S&W SEED COMPANY

FORM 10-K

FOR THE FISCAL YEAR ENDED JUNE 30, 20182019

TABLE OF CONTENTS

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FORWARD-LOOKINGFORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited toto: any projections of revenue, margins, expenses, tax provisions, earnings, cash flows and other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding our ability to raise capital in the future; any statements concerning expected development, performance or market acceptance relating to our products or services or our ability to expand our grower or customer bases or to diversify our product offerings; any statements regarding future economic conditions or performance; any statements of expectation or belief; any statements regarding our ability to retain key employees; and any statements of assumptions underlying any of the foregoing. These forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "will," "plan," "project," "seek," "should," "target," "will," "would,"“anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. Such forward-looking statements are subject to risks, uncertainties and other important factors, including certain assumptions, that, if they never materialize or prove incorrect, could cause our actual results and the timing of certain events to differ materially from future resultsthose expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions include the following:

whether we are successfulchanges in securing sufficient acreage to support the growth ofdemand for our alfalfa, seed business,

sorghum, sunflower and stevia products;

our plans for expansion of our business (including through acquisitions) and our ability to successfully integrate acquisitions into our operations;

whether we continue to invest in research and development and whether such investment results in trait improvement across our crop categories;

the continued ability of our distributors and suppliers to have access to sufficient liquidity to fund their operations;

market trends and other factors affecting our financial condition or results of operations from period to period;

the impact of crop disease, severe weather conditions, such as flooding, or natural disasters, such as earthquakes, on crop quality and yields and on our ability to grow, procure or export our products;

the impact of pricing of other crops that may be influence what crops our growers elect to plant;

whether we are successful in aligning expense levels to revenue changes;

whether we are successful in monetizing our stevia business;

You are urged to carefully review the disclosures made concerning risks and uncertainties that may affect our business or operating results, which include, among others, those listed in Part I, Item 1A. "Risk Factors" of this Annual Report on Form 10-K.“Risk Factors” below.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this Annual Report on Form 10-K, some of which are beyond our control, will be important in determining our future performance. Consequently, these statements are inherently uncertain and actual results may differ materially from those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Annual Report on Form 10-K as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Furthermore, such forward-looking statements represent our views as of, and speak only as of, the date of this Annual Report on Form 10-K, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We undertake no obligation to publicly update any forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

When used in this Annual Report on Form 10-K, the terms "we," "us," "our," "the“we,” “us,” “our,” “the Company," "S&W"” “S&W” and "S“S&W Seed"Seed” refer to S&W Seed Company and its subsidiaries or, as the context may require, S&W Seed Company only. Our fiscal year ends on June 30, and accordingly, the terms "fiscal 2018," "fiscal 2017"“fiscal 2019,” “fiscal 2018” and "fiscal 2016"“fiscal 2017” in this Annual Report on Form 10-K refer to the respective fiscal year ended June 30, 2019, 2018 2017 and 2016,2017, respectively, with corresponding meanings to any fiscal year reference beyond such dates. Trademarks, service marks and trade names of other companies appearing in this report are the property of their respective holders.

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PART I

Overview

Founded in 1980 and headquartered in Sacramento, California, we

We are a global multi-crop, middle-market agricultural company. Grounded in our historical expertise and what we believe is our present leading positionWe are market leaders in the breeding, production and sale of alfalfa seed we continue to build towards our goal of being recognized as the world's preferred proprietary forage, grain and specialty crop seed company. In addition to our primary activities in alfalfa seed, we have recently expanded our product portfolio by adding hybrid sorghum and sunflower seed, which complement our alfalfa seed offerings by allowing us to leverage our infrastructure, research and development expertise and our distribution channels, as we begin to diversify into what we believe are higher margin opportunities.seed. We also continue to conduct ourhave a growing commercial market presence in sunflower and maintain an active stevia breeding program, having been granted four patents by the U.S. Patent and Trademark Office.development program.

Our alfalfa seed is produced under contract with growersplatform develops and supplies high quality germplasm designed to produce higher yields for farmers worldwide. We produce approximately 250 seed products in the Western United States, Canada, Australia, Europe and Australia, and we sell our alfalfa seed varietiesSouth Africa for sale in more than 30 countries acrosscountries. We maintain an active product pipeline and expect to introduce more than 20 new products during the globe. Historically,2020-2022 fiscal years.

Founded in 1980, we have been recognizedbegan our operations as the leadinga limited producer of non-dormant alfalfa seed varieties that have been bred for warm climates and high-yields, including varieties that can thrive in poor, saline soils. Our December 2014 acquisition of certain alfalfa research and production facility and conventional (non-GMO) alfalfa germplasm assets of DuPont Pioneer,Over the years we have built a wholly-owned subsidiary of E.I. du Pont de Nemours and Company ("DuPont Pioneer"), has provided us with the opportunity to become a leading producer of dormant, high yield alfalfa seed varieties, which are the varieties bred to survive cold winter conditions. As a result, our alfalfa seed business now encompasses the production, breeding and sale of non-dormant and dormant conventional varieties and the potential for future production and sale of GMO (genetically modified organism) varieties.

Following our initial public offering in fiscal year 2010, we expanded certain pre-existing business initiatives and added new ones, including:

• diversifying our production geographically by expanding from solely producing seed in the San Joaquin Valley of California to initially adding production capability in the Imperial Valley of California, then expanding into Australia (primarily South Australia) and, most recently, adding production in other western states and Canada;
• expanding from solely offering non-dormant varieties to now having a full range of both dormant and non-dormant varieties;
• expanding the depth and breadth of our research and development capabilities in order to develop new varieties of both dormant and non-dormant alfalfa seed with traits sought after by our existing and future customers;

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• diversifying into complementary proprietary crops by acquiring the assets of a Queensland, Australia company specializing in breeding and licensing of hybrid sorghum and sunflower seed;
• expanding our distribution channels and customer base, initially through the acquisition of the customer list of a key international customer in the Middle East in July 2011, and thereafter, through certain strategic acquisitions;
• expanding our sales geographically both through the expansion of our product offerings to make available product needed in regions we historically did not cover and through an expansion of our sales and marketing efforts generally; and
• implementing a stevia breeding program focused on the potential development of new stevia varieties that incorporate the most desirable characteristics of this all-natural, zero calorie sweetener.

We have accomplished these expansion initiativesdiversified, global agricultural platform through a combination of organic growth and strategic acquisitions, foremost among them:

• the acquisition in July 2011 of certain intangible assets, including the customer information, related to the field seed and small grain business of Genetics International, Inc., which had previously operated in the Middle East and North Africa ("MENA") and which began our transition into selling directly to MENA distributors;
including:
• the

  Our 2012 acquisition of Imperial Valley Seeds, Inc. ("IVS") in October 2012,, which enabled us to expand production of non-GMO alfalfa seed into California's Imperial Valley, thereby ensuring a non- GMOnon-GMO uncontaminated source of alfalfa seed due to the prohibition on growing GMO crops in the Imperial Valley, as well as enabling us to diversify our production areas and distribution channels;

theOur 2012 acquisition of a portfolio of dormant alfalfa seed germplasm, in August 2012 to launchwhich launched our entry into the dormant alfalfa market;

theOur 2013 acquisition of Seed Genetics International Pty Ltd (now S&W Seed Company Australia Pty Ltd), the leading local producer of non-dormant alfalfa seed in South Australia, S&W Seed Company Australia Pty Ltd (f/k/a Seed Genetics International Pty Ltd, "S&W Australia")which made us the largest non-dormant alfalfa seed company in April 2013, which greatly expanded ourthe world, with production capabilities and geographic diversity;

in both hemispheres;

theOur 2014 acquisition of the alfalfa production and research facility assets and conventional (non-GMO) alfalfa germplasm from DuPont Pioneer in December 2014 (the "Pioneer Acquisition"(“Pioneer”), therebywhich substantially expanding uponbroadened and improved our initial entrance into the dormant alfalfa seed market that began in 2012germplasm portfolio and enabling us to greatly expanddeepened our production, and research and product development capabilities;

theOur 2016 acquisition in May 2016, of the assetsbusiness and businessassets of SV Genetics Pty Ltd, ("SV Genetics"), a private Australian company specializing in the breeding and licensingdeveloper of proprietary hybrid sorghum and sunflower seed germplasm, which representsexpanded our initial effortcrop focus into two areas which we believe have high global growth potential;

Our 2018 acquisition of the assets of Chromatin, Inc. and related companies, which positioned us to diversifybecome a global leader in the hybrid sorghum seed market and enhanced our distribution channels both internationally and within a U.S.-based farmer-dealer network; and

Our 2018 joint venture with AGT Foods Africa Proprietary Limited (AGT) based in South Africa named SeedVision Proprietary Limited (SeedVision). SeedVision will leverage AGT's African-based production and processing facilities to produce S&W's hybrid sunflower, grain sorghum, and forage sorghum to be sold by SeedVision in the African continent, Middle East countries, and Europe.

Our Strategy

The global agriculture market is experiencing rapid change driven by population growth, environmental challenges, limited availability of arable land, diverse regulatory requirements and evolving consumer demands. As a result, farmers and other industry participants face ongoing pressure to cost-effectively increase productivity and output. These factors and others have led to strategic realignments and significant consolidation in the seed industry, leaving a small number of large players.

We believe this environment presents an opportunity to build a global agricultural company focused on crop and market opportunities that large seed companies may overlook, underserve or ineffectively address.




We believe our core strengths listed below position us to capitalize on this market opportunity:

Strong Germplasm Asset Base and Development Capabilities. We believe we have the largest and most diversified alfalfa and sorghum germplasm pool in the world.  Our germplasm pool offers traits sought by farmers who grow forage hay, forage sorghum and grain sorghum, including high yield, drought tolerance and disease tolerance. We continue to invest in research and development programs in the United States, Australia, Europe and South America with an emphasis on driving trait improvement across all of our crop categories.  

Cost-Efficient Global Supply Chain.  We produce seed in the Western United States, Canada, Australia, Europe and South Africa under contract with select third-party growers. We currently maintain more than 140 grower relationships, many of which are longstanding. Our global, but localized, production capabilities allow us to produce seed close to the customer to ensure the seed product is developed specifically for the conditions and requirements of that customer’s region and produced at low cost. We condition and package seed primarily in our own facilities located in California, Idaho, Texas and Australia. We believe that direct ownership of our production facility assets gives us more flexibility to react to demand changes unique to each geography, greater control over product quality and a lower cost structure.

Global Distribution Capabilities and Relationships.We sell our seed through one of the industry’s largest networks of distributors and dealers, reaching more than 30 countries. Our recent acquisition of the Chromatin farmer-dealer network added a new element to our United States distribution capabilities that we believe can support sales growth across crop categories.

Deep Industry Expertise.We believe that our management team has deep industry experience and a demonstrated record of success that is unmatched for a seed industry company of our size. Our leadership team includes both proven industry executives recruited to our company and top talent retained through our various acquisitions. Mark Wong, our Chief Executive Officer, has over 40 years senior executive experience in the agriculture industry andhas successfully built, operated, and sold multiple seed companies to industry leaders across multiple crops, including sorghum, corn, soybeans, and vegetables.  

Our goal is to be a leading multi-crop, middle-market agricultural company; delivering value to our customers and strong financial returns to our shareholders.  To reach our goal, we have prioritized the following strategic initiatives:

Develop and Launch New Products that Address Unmet Market Needs.  We expect to introduce more than 20 new products during the 2020-2022 fiscal years across our current crop offerings. We also plan to continue development activities aimed to generate high-value, improved traits in our crops. These activities include our collaboration with Calyxt, Inc. to apply next generation gene-editing technology to our elite alfalfa seed genetics and our own efforts to bring to market sorghum seed that incorporates our proprietary, patent-pending herbicide tolerant trait.  

Build Our Multi-Channel Distribution Network and Execute on International Cross-Selling Opportunities.  We recently realigned our organization across geographic lines (as opposed to product lines), which has renewed our sales focus. We expect this approach will help us make the best use of recently acquired distribution assets like the United States farmer-dealer network acquired from Chromatin and unlock potential sales synergies through international cross-selling of products (particularly in Europe and Australia). We believe that a more robust, diverse distribution network will allow us to continue to evolve beyond our historical dependence on certain geographical markets which carry higher political, regulatory and economic risks.

Exploit International Production Capability for Best-In Class Cost Structure.  Our streamlined international supply chain provides us with flexibility in sourcing product to meet customer needs. We are focused on exploiting this ability to shift production to low-cost areas to both support our competitive position and improve our margins.




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Commercialize Stevia.  We believe that an opportunity exists to bring to market new stevia varieties that can both meet taste requirements of consumers and have yield quality that would enable farmers to profitably grow stevia in North and South America. We plan to leverage our proprietary stevia germplasm to form collaborations and commercial agreements with supply chain partners to create a U.S.-based stevia production industry for high-quality stevia sweetener with superior taste profiles to supply major customers in the U.S. market.

Expand Crop Offerings and Market Share of Existing Offerings Through Strategic Acquisitions.  We expect that ongoing consolidation and realignment in the seed industry will present opportunities for us to acquire assets that no longer are a strategic fit in the product portfolios of larger industry players or that smaller industry players are unable to effectively exploit. We believe that our production and distribution platforms position us to more fully realize the potential of these types of assets. Moreover, we have a proven track record of successfully acquiring and integrating diverse operations into our seed platform and rebalancing our product portfolio beyond alfalfa seed breedingportfolio. We intend to emphasize disciplined capital and productionresource allocation, with a strong focus on return on invested capital and stevia R&D; and

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• the acquisition of a portfolio of sorghum germplasm in April 2018evaluating opportunities to expand our portfoliocrop offerings or increase our share of sorghum products to include biofuel types.
existing crop markets.

We believe our 2013 combination with S&W Australia created the world's largest non-dormant alfalfa seed company and gave us the competitive advantages of year-round production in that market. With the completion of the acquisition of dormant alfalfa seed assets from DuPont Pioneer in December 2014, we believe we have become the largest alfalfa seed company worldwide (by volume), with industry-leading research and development, as well as production and distribution capabilities in both hemispheres and the ability to supply proprietary dormant and non-dormant alfalfa seed. Our operations span the world's alfalfa seed production regions, with operations in the San Joaquin and Imperial Valleys of California, five additional Western states, Australia and three provinces in Canada.

Our May 2016 acquisition of the hybrid sorghum and sunflower germplasm business and assets of SV Genetics as well as our April 2018 acquisition of a portfolio of sorghum germplasm signal management's commitment to our strategy of identifying opportunities to diversify our product lines and improve our gross margins.Current Crops

Alfalfa

The Asset Purchase and Sale Agreement for the Pioneer Acquisition previously contemplated that, subject to the satisfaction of certain conditions, we would acquire certain GMO germplasm varieties and other related assets from DuPont Pioneer for a purchase price of $7.0 million. The conditions for this additional acquisition were not satisfied by the required date, and DuPont Pioneer has informed us that it does not intend to extend the deadline or complete the transaction at this point in time. As a result, we do not expect to close the acquisition of DuPont Pioneer's GMO germplasm varieties and related assets in the previously disclosed structure or pay the $7,000,000 purchase price.

We continue to have a long-term distribution agreement with DuPont Pioneer regarding conventional (non GMO) varieties, the term of which extends into 2024. Our production agreement with DuPont Pioneer (relating to GMO-traited varieties) will terminate on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020. However, we expect that the DuPont Pioneer distribution agreement will continue to be a significant source of our annual revenue through December 2024.

We are in discussions with DuPont Pioneer regarding the orderly transition of activities previously conducted by us under the production and research agreements (relating to GMO-traited varieties), as well as the possibility of certain ongoing commercial relationships between us relating to GMO-traited varieties, among other things.

We believe that one of the biggest challenges of the 21st century will be to expand agricultural production so that it can meet the food and nutritional demands of the world's growing population. According toWorld Population Prospects: The 2015 Revision, Key Findings and Advance Tables, published by the United Nations, Department of Economic and Social Affairs, Population Division, the world population is estimated to reach 8.5 billion in 2030 and to surpass 9.7 billion by 2050.

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Improvements in farm productivity have allowed agriculture to keep pace with growing food demand. Yield-enhancing technologies such as mechanization, hybrid seed and crop protection chemicals have enabled farmers to meet the ever-growing demand for food. Because of decreases in the amount of arable land and shrinking worldwide fresh water resources, further increases in agricultural production must come from improvements in agricultural productivity. We address this need by breeding high-yielding alfalfa varieties that are adapted to the major growing regions of the world. Additionally, some of our alfalfa varieties expand the addressable acreage for forage production with their ability to tolerate inferior, saline soils.

Alfalfa seed is primarily used for growing alfalfa hay, which is grown throughout the world as "forage"“forage” for livestock, including dairy and beef cattle, horses and sheep. It is most often harvested as hay, but can also be made into silage, grazed or fed as green-chop to ruminant livestock. The alfalfa industry (and therefore the alfalfa seed industry) is highly dependent on the dairy industry, which is the largest consumer of alfalfa hay. As markets around the world continue to expand to a more westernized diet with high-protein consumption, the demands for alfalfa production around the world should continue to increase.

Alfalfa is indigenous to the Middle East where it is considered a "non-dormant"“non-dormant” plant, meaning it grows year-round. "Dormant"“Dormant” varieties of alfalfa have adapted to cold climates by going dormant during periods when frost or snow conditions would otherwise kill them. Dormancy is rated using a numerical system under which "dormant"“dormant” varieties are rated toward the lower end of a 1 through 11 scale, such as 2 through 4, while "non-dormant"“non-dormant” varieties are rated toward the upper end of the scale, such as 8 through 11. The number typically identifies the number of cuttings that a farmer might be able to obtain each year.

While exact production estimates worldwide are difficult to obtain, we estimate that approximately 150 million pounds of alfalfa seed are produced worldwide each year, roughly divided evenly between non-dormant and dormant production.

S&W’s Alfalfa Seed Portfolio

Our current portfolio of over 200 commercialized alfalfa seed forproducts spans both non-dormant and dormant categories. Our specialty is high-yield alfalfa varieties with a wide range of adaptation across many growing environments.   Our alfalfa seed products include varieties that, depending upon the particular variety, exhibit the traits that forage hay farmers most value, such as high yield, root rot resistance, lodging resistance, salt tolerance, drought tolerance, leafhopper resistance and stem nematode resistance.

Our non-dormant marketplacebreeding program is primarily grown in just a few key regionsfocused on maximizing yield regardless of soil and water salinity.

Although we recently licensed certain of our commercial dormant alfalfa varieties to Corteva Agriscience, Inc. (“Corteva”) on an exclusive basis, we maintained our highest performing dormant alfalfa varieties as well as our dormant alfalfa breeding program and are continuing the development of the next-generation varieties from that germplasm. Our dormant alfalfa breeding emphasizes high yield and forage quality, developing hardy alfalfa varieties that are resistant to disease and stress.

Europe, the Middle East, Australia and certain other parts of the world includingcurrently prohibit the San Joaquin Valleysale of California,genetically modified organism (GMO) alfalfa. Historically, we have not employed genetic engineering in the Imperial Valleybreeding of California,our current commercial alfalfa seed varieties, so that we have products that can be sold throughout the world. More recently, we have expanded our research and Southern Australia. However,development efforts beyond our classically-bred proprietary alfalfa seed breeding program. One result of these efforts was our recent commercial release of a Roundup Ready^® alfalfa variety incorporating a herbicide resistance trait (under license from Forage Genetics International) into our proprietary germplasm. We also are collaborating with Calyxt, Inc. to research, develop, produce and commercialize alfalfa seed products involving next generation gene-editing technology. The goal of this collaboration is to create novel traits that are currently classified as non-GMO, which ultimately can be incorporated into our seed varieties. While we believe this relationship is beginning to deliver meaningful product developments, we do not anticipate a meaningful contribution to our revenue before fiscal year 2022, if at all.

Sorghum Seed

The Sorghum Market

Sorghum comes in two types, forage and grain, and is considered one of the growing regionsindispensable crops in the world. It has traditionally been used for "non-dormant"livestock feed, as well as ethanol, but is gaining increasingly in popularity in food products in the U.S. due to its gluten-free characteristics, as well as its antioxidant, high protein, lower fat, high fiber and non-GMO properties. Consequently, grain sorghum is becoming a desired substitute for wheat, rye and barley. Additionally, the pet food industry increasingly utilizes grain sorghum for its nutritional benefits and enhanced digestibility.

Similar to alfalfa, hay include the Southwestern U.S., the Middle East, North Africa, Latin Americasorghum grows well in poor soil and drought conditions, thanks to its hardiness, market versatility and high-quality seed. Sorghum requires less water to grow than many other crops and is generally used as a replacement for corn and other hot, arid regionsgrains in areas where water is scarce. In Africa, sorghum can be a food staple for human consumption. The majority of the world. "Dormant" alfalfa seed, by contrast,world’s sorghum is grown in developing countries, primarily in Africa and Asia

The U.S. Department of Agriculture (the “USDA”) projects that world grain sorghum production for 2019/2020 will be approximately 59 million metric tons based on 41.5 million hectares of production. The USDA further projects the western United States and Canada for2019/2020 U.S. sorghum crop to encompass 6 million acres (2.4 million hectares) with total production of alfalfa hay375 million bushels of grain sorghum (9.5 million metric tons).

S&W’s Sorghum Portfolio

Our current portfolio of approximately 50 commercialized sorghum seed products includes both forage and grain sorghum. We believe that our sorghum hybrids are unmatched and consistently out-yield competitor products in colder climates,select markets.

Our sorghum portfolio and development platform was created through the acquisition of assets from Chromatin, SV Genetics and NexSteppe, Inc. and represents the cumulative, long-term development investments made in each of those programs. We are continuing those development and commercialization efforts.

We plan to commercially launch approximately seven new sorghum products during the fiscal years 2020-2022, including new Sugarcane Aphid tolerant hybrids to address a significant market need. We also are moving forward to validate and produce launch seed of sorghum hybrids, incorporating our patent-pending herbicide tolerant trait that was developed in cooperation with the northern regionsUnited Sorghum Checkoff Program of the United States, Canada, EuropeU.S. Department of Agriculture.

Sunflower

The Sunflower Market

Sunflowers have multiple specialty uses including oil, birdseed and China.

Alfalfahuman consumption. Our current sunflower seed focus is on the oil market. Sunflower oil is light in taste and appearance and supplies more Vitamin E than any other vegetable oil. It is a combination of monounsaturated and polyunsaturated fats with low saturated fat levels. The versatility of this healthy oil is recognized by cooks internationally, valued for its frying performance and health benefits. With multiple types of sunflower oils available, it meets the needs of consumer and food manufacturers alike for a healthy and high performance non-transgenic vegetable oil. Additionally, sunflower is being sought after as a source of non-GMO oils. USDA projects global sunflower seed production for 2019/2020 at 49.9 million tons, up 5 percent from 2018/2019. The sunflower seed oil trade is demandingforecasted to rise, supported by demand in India, the EU, North Africa, and the Middle East.

S&W’s Sunflower Portfolio

We currently have three high-yield sunflower hybrids in the market. We have research and development programs in Australia and Europe to expand our market presence. Our sunflower program is focused on developing elite disease resistance sunflower seed hybrids. We partner with leading companies around world to develop herbicide resistant characteristics, specific oil profiles, both polyunsaturated and linoleic, and maximize yield potential for evendifferent growing conditions around the most experienced farmers. Farming practices must be tailored to the climatic conditions of each area. Irrigation must be carefully controlled and timed to stress the plants to cause maximum flowering and seed production. Weed control is essential in order to pass inspections for purity needed for certification. Insect pests, especially lygus bugs, must be managed throughout the season, using strategies that protect pollinators, such as honey bees, leafcutter bees and alkali bees. Fields are desiccated using chemicals that remove moisture and then are harvested as quickly thereafter as possible to limit or avoid rain damage.world

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Stevia is a relative newcomer in the estimated over $100 billion global sweetener market. Stevia is a part of the high-intensity sweetener (HIS) market, also known as the non-caloric sweetener market, which is a $2.4 billion segment of the overall market.  Although the overall market is still dominated by sugar, sugar substitutes continue to increase in market share as consumer concern over sugar intake increases. The global obesity and diabetes epidemic is expected to drive growth of products like stevia, supported by sugar taxes, which have become prevalent in developed economies.  Stevia leaf and its refined products constitute a natural, non-caloric high intensity sweetener, estimated to be 200 to 300 times sweeter than sugar. Its taste has a slower onset and longer duration than that of sugar. It has the advantage of not breaking down with heat, making it more stable for cooking than other sugar alternatives. In the U.S., approximately 70% of all new products formulated with stevia are beverages, with the remainder split between diverse categories, including dairy products and baked goods.

The stevia plant is indigenous to the rain forests of Paraguay and has been used as a sweetener in its raw, unprocessed form for hundreds of years. In recent years, it has been grown commercially in Brazil, Paraguay, Uruguay, parts of Central America, Thailand, China and the U.S. Currently, the majority of global commercial stevia production occurs in China.

The incorporation of stevia-derived extracts into foods and beverages in the U.S. has seen a rapid increase since the beginning of 2009, when stevia was first introduced as a sweetener alternative to sugar and approved by the FDA as generally regarded as safe. Within the high impact sweetener category, Steviastevia represented a $423 million market in 2014.  Beverages account for 50% of the stevia extract market in 2016, and major soft drink producers have active programs to further develop the use of Steviastevia in soda. Based on IHS Market projections, from 2016-2021, stevia is expected to grow at 8.1% year-year, with higher growth rates predicted for Europe. While sales of artificial sweeteners, such as aspartame, acesulfame K and sucralose still dominate the high-intensity sweetener market, consumer demand for artificial sweeteners has seen a decline since the introduction of stevia.

Sorghum comes in two types, forage and grain, and is considered one of the indispensable crops in the world. It has traditionally been used for livestock feed, as well as ethanol, but is gaining increasingly in popularity in food products in the U.S. due to its gluten-free characteristics, as well as its antioxidant, high protein, lower fat, high fiber and non-GMO properties. Consequently, grain sorghum is becoming a desired substitute for wheat, rye and barley. Additionally, the pet food industry increasingly utilizes grain sorghum for its nutritional benefits and enhanced digestibility.

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Similar to alfalfa, sorghum grows well in poor soil and drought conditions, thanks to its hardiness, market versatility and high-quality seed. Sorghum requires less water to grow than many other crops and is generally used as a replacement for corn and other grains in areas where water is scarce. In Africa, sorghum can be a food staple for human consumption. The majority of the world's sorghumglobal stevia supply is grownproduced in developing countries, primarilyAsia, as current varieties lack adaptive characteristics that would permit farmers to profitably grow them in Africa and Asia

The U.S. Department of Agriculture (the "USDA") projectsother global agricultural regions. We believe that world grain sorghum production for 2018/2019there will be approximately 59 million metric tons based on 41.5 million hectares of production. The USDA further projects the 2018/2019 U.S. sorghum crop to encompass 6 million acres (2.4 million hectares) with total production of 375 million bushels of grain sorghum (9.5 million metric tons).

Sunflowers have multiple specialty uses including oil, birdseed and human consumption. Our current sunflower seed focus is on the oil market. Sunflower oil is light in taste and appearance and supplies more Vitamin E than any other vegetable oil. It is a combination of monounsaturated and polyunsaturated fats with low saturated fat levels. The versatility of this healthy oil is recognized by cooks internationally, valuedsignificant future demand for its frying performance and health benefits. With multiple types of sunflower oils available, it meets the needs of consumer and food manufacturers alike for a healthy and high performance non-transgenic vegetable oil. USDA projects global sunflower seed production for 2018/2019 at 49.9 million tons, up 5 percent from 2017/2018. The sunflower seed oil trade is forecasted to rise, supported by demand in India, the EU, North Africa, and the Middle East.

Business Strategy

Over the years,U.S.-produced stevia. Since 2009, we have built our business upon four pillars that serve as our foundation and drive our future plans and direction. These include:

• a strong product portfolio;
• leading edgededicated significant research and development expertise;
• assets toward developing stevia into a largeU.S.-grown crop. We have employed advanced plant breeding and diversified production base;chemical analysis techniques to identify and
select varieties that can address this potential market. In early 2019,


• global distribution.

We strivewe opened a dedicated stevia field breeding station in Tifton, GA to enhance our growth potentialfurther support the breeding effort and improve gross margins by expanding our alfalfa seed business, by leveraging our expertise in plant discovery and development and by continually assessing opportunitiesselect new varieties adapted to expand into the development, production and saleSoutheast growing regions targeted for initial cultivation of other, higher margin crops.

We intend to continue to pursue our strategy to be recognized as the world's preferred provider of seed for forage, grain and specialty crops by:

• increasing distribution into foreign markets through salesstevia in the Middle East, North Africa, Mexico, other Latin American locations and Eastern Europe;

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• expanding and improving our domestic distribution channels in both the United States and Australia;
• promoting worldwide the economic advantages of our high-yielding alfalfa seed varieties and our salt-tolerant alfalfa seed varieties;
• expanding our breeding program, in classical breeding and gene editing, in order to develop new products with those characteristics most needed or desired by farmers; and
• expanding our breeding program into crops with historically higher margins, in particular, hybrid sorghum and sunflower seed germplasm.

These goals are being accomplished both through organic growth of our legacy business and through strategic acquisitions. We will continue to look for additional acquisition or internal opportunities that will expand our existing business or provide us with a gateway to entering new markets that complement our existing business.

We also are continuing to exploit the emerging market for stevia throughSince its inception, our stevia breeding program. The goalprogram has generated four patented varieties, and we are working closely with potential supply chain collaborators and customers to develop more advanced varieties that can both meet taste requirements of this program isconsumers and have field performance that would enable farmers to profitably grow stevia in the United States.  

We plan to leverage our research, developmentproprietary stevia germplasm to form collaborations and breeding expertisecommercial agreements with supply chain partners to inventcreate a U.S.-based stevia varietiesproduction industry for high-quality stevia sweetener with flavor characteristics that best complementsuperior taste profiles to supply major customers in the food and beverages into which stevia is increasingly being incorporated or that can be consumed on its own.U.S. market.

Our Current Alfalfa Seed ProductsProduct Development

We have a history of innovation in alfalfa breeding, dating back to the early 1980s whenconduct our non-dormant varieties ("S&W varieties") were first introduced to the market. Starting in 2003, our Australian subsidiary, S&W Australia, began a breeding program targeted at creating varieties that maximize seed yields, thereby reducing the cost of seed production. Historically, we differentiated our products by optimizing our varieties for geographical regions that have hot climates and, in the case of S&W varieties, challenging soil conditions such as high-salt content, while maximizing crop yield. Our December 2014 acquisition of DuPont Pioneer's conventional, dormant alfalfa seed varieties built upon our initial 2012 launch into dormant alfalfa seed markets by adding a wide selection of dormant alfalfa seed varieties that are suited for higher elevation and cooler climate conditions. Our current portfolio of alfalfa seed products includes varieties that, depending upon the particular variety, exhibit traits including high yield, muscle (strength in the field), salt tolerance, drought tolerance, leafhopper resistance and stem nematode resistance, among other traits sought by farmers who grow forage hay.

Fall dormancy is a key characteristic that can vary among alfalfa varieties. Fall Dormancy (FD) ratings are assigned to varieties based on their performance in standardized tests for the onset of dormancy in the fall. Standard check varieties span an FD rating continuum from FD 1 to FD 11, where the onset of dormancy is measured as fall height relative to standard check varieties. FD1 represents the earliest onset of fall dormancy, whereas FD 11 represents a completely non-dormant growth habit. Early FD ratings are

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generally most suited to cold winter climates where plants must cease fall growth early allowing individual plants to survive cold winters and frozen soils conditions for lengthy periods. FD 2 and FD 3 ratings are typically associated with early onset fall dormancy, when grown in the upper Midwest for example. FD 9 and FD 10 ratings are typically non-dormant, are characterized as having relatively little slowdown in fall growth and are more suited for continuing forage yield production and improved yield potential in warm winter climates where soils do not freeze.

Our current commercial product line-up includes alfalfa seed varieties that span from FD 3 (our earliest onset of fall-dormancy) to FD 10 (our most non-dormant, most winter active). The legacy S&W product development efforts were focused on FD 8, FD 9 and FD 10, with some breeding effort devoted to FD 4, FD 6 and FD7.

S&W varieties are all bred and developed to meet the guidelines for certification by the National Alfalfa Variety Review Board and/or the Association of Official Seed Certifying Agencies.

In February 2012, we announced the certification of our first proprietary dormant alfalfa seed variety, which was specifically bred to thrive in high altitude and cooler climates. In August 2012, we purchased the rights to a portfolio of alfalfa varieties suited for higher elevations and colder climate conditions, marking our commitment to expand more aggressively into the dormant variety market. The colder climate or higher elevation varieties that we acquired are in the range of FD 3, FD 4 and FD 5. In December 2014, we acquired from DuPont Pioneer one of the alfalfa industry's largest portfolios of dormant alfalfa germplasm, along with their active breeding program. The Pioneer breeding program amassed a significant germplasm base that spans from FD 3 through FD 9. The primary focus of the Pioneer breeding program was FD 4 and FD 5 for the North America market. These acquisitions of dormant germplasm significantly expand the range of geographic and climatic growing regions where we can offer adapted varieties.

Our non-dormant varieties (FD 8, FD 9 and FD 10) still represent a large proportion of our business and are best suited to hot, arid climates. Our salt tolerant non-dormant varieties do well in salty irrigation waters and salty soils. Our leading non-dormant varieties include SW10, SW9720, SW9215, SW9628, and SW8421S. Of these varieties, SW9720, SW9215 and SW8421S are bred to perform very well in highly saline conditions that would stunt or kill ordinary alfalfa.

Our FD 3, FD 4 and FD 5 S&W varieties are adapted to the winter-hardy intermountain west and the northern half of the United States and Canada. These include Rhino, SW4107, and SW5909. Some of these varieties are derived from the DuPont Pioneer germplasm base for commercial introduction as S&W brand varieties. Other dormant varieties from the DuPont Pioneer germplasm have been selected as potential varieties for licensing to third party brands. Our breeding and genetics experts continue the multi-year process of developing improved varieties over all of the dormancy spectrum, but concentrating primarily on dormancy 9 with high salt- and heat-tolerant varieties, and dormancy 4 high yield winter hardy type varieties where we have established ourselves as a leading provider. We also create blends of seed varieties.

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IVS markets both common and certified alfalfa seeds, sourced from growers located in the Imperial Valley of Southeast California. Portions of the alfalfa seed sold by IVS in fiscal 2017 and 2018 were common varieties (i.e., uncertified seed) while the balance consisted of certified CUF (a public variety) and proprietary varieties. The primary proprietary varieties we acquired in the IVS acquisition are LaJolla, Catalina and Saltana. Because GMO alfalfa is not permitted in the Imperial Valley, we are able to rely upon the seed grown in the Imperial Valley, along with seed grown in Australia, to supply customers in regions such as the Middle East and Europe, where GMO products are strictly prohibited.

S&W Australia has developed well-known proprietary varieties of alfalfa, such as SuperSonic, SuperNova, SuperStar, SuperCharge, SuperAurora, SuperSequel and SuperSiriver.Since 2003, the varieties developed by S&W Australia have attracted an expanding grower base, and in 2018, S&W Australia accounted for approximately 60% of the total Australian certified proprietary alfalfa seed production.S&W Australia's alfalfa seed varieties are bred to resist disease, exhibit persistence in the field and produce higher yields of both the alfalfa hay forage and alfalfa seed production for our seed growers. S&W Australia's proprietary varieties exhibit superior seed yield capability compared to traditional non- proprietary alfalfa varieties in Australia, with the most recent varieties showing the highest seed yields. Forage yields of the older S&W Australia proprietary varieties are at least equivalent to traditional non-proprietary varieties, and the forage yields of the more recent S&W Australia varieties are even better. All of S&W Australia's proprietary alfalfa varieties, excluding SuperAurora, have FD ratings of 8-9 and therefore achieve optimum growth and forage production in Mediterranean to desert climates.

S&W Australia's breeding program includes a number of initiatives addressing semi-dormant and highly non-dormant alfalfa varieties and tropical alfalfa seed varieties.

Additionally, S&W Australia has a breeding and production platform of proprietary white clover varieties, including SuperHuia, SuperLadino, SuperHaifa and SuperHaifa II.In fiscal 2018, clover sales represented approximately 8.1% of S&W Australia's total seed sales and a nominal amount of our total consolidated sales. S&W Australia's white clover varieties are used for forage and ornamentation.

Currently, Europe, the Middle East and certain other parts of the world prohibit the sale of genetically modified organism (GMO) alfalfa. Therefore, historically, we have not employed genetic engineering in the breeding of our current commercial seed varieties for these markets, and consequently, we have products that can be sold throughout the world. As a result of the January 2011 deregulation by the USDA of Roundup Ready^® alfalfa, a GMO product, Roundup Ready^® alfalfa is currently being growndevelopment programs in the United States, without any federal or state regulations governing field isolationAustralia, Europe and other protections.South America.  

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Collaborative stewardship programs have been developed to facilitate the coexistence of GMO and non-GMO seed. For example, in 2010, the AOSCA launched its Alfalfa Seed Stewardship Program (the "ASSP"). The ASSP is a voluntary, fee-based certification program for the production of alfalfa seed to be sold into markets that prohibit the sale of GMO alfalfa. ASSP certification of seed fields includes testing for GMO material and observance of a minimum stated isolation distance of five miles from any GMO alfalfa seed production field. Also in 2010, the California Crop Improvement Association (the "CCIA") developed a web-based alfalfa seed field isolation "pinning" map for alfalfa seed production in the Western U.S. This map is intended to pin both GMO and non-GMO seed fields. Although beneficial to growers and customers alike, these stewardship programs do not afford legal protection to non-GMO growers.

We continue to evaluate our options with respect to incorporating biotechnology into our alfalfa seed traits and the resulting impact on our business strategy and operations. In April 2013, we entered into a license agreement with Forage Genetics International, LLC, a subsidiary of Land O' Lakes, Inc. ("FGI") to develop and commercialize seed varieties that incorporate proprietary traits, including the Roundup Ready^® trait. This agreement further documented and formalized our previously announced collaboration with FGI and Monsanto to develop genetically modified versions of certain of our proprietary alfalfa varieties. This development of biotech seed varieties consists of several phases including greenhouse work and field trials to confirm agronomic performance and trait efficiency of each developed variety. Recently we have undertaken a new commercial license for both Roundup Ready and HarvXtra alfalfa with FGI and we have entered into a variety-specific license agreement with them for a Roundup ready alfalfa variety.

In December 2014, we also entered into a Contract Alfalfa Production Services Agreement with DuPont Pioneer, whereby we produce alfalfa seed of commercial DuPont Pioneer varieties containing the Roundup Ready^® gene. These varieties are exclusive to DuPont Pioneer and accordingly, we do not produce them for or sell them to any other customer. In August 2018, we entered into an amendment to this Production Services Agreement which extended the maturity date through May 31, 2019. If the Production Services Agreement terminates, DuPont Pioneer would be free to pursue alternative production arrangements for the GMO-traited varieties, and DuPont Pioneer's minimum purchase commitments to us under our separate distribution agreement would be materially reduced.

As a result of the increasing use of Roundup Ready^®alfalfa by traditional hay farmers and the lack of federal or state rules requiring adequate isolation of Roundup Ready^® alfalfa fields from conventional fields to prevent cross-pollination of GMO plants with non-GMO plants, we have experienced an increase in the number of seeds in recent harvests that have tested positive for the adventitious presence of GMO. To date, the low percentage of seeds that have tested positive has not undermined our ability to meet international demand, and we expect to be able to sell these seeds domestically and in other jurisdictions that permit the importation of GMO alfalfa at our customary prices for certified seed. Nevertheless, we are taking proactive steps to protect our seed crops to ensure we have sufficient seed to meet the demand

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for our varieties in international markets. These steps include seeking collaborative agreements, regulations or other measures to ensure neighboring farms that grow GMO limit the extent to which they allow the flowering and cross-pollination of their GMO-based crops with our conventional non-GMO crops to occur; and expanding our contracted grower base in areas that have less GMO alfalfa present including the Imperial Valley of California and the Canadian provinces of Alberta, Manitoba and Saskatchewan. We also have begun to grow S&W varieties in Australia, where there is no GMO activity in alfalfa, and intend to increase that production in future growing seasons.

Alfalfa Seed Cleaning and Processing

Alfalfa seed processing is similar in all of our growing regions and begins with the harvest. Each field is harvested and identified separately with unique information such as variety, lot number, grower name, field name, acres and certification number. During harvest, our growers load field run harvested seed separately for each field out of the combine into bulk containers for transport to the processing facility. When the containers arrive at the facility, each container is weighed, labeled with the unique field information and a sample is taken.

Harvested seed is then sent to seed-cleaning lines where it is cleaned and foreign matter such as weeds, inert matter and other crop seed is removed. Clean seed samples are taken and tested for purity and germination to meet company quality standards. The clean seed is then stored in bulk until needed to fulfill a sales order. Upon receipt of a sales order, the clean seed is pulled from inventory and processed through our packaging equipment to meet specific customer requirements such as treatment, package size and unique bag and labeling.

We have processing facilities in Nampa, Idaho and Five Points (San Joaquin Valley), California and handle processing of our Imperial Valley seed under a long-term service agreement. The facility in Nampa, Idaho gives us exclusive access to the use of patented coating technology that, among other things, allows for the extension of rhizobium (seed treatment) lifespan.

S&W proprietary seed is packaged into an S&W branded seed bag as well as unique customer-specific branded seed bags. Final packaging for customers includes attaching a label with variety name and physical quality data, and attaching a State Certification tag (also known as a "blue tag") to each individual bag. When the seed is treated with any type of seed treatment, a treatment tag must also be attached to each individual bag.

S&W proprietary seed production is produced under a state seed certification program. As part of the DuPont Pioneer acquisition, we acquired a CCIA certified lab that enables us to collect, analyze and submit to the state all of the data needed for certification of our seed varieties so that we no longer are required to outsource that function. Certification by these programs ensures both physical and genetic quality standards for individual lots of seed. Additional testing may be required, dependent on the market to which the shipment is destined, such as Saudi Arabia or Mexico. Samples may be sent to the Federal Seed Laboratory (part of the USDA) or a State Department of Agriculture laboratory for further physical quality testing and/or market specific phytosanitary testing.

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Unlike many other plant species, the physiological characteristics of alfalfa seed allow for longer term storage without losing physical quality of the seed. When we have unsold inventory at the end of a sales season, these seed characteristics ensure the ability to store and sell the inventory in subsequent years.

As our alfalfa seed business grows, processing facility utilization will be increased by implementing process improvements such as autonomous maintenance and quicker material changeovers to reduce downtime. In addition, we will increase throughput by sequencing operations to remove bottlenecks and by adding work shifts. Finally, we may make capital improvements to our facilities when business opportunities exist to create a strong return on investment.

S&W Australia's growers contract directly with independent mills in the southeast region of Southern Australia for the cleaning and preparation of S&W Australia's varieties.

The S&W Australia growers are required to deliver seed that meets S&W Australia's processing specifications, based on international and domestic certification standards. In a typical year, approximately 90-95% of product received from the growers meets S&W Australia's specifications.

In June 2016, S&W Australia's new packaging facility in Keith, South Australia gained final accreditation to become fully operational. In this state-of-the-art facility, S&W Australia bags and labels its seed varieties and stores the inventory pending sale. We expect to pack over half of the S&W Australia seed at the Keith facility and consequently, we will be less reliant on third party processors to provide this function.

Alfalfa Seed Product Development

Our alfalfa breeding program isprograms are designed to make steady genetic improvements in our germplasm base, that is usedwhich we use to create better performingbetter-performing varieties and hybrids for our customer. Acustomers. Development of a typical alfalfanew variety or hybrid can take as little as five years or as long as 18 years, to be developed, depending on methodology and the desired agronomic traits. Because of the many years required to develop a new alfalfa variety or hybrid, we believe our successful breeding program allows us to offer seed varieties or hybrids incorporating a combination of characteristics desired by farmers that are not available from any other source, thereby providing us with a competitive advantage.

In connection with the breeding of our non-GMO varieties, we conduct testsWe also plan to ensure that we have no adventitious presence (AP) of GMO contamination. Both field and greenhouse breeding locations are usedcontinue development activities aimed at generating high-value improved traits in our breeding program.

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Wecrops. With this objective in mind, we are also lookingcollaborating, and continue to build on our research and development expertise and expand our biotechnology initiatives. As such, we look for opportunities to collaborate, with other companies that have technologies that we believe complement our proprietary products and/or our research and development breeding expertise to develop as yetcurrently unavailable specialized alfalfa seed products and potentially, other seed products.

We currently are collaborating with Calyxt, Inc. (Nasdaq CLXT) to research, develop, produce and commercialize alfalfa seed products involving next generation gene editing technology on our elite alfalfa seed genetics. The goal of this collaboration is to create novel traits that are currently classified as non-GMO, which ultimately can be incorporated into our seed varieties. We believe this relationship is starting to deliver meaningful product developments, however, we do not expect to see a material impact on our revenue for at least two years, if ever. However, this biotech initiative demonstrates our willingness and ability to expand our research and development efforts beyond our classically-bred proprietary alfalfa seed breeding program.

Sales, Marketing and Distribution

Historically, we primarily sold high quality proprietary "non-dormant"We currently sell approximately 250 seed varieties to those parts ofproducts in more than 30 countries. Our principal markets for alfalfa sales are the world with hot, arid climates. Our primary geographical focus for non-dormant seed isUnited States, Canada, Mexico, South America, the Middle East, North Africa, and Australia. Our sorghum sales are focused in the United States, Mexico, althoughAustralia, Europe and South Africa.   Our sunflower sales are primarily in Europe, Asia and Australia.

We primarily sell our seed products under the S&W brand or other brands we currentlyown, such as Sorghum Partners®. To a limited extent, we also sell to customers in a broad range of areas, including the Western U.S., South America, and Southern Africa, as well as other countriessome seed under private-label arrangements with Mediterranean climates. Unlike cooler climates, the geographic areas on which we have historically concentrated are able to sustain long growing seasons and therefore alfalfa growers can benefit from our high-yielding, non-dormant varieties. In recent periods, we have expanded geographically into colder climates where our more recently-acquired dormant varieties thrive. distributors.

Our customers are primarily our distributors and dealers. Our distributors and dealers, in turn, sell to farmers, consisting primarily of dairy farmers, livestock producers and merchant hay growers.

Although we have a sales team, we primarily sell our seed through our network of distributors and dealers, as well as through the services of seed brokers. We do not have formal distribution agreements with most of our distributors, but instead operate on the basis of purchase orders and invoices.farmers. We believe that selling through dealers and distributors enables our products to reach hay growers in areas where there are geographic or other constraints on direct sales efforts. We select dealers and distributors based on shared vision, technical expertise, local market knowledge and financial stability. Over the years, we have built dealer/distributor loyalty through an emphasis on service, access to breeders, ongoing training and promotional material support. We limit the number of dealers and distributors with whom we have relationships in any particular area in order to provide adequate support and opportunity to those with whom we choose to do business.

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Through our distributors, our primary export market historically had been Saudi Arabia and to a lesser extent, certain other Middle Eastern and North African countries. The overall international sales mix changed beginning in fiscal 2013 with ourOur acquisition of S&W Australia in South Australia. In recent years, in addition to sales to Saudi Arabia and Australia, we have been selling to customers in Sudan, Morocco, Egypt and Libya, and to customers in other regions of the world, including Latin America, (Argentina and Mexico) and South Asia (Pakistan), both of which we view as important regions for potential expansion. In total, we sell our alfalfa seed varieties in approximately 30 countries throughout the world.

Domestic seed marketing is based primarily upon the dormancy attributes of our varieties as suited to climates in target markets. Prior to the DuPont Pioneer acquisition, we marketed our alfalfa seed, which consisted primarily of non-dormant varieties, in California, Arizona, New Mexico, Texas and Nevada. We slowly began broadening our domestic geographic reach beginning in fiscal 2013, with our first sales of dormant alfalfa seed, andChromatin significantly expanded in fiscal 2015 followingour retail and farmer-dealer network across the acquisitionplains and Midwest of DuPont Pioneer's dormant alfalfa seed assets. In connection with that acquisition, we entered into a distribution agreement with DuPont Pioneer pursuantUnited States to which we became the sole supplier, subject to certain exceptions, of certain alfalfa seed productsprovide us an expanded sales channel for sale to customers by DuPont Pioneer through September 2024.In fiscal 2018, DuPont Pioneer accounted for approximately 62% of our revenue.Given its historical market share in the sale of dormant alfalfa seed, we expect sales to DuPont Pioneer to be a significant portion of our annual sales throughout the term of the distribution agreement. A disruption in this relationship could have a material adverse impact on our results of operations and financial condition.

The price, terms of sale, trade credit and payment terms are negotiated on a customer-by-customer basis. Our arrangements with our distributors do not include a right of return. Typical terms for domestic customers require payment in full within 60 days of the date of shipment. Our credit terms with DuPont Pioneer are governed by the distribution agreement, as amended, and provide that we receive equal installment payments in September, January and February of each year.

Sales to our international customers are paid in advance of shipment or typically within 120 days of shipment and may also be accomplished through use of letters of credit, cash against documents and installment payment arrangements. Our credit policies are determined based upon the long-term nature of the relationship with our customers. Credit limits are established for individual customers based on historical collection experience, current economic and market conditions and a review of the current status of each customer's trade accounts receivable.

In fiscal 2018, sales to domestic customers increased as a percentage of our total sales, primarily as a result of reduced sales to customers in Saudi Arabia. Sales into international markets accounted for 35% in fiscal 2018 versus 45% in fiscal 2017.products.

Both farmers (dairy farmers and hay growers) and dealers use pest-control advisors who recommend the varieties of alfalfaor hybrids that will produce the best results in a particular location. Therefore, a key part of our marketing strategy is to educate the consultants, as well as the farmers, as to benefits of our seed varieties.varieties and hybrids.

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We believe that our best marketing tool is the dissemination of information regarding the quality and characteristics of our propriety seed varietiesproducts to those persons who make the hay growing decisions. We continue to place advertisements in trade journals, agriculture publications, social media and participate in seed industry conferences and trade shows and engage in various other educational and outreach programs as we deem appropriate.

Most of our international marketing efforts are accomplished through face-to-face meetings with our existing and potential customers and their end users. In addition, we participate in international trade shows to boost our international presence and sales efforts.

S&W Australia sellsIn fiscal 2019, sales to domestic customers increased as a majoritypercentage of its proprietary alfalfa seed (approximately 70-90% of itsour total sales, per year)primarily as a result of entering into Saudi Arabia,a license agreement with Corteva which generated license revenue of $34.2 million. Sales into international markets accounted for 20% in fiscal 2019 versus 35% in fiscal 2018.  We recently terminated our alfalfa distribution agreement with Corteva and entered into a prepaid license agreement with Corteva in fiscal 2019.   As a result, we anticipate that international sales will increase as a percentage of our total sales in fiscal 2020.

We recently realigned our organization across geographic lines (as opposed to product lines), which has renewed our sales focus. We expect this approach will help us make the best use of recently acquired distribution assets like the U.S. farmer-dealer network acquired from Chromatin and exploit potential sales synergies through international cross-selling of products (particularly in Europe and Australia). We believe that a more robust, diverse distribution network will allow us to continue to evolve beyond our historical dependence on certain geographical markets which carry higher political, regulatory, and economic risks.

Seed Production

Global Production

We produce seed in the United States, and Argentina. S&WCanada, Australia, sells the bulk of its proprietary clover seed to China, Europe and the U.S. Similar to S&W Seed, S&W Australia has historically relied upon a network of distributors to market and sell its products.

In marketing its products, S&W Australia's initial impetus was to gain market penetration through the sale of improved versions of proven varieties (e.g., SuperSiriver and SuperAurora) in the market place at competitive pricing. Subsequently, S&W Australia launched additional varieties such as SuperSonic. S&W Australia utilizes a variety of distribution strategies. Through distribution arrangements, S&W Australia's proprietary varieties are marketed directly as S&W Australia brands or South Africa under customer brand labels, and strategic allocations of full and partial exclusivity rights are made in specific countries and geographical regions to incentivize distributors to establish markets for S&W Australia products.

Alfalfa Seed Production

As of the end of our 2018 fiscal year, we have alfalfa seed production capabilities in California and most of the other states in the Western United States, including higher elevations and colder climatic regions where dormant alfalfa seed is produced, the Canadian provinces of Alberta, Manitoba and Saskatchewan and in the Australian States of South Australia, Victoria, and New South Wales.

Historically, we fulfilled all of our alfalfa seed requirements under contractscontract with farmers primarily located in the San Joaquin Valley of California. For a brief period, beginning in fiscal 2013, we were engaged in our own internal farming operations and acquired, through purchase and lease, acreage on which to grow our seed directly. However, in fiscal 2015, we made a strategic decision to move away from internal farming, and we began selling some of the farmland acreage we had been using for that purpose. After completion of the fall 2015 harvest, we shut down our internal farming operations as a source of our alfalfa seed, and instead, returned to sourcing all of our production from third partyselect third-party contract growers.

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As of June 30, 2018, we had contracts with several hundred growers in the Western United States and Canada. Generally, we enter into contracts to produce alfalfa seed, which is typical industry practice. Our normal contracts with U.S. growers range from one to three years, include a price for the seed that is determined annually and that generally do not vary from We currently maintain over 140 grower to grower or variety to variety. Under these contracts, we pay our growers based on the weight of cleaned and processed seed. The growers' contracts that we acquired in connection with the DuPont Pioneer acquisition were primarily for production in the Pacific Northwest and Canada. The terms of these contracts are similar in substance to the contracts we have historically entered into with the S&W grower base. Because a key to our success as a business is to have the product mix required by our customers, aligning the growers' production plan to the anticipated purchase needs of our customers is a challenge on which management has focused considerable efforts in recent periods, with increasing success.

Alfalfa seed is an extremely demanding crop. relationships. Our network of growers has the expertise needed to successfully grow high quality alfalfa seed.seed products. We have worked with many of the same growers for much of the past 35 years,on a long-term basis, and we believe that we have strong relationships with them. We allocate our seed production among our growers so that we can purchase the proper mix of seed varieties each year. TheOur contracts with growers incurhave terms ranging from one to seven years, depending on the greatest costcrop and the production area. Our global, but localized, production capabilities allow us to produce close to the customer to ensure the seed product is developed specifically for the conditions and requirements of that region and is produced at the lowest cost.

We condition and package seed primarily in the first yearour own facilities located in California, Idaho, Texas and Australia; although in some markets (for example, Australia) we use third-party processing services. We believe that direct ownership of production when they plant seed, eradicate weedsfacility assets gives us more flexibility to react to demand changes unique to each geography, greater control over product quality and pests and manage the pollination process; they then may be able to harvest seed from the same stands for several additional years, with the average alfalfa seed field producing for three years. With the added resources of the DuPont Pioneer alfalfa business, we believe we have expanded our production capabilities in the Western United States and Canada with both existing growers and by recruiting new growers in these regions.a lower cost structure.  

Alfalfa seed is harvested annually in the Northern Hemisphere beginning in July for the southwest region of the United States and concluding in October in the Canadian provinces.

As of June 30, 2018, S&W Australia hadhas contracts with approximately 150 individual growers in Western Victoria, South Australia and New South Wales to grow its alfalfa seed varieties on a total of approximately 20,000 irrigated and 8,000 non-irrigated acres.seed. In the Southern Hemisphere, alfalfa seed is grown counter seasonally to the Northern Hemisphere and is harvested annually, in March through early May.

Under its current form of S&W Australia alfalfa seed production agreement, S&W Australia provides foundation seed to each grower and grants each grower a license to use its seed for the purpose of production of seed for sale to S&W Australia. Each grower is responsible for all costs of the crop production. Title in the produced seed passes to S&W Australia upon it being certified compliant; and, if the seed is not compliant, title will only pass to S&W Australia upon S&W Australia'sAustralia’s further agreement to purchase the non-compliant seed. S&W Australia uses a staggered payment system with the growers of its alfalfa and white clover seed, and the payment amounts are based upon an estimated budget price ("EBP"(“EBP”) for compliant seed. EBP is a forecast of the final price that S&W Australia believes will be achieved taking into account prevailing and predicted market conditions at the time the estimate is made. Following the grower'sgrower’s delivery of uncleaned seed to a milling facility, S&W Australia typically pays 40% of the

EBP to the grower based on a percentage of the pre-cleaning weight. Following this initial

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payment and prior to the final payment, S&W Australia will make a series of scheduled progress payments and, if applicable, a bonus payment for "first grade"“first grade” (high quality) alfalfa seed. The final price payable to each grower (and therefore the total price) is dependent upon and subject to adjustment based upon the clean weight of the seed grown, on the average price at which S&W Australia sells the pooled seed and other costs incurred by S&W Australia. Accordingly, the total price paid by S&W Australia to its grower may be more or less than the EBP. S&W Australia'sAustralia’s seed production agreements for alfalfa provide for an initial term of seven years and an optional renewal term of three years. S&W Australia'sAustralia’s seed production agreements for white clover provide for an initial term of two years and an optional renewal term of one year. Historically, S&W Australia has not required its growers to harvest seed in every year under the seed production agreement. Some growers have elected to have non-harvest years, and their alfalfa is cut for hay or used for grazing instead of being harvested for seed production.

Seasonality

We contract with growers based upon our anticipated market demand; we mill, clean and stock the seed during the harvest season and ship from inventory throughout the year. However, our alfalfa seed business is seasonal.

Internal tests have shown that seed that has been held in inventory for over one year improves in quality. Therefore, provided that we have sufficient capital to carry additional inventory, we may increase our seed purchases and planned season end inventory if, in our judgment, we can generate increased margins and revenue with  In the aged seed. This will also reduce the potential for inventory shortages in the event that we have higher than anticipated demand or other factors, such as growers electing to plant alternative, higher priced crops, reducing our available seed supply in a particular year.

Clover Production and Distribution

In addition to its core business of producing and selling alfalfa seed, S&W Australia also operates a small white clover and annual cloverNorthern hemisphere, production and distribution business. S&W Australia's white clover varieties are bred for winter activity, while the annual clover is particularly adapted to a variety of soil types rangingharvest occurs from sandy to heavy clays, which can be farmed under irrigation or under dry conditions. S&W Australia leverages its production,March through September and processing and distribution channels to also make available a total of five clover seed varieties. S&W Australia's clover seed is soldshipping finished goods primarily in Europe, China, Argentina and Australia.

SV Genetics Crops - Expansion into Complementary Crops

occurs from July through February. In May 2016, we acquired the assets and business operations of SV Genetics, based in Queensland, Australia. Since 2006, SV Genetics has been in the business of breeding, selling and licensing hybrid sorghum and sunflower seed germplasm. We see this acquisition as an opportunity to leverage the worldwide research,Southern hemisphere, production and distribution platforms we have built over the decades in alfalfa seed with the addition of complementary new crops that are consistent with our strategy to be the world's preferred provider of proprietary seed for forage, grainharvest occurs from October through March and specialty crops. As a result of the acquisition,

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we currently license proprietary seed geneticsprocessing and sell parent seed to local-market production/distribution partners. The licensees produce hybrid seed using the SV Genetics and pay a royalty on the seed produced and sold. We acquired licensing agreements with 14 different partners under which we provide grain sorghum, forage sorghum and sunflower genetics in approximately ten locations throughout the world, including Australia, Argentina, Brazil, Bolivia, China, Europe, Pakistan, South Africa, Ukraine and the United States. In addition to licensing, SV Genetics also engages in the production and selling of commercial varieties to international customers.

Stevia Breeding, Research and Development

Since we began our stevia business in 2010, our stevia activities have evolvedshipping primarily occurs from exploring on a small scale the potential commercial production of stevia in California to focusing on developing varieties we believe can add value at the front end of the supply chainMarch through breeding of unique plant varieties. Since fiscal 2013 when we ceased pursuing the commercial production of stevia, we have leveraged our breeding research and development expertise in order to develop new varieties of stevia that embody specifically targeted characteristics, focusing in particular on increased yields and strong plant vigor, which are of value to farmers, and taste preferences of consumers, including sweet taste combined with little or no bitterness and aftertaste.

In our breeding program, we have identified stevia plant lines that we believe grow to heights and plant mass that compare favorably to the results for stevia plants grown in China and Paraguay, which have historically been the primary regions for growing stevia. Our lines contain high overall steviol glycosides, including Reb A, Reb B and Reb C as well as other minor glycosides. We conduct extensive high-pressure liquid chromatography ("HPLC") sample testing of stevia plants under development and make further selections and crosses of these plants based upon test results. The goal is to develop a stevia plant with an inherently pleasant taste profile, a large and hardy plant mass high levels of desirable stevia glycosides.

We are focused on developing our proprietary stevia germplasm into commercial varieties. Towards that end, we have been granted four patents by the U.S. Patent and Trademark Office ("USPTO") for unique stevia plant varieties. As our breeding program produces new lines, we plan to file additional patent applications in the future.

Two of the patents cover lines that have been developed with a pleasing taste profile, thereby enabling the resulting dried leaf to be consumed directly. At the present time, farmers are conducting trials with this variety. If these trials yield satisfactory results, we expect to develop a farmer based production system that may include payment of a royalty calculated as a percent of the gross sales.

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August.

Proprietary Rights

Ownership of and access to intellectual property rights are important to us and our competitors.us. We sell only our proprietary alfalfa seed varieties and hybrids that have been specially selected to manifest the traits we deem best suited to particular regions in which our seed is planted for alfalfa hay.planted. Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings, processes, technologies and materials owned by or used by us or our growers. If any competitors independently develop any technologies that substantially equal or surpass our process technology, it will adversely affect our competitive position.

In addition tosome cases, we obtain patent protection or plant breeder rights registrations for somecertain of our alfalfa seed varieties that we acquired from DuPont Pioneer, we guardproducts.   However, our principal method of guarding our proprietary varieties byand hybrids is exercising a high degree of control over the supply chain. As part of this control process, we require our growers to deliver back to us all seed derived from our proprietary varieties.varieties and, in the case, of hybrids, limit supply of parent seed that enables hybrid production. Historically, we have found that thisthese control mechanism hasmechanisms have been an effective means to protect our proprietary seed. However, because we often do not have more formal proprietary rights protections, in place with our growers, it would be possible for persons with access to our seed or plants grown from our seed to potentially reproduce proprietary seed, varieties, which could significantly harm our business and our reputation. In the future, we may deem it appropriate to implement more formal proprietary rights protections.

S&W Australia registers its varieties under the Australian Plant Breeder's Rights Act 1994 (Cth) (the "PBR Act"). Currently the varieties SuperSequel, SuperSiriver, SuperAurora, SuperSonic, SuperStar, SuperSiriver II, SuperNova, SuperLadino, SuperHuia and SuperHaifa are protected under the PBR Act. Seed from varieties with plant breeder's rights ("PBR") protection can only be bought from the PBR registrant, commercial partner, licensee or an agent authorized by the registrant. Exceptions exist for use of a PBR variety, including for private and non- commercial purposes, for experimental purposes, and for breeding other plant varieties. PBR protections last for 20 years in Australia in respect of registered plant varieties, and generally for 20 years in other member countries of the International Union for the Protection of New Varieties of Plants ("UPOV"), an international convention concerning plant breeder's rights. There are currently more than 70 countries that are members of the UPOV.

S&W Australia has licensed production and marketing rights of several of its varieties in exchange for royalties.

In addition to PBR and licensing arrangements, S&W Australia controls dissemination of its proprietary lines by including a demand right in its form of seed production agreement for the return of unused foundation seed if a grower fails to propagate the seed within 60 days after the grower's acquires it.

We are also continuing to develop proprietary stevia lines for which we have been granted four patents by the USPTO. It is our intention to continue building our patent portfolio of proprietary stevia lines developed through the efforts of our stevia breeding program.

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The SV Genetics proprietary products are protected via hybrid production systems. Male and female parent seed is provided to licensees for production of F1 Hybrid seed for sale to customers. Production of F1 Hybrid seed is only possible using the correct parents and it is not possible to produce parent seed from parent seed so the licensee is reliant on ongoing supply of parent seed from SV Genetics.

Competition

Competition in the alfalfa seed industry both domestically and internationally is intense.intense, and we believe it is intensifying with industry consolidation.  We face direct competition by other seed companies, including multinational agriculture companies, regional seed companies and small family- ownedfamily-owned businesses, as well as subsidiaries or other affiliates of chemical, pharmaceutical and biotechnology companies, many of which have substantially greater resources than we do.

Our principal competitors in our alfalfa seed business are Forage Genetics International (a subsidiary of Land O' Lakes, Inc.), Alforex Seeds (a subsidiary of Corteva), and Pacific International Seed Company, Inc. We believe that the key competitive drivers in the industry are proven performance, customer support in the field and value, which takes into account not simply the price of the seed but also yield in the field.

Breeding a new variety ofIn the U.S. market, our principal competitors in our alfalfa seed takes many yearsbusiness are Forage Genetics International (a subsidiary of Land O’ Lakes, Inc.), Pioneer and considerable expertiseAlforex Seeds (subsidiaries of Corteva), and skill. We believe that our reputation for breeding and producing high-quality proprietary varieties of alfalfa seed that manifest the traits the farmers need provide us with a competitive advantage, not only in the niche market for high salt- and heat-tolerant, non-dormant alfalfa seed, which has been our core business for several decades, but also, with the December 2014 acquisition of the research and development assets of DuPont Pioneer, in the full range of dormant varieties suited for colder climates as well. We believe our research and development capabilities are unmatched in the industry and provide us with a distinct competitive advantage.

Pacific International Seed Company, Inc.  In addition, toS&W Seed Company Australia Pty Ltd (“S&W Australia”), our competitors, S&W Australia's principalwholly owned Australian subsidiary, faces regional competitors in the proprietary alfalfa seed market aresuch as Heritage Seeds Pty. Ltd., PGG Wrightson Seeds Ltd, Naracoorte Seeds Pty. Ltd., and Pasture Genetics Pty Ltd (formerly Seed Distributors Pty. Ltd.) and various. Various other minor companies compete with S&W Australia through sales of Siriver, a common alfalfa variety. S&W Australia also faces competition from lower value alfalfa seed produced in the European Union and, to a lesser extent, Argentina. S&W Australia faces similar

Our principal competitors in its proprietary white clover business. These companies compete with S&W Australia for acressorghum are Pioneer, DeKalb (a subsidiary of Bayer), Advanta, Nuseed, and Heritage Seeds Pty. Ltd.

Our principal competitors in sales by selling Haifa, a common white clover variety. Competitively priced white clover is also producedsunflower are Pioneer, Nuseed, Dyna-Gro Seed (a subsidiary of Nutrien Ag Solutions), Syngenta AG, Advanta, Limagrain, and sold from the European Union, USA, and New Zealand.KWS SAAT SE & Co.

In relation to the SV Genetics business, sorghum and sunflower genetics tend to be concentrated globally amongst a few large international companies, resulting in a significant barrier to entry for many intermediate and regionally based seed companies and their reliance on just a few suppliers for elite genetics.

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Despite the advantages we perceive we have over many of our competitors, manyMany of our existing and potential competitors have substantially greater research and product development capabilities and financial, marketing and human resources than we do. As a result, these competitors may:

succeed in developing products that are equal to or superior to our products or potential products or that achieve greater market acceptance than our products or potential products;

devote greater resources to developing, marketing or selling their products;

respond more quickly to new or emerging technologies or scientific advances and changes in customer requirements, which could render our products or potential products obsolete or less preferable;

obtain patents that block or otherwise inhibit our ability to develop and commercialize potential products we might otherwise develop;

withstand price competition more successfully than we can;

establish cooperative relationships among themselves or with third parties that enhance their ability to address the needs of our customers or prospective customers;

and

take advantage of acquisition or other opportunities more readily than we can; and

can.

control acreage and growers located in zones where GMO seed production is forbidden, thereby lessening the risks of GMO traits contaminating seed produced for overseas markets.

We are not aware of any significant domestic or international persons or companies engaged in ongoing stevia breeding activities similar to or that could be considered competitive with our stevia breeding program.

Environmental and Regulatory Matters

Our agricultural operations are subject to a broad range of evolving environmental laws and regulations. These laws and regulations includeapplicable to the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation and Liability Act.

markets in which we operate.  These environmental laws and regulations are intended to address concerns related to air quality, storm water discharge and management and disposal of agricultural chemicals relating to seed treatment both for domestic and overseas varieties. We maintain particulate matter air emissions from our milling activities below annual tonnage limits through cyclone air handling systems. We maintain storm water onsite, which eliminates the risk of waterway or tributary contamination. Pesticide and agricultural chemicals are managed by trained individuals, certified and licensed through the California Department of Pesticide Regulation. County agricultural commissioners monitor all seed-treating activity for compliance.

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treatment.

Compliance with these laws and related regulations is an ongoing process that does not, and is not expected to, have a material effect on our capital expenditures, earnings or competitive position. Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by us, and there can be no assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.

We also are subject to the Federal Seed Act (the "FSA"), which regulates the interstate shipment of agricultural and vegetable seed. The FSA requires that seed shipped in interstate commerce be labeled with information that allows seed buyers to make informed choices and mandates that seed labeling information and advertisements pertaining to seed must be truthful. The FSA also helps to promote uniformity among statevarious laws and fair competition within the seed industry.

Because, under our existing business plan, we are acting as a breeder of stevia leaf and will not be extracting Reb-A or other derivatives from the leaves or adding such derivatives to any food or beverages, we believe that we do not need to applyregulations relating to the U.S. Foodtransport, export/import and Drug Administration ("FDA") for a Generally Recognized as Safe ("GRAS") no-objections determination or any other FDA approvalsale of seed applicable in connection with our stevia business. However, should our plans with respect to stevia cultivation and processing expandthe markets in future years, we will then reexamine the advisability of seeking a GRAS determination or other FDA approval. We do not believe that our current stevia operations are subject to any special regulatory oversight.which operate.  

Internationally, we are subject to various government laws and regulations (including the U.S. Foreign Corrupt Practices Act and similar non-U.S. laws and regulations) and local government regulations. To help ensure compliance with these laws and regulations, we have adopted specific risk management and compliance practices and policies, including a specific policy addressing the U.S. Foreign Corrupt Practices Act.

We are also subject to numerous other laws and regulations applicable to businesses operating in California and other states, including, without limitation, health and safety regulations.

Our Australian operations are subject to a number of laws that regulate the conduct of business in Australia, and more specifically, S&W Australia's agricultural activities. Laws regulating the operation of companies in Australia, including in particular the Corporations Act 2001 (Cth) are central to S&W Australia's corporate actions and corporate governance issues in Australia. Competition laws and laws relating to employment and occupational health and safety matters are also of fundamental importance in the Australian regulatory environment. These include the Competition and Consumer Act 2010 (Cth), the Fair Work Act 2009 (Cth), the Work Health and Safety Act 2012 (SA) and related regulations. Notably Australian employment laws are much more favorable to the employee than U.S. employment laws.

S&W Australia's intellectual property rights in Australia are protected and governed by laws relating to plant breeder's rights, copyright, trademarks, the protection of confidential information, trade secrets and know-how. These include the PBR Act, the Copyright Act 1968 (Cth), the Trade Marks Act 1995 (Cth) and related regulations.

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Our Australian operations are also subject to a number of environmental laws, regulations and policies, including in particular the Environment Protection Act 1993 (SA), the Agricultural and Veterinary Products (Control of Use) Act 2002 (SA), the Genetically Modified Crops Management Act 2004 (SA), the Dangerous Substances Act 1979 (SA), the Controlled Substances Act 1984 (SA) and related regulations and policies. These laws regulate matters including air quality, water quality and the use and disposal of agricultural chemicals.

Research and Development

R&D for the year ended June 30, 20182019 totaled $3,887,723$6.3 million compared to $3,032,112$3.9 million in the year ended June 30, 2017.2018.

Employees

As of September 20, 2018, S&W18, 2019, we had 79 full-time126 total employees, of which 18 are employed by S&W Australia. We also employ 5 part-time employees, of which 4 are S&W Australia122 were full-time employees. We also retain consultants for specific purposes when the need arises. None of our employees are represented by a labor union. We consider our relations with our employees to be good.

Corporate History

From 1980 until 2009, our business was operated as a general partnership. We bought out the former partners beginning in June 2008, incorporated in October 2009 in Delaware, and completed the buyout of the general partners in May 2010. We reincorporated in Nevada in December 2011.

In April 2013, we, together with our wholly-owned subsidiary, S&W Holdings Australia Pty Ltd, an Australia corporation (f/k/a S&W Seed Australia Pty Ltd "S“S&W Holdings"Holdings”), consummated an acquisition of all of the issued and outstanding shares of Seed Genetics International Pty Ltd, an Australia corporation ("SGI"(“SGI”), from SGI'sSGI’s shareholders. In April 2018, SGI changed its name to S&W Seed Company Australia Pty Ltd ("(“S&W Australia"Australia”).

Our Contact Information

Our principal business office is located at 106 K Street, Suite 300, Sacramento, CA 95814, and our telephone number is (559) 884-2535. Our website address is www.swseedco.com. Information contained on our website or any other website does not constitute part of this Annual Report on Form 10-K, and the inclusion of our website address in this report is an inactive textual reference only.

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Item 1A. Risk Factors

Risks Relating to Our Business and Industry

Our earnings can be negatively impacted by declining demand brought on by varying factors, many of which are out of our control.

ADemand for our seed depends upon a variety of factors, notablyincluding end demand for the crops grown from the seed.  For example, a severe downturn in the dairy industry, could have a negative effect on sales of alfalfa hay, and as a result, the demand for our alfalfa seed in the domesticU.S. market. In addition, demand for our products could decline because of other supply and quality issues or for any other reason, including products of competitors that might be considered superior by end users. A decline in demand for our products could have a material adverse effect on our business, results of operations and financial condition.

Our earnings may also be sensitive to fluctuations in market prices for seed.

Market prices for our alfalfa seed can be impacted by factors such as the quality of the seed and the available supply, including whether lower quality, uncertifiedlower-quality, lower-priced seed is available. Growing conditions, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests and the adventitious presence of GMO, are primary factors influencing the quality and quantity of the seed and, therefore, the market price at which we can sell our seed to our customers. A decrease in the prices received for our products could have a material adverse effect on our business, results of operations and financial condition.

Our earnings are vulnerable to cost increases.

Future increase in costs, such as the costs of growing seed, could cause our margins and earnings to decline unless we are able to pass along the increased price of production to our customers. We may not be able to increase the price of our seed sufficiently to maintain our margins and earnings in the future.

Our inventory of seed can be adversely affected by the market price being paid for other crops.

Our seed production whether in the U.S., Australia or Canada, relies entirely on unaffiliated growers to grow our proprietary seed and to sell it to us at negotiated prices each year. Growers have a choice of what crops to plant. If a particular crop is paying a materially higher price than has been paid in the past, growers may decide to not grow alfalfaour seed crops in favor of receiving a higher return from an alternative crop planted on the same acreage. If our growers decline to a significant degree to plant the acreage on which we rely, and if we cannot find other growers to plant the lost acreage, our inventory of seed could be insufficient to satisfy the needs of our customers unless we are able to procure the necessary additional seed in the market at prices we cannot control. If these circumstances occur, our business, results of operations and financial condition could materially decline. In addition, our customers could look to other suppliers for their seed if we cannot satisfy their requirements, and we may not be able to regain them as customers once our inventory levels have returned to normal.

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Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.

AlfalfaOur seed our primary product, iscrops are vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are common but difficult to predict. In addition, alfalfa seed iscrops are vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. Unfavorable growing conditions can reduce both crop size and quality. Although we no longer grow any of our seed directly, these factors can still impact us by potentially decreasing the quality and yields of our seed and reducing our available inventory. These factors can increase costs, decrease revenue and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.

Because our alfalfa seed business is highly seasonal, our revenue, cash flows from operations and operating results may fluctuate on a seasonal and quarterly basis.

We expect that the majority of our revenue will continue to be generated from our alfalfa seed business for the foreseeable future. Our alfalfa seed business is seasonal. The seasonal nature of our operations results in significant fluctuations in our working capital during the growing and selling cycles. We have experienced, and expect to continue to experience, significant variability in net sales, operating cash flows and net income (loss) on a quarterly basis.

We have had a material concentration of revenue from a small group of customers that fluctuates, and the loss of any of these customers in any quarter could have a material adverse effect on our revenue.

On a historical basis, we have experienced a material concentration of revenue from a small group of customers. This concentration fluctuates from quarter to quarter, depending on our customer's specific requirements, which are themselves cyclical. However, in any particular quarter, we generally have a small group of customers that accounts for a substantial portion of that quarter'squarter’s revenue. Most of these customers are not contractually obligated to purchase seed from us. The loss of one or more of these customers on a quarterly basis, when taken year over year, could have a material adverse impact on our business, financial position, results of operations and operating cash flows. We could also suffer a material adverse effect from any losses arising from a major customer's disputes regarding shipments, product quality or related matters, or from our inability to collect accounts receivable from any major customer. There are no assurances that we will be able to maintain our current customer relationships or that they will continue to purchase our seed in the current projected quantities. Any failure to do so may materially adversely impact our business.

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Because we depend on a core group of significant customers, our sales, cash flows from operations and results of operations may be negatively affected if our key customers reduce the amount of products they purchase from us.

We rely upon a small group of customers for a large percentage of our net revenue. OneAlthough our customer DuPont Pioneer, accounted for 62% ofconcentration should decline as our fiscal 2018 revenue. Our production agreement with DuPont Pioneer (relating to GMO-traited varieties) will terminate on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020. Weproduct mix becomes more diverse, we expect that a small number of customers will continue to account for a substantial portion of our net revenue for the foreseeable future. There is no assurance that we will be able to maintain the relationships with our major customers or that they will continue to purchase our seed in the quantities that we expect and rely upon. If we cannot do so, our results of operations could suffer.

Because we do not grow the alfalfa seed that we sell, we are completely dependent on our network of contract growers, and our sales, cash flows from operations and results of operations may be negatively affected if we are unable to maintain an adequate network of contract growers to supply our seed requirements.

We do not directly grow any of the alfalfa seed that we sell, and therefore, we are entirely dependent upon our network of growers. While we have some supply contracts with our growers of two or threeup to seven years in duration, many of our grower contracts cover only one year, which makes us particularly vulnerable to factors beyond our control. Events such as a shift in pricing caused by an increase in the value of commodity crops other than seed crops, increase in land prices, unexpected competition or reduced water availability could disrupt our supply chain. Any of these disruptions could limit the supply of seed that we obtain in any given year, adversely affecting supply and thereby lowering revenue. Such disruption could also damage our customer relationships and loyalty to us if we cannot supply the quantity of seed expected by them. In recent years, we have had some of our California growers decide to not grow alfalfa seed due to drought conditions. This situation could reoccur and could negatively impact our revenue if we do not otherwise have sufficient seed inventory available for sale.

S&W Australia relies on a pool of approximately 150 Australian growers to produce its proprietary seeds. Each grower arrangement is typically made for a term of seven to ten harvests. Although S&W Australia's grower pool is diversified, it is not without risks. Adverse agronomic, climatic or other factors could lead to grower exodus and negatively impact S&W Australia's revenue if S&W Australia does not otherwise have sufficient seed inventory available for sale.

Our ability to contract for sufficient acreage presents challenges.

In order to increase revenue and earnings, we continue to need more production acreage. As we continue to increase the number of acres under contract and/or to move production into new geographical locations, we face challenges that can impede our ability to produce as much seed inventory as we have budgeted. For example, when we move production into new geographical locations,

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we may find it difficult to identify growers with the expertise to grow alfalfaour seed crops, and we may not have sufficient company personnel available in such new locations to provide production advice on a timely basis. We also face increased competition for conventional seed acreage as the need for technology acres grows, which is further complicated by the field isolation issue relating to GMO crops that can reduce the amount of acreage available for conventional alfalfa seed crops. If we are unable to secure the acreage we need to meet our planned production for the crop year and are unable to purchase seed in the market, our results of operations could suffer, as would our reputation.

A lack of availability of water in the U.S., Australia or Canadaany of our production areas could impact our business.

Adequate quantities and correct timing of the application of water are vital for most agriculture to thrive. Whether particular farms are experiencing water shortages depends, in large part, on their location. However, continuing drought conditions can threaten all farmland other than those properties with their own water sources. Foreign or domestic regulations regarding water usage and rights may also limit the availability of water. Although alfalfaour current seed isproducts are not a water-intensive crop,crops, the availability or the cost of water is a factor in the planting of the alfalfa haycrops grown from our seed. Moreover, if the dairy farmers and others who purchase our alfalfa seed to grow haycrops cannot get an adequate supply of water, or if the cost of water makes it uneconomical for the farmers to grow alfalfa,the crops, we may not be able to sell our seed, which could have an adverse impact on our results of operations. We cannot predict if limitations on the availability of water will impact our business in the future, but if alfalfa hay growers are impacted by limitations on the availability of water, our business could also materially decline.

We face intense competition, and our inability to compete effectively for any reason could adversely affect our business.

The alfalfaCompetition in the seed marketindustry both domestically and internationally is highly competitive,intense, and our productswe believe it is intensifying with industry consolidation. We face direct competition from a number ofother seed companies, including multinational agriculture companies, regional seed companies and small seed companies,family-owned businesses, as well as large agriculturalsubsidiaries or other affiliates of chemical, pharmaceutical and biotechnology companies. We compete primarily on the basiscompanies, many of consistency of product quality and traits, product availability, customer service and price. Many of our competitors are, or are affiliated with, large diversified companies thatwhich have substantially greater marketing and financial resources than we have. do.

These resources give our competitors greater operating flexibility that, in certain cases, may permit them to respond better or more quickly to changes in the industry or to introduce new products more quickly and with greater marketing support. Increased competition could result in lower profit margins, substantial pricing pressure, reduced market share and lower operating cash flows. Price competition, together with other forms of competition, could have a material adverse effect on our business, financial position, results of operations and operating cash flows.

If we are unable to estimate our customers'customers’ future needs accurately and to match our production to the demand of our customers, our business, financial condition and results of operations may be adversely affected.

We sell our seed primarily to dealers and distributors who, in turn, sell primarily to hay and dairy farmers who grow hay for dairy cattle and other livestock.crops from the seed. Due to the nature of the alfalfa seed industry, we normally produce seed according to our production plan before we sell and deliver seed to distributors

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and dealers. Our dealers and distributors generally make purchasing decisions for our products based on market prices, economic and weather conditions and other factors that we and our dealers and distributors may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and types of products sought by the end users and otherwise adequately manage production amounts, we may produce more seed than our dealers and distributors want, resulting in excess inventory levels. For example, in large part due to decreased sales to the Saudi Arabia markets, our inventory levels as of June 30, 2016, 2017 and 2018 were $21.8 million, $31.5 million, and $60.4 million, respectively. It may be difficult for us to dispose of all of our inventory on commercially reasonable terms, or at all, and we may need to record an impairment charge for a portion of this inventory in subsequent fiscal periods.  Any such impairment charge or any failure to sell inventory on commercially reasonable terms could have a material adverse effect on our business, financial position, results of operations and operating cash flows.

On the other hand, if we underestimate demand, we may not be able to satisfy our dealers and distributors' demand for alfalfa seed, and thus damage our customer relations and end-user loyalty. Our failure to estimate end users'users’ future needs and to match our production to the demand of our customers may adversely affect our business, financial condition and results of operations.

Our third-party distributors may not effectively distribute our products.

We depend in part on third-party distributors and strategic relationships for the marketing and selling of our products. We depend on these distributors'distributors’ efforts to market our products, yet we are unable to control their efforts completely. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the sale of our products, including the United States Foreign Corrupt Practices Act of 1977, as amended. If our distributors fail to effectively market and sell our products, and in full compliance with applicable laws, our operating results and business may suffer.

We extend credit to our largest international customer and to certain of our other international customers, which exposes us to the difficulties of collecting our receivables in foreign jurisdictions if those customers fail to pay us.

Although payment terms for our export seed sales generally arerange from prepayment to 90 to 120 days, we regularly extend credit to our largest international customer, Sorouh, and to other international customers up to 180 days. Sales of our alfalfa seed varieties to Sorouh and to other international customers represented a material portion of our revenue in historical periods and we expect that we will continue to extend credit in connection with future sales. Because these customers are located in foreign countries, collection efforts, were they to become necessary, could be much more difficult and expensive than pursuing similar claims in the United States. Moreover, future political and/or economic factors, as well as future unanticipated trade regulations, could negatively impact our ability to timely collect outstanding receivables from these important customers. The extension of credit to our international customers exposes us to the risk that our seed will be delivered but that we may not receive all or a portion of the payment therefor. If these customers are unable or unwilling to fully pay for the seed they purchase on credit, our results of operations and financial condition could be materially negatively impacted. Moreover, our internal forecasts on which we make business decisions throughout the year could be severely compromised, which could, in turn, mean that we spend capital for operations, investment or otherwise that we would not have spent had we been aware that the customer would not honor its credit extension obligation.

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The future demand for our non-dormant alfalfa seed varieties in Saudi Arabia is uncertain.

Historically, sales of alfalfa seed to customers in Saudi Arabia have represented a significant portion of our revenue. Regulatory uncertainty in Saudi Arabia surrounding water use restrictions for large forage producers caused customers in the region to defer purchases and/or reduce inventory carrying levels. The outlook for demand for our non-dormant alfalfa varieties in Saudi Arabia over the next two to four years continues to be uncertain because of the potential for water use restrictions and further regulations from the Saudi Arabian government on water usage. As a result of the continued decrease indepressed sales to our customers in Saudi Arabia, we have experienced a material decline in revenue and earnings. Given the foregoing regulatory uncertainty, there may be a continued depressed demand from our customers in Saudi Arabia, and, in the absence of sales growth in other regions and other products, we may experience a further material decline in revenue and earnings.

Our current reliance on the seed development and production business does not permit us to spread our business risks among different business segments, and thus a disruption in our seed production or the industry would harm us more immediately and directly than if we were more diversified.

We currently operate primarily in the alfalfa, sorghum, and sunflower seed business, and we do not expect this to change materially in the foreseeable future, despite recent diversification efforts into hybrid sorghum and sunflower seeds.future. Without business line diversity, we will not be able to spread the risk of our operations. Therefore, our business opportunities, revenue and income could be more immediately and directly affected by disruptions from such things as drought and disease or widespread problems affecting the alfalfa, industry,sorghum and sunflower markets, payment disruptions and customer rejection of our varieties of alfalfa seed. If there is a disruption as described above, our revenue and earnings could be reduced, and our business operations might have to be scaled back.

If we fail to introduce and commercialize new alfalfa seed varieties,products, we may not be able to maintain market share, and our future sales may be harmed.

The performance of our new alfalfa seed varietiesproducts may not meet our customers'customers’ expectations, or we may not be able to introduce and commercialize specific seed varieties.varieties and hybrids. Reorder rates are uncertain due to several factors, many of which are beyond our control. These include changing customer preferences, which could be further complicated by competitive price pressures, our failure to develop new products to meet the evolving demands of the end users, the development of higher-demand products by our competitors and general economic conditions. The process for new products to gain market recognition and acceptance is long and has uncertainties. If we fail to introduce and commercialize a new seed varietyproduct that meets the demand of the end user, if our competitors develop products that are favored by the end users, or if we are unable to produce our existing products in sufficient quantities, our growth prospects may be materially and adversely affected, and our revenue may decline. In addition, sales of our new products could replace sales of some of our current similar products, offsetting the benefit of a successful product introduction.

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The presence of GMO alfalfa in Australia or California could impact our sales.

GMO crops currently are prohibited in most of the international markets in which our proprietary seed is currently sold. There are regions in the United States, including the Pacific Northwest, where even small quantities of GMO material inadvertently interspersed with conventional (non-GMO) alfalfa seed make the seed undesirable, which causes customers to look elsewhere for their alfalfa seed requirements. The greater the use of GMO seed in California and other alfalfa seed growing regions, the greater the risk that the adventitious presence of GMO material in our seed production will occur due to pollination from hay fields or other seed fields. We regularly test for the adventitious presence of GMO in our conventional alfalfa seed, and we have seen a slight increase in the percentage of GMO presence in conventional alfalfa seed over the past several years. Our seed containing GMO material can only be sold domestically or in other jurisdictions that permit the importation of GMO alfalfa. If we are unable to isolate our conventional alfalfa seed from inadvertently being contaminated by GMO seed, we may find it more difficult to sell that seed in our key markets and we may have insufficient quantities of seed to sell internationally, either of which could materially adversely impact our revenue over time.

We have limited experience in the hybrid sorghum and sunflower markets.

In May 2016, we acquired the assets and business operations of SV Genetic's hybrid sorghum and sunflower seed germplasm business in Queensland, Australia. Having spent over 35 years focused almost exclusively on the alfalfa seed market, these are new markets for us. If we are unable to successfully draw upon the research, development and distribution expertise we have developed in the alfalfa seed industry and apply it to the new crops into which we have recently diversified, we may not be able to attain the revenue and margins improvements we hope to achieve within our currently budgeted time frame, if at all.

The stevia market may not develop as we anticipate, and therefore our continued research and development activities with respect to stevia may never become profitable to us.

There are a number of challenges to market acceptance of stevia as a natural, non-caloric sweetener. Stevia has its own unique flavor, which can affect the taste of some foods and beverages. A common complaint about stevia is that some of its extracts and derivatives have a bitter aftertaste, and its taste does not uniformly correspond to all regional taste preferences or combine well with some food flavors. Other factors that could impact market acceptance include the price structure compared to other sugar substitutes and availability. If the high-intensity, non-caloric sweetener market declines or if stevia fails to achieve substantially greater market acceptance than it currently enjoys, we might never be able to profit from our continued research and development activities relating to stevia or any commercial applications that we derive therefrom. Even if products conform to applicable safety and quality standards, sales could be adversely affected if consumers in target markets lose confidence in the safety, efficacy and quality of stevia. Adverse publicity about stevia or stevia-based products may discourage consumers from buying

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products that contain stevia. Any of these developments could adversely impact the future amount of dry leaf stevia, processed stevia leaves or extract we are able to sell, which could adversely impact our results of operations.

The loss of key employees or the failure to attract qualified personnel could have a material adverse effect on our ability to run our business.

The loss of any of our current executives, key employees or key advisors, or the failure to attract, integrate, motivate and retain additional key employees, could have a material adverse effect on our business. Although we have employment agreements with our Chief Executive Officer, our Chief Financial Officer, our Chief Operating Officer,Executive Vice President - Americas, and our Chief Marketing and Technology Officer,Executive Vice President - International, as well as certain other employees, any employee could leave our employ at any time if he or she chose to do so. We do not carry "key person"“key person” insurance on the lives of any of our management team. As we develop additional capabilities, we may require more skilled personnel who must be highly skilled and have a sound understanding of our industry, business or processing requirements. Recruiting skilled personnel is highly competitive. Although to date we have been successful in recruiting and retaining qualified personnel, there can be no assurance that we will continue to attract and retain the personnel needed for our business. The failure to attract or retain qualified personnel could have a material adverse effect on our business.

We may not be able to manage expansion of our operations effectively.

We expect our operations to continue to grow in the future, both as we expand our historical alfalfa seed business both domestically and internationally through internal growth and synergistic acquisitions and increase our growers'growers’ production. These efforts will require the addition of employees, expansion of facilities and greater oversight, perhaps in diverse locations. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute on our business strategies or respond to competitive pressures, and we may have difficulties maintaining and updating the internal procedures and the controls necessary to meet the planned expansion of our overall business.

Our management will also be required to maintain and expand our relationships with customers, suppliers and other third parties as well as attract new customers and suppliers. We expect that our sales and marketing costs will increase as we grow our product lines and as we increase our sales efforts in new and existing markets. Our current and planned operations, personnel, systems and internal procedures and controls may not be adequate to support our future growth.

We may be unable to successfully integrate the businesses we have recently acquired and may acquire in the future with our current management and structure.

As part of our growth strategy, we have acquired and may continue to acquire additional businesses, product lines or other assets. We may not be able to locate or make suitable acquisitions on acceptable terms, and future acquisitions may not be effectively and profitably integrated into our business. Our failure to successfully complete the integration of the businesses we acquire could have an adverse effect

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on our prospects, business activities, cash flow, financial condition, results of operations and stock price. Integration challenges may include the following:

assimilating the acquired operations, products and personnel with our existing operations, products and personnel;

estimating the capital, personnel and equipment required for the acquired businesses based on the historical experience of management with the businesses with which they are familiar;

minimizing potential adverse effects on existing business relationships with other suppliers and customers;

developing and marketing the new products and services;

entering markets in which we have limited or no prior experience; and

coordinating our efforts throughout various distant localities and time zones.

In connection with any such transactions, we may also issue equity securities, incur additional debt, assume contractual obligations or liabilities or expend significant cash.  Such transactions could harm our operating results and cash position and negatively affect the price of our stock.

For example, on September 5,October 25, 2018, we entered intocompleted the acquisition of substantially all of the assets of Chromatin, Inc. (together with certain of its subsidiaries and affiliates in receivership, "Chromatin"), as well as the assumption of certain contracts and limited specified liabilities of Chromatin, for an aggregate cash purchase price of approximately $26.5 million (the "Acquisition"), pursuant to the terms of our previously disclosed Asset Purchase Agreement, (the "Asset Purchase Agreement")dated September 14, 2018, with Novo Advisors (f/k/a Turnaround Advisory Group Inc.), solely in its capacity as the receiver for, and on behalf of, Chromatin Inc., a Delaware corporation (together with certain of its subsidiaries and affiliates in receivership, "Chromatin") (the "Receiver"("Novo"). Pursuant to the Asset Purchase Agreement, we agreed to purchase substantially all of Chromatin's assets, as well as assume certain contracts and other liabilities of Chromatin (collectively, the "Chromatin Acquisition"), for a purchase price of $23.0 million. On September 14, 2018, we entered into an updated Asset Purchase Agreement with the Receiver to reflect updated terms and conditions of the Chromatin Acquisition, including a purchase price of $26.5 million. To fund the Chromatin Acquisition, cover transaction expenses and provide additional working capital, we entered into a Securities Purchase Agreement (the "September SPA") with MFP Partners, L.P. ("MFP"), pursuant to which we agreed to sell and issue to MFP 1,607,717 shares of our common stock of the Company (the "Common Shares") for approximate gross proceeds of $5.0 million at an initial closing (the "Initial Closing") and, subject to the satisfaction of certain conditions, 7,235 shares of newly designated Series A Convertible Preferred Stock of the Company ("Preferred Shares") for aggregate gross proceeds of $22.5 million at a second closing (the "Second Closing"), each in a private placement. The Initial Closing was completed on September 5, 2018 and the Second Closing was completed on October 23, 2018.

We cannot guarantee that the Chromatin Acquisition will be consummated as expected, or at all.yield the results we have anticipated. In addition, there can be no assurance that we will achieve the revenues, growth prospects and synergies expected from this acquisition, our prior acquisitions or any future acquisitions, or that we will achieve such revenue, growth prospects and synergies in a manner consistent with our expectations. Our failure to do so could adversely affect our business, operating results and financial condition.

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The diversion of management's attention and costs associated with acquisitions may have a negative impact on our business.

If management'smanagement’s attention is diverted from the management of our existing businesses as a result of its efforts in evaluating and negotiating new acquisitions and strategic transactions, the prospects, business activities, cash flow, financial condition and results of operations of our existing businesses may suffer. We also may incur unanticipated costs in connection with pursuing acquisitions and strategic transactions, whether they ultimately are consummated or not.

S&W Australia's alfalfa seed grower pool is dependent on a limited number of milling facilities to process its seed, with particular dependence on a dominant operator whose commercial interests may be adverse to S&W Australia.

Only five milling facilities are regularly used by S&W Australia'sAustralia’s grower pool to clean and process S&W Australia alfalfa seed. Should one or more of these facilities become unusable, there could be a significant effect on S&W Australia'sAustralia’s ability to get its Australian alfalfa seed to market in a timely manner or at all. S&W Australia'sAustralia’s growers use Tatiara to process approximately 70% of the seed grown for S&W Australia. The owner of Tatiara has begun to sell his own common seed and is now a competitor of S&W Australia. This competing seed business creates a potential conflict of interest for Tatiara in the care and handling of S&W Australia'sAustralia’s product and could impact S&W Australia'sAustralia’s ability to have seed available to sell on the time schedule required by our customers.

S&W Australia is thinly capitalized and may become dependent upon us for financing.

Because S&W Australia has relatively little net working capital, it is substantially dependent upon its credit arrangement with National Australia Bank Ltd ("NAB"(“NAB”) to purchase its seed inventory. If S&W Australia breaches its credit arrangement in the future or other reasons cause this credit arrangement to become unavailable to S&W Australia, S&W Australia may become reliant on us to finance its operations or for financial guarantees. We currently are a guarantor on S&W Australia's NAB credit facility. S&W Australia's financial dependency upon us could have a negative adverse effect upon our financial condition.

S&W Australia is dependent on a pool of seed growers and a favorable pricing model.model for alfalfa seed production.

S&W Australia relies on a pool of approximately 150 Australian contract growers to produce its proprietary alfalfa seeds. In this system, growers contract with S&W Australia to grow S&W Australia'sAustralia’s seed for terms of seven to ten years in the case of alfalfa and two to three years for white clover. S&W Australia uses a staggered payment system with the growers of its alfalfa and white clover; the payment amounts are based upon an estimated budget price, or EBP, for compliant seed. EBP is a forecast of the final price that S&W Australia believes will be achieved taking into account prevailing and predicted market conditions at the time the estimate is made. Following the grower'sgrower’s delivery of uncleaned seed to a milling facility, S&W Australia typically pays 40% of the EBP to the grower based on pre-cleaning weight. Following this initial payment and prior to the final payment, S&W Australia makes a series of

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scheduled progress payments and, if applicable, a bonus payment for "first grade"“first grade” alfalfa seed. The final price payable to each grower (and therefore the total price) is dependent upon and subject to adjustment based upon the clean weight of the seed grown, on the average price at which S&W Australia sells the pooled seed and other costs incurred by S&W Australia. Accordingly, the total price paid by S&W Australia to its growers may be more or less than the EBP. This arrangement exposes S&W Australia'sAustralia’s business to unique risks, including, the potential for current growers to make collective demands that are unfavorable to S&W Australia and the potential for our competitors to offer more favorable terms for seed production, including fixed (instead of variable) payment terms.

S&W Australia'sAustralia’s reliance upon an estimated purchase price to growers could result in changes in estimates in our consolidated financial statements.

Our subsidiary, S&W Australia does not fix the final price for alfalfa and clover seed payable to its growers until the completion of a given year'syear’s sales cycle, pursuant to the standard contract production agreement. We record an estimated unit price, and accordingly, inventory, cost of goods sold and gross profits are based upon management'smanagement’s best estimate of the final purchase price to our S&W Australia growers. To the extent the estimated purchase price varies from the final purchase price for seed, the adjustment to actual could materially impact the results in the period when the difference between estimates and actuals are identified. If the actual purchase price is in excess of our estimated purchase price, this would negatively impact our financial results, including a reduction in gross profits and net income.

We may need to raise additional capital in the future.

We may find it necessary or advisable to raise additional capital in the future, whether to enhance our working capital, to repay indebtedness, to fund acquisitions or for other reasons. If we are required or desire to raise additional capital in the future, such additional financing may not be available on favorable terms, or available at all, may be dilutive to our existing stockholders, if in the form of equity financing, or may contain restrictions on the operation of our business, if in the form of debt financing. If we fail to obtain additional capital as and when required, such failure could have a material impact on our business, results of operations and financial condition.

Changes in government policies and laws could adversely affect international sales and therefore our financial results.

Historically, sales to our distributors who sell our proprietary alfalfa seed varieties outside the United States have constituted a meaningful portion of our annual revenue. We anticipate that sales into international markets will continue to represent a meaningful portion of our total sales and that continued growth and profitability will require further international expansion, particularly in the Middle East and North Africa. Our financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include but are not limited to changes in a country'scountry’s or region'sregion’s economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries,

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changes in the regulatory or legal environment, burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced distribution of our products into international markets and reduced profitability associated with such sales.

We are subject to risks associated with doing business globally.

Our operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. Although we sell seed to various regions of the world, a large percentage of our sales outside the United States in fiscal year 2018, including those of S&W Australia,2019 were principally to customers in the Middle East, North Africa and Mexico. Accordingly, developments in those parts of the world generally have a more significant effect on our operations than developments in other places. Our operations outside the United States are subject to special risks and restrictions, including, without limitation:  fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the U.S. Foreign Corrupt Practices Act and the trade sanctions laws and regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control. Acts of terror or war may impair our ability to operate in particular countries or regions, and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell their commodity at prevailing international prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net earnings, the book value of our assets outside the United States and our stockholders'stockholders’ equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.

Failure to comply with the United States Foreign Corrupt Practices Act or similar laws could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies, including their suppliers, distributors and other commercial partners, from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the countries in which we distribute products. We have adopted formal policies and procedures designed to facilitate compliance with these laws. If our employees or other agents, including our distributors or suppliers, are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

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Environmental regulation affecting our alfalfa seed, sorghum, sunflower or stevia products could negatively impact our business.

As anOur agricultural company,operations are subject to a broad range of evolving environmental laws and regulations applicable to the markets in which we operate.  These environmental laws and regulations are intended to address concerns related to, among other things, air quality, storm water discharge and management and disposal of agricultural chemicals relating to seed treatment.

In the U.S., we are subject to evolving environmental laws and regulations by federal and state governments. Federal laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Federal Seed Act, and potentially regulations of the FDA and/or other State regulatory agencies.

Our Australian operations are also subject to a number of environmental laws, regulations and policies, including in particular the Environment Protection Act 1993 (SA), the Agricultural and Veterinary Products (Control of Use) Act 2002 (SA), the Genetically Modified Crops Management Act 2004 (SA), the Dangerous Substances Act 1979 (SA), the Controlled Substances Act 1984 (SA) and related regulations and policies. These laws regulate matters including air quality, water quality and the use and disposal of agricultural chemicals.

Our failure to comply with these laws and related regulations could have an adverse effect on our business, financial condition or results of operations. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs which, in turn, could have a material adverse effect on our business, financial condition or results of operations.

Unauthorized access to our information technology systems, infrastructure and data could have a material adverse effect on our business, financial condition or results of operations.

We are dependent upon our own and third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random attacks. Likewise, data privacy or security incidents or breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, customers or other business partners may be exposed to unauthorized persons or to the public. Our business partners face similar risks and any security breach of their systems could adversely affect our security posture.

In addition, cyber-attacks are increasing in their frequency, sophistication and intensity. Cyber-attacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. 

A security breach, including, for example, a misappropriation of customer, distributor or employee confidential information, trade secrets or intellectual property, could disrupt our business and result in increased costs or loss of revenue, which may include potential costs of investigations, legal, forensic and consulting fees and expenses, costs and diversion of management’s attention required for investigation, remediation and litigation, substantial repair or replacement costs. In addition, any disruption in our information technology systems, loss of data or other disruptions could impair our ability to manage inventories, process transactions and communicate with our customers, which could prevent us from being able to fulfill orders, result in cancelations and loss of customers, cause us reputational harm and generally disrupt our ability to conduct our business, any of which could have a material adverse effect on our business, financial condition or results of operations.

While we have implemented measures for the protection of our data and information technology infrastructure, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.

Insurance covering defective seed claims may become unavailable or be inadequate.

Defective seed could result in insurance claims and negative publicity. Although we carry general liability insurance to cover defective seed claims, such coverage may become unavailable or be inadequate. Even if coverage is offered, it may be at a price and on terms not acceptable to us. If claims exceed coverage limits, or if insurance is not available to us, the occurrence of significant claims could have a material adverse effect on our business, results of operations and financial condition.

We may be exposed to product quality claims, which may cause us to incur substantial legal expenses and, if determined adversely against us, may cause us to pay significant damage awards.

We may be subject to legal proceedings and claims from time to time relating to our seed or stevia quality. The defense of these proceedings and claims can be both costly and time consuming and may significantly divert efforts and resources of our management personnel. An adverse determination in any such proceeding could subject us to significant liability and damage our market reputation and prevent us from achieving increased sales and market share. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase of our products.

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Capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our growers and customers.

The capital and credit markets have experienced increased volatility and disruption over the past several years, making it more difficult for companies to access those markets. Although we believe that our operating cash flows, recenthistorical access to the capital market and our lines of credit will permit ustous to meet our financing needs for the foreseeable future, continued or increased volatility and disruption in the capital and credit markets may impair our liquidity or increase our costs of borrowing, if we need to access the credit market. Our business could also be negatively impacted if our growers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.

If we are unable to protect our intellectual property rights, our business and prospects may be harmed.

Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings, processes, technologies and materials owned by or used by us or our growers. If any competitors independently develop new traits, seeds, seedlings, processes or technologies that customers or end users determine are better than our existing products, such developments could adversely affect our competitive position.

In addition tosome cases, we obtain patent protection or plant breeder rights registrations for somecertain of our alfalfa seed products.   However, our principal method of guarding our proprietary varieties that we acquired from DuPont Pioneer,and hybrids is exercising a high degree of control over the USPTO has granted us patents covering stevia plant varieties SW201 and SW227 for the fresh and dry leaf market and varieties SW107 and SW 129 for the commercial processing market.supply chain.  We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require our employees, consultants, advisors and any third parties who have access to our proprietary know- how,know-how, information, or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, we guard our proprietary property by exercising a high degree of control over the alfalfa seed supply chain from our S&W varieties, as well as over our stevia material, while our newly-acquired hybrid sorghum and sunflower seed varieties are made available pursuant to licensing arrangements that reasonably safeguard our ownership and control of our intellectual property. In Australia, S&W Australia has secured protection under the PBR Act for its most popular varieties.

However, evenEven with these measures in place, it would be possible for persons with access to our seed or plants grown from our seed to reproduce and market products substantially similar to our proprietary seed varieties, which could significantly harm our business and our reputation.  We may be unable to obtain further protection for our intellectual property in the United States and other key jurisdictions, and thirdThird parties may challenge the validity, enforceability orand scope of our existing patents, which may resultintellectual property rights.  Furthermore, we sell our products in such patents being cancelled, narrowed, invalidated or held unenforceable. Furthermore,more than 30 countries and the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. Litigation may be necessary to protect our

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proprietary property and determine the validity and scope of the proprietary rights of competitors. Intellectual property litigation could result in substantial costs and diversion of our management and other resources. If we are unable to successfully protect our intellectual property rights, our competitors could market products that compete with our proprietary products without obtaining a license from us.

We currently depend on DuPont Pioneer for the majority of our sales of dormant alfalfa seed and have agreed to limitations on other sales of the seed varieties we sell to DuPont Pioneer. Any decline in DuPont Pioneer's demand will have a material adverse effect on our results of operations.

DuPont Pioneer was our largest customer in fiscal 2018. Our distribution agreement with DuPont Pioneer limits our ability to otherwise sell the specific varieties of dormant alfalfa seed we supply to DuPont Pioneer in the sales territory covered by DuPont Pioneer. The DuPont Pioneer sales territory includes the United States, Europe and many other of the principal dormant alfalfa seed markets. In these markets, our ability to sell the specified varieties through distribution channels other than DuPont Pioneer is limited to certain blended, private label and variety not stated forms and cannot exceed a specified percentage of DuPont Pioneer's demand. As result of these limitations, sales to DuPont Pioneer represent and, for the foreseeable future will continue to represent, the majority of our sales of dormant alfalfa seed. Any decline in DuPont Pioneer's demand for our dormant alfalfa seed products will have a material adverse effect on our results of operations.

DuPont Pioneer may purchase alfalfa seed from other sources and reduce its purchase commitments to us.

Under our distribution agreement with DuPont Pioneer, DuPont Pioneer has made minimum purchase commitments for our dormant alfalfa seed products that extend through September 30, 2024. However, there are circumstances under which DuPont Pioneer is permitted to purchase seed from other sources and reduce its purchase commitments to us, including:

• Production Shortfalls. If in any year we fail to produce an adequate supply of alfalfa seed to meet DuPont Pioneer's demand, and we are unable to source alternative supply, DuPont Pioneer may purchase seed from third parties to meet the shortfall in our production.
• New Products. If a third party offers for license a new product (a new transgenic and/or novel trait for alfalfa seed) that offers a superior value pricing opportunity compared to varieties we offer, and DuPont Pioneer wishes to sell the new product, we would have a one-year period to obtain rights to produce and sell the new product to DuPont Pioneer. If we fail to obtain rights to the new product within the one-year period or otherwise do not offer the new product on substantially the same terms as offered by a third party, then DuPont Pioneer would be free to purchase the new product from the third party, and DuPont Pioneer's minimum purchase commitment to us would be reduced by the amount of the new product purchased.

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• GMO-Traited Varieties. Our December 2014 acquisition of DuPont Pioneer's conventional dormant alfalfa varieties contemplated a potential subsequent acquisition of DuPont Pioneer's GMO-traited alfalfa varieties and provided for an interim production agreement under which we produced those GMO-traited varieties for DuPont Pioneer. We did not (and do not expect to) complete the acquisition of DuPont Pioneer's GMO-traited alfalfa varieties. Our production agreement with DuPont Pioneer (relating to GMO-traited varieties) will terminate on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020.

Any reduction in DuPont Pioneer's purchase commitment to us would have a material adverse effect on our results of operations.

We are committed to sell dormant alfalfa seed to DuPont Pioneer at initial fixed prices with fixed subsequent maximum price increases per year. Increases in our costs of production at rates higher than our contractual ability to increase prices would erode our profit margins and could have a material adverse effect on our results of operations.

Under our distribution agreement with DuPont Pioneer, we were committed to sell dormant alfalfa seed at initial fixed prices that can only increase by up to a fixed percentage per year by variety. Although DuPont Pioneer has agreed to discuss in good faith an increase in the fixed maximum percentage price increase cap for any sales year in which an increase in grower compensation costs due to changes in market conditions cause our total production costs to increase at a percentage exceeding the amount of the cap, we cannot be certain that any such discussions will result in additional pricing flexibility for us. If our grower compensation costs or other productions costs increase at a rate greater than the fixed maximum percentage increase per year, our profit margins would erode, and we could potentially be required to sell product at a loss. Any such change in our cost structure would have a material adverse effect on our results of operations.

If we fail to perform our obligations under our distribution agreement and production agreement with DuPont Pioneer, DuPont Pioneer could terminate the agreements and reduce or eliminate purchases of alfalfa seed from us, and we could be exposed to claims for damages.

The DuPont Pioneer distribution agreement and the production agreement impose numerous obligations on us relating to, among other things, product and service quality and compliance with laws and third party obligations. Both the distribution agreement and the production agreement permit DuPont Pioneer to terminate the agreement if we materially breach the agreement and fail to cure the breach within a 60-day notice period, or in the case of certain bankruptcy or insolvency events. DuPont Pioneer can also immediately terminate the production agreement if we breach certain agreements or policies with FGI related to the production of GMO-traited varieties. If DuPont Pioneer terminates either the distribution agreement or the production agreement, DuPont Pioneer could reduce or eliminate altogether its purchase of alfalfa seed from us, and we could be left with inventory of seed that it would be difficult or impossible for us to dispose of on commercially reasonable terms. In addition, we could be exposed to significant claims for damages to DuPont Pioneer if the termination of an agreement results from our material breach of the agreement.

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If we do not meet seed planting and production commitments to DuPont Pioneer, we could incur significant financial penalties.

Under our distribution agreement with DuPont Pioneer, if we fail to plant sufficient acreage (based on historical yields), together with any carryover inventory, to meet 110% of DuPont Pioneer's demand, and we actually fail to meet DuPont Pioneer's demand, then we are obligated to pay DuPont Pioneer a cash penalty based on the amount of the shortfall. We contract all of our production of dormant alfalfa seed with third-party growers. If, in any year, we are unable to obtain sufficient grower commitments to meet DuPont Pioneer's demand, we could be obligated to pay significant financial penalties to DuPont Pioneer.

Risks Related to our Financial Position and Investment in Our Securities

Raising additional capital may cause dilution to our stockholders or restrict our operations.

From time to time, we expect to finance our cash needs through a combination of equity and debt financings, as well as potentially entering into collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest could be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may be secured by all or a portion of our assets.

For example, on September 5, 2018, we entered into the September SPA with MFP and issued 1,607,717 shares of common stock at the Initial Closing, and are obligated to issue 7,235 shares of newly designated Series A Convertible Preferred Stock of the Company for aggregate gross proceeds of $22.5 million at the Second Closing. As a result of the Initial Closing, our investors other than MFP experienced dilution of their ownership interests. If the Second Closing is completed, our investors will experience further dilution.

The value of our common stock can be volatile.

Our common stock is listed on the Nasdaq Capital Market. The overall market and the price of our common stock can fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including but not limited to:

economic status and trends in the dairy industry, which underlies demand for our alfalfa seed;

market conditions for alfalfa seed in the Middle East and North Africa, where a substantial amount of our seed historically has been purchased by end users;

quarterly fluctuations in our operating results;

Our quarter-to-quarter performance may vary substantially, and this variance, as well as general market conditions, may cause the price of our securities to fluctuate greatly and potentially expose us to litigation.

Our alfalfa seed business which is our primary source of revenue, is highly seasonal because it is tied to the growing and harvesting seasons. If sales in particular quarters are lower than expected, our operating results for these quarters could cause our share price to decline.

Our future expense estimates are based, in large part, on estimates of future revenue, which is difficult to predict. We expect to continue to make significant expenditures in order to expand production, sales, marketing and processes. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected revenue shortfall. If our increased expenses are not accompanied by increased revenue in the same quarter, our quarterly operating results would be harmed.

In one or more future quarters, our results of operations may fall below the expectations of investors or analysts, and the trading price of our securities may decline as a consequence. We believe that quarter-to-quarter comparisons of our operating results will not be a good indication of our future performance and should not be relied upon to predict the future performance of our stock price.

In the past, companies that have experienced volatility in the market price of their stock have often been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.

If we issue shares of preferred stock, the holdings of those owning our common stock could be diluted or subordinated to the rights of the holders of preferred stock.

Our board of directors is authorized by our articles of incorporation to establish classes or series of preferred stock and fix the designation, powers, preferences and rights of the shares of each such class or series without any further vote or action by our stockholders. Any shares of preferred stock so issued could have priority over our common stock with respect to dividend or liquidation rights. For example, we are obligated to issue shares of preferred stock in the Second Closing of our September 2018 financing and the terms of such shares of preferred stock provide for a liquidation preference. If these shares of preferred stock are not converted into shares of common stock, they could subordinate your holdings to the higher priority rights of the holders of shares of such preferred stock. In addition, each share of the preferred stock is, following satisfaction of certain conditions, into 1,000 shares of common stock, and this conversion could cause further dilution to the existing holders of our common stock.

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Our actual operating results may differ significantly from our guidance.

We routinely release annual guidance in our quarterly earnings releases, our quarterly earnings conference calls and in other forums we consider appropriate. Such guidance regarding our future performance represents our management's estimates as of the date of release or other communication. This guidance, which includes forward-looking statements, is based on projections prepared by our management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our independent registered public accountants nor any other independent expert or outside party compiles or examines the projections, and accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.

Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. If we issue guidance, we will generally state possible outcomes as high and low ranges or approximations that are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of the suggested ranges or approximations. The principal reason that we would release guidance would be to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons.

Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance, when given, is only an estimate of what management believes is realizable as of the date of release or other communication. Actual results will vary from our guidance, and the variations may be material. In light of the foregoing, investors are urged not to rely upon, or otherwise consider, our guidance in making an investment decision about our securities.

We do not anticipate declaring any cash dividends on our common stock.

We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. If we do not pay cash dividends, our stock may be less valuable to investors because a return on their investment will only occur if our stock price appreciates.

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Anti-takeover provisions and our right to issue preferred stock could make a third-party acquisition of us difficult.

Our articles of incorporation and bylaws contain provisions that would make it more difficult for a third party to acquire control of us, including a provision that our board of directors may issue preferred stock without stockholder approval. In addition, certain anti-takeover provisions of Nevada law, if and when applicable, could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to our stockholders.

None.

The following is a description of our material properties:

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We believe that our current facilities are adequate for our needs for the immediate future and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations on commercially reasonable terms

From time to time, we are involved in lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.

Not applicable.

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PART II

Market Information Regarding Our Common Stock

Our common stock is traded on the Nasdaq Capital Market under the symbol "SANW." “SANW.” The following table sets forth the range of high and low sales prices per share of common stock as reported on Nasdaq for the periods indicated. The closing price of our common stock on September 17, 20182019 was $3.05.$2.34.

Holders

As of September 17, 2018,18, 2019, we had 25,956,25233,283,695 shares of common stock outstanding held by 3537 stockholders of record. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record holders.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant. In addition, our credit facility with KeyBank contains restrictions on our ability to pay dividends.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

There were no unregistered sales of equity securities in 20182019 fiscal year that have not been previously reported on a Current Report on Form 8-K.

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Purchases of Equity Securities by the Issuer and Affiliate Purchasers

None.

As a smaller reporting company, we are not required to provide information typically disclosed under this item.

You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included in Part II, Item 8, "Financial Statements"“Financial Statements” of this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as referred to on page 2 of this Annual Report on Form 10-K. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, "Risk“Risk Factors."”

Executive Overview

Founded in 1980 and headquartered in Sacramento, California, weWe are a global multi-crop, middle-market agricultural company. Grounded in our historical expertise and what we believe is our present leading positionWe are market leaders in the breeding, production and sale of alfalfa seed we continue to build towards our goal of being recognized as the world's preferred proprietary forage, grain and specialty crop seed company. In addition to our primary activities in alfalfa seed, we have recently expanded our product portfolio by adding hybrid sorghum and sunflower seed, which complement our alfalfa seed offerings by allowing us to leverage our infrastructure, research and development expertise and our distribution channels, as we begin to diversify into what we believe are higher margin opportunities.seed. We also continuehave a growing commercial market presence in sunflower and maintain an active stevia development program.

Our seed platform develops and supplies high quality germplasm designed to conduct our stevia breeding program, having been granted four patents by the U.S. Patent and Trademark Office.

Following our initial public offering in fiscal year 2010, we expanded certain pre-existing business initiatives and added new ones, including:

• diversifying our production geographically by expanding from solely producingproduce higher yields for farmers worldwide. We produce approximately 250 seed products in the San Joaquin ValleyWestern United States, Canada, Australia, Europe and South Africa for sale in more than 30 countries. We maintain an active product pipeline and expect to introduce more than 20 new products during the 2020-2022 fiscal years.

  Founded in 1980, we began our operations as a limited producer of California to initially adding production capability in the Imperial Valley of California, then expanding into Australia (primarily South Australia) and, most recently, adding production in other western states and Canada;

• expanding from solely offering non-dormant varieties to now having a full range of both dormant and non-dormant varieties;

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• expanding the depth and breadth of our research and development capabilities in order to develop new varieties of both dormant and non-dormant alfalfa seed with traits sought after by our existingvarieties bred for warm climates and future customers;
• diversifying into complementary proprietary crops by acquiring the assets of a Queensland, Australia company specializing in breeding and licensing of hybrid sorghum and sunflower seed;
• expanding our distribution channels and customer base, initially through the acquisition of the customer list of a key international customer in the Middle East in July 2011, and thereafter, through certain strategic acquisitions;
• expanding our sales geographically both through the expansion of our product offerings to make available product needed in regions we historically did not cover and through an expansion of our sales and marketing efforts generally; and
• implementing a stevia breeding program focused on the potential development of new steviahigh-yields, including varieties that incorporatecan thrive in poor, saline soils. Over the most desirable characteristics of this all-natural, zero calorie sweetener.

We years we have accomplished these expansion initiativesbuilt a diversified, global agricultural platform through a combination of organic growth and strategic acquisitions, foremost among them:

• the acquisition in July 2011 of certain intangible assets, including the customer information, related to the field seed and small grain business of Genetics International, Inc., which had previously operated in the Middle East and North Africa ("MENA") and which began our transition into selling directly to MENA distributors;
including:
• the

  Our 2012 acquisition of Imperial Valley Seeds, Inc. ("IVS") in October 2012,, which enabled us to expand production of non-GMO alfalfa seed into California's Imperial Valley, thereby ensuring a non- GMOnon-GMO uncontaminated source of alfalfa seed due to the prohibition on growing GMO crops in the Imperial Valley, as well as enabling us to diversify our production areas and distribution channels;

theOur 2012 acquisition of a portfolio of dormant alfalfa seed germplasm, in August 2012 to launchwhich launched our entry into the dormant alfalfa market;

theOur 2013 acquisition of Seed Genetics International Pty Ltd (now S&W Seed Company Australia Pty Ltd), the leading local producer of non-dormant alfalfa seed in South Australia, S&W Seed Company Australia Pty Ltd (f/k/a Seed Genetics International Pty Ltd, "S&W Australia")which made us the largest non-dormant alfalfa seed company in April 2013, which greatly expanded ourthe world, with production capabilities and geographic diversity;

in both hemispheres;

theOur 2014 acquisition of the alfalfa production and research facility assets and conventional (non-GMO) alfalfa germplasm from DuPont Pioneer, in December 2014 (the "Pioneer Acquisition"), therebywhich substantially expanding uponbroadened and improved our initial entrance into the dormant alfalfa seed market that began in 2012germplasm portfolio and enabling us to greatly expanddeepened our production, and research and product development capabilities;

On May 22, 2019, we restructured our relationship with Pioneer, a subsidiary of Corteva, by entering into two agreements under which, among other things:

As a result of the May 2019 transactions with Corteva, we recognized licensing revenue of $34.2 million and wrote-off $6.0 million of intangible assets.  We also attribute our $11.9 million goodwill impairment charge largely to the termination of the production and distribution agreements with Corteva.  

As a result of the 2018 Chromatin acquisition and the 2019 restructuring of our relationship with Corteva, we expect that our results of operations for fiscal 2020 and future periods will differ significantly from prior periods as the mix of our product portfolio beyondrebalances away from a reliance on alfalfa sales (sales of alfalfa seed breeding and production and stevia R&D; and

We believe our 2013 combination with S&W Australia created the world's largest non-dormantgenerate alfalfa seed companyrevenue of approximately $34 million to Corteva over the fiscal 2020 and gave usfiscal 2021 combined periods as the competitive advantages of year-round production in that market. With the completion of the acquisition of dormant alfalfa seed assets from DuPont Pioneer in December 2014, we believe we have become the largest alfalfa seed company worldwide (by volume), with industry-leading research and development, as well as production and distribution capabilities in both hemispheres and the abilityis delivered to supply proprietary dormant and non-dormant alfalfa seed. Our operations span the world's alfalfa seed production regions, with operations in the San Joaquin and Imperial Valleys of California, five additional Western states, Australia and three provinces in Canada.

Our May 2016 acquisition of the hybrid sorghum and sunflower germplasm business and assets of SV Genetics as well as our April 2018 acquisition of a portfolio of sorghum germplasm signals management's commitment to our strategy of identifying opportunities to diversify our product lines and improve our gross margins.

The Asset Purchase and Sale Agreement for the Pioneer Acquisition previously contemplated that, subject to the satisfaction of certain conditions, we would acquire certain GMO germplasm varieties and other related assets from DuPont Pioneer for a purchase price of $7.0 million. The conditions for this additional acquisition were not satisfied by the required date, and DuPont Pioneer has informed us that it does not intend to extend the deadline or complete the transaction at this point in time. As a result, weCorteva through February 2021.  We do not expect any other significant revenue from sales to close the acquisition of DuPont Pioneer's GMO germplasm varieties and related assetsCorteva in the previously disclosed structure or pay the $7,000,000 purchase price.

We continue to have a long-term distribution agreement with DuPont Pioneer regarding conventional (non GMO) varieties, the term of which extends into 2024. Our production agreement with DuPont Pioneer (relating to GMO-traited varieties) terminates on May 31, 2019. As a result, DuPont Pioneer's minimum purchase commitments from us will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020. Although the production agreement will terminate on May 31, 2019, the Company expects that the DuPont Pioneer distribution agreement will continue to be a significant source of the Company's annual revenue through December 2024.

We are in discussions with DuPont Pioneer regarding the orderly transition of activities previously conducted by us under the production and research agreements (relating to GMO-traited varieties), as well as the possibility of certain ongoing commercial relationships between us relating to GMO-traited varieties, among other things.

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future.

Components of Our Statements of Operations Data

Revenue and Cost of Revenue

We derive most of our revenue from the sale of our proprietary alfalfa seed varieties.varieties and hybrids. We expect that over the next several years, a substantial majority of our revenue will continue to be generated from the sale of alfalfa, sorghum, and sunflower seed, although we are continually assessing other possible product offerings or means to increase revenue, including expanding into other, higher margin crops. In late fiscal year 2016, we began that expansion with the acquisition of the hybrid sorghum and sunflower business and assets of SV Genetics. Revenue from the SV Genetics germplasm will be primarily derived from the sale of sorghum and sunflower seed as well as royalty-based payments set forth in various licensing agreements.

Fiscal year 2016 was the first full fiscal year in which we had a full range of non-dormant and dormant alfalfa seed varieties. This is expected to enable us to significantly expand the geographic reach of our sales efforts. The mix of our product offerings will continue to change over time with the introduction of new alfalfa seed varieties and hybrids resulting from our robust research and development efforts, including our potential expansion into gene edited varietiesgene-edited products in future periods. Currently, we have a long-term distribution agreement with DuPont Pioneer, which we expect will be the source of a significant portion of our annual revenue through December 2024.

Our revenue will fluctuate depending on the timing of orders from our customers and distributors. Because some of our large customers and distributors order in bulk only one or two times per year, our product revenue may fluctuate significantly from period to period. However, some of this fluctuation is offset by having operations in both the northern and southern hemispheres.

Our stevia breeding program has yet to generate any meaningful revenue. However, management continues to evaluate this portion of our business and assess various means to monetize the results of our effort to breed new, better tasting stevia varieties. Such potential opportunities include possible licensing agreements and royalty-based agreements.

Cost of revenue relates to sale of our seed varietiesproducts and consists of the cost of procuring seed, plant conditioning and packaging costs, direct labor and raw materials and overhead costs.

Operating Expenses

Seed and stevia research and development expenses consist of costs incurred in the discovery, development, breeding and testing of new products incorporating the traits we have specifically selected.

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These expenses consist primarily of employee salaries and benefits, consultant services, land leased for field trials, chemicals and supplies and other external expenses. With the acquisition of SV Genetics in late fiscal 2016, similar costs are now being incurred as we continue the research and development efforts begun by SV Genetics in the development of new varieties of hybrid sorghum and sunflower seed germplasm. Because we have been in the alfalfa seed breeding business since our inception in 1980, we have expended far more resources in development of our proprietary alfalfa seed varieties throughout our history than on our stevia breeding program, which we commenced in fiscal year 2010.

In fiscal year 2013, we made the decision to shift the focus of our stevia program away from commercial production and towards the breeding of improved varieties of stevia. We have continued that effort, which has resulted in the granting by the USPTO of four patents covering stevia plant varieties SW 107, SW 201, SW 129 and SW 227.

Our research and development expenses increased significantly with the acquisition of the alfalfa research and development assets of DuPont Pioneer in December 2014. We also have expanded our genetics research both internally and in collaboration with third parties. In addition, we acquired additional research and development operations in connection with our May 2016 acquisition of SV Genetics that we expect will factor into an overall increase in R&D expense. Overall, we have been focused on controlling research and development expenses, while balancing that objective against the recognition that continued advancement in product development is an important part of our strategic planning. We intend to focus our resources on high value activities.  For alfalfa seed, we plan to invest in further development of differentiating forage quality traits.  For sorghum, we plan to invest in higher value grain products as well as development of proprietary herbicide tolerance traits. We expect our research and development expenses will increase in 2020 and fluctuate from period to period as a result of the timing of various research and development projects.

Our internal research and development costs are expensed as incurred, while third party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or construed for research and development activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset.

Selling, general, and administrative expenses consist primarily of employee costs, including salaries, employee benefits and share-based compensation, as well as professional service fees, insurance, marketing, travel and entertainment expense, public company expense and other overhead costs. We proactively take steps on an ongoing basis to control selling, general and administrative expense as much as is reasonably possible.

Most of the depreciation and amortization expense on our statement of operations consists of amortization expense. We amortize intangible assets, including those acquired from DuPont PioneerChromatin in December 20142018 and from SV Genetics in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of periods of 10-30 years for technology/IP/germplasm, 10-205-20 years for customer

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relationships and trade names and 3-20 years for other intangible assets. Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset, consisting of periods of 5-285-35 years for buildings, 3-202-20 years for machinery and equipment and 3-52-5 years for vehicles.

Other expense consists primarily of foreign currency gains and losses, changes in the fair value of derivative liabilities related to our warrants, changes in the estimated fair value of our contingent consideration obligationsassets held for sale and interest expense in connection with amortization of debt discount. In addition, interestInterest expense primarily consists of interest costs related to outstanding borrowings on our credit facilities, including our current KeyBank revolving line of credit and on S&W Australia'sAustralia’s credit facilities, our three-year secured promissory note issued in December 2014 in connection with the DuPont Pioneer Acquisition which was paid off on December 1, 2017, and our newly issued secured promissory notesfinancing with Conterra Agricultural Capital, LLC ("Conterra").

Our effective tax rate is based on income, statutory tax rates, differences in the deductibility of certain expenses and inclusion of certain income items between financial statement and tax return purposes, and tax planning opportunities available to us in the various jurisdictions in which we operate. Under U.S. GAAP, if we determine that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the benefit. Tax regulations require certain items to be included in the tax return at different times than when those items are required to be recorded in the consolidated financial statements. As a result, our effective tax rate reflected in our consolidated financial statements is different from that reported in our tax returns. Some of these differences are permanent, such as meals and entertainment expenses that are not fully deductible on our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our consolidated statements of operations. In the fourth quarter of fiscal year 2017, we recorded a valuation allowance against all of our deferred tax assets. The full valuation allowance was recorded during the fiscal year 2017 as a result of changes to our operating results and future projections, resulting from a recent decline in export sales to Saudi Arabia. In addition, our available tax planning strategies are currently not expected to overcome the uncertainty of the Saudi Arabian market. As a result, of these factors, we don'tdon’t believe that it is more likely than not that our deferred tax assets will be realized.

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Results of Operations

Fiscal Year Ended June 30, 20182019 Compared to the Fiscal Year Ended June 30, 20172018

Revenue for fiscal year ended June 30, 20182019 was $64,085,510$109.7 million compared to $75,373,810$64.1 million for the year ended June 30, 2017. 2018. The $11,288,300 decrease$45.6 million increase in revenue for the fiscal year ended June 30, 20182019 was primarily due to $34.2 million of licensing revenue from Pioneer.  In May 2019, we terminated the production and distribution agreements with Pioneer, from which we recorded sales of approximately $37.6 million during the year ended June 30, 2019, which was a decrease of $1.9 million from the prior year amount of $39.5 million.

As part of the termination, Pioneer’s parent company, Corteva, agreed to purchase from us certain quantities of seed held by us as of that date that Pioneer was not previously obligated to purchase.  Those quantities of seed will be delivered to Corteva periodically through February 2021.  Contemporaneously with the termination, we entered into a license with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties.

We received a payment of $45.0 million in May 2019 from Pioneer/Corteva, and will receive quarterly payments through February 2021, which total approximately $25.0 million.  Approximately $34.2 million of these amounts has been allocated to the license to the Company’s alfalfa varieties, which amount is included in revenue in the consolidated statement of operations for the year ended June 30, 2019.  The Company allocated approximately $1.8 million to an unbilled receivable related to revenue recognition at contract termination and the remaining amounts will be recognized as revenue as the seed is delivered to Corteva through February 2021.  

The increase in revenue for the fiscal year ended June 30, 2019 can also be attributed to $12.4 million of sorghum revenue from the recently acquired sorghum operations. These increases were partially offset by a $2.5 million decrease in revenue from sales to the Saudi Arabia markets of approximately $10.6 million. Regulatory uncertainty in Saudi Arabia surrounding water use restrictions for large forage producers caused customers in Sudan due to the regiongeo-political issues facing that country. In addition, revenues into Latin America were down due to defer purchases and/or reduce inventory carrying levels. The outlook for demand for ourcontinued softness in the non-dormant varieties in Saudi Arabia over the next two to four years continues to be uncertain because of the potential for water use restrictions and further regulations from the Saudi Arabian government on water usage.alfalfa seed markets.

Sales into international markets represented 20% and 35% and 45% of our total revenue during the years ended June 30, 20182019 and 2017,2018, respectively. Domestic revenue accounted for 65%80% and 55%65% of our total revenue for the years ended June 30, 20182019 and 2017,2018, respectively. The increase in domestic revenue as a percentage of total revenue is primarily attributable to reduced saleslicensing revenue related to customers in Saudi Arabia.

We recorded salesthe termination of approximately $39.5 million from our distribution and production agreements with DuPont Pioneer during the year ended June 30, 2018, which was an increase of $2.6 million from the prior year amount of $36.9 million. Our productionPioneer/Corteva agreement with DuPont Pioneer (relating to GMO-traited varieties) terminates on May 31, 2019.mentioned above. As a result, DuPont Pioneer's minimum purchase commitments from uswe anticipate that international sales will be reduced by approximately $6 million annually, commencing with our Fiscal Year 2020. Although the production agreement will terminate on May 31, 2019, we expect sales to DuPont Pioneer under our distribution agreement will continue to representincrease as a significant portionpercentage of our domestictotal sales as well as overall sales, through December 2024.

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in fiscal 2020.

The following table shows revenue from external sources by destination country:

Cost of revenue of $49,332,052$69.0 million for the year ended June 30, 2019 was equal to 62.9% of total revenue for the year ended June 30, 2019, while the cost of revenue of $49.3 million for the year ended June 30, 2018 was equal to 77.0% of total revenue while the cost of revenue of $59,232,846 for the year ended June 30, 2017 was 78.6% of revenue.2018. Cost of revenue decreased on a dollarpercentage basis primarily due to the decrease in revenue as well as a reduction in product costs.license agreement with Corteva.

Total gross profit margin for the fiscal year ended June 30, 20182019 was 23.0%37.1% compared to 21.4%23.0% in the prior year.year ended June 30, 2018. The increase in gross profit margins was primarily due to productthe license agreement with Corteva, partially offset by a lower of cost or net realizable value adjustment made to inventory.

Excluding the $34.2 million of license revenue mentioned above, gross profit margins for the year ended June 30, 2019, would have been 8.6%. The decrease in gross margins can be attributed to a $8.8 million write-down of inventory.  Excluding the $8.8 million of inventory write-down and the $34.2 million of license revenue, gross margins would have been 20.3% for the year ended June 30, 2019. The remaining decrease in gross margins for the year ended June 30, 2019 compared to the year ended June 30, 2018, relates to lower margin alfalfa sales mix during the current year where we had a higher concentration of sales, as a percentage of total revenue, to DuPont Pioneer which are higher margin sales. Additionally, the product costs of proprietary seed are lower in the current year due to more favorable production contractscompetitive pricing pressures in international markets.

Selling, General and arrangements.Administrative Expenses

Selling, General and Administrative ("(“SG&A"&A”) expense for the year ended June 30, 20182019 totaled $10,503,020$17.5 million compared to $11,794,024$10.5 million for the year ended June 30, 2017.2018. The $1.3$7.0 million decreaseincrease in SG&A expense versus the prior year was primarily due to a decrease$2.1 million in stock-based compensationSG&A expenses following our October 2018 acquisition of $660,852, a decrease inChromatin, $1.2 million of non-recurring transactions costs related to the Chromatin acquisition, $1.2 million of bad debt expense of $370,610associated with our reserve for Sudan receivables, $0.8 million in additional compensation and benefits costs associated with sales and management personnel, as well as other expense reductions. increases. As a percentage of revenue, SG&A expenses were 16.4% in15.9% for the year ended June 30, 2018,2019, compared to 15.6% in16.4% for the prior year.year ended June 30, 2018.

Research and development expenses for the year ended June 30, 20182019 totaled $3,887,723$6.3 million compared to $3,032,112$3.9 million for the year ended June 30, 2017.2018. The $855,611$2.4 million increase in research and development expense versus the prior year is driven by $1.8 million of additional research and development activities incurred in connection with the Chromatin business following our October 2018 acquisition, as well as additional investment in our hybrid sorghum and sunflower programs as well as our stevia program.programs.  We expect our research and development spend for fiscal 20192020 to increase as we expand our hybrid sorghum and sunflower programs.

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Depreciation and amortization expense for the year ended June 30, 20182019 was $3,439,287$4.1 million compared to $3,325,743$3.4 million for the year ended June 30, 2017.2018. Included in the amount was amortization expense for intangible assets, which totaled $2,124,333 $2.1 million for the year ended June 30, 20182019 and $2,223,909 $2.1 million for the year ended June 30, 2017.2018. The $113,544$0.7 million increase in depreciation and amortization expense over the prior year is primarily driven by additional depreciation expense associated with fixed asset additions.Chromatin expenses following our October 2018 acquisition.

We did not recordrecorded an impairment charge of $11.9 million during the year ended June 30, 2018. 2019. During the year ended June 30, 2017,2018, we recordeddid not record an impairment charge of $319,001.charge. The impairment charge related to the full impairment of the Company’s goodwill and was a result of the termination of the distribution agreement with Pioneer/Corteva.

The termination of the production and distribution agreements with Pioneer was, in our view, a potential indicator of impairment due to the significant reduction in future forecasted revenues. As a result, we initiated an impairment test and concluded that the entire goodwill balance was impaired.

Intangible Asset Impairment Charges

We recorded an impairment charge of $6.0 million during the year ended June 30, 2019. During the year ended June 30, 2018, we did not record an impairment charge. The impairment charge was a result of the termination of the distribution agreement with Pioneer.

The intangible asset write-off related to the carrying value of certain stand establishment assetsthe distribution agreement, which were deemed impaired and uncollectible from a certain sub-leasee.previously was being amortized over the contractual life of the agreement.

We incurredrecorded a foreign currency gain of $0.1 million for the year ended June 30, 2019 compared to a gain of $12,584 for the year ended June 30, 2018 compared to a loss of $1,388 for the year ended June 30, 2017.2018. The foreign currency gains and losses are primarily associated with S&W Australia, our wholly-owned subsidiary in Australia.

The derivative warrant liability was considered a level 3 fair value financial instrument and was measured at each reporting period until December 31, 2017 at which time the warrants were reclassified to equity due to the expiration of the down-round price protection provision. We recorded $0 in the year ended June 30, 2019 compared to a non-cash change in derivative warrant liability gain of $431,300$0.4 million in the year ended June 30, 2018 compared to a gain of $1,517,500 in the year ended June 30, 2017.2018. The gain represents the decrease in fair value of the outstanding warrants issued in December 2014.

The contingent consideration obligations are considered level 3 fair value financial instruments and will be measured at each reporting period. There was no contingent consideration obligation expense during the year ended June 30, 2018. The $231,584 charge to change in contingent consideration obligations expense for the year ended June 30, 2017 represented the increase in the estimated fair value of the contingent consideration obligations during that respective period2014 due to the passage of time and decrease in the present value discount factor used to estimate the fair valueour stock price.

Change in Estimated Value of the contingent consideration obligations.Assets Held for Sale

Loss on equity method investment totaledThe Company recorded $1.5 million and $0 and $144,841of expenses for the years ended June 30, 20182019 and 2017,June 30, 2018, respectively. The lossexpense in the priorcurrent fiscal year representedrelates to our 50% shareestimated change in value of losses incurred by our joint corporation (S&W Semillas S.A.) in Argentina. Our carrying valuecertain properties held for sale.

Reduction of Anticipated Loss on Sub-Lease Land

The Company recorded $0.1 million and $0 of expenses for the years ended June 30, 2019 and June 30, 2018, respectively. The expense in the equity method investee company was reducedcurrent fiscal year relates to zero in fiscal 2017, accordingly, no further losses will be recorded in our consolidated financial statements related to this equity method investment.reduction of anticipated loss on sub-lease land.

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Non-cash amortization of debt discount expense for the year ended June 30, 20182019 was $169,045$0.3 million compared to $1,176,023$0.2 million for the year ended June 30, 2017.2018. The expense in the current periodyear represents the amortization of the debt issuance costs associated with our KeyBank working capital facility andfacilities, our secured property note, and our equipment notes with Conterra.capital leases. The expense in the prior year primarily represents the amortization of the debt discount, beneficial conversion feature and debt issuance costs associated with the convertible debentures issued December 31, 2014 and the debt issuance costs associated with our KeyBank working capital facility. As of March 1, 2017, the convertible debentures have been fully retiredfacilities and accordingly, the amortization of debt discount associated with the convertible debentures is complete.our secured property note.

Interest expense for the year ended June 30, 20182019 totaled $1,863,288$2.9 million compared to $1,324,945$1.9 million for the year ended June 30, 2017.2018. Interest expense for the year ended June 30, 2019 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, the secured property loan entered into in November 2017, and equipment capital leases. Interest expense for the year ended June 30, 2018 primarily consisted of interest incurred on the working capital credit facilities with KeyBank and NAB, and the new secured property and equipment loans entered into in November 2017. Interest expense for the year ended June 30, 2017 primarily consisted of interest incurred on the convertible debentures issued on December 31, 2014, on the note payable issued to DuPont Pioneer as part ofwhich was paid off in November 2017, the purchase consideration for the DuPont Pioneer Acquisitionsecured property loan entered into in November 2017 and the workingequipment capital credit facilities with KeyBank and NAB.leases. The $538,343$1.0 million increase in interest expense for the year ended June 30, 20182019 is primarily driven by $592,128 of interest on the secured property and equipment loans as well as higheradditional interest rates on the working capital credit facilities partially offset by a $150,000 reduction indue to increased levels of borrowings and interest expense from the pay-off of the DuPont Pioneer note and a $168,769 reduction in interest expense from the pay-off of the convertible debentures.rates.

Income tax expensebenefit totaled $143,049$0.2 million for the year ended June 30, 20182019 compared to income tax expense of $7,627,705$0.1 million for the year ended June 30, 2017.2018. Our effective tax rate was 1.6% for the year ended June 30, 2019 compared to (3.1%) for the year ended June 30, 2018 compared to 181.9% for the year ended June 30, 2017.2018.  The decreaseincrease in our effective tax rate for the year ended June

30, 20182019 was primarily attributable to the fulla slight increase in our valuation allowance recorded against substantially all of our deferred tax assets infor the year ended June 30, 2017.2019 compared to the year ended June 30, 2018.  Previously, we had certain intangible assets with indefinite lives for financial reporting purposes which produced deferred tax liabilities that could not be offset by a valuation allowance. During fiscal year 2019, we wrote down a majority of these assets for financial reporting purposes, generating a net deferred tax asset balance with respect to these indefinite lived intangible assets, which is now fully offset by our valuation allowance. The increase to the valuation allowance in the current year generated a tax benefit for the Company and a positive effective tax rate, as opposed to the previous year when the increase in our net deferred tax liability balance produced an income tax provision and a negative effective tax rate. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operating results, as such results are generally incorporated in our net operating loss deferred tax asset position, which has a full valuation allowance against it.  However, we did record tax benefit related to the write-down of our prior year net deferred tax liability balance as discussed above. We also recorded tax expense related to certain other factorsitems occurring throughout the year.  For example, we have certain intangible assets with indefinite lives for financial reporting purposes. The write down of these assets cannot be assumed and thus, the deferredrecorded income tax liability created by the difference in the basis in these assets for financial reporting and tax purposes cannot be used as a source of taxable income against our deferred tax assets. The increase in the deferred tax liability dueexpense related to the yearly tax amortization on these intangible

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assets is recorded as income tax expense. We also analyzed additional information related to ourcurrent and prior year tax return filings of certain of our subsidiaries located in the third quarter of fiscal 2018. To the extent that differences arise between the filedAustralia and South Africa and also recorded tax returns and the estimates ofexpense related to current year state tax return filings that are completed during the preparation of the prior year financial statements, these differences are generally recorded in the quarter that they arise and are commonly referred to as provision to return adjustments. Such adjustments related to our Australian tax return filings also generated additional income tax expense for the year ended June 30, 2018.liabilities.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act reduced the corporate tax rate from the maximum federal statutory rate of 35% to 21%. The Tax Act states that the 21% corporate tax rate is effective for tax years beginning on or after January 1, 2018. However, existing tax law, which was not amended under the Tax Act, governs when a change in tax rate is effective. Existing tax law provides that if the taxable year includes the effective date of any rate change (unless the change is the first date of the taxable year), taxes should be calculated by applying a blended rate to the taxable income for the year.  Our blended federal rate is 27.6%. As a result of the new law, we have concluded that our deferred tax assets will need to be revalued. Our deferred tax assets represent a reduction in corporate taxes that are expected to be paid in the future. As a result of the Tax Act, we have estimated a reduction to the value of our deferred tax assets which is almost entirely offset by a reduction to our valuation allowance for the year ended June 30, 2018.  The net impact of the decrease to both the deferred tax assets and the valuation allowance will be a remeasuring of our net deferred tax liability associated with indefinite lived intangibles for which we cannot predict a reversal into taxable income. In conjunction with the tax law changes, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act.  We have recognized the provisional tax impacts related to deemed repatriated earnings, the potential impact of new section 162(m) rules on our deferred tax balances, and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended June 30, 2018.  The aforementioned provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act, (ii) potential additional guidance from the Securities and Exchange Commission or the FASB related to the Act and (iii) management's further assessment of the Act and related regulatory guidance.

In addition to the impacts described above, the Tax Act also allows for one hundred percent expensing of the cost of qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.  We do not plan to take advantage of this provision for the near term and have the option of opting out of this provision. In addition, net operating losses incurred in tax years beginning after December 31, 2017 are only allowed to offset a taxpayer's taxable income by eighty percent, but those net operating losses are allowed to be carried forward indefinitely with no expiration.  Also, as part of the Tax Act, our net interest expense deductions are limited to 30% of earnings before interest, taxes, depreciation, and amortization through 2021 and of earnings before interest and taxes thereafter. This provision also takes effect for tax years beginning after 2017 and isn't expected to have a material impact to our deferred tax asset position. The Tax Act also incorporates changes to certain international tax

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provisions. There is a one-time transition tax on foreign income earned by subsidiaries at a rate of 15.5% for cash and cash equivalents and at a rate of 8% for the remainder of the foreign earnings. There is a provision for the current inclusion in US taxable income of global intangible low-tax income and also the imposition of a tax equal to its base erosion minimum tax amount.  The new laws incorporate a potential benefit for foreign derived intangible income, but the benefit only applies if the foreign derived sales and services income exceeds a calculated 'routine return' and if we have taxable income.  We do not currently anticipate that any of the foreign provisions will have an impact to our tax accounts. The Company is not complete in its assessment of the impact of the Tax Act on its business and financial statements. While the effective date of most of the provisions of the Tax Act do not apply until the Company's tax year beginning July 1, 2018, we will continue the assessment of the impact of the Tax Act on our business and financial statements throughout the one-year measurement period as provided by ASC 740.

Liquidity and Capital Resources

Our working capital and working capital requirements fluctuate from quarter to quarter depending on the phase of the growing and sales cycle that falls during a particular quarter. Our need for cash has historically been highest in the second and third fiscal quarters (October through March) because we historically have paid our North American contracted growers progressively, starting in the second fiscal quarter. In fiscal year 2018,2019, we paid our North American growers approximately 50% of amounts due in October 20172018 and the balance was paid in February 2018.2019. This payment cycle to our growers was similar in fiscal year 2017.2018.  S&W Australia, our Australian-based subsidiary, has a production cycle that is counter-cyclical to North America; however, this also puts a greater demand on our working capital and working capital requirements during the second, third and fourth fiscal quarters based on timing of payments to growers in the second through fourth quarters.

Historically, due to the concentration of sales to certain distributors, our month-to-month and quarter-to-quarter sales and associated cash receipts are highly dependent upon the timing of deliveries to and payments from these distributors, which varies significantly from year to year. The timing of collection of receivables from DuPont Pioneer, which is our largest customer, is defined in the distribution agreement with DuPont Pioneer and consists of three installment payments, the first on September 15th, the second on January 15th, and the third payment on February 15th. Our future revenue and cash collections pertaining to the distribution agreement with DuPont Pioneer is expected to provide us with greater predictability.

We continuously monitor and evaluate our credit policies with all of our customers based on historical collection experience, current economic and market conditions and a review of the current status of the respective trade accounts receivable balance. Our principal working capital components include cash and cash equivalents, accounts receivable, inventory, prepaid expense and other current assets, accounts payable and our working capital lines of credit.

In addition to funding our business with cash from operations, we have historically relied upon occasional sales of our debt and equity securities and credit facilities from financial institutions, both in the United States and South Australia.

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In recent periods, we have consummated the following equity and debt financings:

On December 31, 2014, in connection with the Pioneer Acquisition, we issued a secured promissory note (the "Pioneer Note") payable by us to DuPont Pioneer in the initial principal amount of $10,000,000 (issued at closing), and a potential earn-out payment (payable as an increase in the principal amount of the Pioneer Note) of up to $5,000,000 based on our sales under the distribution and production agreements entered into in connection with the Pioneer Acquisition, as well as other sales of products we consummate containing the acquired germplasm in the three-year period following the closing. The earn-out payment of $2,500,000 to DuPont Pioneer was finalized in October 2017 and this amount was added to the Pioneer Note in October 2017. The Pioneer Note accrued interest at 3% per annum. Interest was payable in three annual installments, in arrears, commencing on December 31, 2015. On December 1, 2017, we repaid the Pioneer Note. The repayment amount included the $2.5 million earn-out payment related to the Pioneer Acquisition that was added to the principal amount of the Pioneer Note in October 2017.Outstanding Debt Financings

On November 30, 2017, we entered into a secured note financing transaction (the "Loan Transaction") with Conterra for $12.5 million in gross proceeds. Pursuant to the Loan Transaction, we issued two secured promissory notes (the "Notes") to Conterra as follows:

• Secured Real Estate Note. We issued one Note in the principal amount of $10.4 million (the "Secured Real Estate Note") that is secured by a first priority security interest in the property, plant and fixtures (the "Real Estate Collateral") located at our Five Points, California and Nampa, Idaho production facilities and our Nampa, Idaho and Arlington, Wisconsin research facilities (the "Facilities"). The Secured Real Estate Note matures on November 30, 2020, which, subject to Conterra's approval, may be extended to November 30, 2022. The Secured Real Estate Note bears interest of 7.75% per annum. We have agreed to make semi-annual payments of interest and amortized principal on a 20-year amortization schedule, for a combined payment of $515,711, starting July 1, 2018, in addition to a one-time interest only payment on January 1, 2018. We may prepay the Secured Real Estate Note, in whole or in part, at any time after we have paid a minimum of twelve months of interest on the Secured Real Estate Note.

• Secured Equipment Note. We issued a second Note in the principal amount of $2.1 million (the "Secured Equipment Note") that is secured by a first priority security interest in certain equipment not attached to real estate located at the Facilities. The Secured Equipment Note is also secured by the Real Estate Collateral. The Secured Equipment Note matures on November 30, 2019, which, subject to Conterra's approval, may be extended to November 30, 2020. The Secured Equipment Note bears interest at a rate of 9.5% per annum. We have agreed to make semi-annual payments of interest and amortized principal on a 20-year amortization schedule, for a combined payment of $118,223, starting July 1, 2018, in addition to a one-time interest only payment on January 1, 2018. We may prepay the Secured Equipment Note, in whole or in part, at any time.

On December 1, 2017, we used the proceeds from the Loan Transaction to repay the Pioneer Note.KeyBank Credit Facility

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On August 15, 2018, we closed on a sale-leaseback transaction with American AgCredit involving certain equipment located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the sale-leaseback transaction:

• We sold the equipment to American AgCredit for $2,106,395 million in proceeds. The proceeds were used to pay off in full the Secured Equipment Note mentioned above.
• We entered into a lease agreement with American AgCredit relating to the equipment. The lease agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an annual interest rate of 5.6%). At the end of the lease term, we will repurchase the equipment for $1.

OnIn September 22, 2015, we entered into a credit and security agreement (the "KeyBank“KeyBank Credit Facility"Facility”) with KeyBank. Key provisions of the KeyBank Credit Facility, as amended, include:

•

An aggregate principal amount that we may borrow, repay and reborrow, of up to $45.0 million in the aggregate, subject to a requirement that we maintain a reduced loan balance of (i) not more than $20.0 million for at least 30 consecutive days over the prior twelve months (measured each quarter on a trailing 12 month




basis) and (ii) not more than $25.0 million for at least 60 consecutive days over the prior twelve months (measured each quarter on a trailing 12 month basis).

An aggregate principal amount that we may borrow, repay and reborrow, of up to $35.0 million in the aggregate, subject to a requirement that we maintain a reduced loan balance of (i) not more than $20.0 million for at least 30 consecutive days over the prior twelve months (measured each quarter on a trailing 12 month basis) and (ii) not more than $25.0 million for at least 60 consecutive days over the prior twelve months (measured each quarter on a trailing 12 month basis).

• All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest, will be payable in full on September 12, 2019.
December 31, 2020; provided that on or after January 15, 2020, KeyBank may deliver notice of termination of the facility to us specifying a termination date no earlier than 30 days after the date of the notice.

A borrowing base of up to the total of the following:  (a) 85% of eligible domestic accounts receivable, andplus (b) 90% of eligible foreign accounts receivable, plus up to(c) the lesser of (i) 75% of the cost eligible inventory or (ii) 90% of the net orderly liquidation value of the inventory, plus (d) the amount of any unencumbered cash we hold at KeyBank, minus (e ) $16 million, subject to lender reserves.

Loans may be based on a Base Rate or Eurodollar Rate (which is increased by an applicable margin of 2.2%2.9% per annum)annum for Eurodollar Loans and 1.0% for Base Rate Loans) (both as defined in the KeyBank Credit Facility), generally at our option. In the event of a default, at the option of KeyBank, the interest rate on all obligations owing will increase by 3% per annum over the rate otherwise applicable.

Subject to certain exceptions, the KeyBank Credit Facility is secured by a first priority perfected security interest in all our now owned and after acquired tangible and intangible assets and our domestic subsidiaries, which have guaranteed our obligations under the KeyBank Credit Facility. The KeyBank Credit Facility is further secured by a lien on, and a pledge of, 65% of the stock of our wholly-owned subsidiary, S&W Holdings Australia Pty Ltd.

At June 30, 2018,2019, we were in compliance with all KeyBank debt covenants.

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In November 2017, we entered into a secured note financing transaction with Conterra for $12.5 million in gross proceeds. In the transaction, we issued two secured promissory notes to Conterra.  One promissory note in the principal amount of $10.4 million (the "Secured Real Estate Note") is secured by a first priority security interest in the property, plant and fixtures located at our Five Points, California and Nampa, Idaho production facilities and our Nampa, Idaho and Arlington, Wisconsin research facilities. The note matures on November 30, 2020, which, subject to Conterra's approval, may be extended to November 30, 2022. The note bears interest of 7.75% per annum. We have agreed to make semi-annual payments of interest and amortized principal on a 20-year amortization schedule, for a combined payment of $0.5 million, starting July 1, 2018, in addition to a one-time interest only payment on January 1, 2018. We may prepay the note, in whole or in part, at any time.  

A second promissory note, in the principal amount of $2.1 million and secured by certain of our equipment, was repaid in full in August 2018.

Equipment Sale-Leaseback

In August 2018, we closed on a sale-leaseback transaction with American AgCredit involving certain equipment located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the sale-leaseback transaction:

S&W Australia Facilities

S&W Australia finances the purchasehas a series of most of its seed inventory from growers pursuant to a seasonal credit facilitydebt facilities with National Australia Bank Ltd ("NAB"(“NAB”). The current facility, referred to as the 2016 NAB Facilities, was amended as, all of April 13, 2018 and expires on March 30, 2020. As of June 30, 2018, AUD $10,400,000 (USD $7,697,040) was outstanding under the 2016 NAB Facilities.

The 2016 NAB Facilities, as currently in effect, comprises two distinct facility lines: (i) an overdraft facility (the "Overdraft Facility"), having a credit limit of AUD $1,000,000 (USD $740,100 at June 30, 2018) and a borrowing base facility (the "Borrowing Base Facility"), having a credit limit of AUD $12,000,000 (USD $8,881,200 at June 30, 2018).

Both facilities constituting the 2016 NAB Facilities are secured by a fixed and floating lien over all the present and future rights, property and undertakings of S&W Australia andwhich are guaranteed by usus.  The NAB facilities and their key terms are as noted above. The 2016 NAB Facilities contain customary representations and warranties, affirmative and negative covenants and customary events of default that permit NAB to accelerate S&W Australia's outstanding obligations, all as set forth in the NAB facility agreements. follows:

S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at June 30, 2019.

OnEquity Issuances

In July 19, 2017, we entered into a Securities Purchase Agreement with certain purchasers, pursuant to which we sold and issued to certain investors an aggregate of 2,685,000 shares of our Common Stock at a purchase price of $4.00 per share, for aggregate gross proceeds of $10.74approximately $10.7 million.

On

In October 11, 2017, we entered into a Securities Purchase Agreement withsold and issued to Mark W. Wong, our President and Chief Executive Officer, pursuant to which we sold and issued an aggregate of 75,000 shares of our Common Stock at a purchase price of $3.50 per share, for aggregate gross proceeds of $262,500.approximately $0.3 million.

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OnIn December 22, 2017, we completed the closing of oura rights offering of 3,500,000 shares of our Common Stock. At the closing, we sold and issued an aggregate of 2,594,923 shares of our Common Stock at a subscription price of $3.50 per share (the "Subscription Price"). Pursuant to a backstop commitment with MFP Partners, L.P. ("MFP"(“MFP”), concurrently with the closing of rights offering, we sold and issued the remaining 905,077 shares of our Common Stock not purchased in the rights offering to MFP at the subscription price of $3.50 per share. Combined, we sold and issued an aggregate of 3,500,000 shares of our common stock for aggregate gross proceeds of $12.25approximately $12.3 million.

On

In September 5, 2018, we entered into a Securities Purchase Agreement withMFP, pursuant to which we sold 1,607,717 shares of our common stock to MFP at a purchase price of $3.11 per share, at an initial closing held on September 5, 2018, for gross proceeds of approximately $5.0 million.  

In addition, subject to the satisfaction of certain conditions,October 2018, we agreed to sell and issueissued to MFP 7,235 shares of a newly designated Series A Convertible Preferred Stock at a purchase price of $3,100$3,110 per share, for aggregate gross proceeds of approximately $22.5 million. The preferred shares carried no voting rights and were automatically convertible into shares of our common stock at a second closing (the "Second Closing"). The consummationthe rate of 1,000 shares of common stock per preferred share upon the approval of our stockholders for the issuance of the Second Closing is contingent upon, among other things, certain conditionsrequisite shares of common stock. Pursuant to the closingpurchase agreement for the preferred shares, we agreed to use reasonable best efforts to solicit the approval of our shareholders for the Chromatin Acquisition having been satisfied or reasonably expected to be satisfied.issuance of stock upon the conversion of the

preferred shares.  Approval was obtained in November 2018 and the shares of Series A Convertible Preferred Stock converted into 7,235,000 shares of our common stock.

Summary of Cash Flows

The following table shows a summary of our cash flows for the years ended June 30, 20182019 and 2017:2018:

For the year ended June 30, 2019, operating activities provided $21.3 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows provided $24.5 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used $3.2 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by an increase in inventory of $13.3 million, offset by increases in deferred revenue of $8.1 million related to the Corteva license agreement and accrued expenses and other current liabilities of $3.1 million.

For the year ended June 30, 2018, operating activities used $22,200,241$22.2 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $48,491 $0.0 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used $22,151,750$22.2 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by increases in inventory of $29,860,271$29.9 million due to an increase in production coupled with a decrease in revenue, partially offset by a decrease in accounts receivable of $9,207,302.$9.2 million.

ForInvesting Activities

Investing activities during the year ended June 30, 2017, operating activities2019 used $10,300,160 in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows provided $1,602,136 in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used

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$11,902,296$26.6 million in cash. The decreaseChromatin Acquisition accounted for $26.4 million of the cash used in cash from changesinvesting activities. We also had additions to property, plant and equipment of $0.7 million consisting primarily of equipment purchases for our facility in operating assetsKeith, Australia and liabilities was primarily driven by an increasereplacements of our vehicle fleet in inventories of $9,343,989 and a decrease in accounts payable (including related parties) of $7,464,977 partially offset by a decrease in accounts receivable of $4,110,609.the US.

Investing activities during the year ended June 30, 2018 used $1,436,511$1.4 million in cash. These activities consisted primarily of additions to a build out of a new research and development facility in Nampa, Idaho as well as the acquisition of germplasm assets.

InvestingFinancing Activities

Financing activities during the year ended June 30, 2017 used $2,239,1882019 provided $4.6 million in cash. These activities consisted primarilyDuring the year ended June 30, 2019, we completed a private placement of additions to a build out of a new research and development facility in Nampa, Idaho and investment in internal use software. The sale of farmland generatedcommon stock which raised net proceeds of approximately $0.9$4.9 million in cash and a private placement of preferred stock which raised net proceeds of $22.4 million. During the year ended June 30, 2019, we also had net repayments on the working capital lines of credit of $21.3 million. On August 15, 2018, we closed on a sale and leaseback transaction involving certain equipment located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the transaction, we sold the equipment for $2.1 million in proceeds. The proceeds were used to pay off in full the Secured Equipment Note mentioned above.

Financing activities during the year ended June 30, 2018 provided $27,342,196$27.3 million in cash. We completed two separate private placements of common stock during the year ended June 30, 2018 which raised net proceeds of $10.7 million in cash. In December 2017, we also completed the closing of our rights offering and backstop commitment with MFP.  Pursuant to the rights offering and backstop commitment with MFP, we sold and issued an aggregate of 3,500,000 shares of our common stock in December 2017 for aggregate net proceeds of $11.8 million.  On November 30, 2017, we entered into a secured note financing transaction for $12.5 million in gross proceeds.  The proceeds from the secured note financing were used to repay the Pioneer Note. The repayment amount included the $2.5 million earn-out payment related to the Pioneer Acquisition that was added to the principal amount of the Pioneer Note in October 2017.

Financing activities during the year ended June 30, 2017 provided $6,202,881 in cash. We had net borrowings of $10.5 million on our lines of credit and made $4.7 million of redemptions on our convertible debentures. We also generated $0.6 million in net proceeds from the exercise of stock options during the nine months ended June 30, 2017.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations, including our revenue and income from continuing operations. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements during the year ended June 30, 2018.

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2019.

Capital Resources and Requirements

Our future liquidity and capital requirements will be influenced by numerous factors, including:

the extent and duration of future operating income;

the level and timing of future sales and expenditures;

working capital required to support our growth;

investment capital for plant and equipment;

our sales and marketing programs;

investment capital for potential acquisitions;

our ability to renew and/or refinance our debt on acceptable terms;

competition; and

market developments.

developments.

Critical Accounting Policies

The accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated financial statements.

In preparing our financial statements, we must select and apply various accounting policies. Our most significant policies are described in Note 2 -– Summary of Significant Accounting Policies of the footnotes to the consolidated financial statements. In order to apply our accounting policies, we often need to make estimates based on judgments about future events. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition and changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection of our critical accounting estimates, and our disclosure regarding them, with the audit committee of our board of directors, and do so on a regular basis.

We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our results of operations, financial condition or changes in financial condition for the current period could have been materially different from those presented.

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All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is reduced bycompared to its fair value, with an impairment loss recognized if the fair value is below carrying value. Fair values are typically estimated cash-flow shortfall on ausing discounted basis, and a corresponding loss is charged to the consolidated statement of operations.cash flow techniques. Significant changes in key assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized or expected to be utilized could result in an impairment charge.

We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718 Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line method, over the employee'semployee’s requisite service period (generally the vesting period of the equity grant).

We account for equity instruments, including stock options issued to non-employees, in accordance with authoritative guidance for equity-based payments to non-employees (FASB ASC 505-50). Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest.

We utilize the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under share-based compensation plans. The Black-Scholes-Merton model requires us to estimate a variety of factors including, but not limited to, the expected term of the award, stock price volatility, dividend rate, risk-free interest rate. The input factors to use in the valuation model are based on subjective future expectations combined with management judgment. The expected term used represents the weighted-average period that the stock options are expected to be outstanding. We have used the historical volatility for our stock for the expected volatility assumption required in the model, as it is more representative of future stock price trends. We use a risk-free interest rate that is based on the implied yield available on U.S. Treasury issued with an equivalent remaining term at the time of grant. We have not paid dividends in the past and currently do not plan to pay any dividends in the foreseeable future, and as such, dividend yield is assumed to be zero for the purposes of valuing the stock options granted. We evaluate the assumptions used to value stock awards on a quarterly basis. If factors change, and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. When there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. To the extent that we grant additional equity securities to employees, our share-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants.

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We regularly assess the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established or increased, an income tax charge is included in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws, statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the remaining deferred tax asset and increase the tax provision, resulting in a reduction of earnings and stockholders'stockholders’ equity.

All inventories are accounted for on a lower of cost or net realizable value. Inventories consist of raw materials and finished goods. Depending on market conditions, the actual amount received on sale could differ from our estimated value of inventory. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. The factors include the age of inventory, the amount of inventory held by type, future demand for products and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. We perform a review of our inventory by product line on a quarterly basis.

Our subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year'syear’s sales cycle pursuant to its standard contract production agreement. We record an estimated unit price accordingly, inventory, cost of revenue and gross profits are based upon management'smanagement’s best estimate of the final purchase price to our S&W Australia growers. To the extent the estimated purchase price varies from the final purchase price for seed, the adjustment to actual could materially impact the results in the period when the difference between estimates and actuals are identified. If the actual purchase price is in excess of our estimated purchase price, this would negatively impact our financial results including a reduction in gross profits and earnings.

We regularly assess the collectability of receivables and provide an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer'scustomer’s trade accounts receivable.Ourreceivable. Our estimates are judgmental in nature and are made at a point in time. Management believes the allowance for doubtful accounts is appropriate to cover anticipated losses in our accounts receivable under current conditions; however, unexpected, significant deterioration in any of the factors mentioned above or in general economic conditions could materially change these expectations.

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As a smaller reporting company, we are not required to provide information typically disclosed under this item.

Index to Consolidated Financial Statements

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Report of Independent RegisteredRegistered Public Accounting Firm

Stockholders and the Board of Directors of S&W Seed Company

Sacramento, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of S&W Seed Company (the "Company") as of June 30, 20182019 and 2017,2018, the related consolidated statements of operations, comprehensive loss, stockholders'income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2018,2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2018,2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB.reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 2 to the consolidated financial statements, in fiscal year 2019, the Company adopted new accounting guidance related to revenue recognition pursuant to ASC Topic 606. Our opinion is not modified with respect to this matter.

/s/ Crowe LLP

We have served as the Company's auditor since 2015.

San Francisco, California

September 20, 201818, 2019

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S&W SEED COMPANY

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

S&W SEED COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS