended December 31, 2017 was $648,000. This represents an approximate 28% decrease compared to $903,000 reported in the first fiscal quarter of 2017 and down approximately 43% compared to $1.1 million in the fourth quarter of fiscal 2017 revenue. The year-over-year and quarter-over-quarter decrease in revenues resulted primarily from decreased sales to the textile industry. The decrease in textile revenues was primarily the results of the timing of shipments and the recognition of deferred revenue related to our cotton contracts. Products revenues declined approximately 50% for the first fiscal quarter of 2018 to $350,000 compared to $704,000 in the same quarter of fiscal 2017 and decreased approximately 59% compared to the fourth quarter of fiscal 2017. The decrease in year-over-year and quarter-over-quarter product revenues were driven primarily by decreased sales to the textile industry for protecting cotton supply chains as mentioned above. Further this revenue is increased 50% to approximately $298,000 during the fiscal first quarter ended December 31, 2017 compared to approximately $199,000 for the same period in fiscal 2017 and was flat on a sequential basis with the fiscal fourth quarter of 2017. The increase in service revenues on a year-over-year basis was due to an increase in revenue from a government contract award of approximately $187,000 which began during June of 2017. To remind you of the breakout between products and service revenues; service revenues include our pilot projects and any research and door development contracts as well as authentication and fiber tying services. All other revenues are recorded as product revenues and cost of revenues relates only to product revenues. Cost for service revenues are reflected in R&D and SG&A expenses. Cost of revenue as a percentage of product revenue in our fiscal first quarter was 95% as compared to 39% for the year ago period. This increase in cost of revenues as a percentage of product revenues is due to the product sales mix as sales during the prior year's fiscal first quarter consisted primarily of textile sales which are at a high margin. Also due to low product revenue during the quarter ended December 31, 2017, our production decreased and as a result our fixed production cost primarily comprised of payroll and other building costs allocated to production were not absorbed by product sales. Total operating expenses declined in the fiscal first quarter of 2018 to $3.5 million compared to $4.6 million in the first fiscal quarter of 2017 and remain fairly consistent compared to $3.7 million in the first fiscal quarter of 2017. The decrease on a year-over-year basis is primarily attributable to a decrease in stock-based compensation expense offset by an increase in R&D expenses in relation to the government development contract award. For the first fiscal quarter of 2018 adjusted EBITDA was a negative $2.8 million compared to a negative $2.3 million in the first fiscal quarter of 2017. The increase in adjusted EBITDA loss year-over-year is primarily attributable to the decreased revenue for the first quarter of fiscal 2018. Turning to the balance sheet. Cash and cash equivalents totaled approximately $4.8 million at December 31st, compared with approximately $3 million at September 30, 2017. The increased cash balance is primarily the result of approximately $4.2 million of net proceeds received from a registered direct offering which closed on December 22nd. The offering strengthened our balance sheet and gives us the capital with which to pursue our goals for this fiscal year. Warrants associated with this offering have a strike price of $2 per warrant and are currently out of the money. As of December 31, 2017 we had a total accounts receivable balance of approximately $2.2 million, of this amount will be collected approximately $2 million subsequent to the quarter end. As of December 31, 2017 our average monthly cash burn rate for fiscal 2018 excluding the proceeds from the financing was approximately $879,000 compared to approximately $756,000 for the same period in the prior fiscal year and increase of approximately 16%. The increase in monthly burn rate for the fiscal, first fiscal quarter of 2018 compared to the first fiscal quarter of 2017 is mainly due to lower cash received and slightly higher disbursements during the first quarter of fiscal 2018. As of January 31, 2018 our cash position is approximately $5.5 million. We continue to closely monitor our spending and intent to remain disciplined and continue to strategically manage cost in line with our current and near future market opportunities. As of December 31, 2017 we estimate that our cash and cash equivalents along with the collection of our current receivables and the proceeds from the recent financing discussed are sufficient to fund operations for the next 12 months. Thank you for joining us today and I would now like to turn it over to Jim for his comments.

Well Beth, good afternoon everyone and thank you for attending our quarterly investor call. To begin on our first quarter was characterized by significant progress made in executing our growth strategy, including growth within existing verticals like textiles and expansion into new verticals following the completion of initial pilot such as in pharmaceutics and cannabis. Our financial results however, do not reflect these recent successes. On our December call, we provided our first annual financial guidance built on base recurring revenue, we projected a minimum for revenues of $6.5 million for fiscal 2018, included in this guidance is approximately $4 million of cotton revenue and the seasonality inherent in those revenues. Seasonality of cotton revenue will abate to a small degree with the on-boarding of new international regions through which although we anticipate that most of our cotton revenue will be generated in our fiscal third and fourth quarters which are a peak quarters for U.S. cotton. Now although we have started slowly, we still believe our guidance is achievable and recent contracts are only to strengthen our belief and with this as a backdrop, I would like to share with you the reasons for our continued optimism. Now beginning first with our most established vertical textiles, we moved to broaden our base of activity with our cotton partner Himatsingka and announced our first international foray with the sale of our DNA transfer system to an overseas cotton market subsequent to the close of the quarter. Just like made in the USA, the labels that we're all familiar with and with the presumption of quality that it stands for, this oversea markets cotton has quality and environmental economic and social standards that are derived from its origin. Our DNA transfer system and the protocols that we use will ensure proof of origin and ensure that the tagged cotton fiber stays pure all the way through the supply chain to the finished goods. And while we are restricted from naming this market, we can say that it is a top seven global producer of cotton. The implementation of our system puts us in a position to fulfill orders for our molecular tangent as per demand evolves. We're also making progress in expanding our base of business in non-cotton or synthetic textiles. We recently announced that we will be attending the upcoming New York Home Fashion Week in conjunction with several of our certainty licensees, including GHCL and our polyester supplier and partner Reliance Industries. Now we are specially encouraged by Reliance's participation at this Bi-Annual Event and as it highlights the growing awareness of, and interest in our certainty supply chain authentication platform by synthetic fiber and finished goods manufacturers. Reliance is the world's largest integrator producer of polyester fiber and yarn in the world and they also manufacture the world's most eco-friendly fibers. Reliance is currently creating tag fiber for GHCL's needs and our hope is that market we equal demonstrate that demand will grow. But we are also actively engaged in rayon's and other polymers which are huge markets. To update you on our leather opportunity, we have been developing and demonstrating the methods for tagging and authenticating leather from farm to finished goods in conjunction with BLC Leather Technology Limited on a pilot project that was sponsored by 8 brands and manufacturers. I'm pleased to report that the project is on schedule and that the results have exceeded everyone's expectation. The project is expected to conclude at the end of March and we are already planning to introduce the technology at a commercial large tannery as a large scale of pilot. Now in adjacent to market opportunity in agriculture is the tagging of legal cannabis and its derivatives, subsequent to the close of the quarter we announced a $1 million contract to integrate our molecular tagging and testing technology into TheraCann's blockchain-based seed to sell, enterprise, resources planning platform for legal cannabis operations. Earlier this week, we announced that we had generated successful initial results of our ability to detect our tagging through raw materials and some processed goods in the legal cannabis supply chain. And as I noted in our last Investor Call, our molecular tags can be the immutable link between the physical and the digital and our contract with TheraCann demonstrates that we are well positioned to benefit from such a need. Be it in the legal cannabis blockchain or any blockchain that requires a physical link. We believe that the link between the digital and physical worlds within distributed ledger implementations is actually an Achilles heel that's open for opportunity to us. That is the bad guy could counter further or switch good product for bad even though the digital transaction would track it as a secure from beginning to end. Our molecular tags sit invisibly indoor on the goods through their lifecycle, are designed to be unique to the application and can provide blocks of CSI like authentication of goods to a distributed ledger at each node. Over the past year, we focused on prototyping a blockchain ready system and simulating business processes with our partners and our largest supply chain vertical to get a feel for what's ahead. Separately we are working with TheraCann International to establish a blockchain based platform for the legal cannabis industry from seed to sell. Imagine a molecular level identity that is applied at the gross stage tracked via an industrial internet of things and cloud based platform with forensic authentication at processing and dispensary steps. Stakeholders gain confidence in authenticity and law enforcement gains immunes to forensically detect our agent in criminal situations. Now with Videojet, our strategic partnership brings a considerable set of capabilities t amplify the value of our tag test and track technology in the high speed inkjet printing market. Ours is a universal platform in essence of turnkey solution that has been seamlessly integrated into Videojet's newly introduced secure printing platform for manufacturing lines in industry such as pharmaceuticals, personal care and industrial products. We have begun to jointly approach initial customers on solutions supplemented by lead generation marketing programs. We joined presentations at industry events and at presence in Videojet's marketing communications, such as our participation this week in Videojet's WestPack Trade Show. Now turning to our fertilizer vertical. The republic of Turkey's mandate to DNA tag all domestically produced fertilizer went into effect on the 1st of January 2018. We are actively working on sales opportunities in Turkey both for cotton and for fertilizer, but for strategic reasons we want to ensure that we choose our customer and our partners wisely. But the opportunity for tagging fertilizer is much larger than what Turkey offers. The primary driver of demand for tag fertilizer is the prevention of fertilizer adulteration and the security of supply chains to prevent these fertilizers in improvised explosive devices. There are global issues and they can be resolved with our technology platform with our partner Rosier, we have identified initial markets for DNA tag fertilizer sales in Turkey, Asia and Africa. And Rosier is establishing the team to identify a specific demand. Our pharmaceutical market initiative is moving ahead with mounting momentum. We have completed our drug master file and are now awaiting Colorcon's review before filing it with the FDA it's we who file with the FDA. Although our filing date is later than we initially expected, Colorcon's review is necessary as our DMF is a reference linked to their product offering among others. To remind you ours will be a type 4 DMF filing that will consist of confidential information about our product, its stability and varied environmental conditions and our manufacturing process. The DMF requires no FDA review and resides with the FDA until such time as they perspective pharmaceutic customer indicates that it will DNA tag one of its drug at which point, we give the FDA permission to review the proprietary information in our DMF. Before the FDA grants permission for the pharmaceutical company to implement our technology. Now in parallel, we are working on securing a definitive agreement with Colorcon that will trigger certain revenue to Applied DNA. The longer term revenue opportunity with Colorcon however, as the potential to be much more substantial and impactful on Applied DNA. Colorcon is the market leader in tablet coatings with approximately a 60% market share. By integrating our DNA molecular tag and with Colorcon's film coatings we will be able to offer a seamless solution to pharmaceutical customers who are already using Colorcon's film coatings. Once the definitive agreement is signed, the next step is to partner with Colorcon to secure our first mutual customer, which will represent another source of recurring revenues for Applied DNA. We are beginning our deep dive commercial engagement with Colorcon this month to layout the customer landscape together with their sales and marketing colleagues who work with all of big pharma. This process already well underway with our sales leadership will begin to position us in a credible way with the right decision makers within pharmaceutical companies. Now tablets represent one of two ways to deliver a solid oral dosage forms. The second way is by capsule. We have recently finalized our initial negotiations with the one of the world's largest pharmaceutical capsule manufacturers. We expect to announce news about this complementary direction shortly. On the flipside of the pharma coin, sometimes approaching the same customers is our biopharma practice, which holds the potential to be a large long-term opportunity for Applied DNA. On our December Investor Call, we spoke about opportunities in current projects for functional DNA in gene therapies and for vaccines. Last year we entered into an agreement to supply bulk DNA to a leading chemical company serving the in vitro diagnostics market. We began shipping product in the fourth quarter and we are making large scale shipments each quarter. We expect our relationship with this customer to grow as our customer solutions expand into new markets. With regard to biotherapeutics our agreement with [indiscernible] which we announced in the fourth fiscal quarter of 2017 is progressing well. And we expect that our success in demonstrating our competitive differentiation in this project will open up opportunities in the growing DNA vaccine market for animals and eventually humans. The DNA vaccine market for animals alone is greater than $2 billion a year and growing at double digit compound annual growth rate. In therapeutics there is a need for more complex DNA's such as those that are used in the ever growing field of Immune-Oncology. Companies are entering this field with novel that require immune cells to be removed from a patient. Those cells then have to be armed to produce new proteins that allow them to recognize a cancer. And then those cells are given back to the patient in large numbers, larger than they were withdrawn from the patient after expansion. These cells persist in the body becoming a kind of living drug, these therapies are time limited and if you don't put the therapeutic DNA back into the patient as quickly as possible, you don't really have a viable therapy, then therefore a viable biotech company. And we're talking about our customers here. We are cultivating opportunities in Immune-Oncology for our PCR produced DNA that is cleaner and faster and more easily modified than DNAs made from legacy technologies. Now as you can hear, there are many reasons for our continued optimism. This is reflected in the establishment of the DNA laboratory in India that will officially open next week. This is a strategically important facility for us given the amount of business that we conduct in that region already and the amount of business potentially available to us in that region. Its proximity to customer should incent them to test more while enabling faster quality, control and assurance and at a lower cost that is currently associated with shipping samples here to Stony Brook. In addition, this will also free up some of our skilled scientist in the U.S. for other opportunities. So in conclusion, our business development is active, awareness of our company and its technologies is growing and market dynamics and customer demands are increasingly shifting in our favor. We have a base of recurring business and our every effort seeks to add to that base to the benefit of the company and to our shareholders. Now to quote Dr. James Watson, the Nobel Laureate and co-discoverer of the Structure of DNA who recently visited our Stony Brook facility where he said, imagine an American company whose fundamental selling premise is the honesty of DNA tags. The honest world needs Applied DNA. Well thank you for your time attention and your continued support of Applied DNA. And operator, can you now please open the call to questions from the audience.

Thank you. [Operator Instructions] The first question is from Brian Kinstlinger at Maxim Group.

Hi, good evening guys.

Good evening Brian.

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

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

What would have to happen in your review to, what could happen that leads to less than $6.5 million of revenue, is it going to be timing that we've talked about of deferred recognition, I mean maybe taking you through at the end of the year and by the side what could go wrong that could not allow you to hit that bogie?

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

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

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

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

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

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

I'm not sure I understood.

You put up what $600,000 to $700,000 in revenue.

Are you asking what our second quarter will be?

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

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

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

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

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

You're asking me to provide guidance at this stage…

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

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

Great. Okay. Thanks for taking my question.

Sure. Thank you, Brian.

Thank you.

Thank you. The next question is from Craig Pierce at Morgan Stanley.

Good afternoon ladies and gentlemen and Jim, you're gentleman Jim. Colorcon when last discussed, I understood that you were hesitant to talk about milestone payments and the [data house] [ph] not getting into that. Also that was under the impression that a definitive agreement was fairly near at hand yet you're not. I've not heard those words vis-à-vis Colorcon. Where do you stand with that in any sense of -- where do you stand with that?

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

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

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

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

You do.

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

We're optimistic that you should be reading an announcement before too long touchwood.

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

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

I mean I know that you've shortened dramatically the pay day so to speak from the shipment out of the markings and through that the new contracts with [indiscernible], I believe.

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

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

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

Okay. So, not a specific hemisphere, but it will stretch beyond the normal timeframe. I mean that the United States is experiencing cotton harvest.

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

I will definitely keep that between you and me Jim.

Okay. I think that opportunity is now gone.

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

Well, to be perfectly simple and frank about it, we were disappointed and we were hoping for a better performance. And there are several reasons that Beth discussed for why we didn't see that. We don't believe that that is a reflection of our inability to forecast or our inability to read the market. We think it's just a matter of maturing within our various verticals and establishing more consistent demands that we can predict more reliably. But, we don't believe as we said at the very opening that the poor performance in quarter one is a reflection on fiscal 2018.

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

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

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

Oh, I appreciate your support. Thanks very much, Craig.

Okay.

[Operator Instructions]

Operator, I think we can close for questions now.

Okay. Would you like to make any closing remarks?

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

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