UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,September 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-34719

S&W SEED COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada

 

27-1275784

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

 

 

 

2101 Ken Pratt Blvd, Suite 201, Longmont, CO

 

80501

(Address of Principal Executive Offices)

 

(Zip Code)

(720) 506-9191

(Registrant's Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

SANW

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large, accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares outstanding of common stock of the registrant as of May 8,November 6, 2023 was 42,963,99343,039,225.

 

 


S&W SEED COMPANY

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

Page No.

Item 1.

 

Financial Statements (Unaudited):

 

4

 

 

Condensed Consolidated Balance Sheets at March 31,September 30, 2023 and June 30, 20222023

 

4

 

 

Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31,September 30, 2023 and 2022

 

5

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)Loss for the Three Months and Nine Months Ended March 31,September 30, 2023 and 2022

 

6

 

 

Condensed Consolidated Statements of Mezzanine Equity and Stockholders’ Equity for the Three Months and Nine Months Ended March 31,September 30, 2023 and 2022

 

7

 

 

Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended March 31,September 30, 2023 and 2022

 

8

 

 

Notes to Condensed Consolidated Financial Statements

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

2825

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

4233

Item 4.

 

Controls and Procedures

 

4234

PART II.

 

OTHER INFORMATION

 

4335

Item 1.

 

Legal Proceedings

 

4335

Item 1A.

 

Risk Factors

 

4335

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

4335

Item 3.

 

Defaults Upon Senior Securities

 

4335

Item 4.

 

Mine Safety Disclosures

 

4335

Item 5.

 

Other Information

 

4335

Item 6.

 

Exhibits

 

4436

 

 

 

1


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact could be deemed forward-looking statements, including, but not limited to: statements concerning our loan agreements, including our ability to comply with and/or secure refinancing for such loan agreements; the potential effects of global macroeconomic events and the COVID-19 pandemic on our business; the plans, strategies and objectives of management for our future operations, including our expectations for new product introductions during fiscal 2023;2024; our implementation of our recently implemented strategic review (which includes our plans to reduce annual operating expenses) our recent partnershipspartnership with Trigall Genetics and Shell and theirits role in enabling us to reduce our operating expenses and sharpen our focus on key growth priorities; our ability to raise capital in the future; 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; future economic conditions or performance; our ability to retain key employees; and our assumptions, expectations and beliefs 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,” “designed,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. 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 results expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions include the following:

whether we are successful in implementing our strategies focused on growth opportunities, changes in our cost structure and improved financial performance;
whether we are able to maintain compliance with our current loan agreements, including to provide access to sufficient liquidity to pay our growers and suppliers;
the COVID-19 pandemic and other geopolitical and macroeconomic events, such as global inflation, bank failures, supply chain disruptions, uncertain market conditions, and the ongoing military conflict between Russia and Ukraine and related sanctions, the armed conflict in Sudan, the war between Israel and Hamas, and the extent to which they continue to disrupt the local and global economies, as well as our business and the businesses of our customers, distributors and suppliers;
changes in demand for our seed products, including Double TeamTM, our non-GMO herbicide tolerant sorghum solution;
whether we are able to develop and successfully launch additional trait technology products;
whether we are successful in commercializing our current and future trait technology products, including Double TeamTM;Team;
our plans for expansion of our business (including by expanding crop offerings and market share of existing offerings through acquisitions, partnerships, joint ventures and other strategic transactions) 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 drought or 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 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 camelina and stevia;camelina;
the cost and other implications of pending or future legislation or court decisions and pending or future accounting pronouncements;
whether our recent partnerships with Trigall Genetics and Shell may not provide thetheir anticipated benefits; and
other risks that are described herein and in the section titled “Risk Factors” contained in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022,2023, or the Annual Report, and that are otherwise described or updated from time to time in our filings with the Securities Exchange Commission.

2


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 described above.

2


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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “S&W” and “S&W 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 2023,2024,” “fiscal 2022,”2023” and “fiscal 2021”2022” in this Quarterly Report on Form 10-Q refer to the respective fiscal year ended June 30, 2024, 2023 2022 and 2021,2022, 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.

3


PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

S&W SEED COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

ASSETS

 

March 31,
2023

 

 

June 30,
2022

 

 

As of
September 30, 2023

 

 

As of
June 30, 2023

 

CURRENT ASSETS

CURRENT ASSETS

 

CURRENT ASSETS

 

Cash and cash equivalents

 

$

1,569,463

 

 

$

2,056,508

 

 

$

987,422

 

 

$

3,398,793

 

Accounts receivable, net

 

 

20,424,589

 

 

 

19,051,236

 

 

 

27,945,969

 

 

 

24,622,727

 

Notes receivable, net

 

 

6,910,691

 

 

 

6,846,897

 

Inventories, net

 

 

55,666,627

 

 

 

54,515,894

 

 

 

42,941,333

 

 

 

45,098,268

 

Prepaid expenses and other current assets

 

 

10,748,580

 

 

 

1,605,987

 

 

 

3,359,517

 

 

 

4,099,027

 

TOTAL CURRENT ASSETS

 

 

88,409,259

 

 

 

77,229,625

 

 

 

82,144,932

 

 

 

84,065,712

 

Property, plant and equipment, net

 

 

10,241,685

 

 

 

16,871,669

 

 

 

9,769,222

 

 

 

10,082,168

 

Intangibles, net

 

 

30,328,212

 

 

 

34,095,827

 

Intellectual property, net

 

 

21,304,305

 

 

 

21,650,534

 

Other intangibles, net

 

 

7,758,855

 

 

 

8,082,325

 

Right of use assets - operating leases

 

 

3,344,109

 

 

 

4,094,253

 

 

 

3,340,651

 

 

 

2,983,303

 

Equity method investments

 

 

24,121,771

 

 

 

367,970

 

 

 

22,176,338

 

 

 

23,059,705

 

Other assets

 

 

2,038,618

 

 

 

1,128,507

 

 

 

2,327,714

 

 

 

2,066,081

 

TOTAL ASSETS

 

$

158,483,654

 

 

$

133,787,851

 

 

$

148,822,017

 

 

$

151,989,828

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

17,441,428

 

 

$

15,901,116

 

 

$

17,076,594

 

 

$

13,312,180

 

Deferred revenue

 

 

1,411,651

 

 

 

605,960

 

 

 

306,758

 

 

 

464,707

 

Accrued expenses and other current liabilities

 

 

8,686,623

 

 

 

10,788,740

 

 

 

10,514,049

 

 

 

8,804,456

 

Current portion of working capital lines of credit, net

 

 

42,783,136

 

 

 

12,678,897

 

 

 

41,593,630

 

 

 

44,900,779

 

Current portion of long-term debt, net

 

 

1,058,051

 

 

 

8,316,783

 

 

 

3,938,493

 

 

 

3,808,761

 

TOTAL CURRENT LIABILITIES

 

 

71,380,889

 

 

 

48,291,496

 

 

 

73,429,524

 

 

 

71,290,883

 

Long-term working capital lines of credit, less current portion

 

 

 

 

 

21,703,286

 

Long-term debt, net, less current portion

 

 

3,648,732

 

 

 

3,992,540

 

 

 

4,786,699

 

 

 

4,499,334

 

Other non-current liabilities

 

 

2,575,442

 

 

 

3,587,041

 

 

 

2,382,695

 

 

 

2,102,030

 

TOTAL LIABILITIES

 

 

77,605,063

 

 

 

77,574,363

 

 

 

80,598,918

 

 

 

77,892,247

 

MEZZANINE EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 3,323 shares authorized; 1,695 issued and outstanding at March 31, 2023 and June 30, 2022

 

 

5,154,079

 

 

 

4,804,819

 

Preferred stock, $0.001 par value; 3,323 shares authorized; 1,695 issued and outstanding at September 30, 2023 and June 30, 2023

 

 

5,394,193

 

 

 

5,274,148

 

TOTAL MEZZANINE EQUITY

 

 

5,154,079

 

 

 

4,804,819

 

 

 

5,394,193

 

 

 

5,274,148

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares authorized; 42,914,070 issued and 42,889,070 outstanding at March 31, 2023; 42,608,758 issued and 42,583,758 outstanding at June 30, 2022

 

 

42,914

 

 

 

42,609

 

Common stock, $0.001 par value; 75,000,000 shares authorized; 43,047,951 issued and 43,022,951 outstanding at September 30, 2023; 43,004,011 issued and 42,979,011 outstanding at June 30, 2023

 

 

43,048

 

 

 

43,004

 

Treasury stock, at cost, 25,000 shares

 

 

(134,196

)

 

 

(134,196

)

 

 

(134,196

)

 

 

(134,196

)

Additional paid-in capital

 

 

167,297,153

 

 

 

163,892,575

 

 

 

168,011,474

 

 

 

167,768,104

 

Accumulated deficit

 

 

(84,598,398

)

 

 

(105,873,557

)

 

 

(98,002,482

)

 

 

(91,932,808

)

Accumulated other comprehensive loss

 

 

(6,908,157

)

 

 

(6,560,600

)

 

 

(7,148,770

)

 

 

(6,987,791

)

Non-controlling interests

 

 

25,196

 

 

 

41,838

 

 

 

59,832

 

 

 

67,120

 

TOTAL STOCKHOLDERS' EQUITY

 

 

75,724,512

 

 

 

51,408,669

 

 

 

62,828,906

 

 

 

68,823,433

 

TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

$

158,483,654

 

 

$

133,787,851

 

 

$

148,822,017

 

 

$

151,989,828

 

 

See notes to condensed consolidated financial statements.

4


S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

Three Months Ended
 March 31,

 

 

Nine Months Ended
 March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$

17,662,307

 

 

$

23,186,877

 

 

$

50,465,974

 

 

$

51,349,967

 

Cost of revenue

 

 

13,231,836

 

 

 

20,481,463

 

 

 

38,781,701

 

 

 

43,857,520

 

Gross profit

 

 

4,430,471

 

 

 

2,705,414

 

 

 

11,684,273

 

 

 

7,492,447

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

5,990,651

 

 

 

5,582,060

 

 

 

17,289,120

 

 

 

18,260,785

 

Research and development expenses

 

 

1,208,038

 

 

 

1,904,631

 

 

 

4,226,891

 

 

 

6,010,172

 

Depreciation and amortization

 

 

1,107,206

 

 

 

1,379,856

 

 

 

3,697,544

 

 

 

4,084,554

 

Loss (gain) on disposal of property, plant and equipment

 

 

37,325

 

 

 

49,796

 

 

 

32,914

 

 

 

13,957

 

Total operating expenses

 

 

8,343,220

 

 

 

8,916,343

 

 

 

25,246,469

 

 

 

28,369,468

 

Loss from operations

 

 

(3,912,749

)

 

 

(6,210,929

)

 

 

(13,562,196

)

 

 

(20,877,021

)

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

331,889

 

 

 

146,935

 

 

 

699,428

 

 

 

567,963

 

Government grant income

 

 

(1,444,044

)

 

 

 

 

 

(1,444,044

)

 

 

 

Gain on sale of business interest

 

 

(38,323,506

)

 

 

 

 

 

(38,323,506

)

 

 

 

Gain on sale of equity investment

 

 

 

 

 

(68,967

)

 

 

(32,030

)

 

 

(68,967

)

Gain on disposal of intangible assets

 

 

 

 

 

 

 

 

(1,796,252

)

 

 

 

Change in contingent consideration obligation

 

 

 

 

 

(185,800

)

 

 

 

 

 

(714,429

)

Interest expense - amortization of debt discount

 

 

697,840

 

 

 

246,801

 

 

 

1,559,595

 

 

 

660,191

 

Interest expense, net

 

 

1,163,533

 

 

 

592,853

 

 

 

3,042,539

 

 

 

1,735,392

 

Other (income) expenses

 

 

1,641,406

 

 

 

(3,157

)

 

 

1,601,697

 

 

 

(13,746

)

Income (loss) before income taxes

 

 

32,020,133

 

 

 

(6,939,594

)

 

 

21,130,377

 

 

 

(23,043,425

)

Provision for (benefit from) income taxes

 

 

(500,118

)

 

 

322,661

 

 

 

(884,078

)

 

 

414,636

 

Income (loss) before equity in net earnings of affiliates

 

 

32,520,251

 

 

 

(7,262,255

)

 

 

22,014,455

 

 

 

(23,458,061

)

Equity in loss of equity method investees, net of tax

 

 

406,678

 

 

 

 

 

 

406,678

 

 

 

 

Net income (loss)

 

$

32,113,573

 

 

$

(7,262,255

)

 

$

21,607,777

 

 

$

(23,458,061

)

(Loss) income attributable to non-controlling interests

 

 

(5,792

)

 

 

42,668

 

 

 

(16,642

)

 

 

41,939

 

Net income (loss) attributable to S&W Seed Company

 

$

32,119,365

 

 

$

(7,304,923

)

 

$

21,624,419

 

 

$

(23,500,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to S&W Seed Company

 

$

32,119,365

 

 

$

(7,304,923

)

 

$

21,624,419

 

 

$

(23,500,000

)

Dividends accrued for participating securities and accretion

 

 

(121,137

)

 

 

(53,195

)

 

 

(349,260

)

 

 

(53,195

)

Net income (loss) attributable to common shareholders

 

$

31,998,228

 

 

$

(7,358,118

)

 

$

21,275,159

 

 

$

(23,553,195

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to S&W Seed Company per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.75

 

 

$

(0.19

)

 

$

0.50

 

 

$

(0.62

)

Diluted

 

$

0.74

 

 

$

(0.19

)

 

$

0.50

 

 

$

(0.62

)

Weighted average number of common shares outstanding:
    basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

42,790,693

 

 

 

39,515,547

 

 

 

42,681,201

 

 

 

38,240,917

 

Diluted

 

 

43,166,148

 

 

 

39,515,547

 

 

 

42,873,830

 

 

 

38,240,917

 

 

Three Months Ended September 30,

 

 

2023

 

 

2022

 

Revenue

$

16,432,466

 

 

$

19,865,865

 

Cost of revenue

 

11,421,152

 

 

 

15,361,354

 

Gross profit

 

5,011,314

 

 

 

4,504,511

 

Operating expenses

 

 

 

 

 

Selling, general and administrative expenses

 

5,786,579

 

 

 

5,056,257

 

Research and development expenses

 

1,086,512

 

 

 

1,515,380

 

Depreciation and amortization

 

1,069,022

 

 

 

1,336,434

 

Gain on disposal of property, plant and equipment

 

(32,955

)

 

 

(3,660

)

Total operating expenses

 

7,909,158

 

 

 

7,904,411

 

Loss from operations

 

(2,897,844

)

 

 

(3,399,900

)

Other (income) expense

 

 

 

 

 

Foreign currency loss

 

372,189

 

 

 

190,915

 

Interest expense - amortization of debt discount

 

455,574

 

 

 

283,643

 

Interest expense, net

 

1,405,767

 

 

 

786,679

 

Other income

 

(37,560

)

 

 

(44,270

)

Loss before income taxes

 

(5,093,814

)

 

 

(4,616,867

)

Provision for (benefit from) income taxes

 

1,207

 

 

 

(101,664

)

Loss before equity in net earnings of affiliates

 

(5,095,021

)

 

 

(4,515,203

)

Equity in loss of equity method investees, net of tax

 

861,896

 

 

 

 

Net loss

$

(5,956,917

)

 

$

(4,515,203

)

Loss attributable to non-controlling interests

 

(7,288

)

 

 

(6,262

)

Net loss attributable to S&W Seed Company

$

(5,949,629

)

 

$

(4,508,941

)

 

 

 

 

 

Calculation of net loss per share:

 

 

 

 

 

Net loss attributable to S&W Seed Company

$

(5,949,629

)

 

$

(4,508,941

)

Dividends accrued for participating securities and accretion

 

(120,045

)

 

 

(114,061

)

Net loss attributable to common shareholders

$

(6,069,674

)

 

$

(4,623,002

)

 

 

 

 

 

Net loss attributable to S&W Seed Company per common share, basic and diluted

$

(0.14

)

 

$

(0.11

)

Weighted average number of common shares outstanding, basic and diluted

 

43,009,221

 

 

 

42,604,020

 

 

See notes to condensed consolidated financial statements.

5


S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS

(UNAUDITED)

 

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income (loss)

 

$

32,113,573

 

 

$

(7,262,255

)

 

$

21,607,777

 

 

$

(23,458,061

)

Foreign currency translation adjustment, net of income taxes

 

 

(172,782

)

 

 

480,280

 

 

 

(347,557

)

 

 

272,502

 

Comprehensive income (loss)

 

 

31,940,791

 

 

 

(6,781,975

)

 

 

21,260,220

 

 

 

(23,185,559

)

Comprehensive (loss) income attributable to non-controlling interests

 

 

(5,792

)

 

 

42,668

 

 

 

(16,642

)

 

 

41,939

 

Comprehensive income (loss) attributable to S&W Seed Company

 

$

31,946,583

 

 

$

(6,824,643

)

 

$

21,276,862

 

 

$

(23,227,498

)

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

Net loss

 

$

(5,956,917

)

 

$

(4,515,203

)

Foreign currency translation adjustment, net of income taxes

 

 

(160,979

)

 

 

(714,295

)

Comprehensive loss

 

 

(6,117,896

)

 

 

(5,229,498

)

Comprehensive loss attributable to non-controlling interests

 

 

(7,288

)

 

 

(6,262

)

Comprehensive loss attributable to S&W Seed Company

 

$

(6,110,608

)

 

$

(5,223,236

)

 

See notes to condensed consolidated financial statements.

6


S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

Mezzanine Equity

 

 

Shareholders' Equity

 

 

Mezzanine Equity

 

 

Shareholders' Equity

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

Non-
controlling

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

Non-
controlling

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

Interests

 

 

Loss

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

Interests

 

 

Loss

 

 

Equity

 

Balance, December 31, 2021

 

 

 

 

$

 

 

 

38,914,660

 

 

$

38,915

 

 

 

(25,000

)

 

$

(134,196

)

 

$

155,853,135

 

 

$

(85,506,986

)

$

(31,735

)

 

$

(6,058,604

)

 

$

64,160,529

 

Balance, June 30, 2022

 

 

1,695

 

 

$

4,804,819

 

 

 

42,608,758

 

 

$

42,609

 

 

 

(25,000

)

 

$

(134,196

)

 

$

163,892,575

 

 

$

(105,873,557

)

$

41,838

 

 

$

(6,560,600

)

 

$

51,408,669

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

413,293

 

 

 

 

 

 

 

 

 

 

413,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

456,112

 

 

 

 

 

 

 

 

 

 

456,112

 

Issuance of Series B convertible preferred stock

 

 

1,695

 

 

 

4,638,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated loan & security agreement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146,474

 

 

 

 

 

 

 

 

 

 

146,474

 

Series B detachable warrant

 

 

 

 

 

25,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,838

)

 

 

 

 

 

 

 

(25,838

)

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

88,223

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(88,223

)

 

 

 

 

 

 

 

(88,223

)

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

23,827

 

 

 

24

 

 

 

 

 

 

 

 

 

(8,234

)

 

 

 

 

 

 

 

 

 

(8,210

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(714,295

)

 

 

(714,295

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,508,941

)

 

(6,262

)

 

 

 

 

 

(4,515,203

)

Balance, September 30, 2022

 

 

1,695

 

 

$

4,918,880

 

 

 

42,632,585

 

 

$

42,633

 

 

 

(25,000

)

 

$

(134,196

)

 

$

164,486,927

 

 

$

(110,496,559

)

$

35,576

 

 

$

(7,274,895

)

 

$

46,659,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

 

1,695

 

 

$

5,274,148

 

 

 

43,004,011

 

 

$

43,004

 

 

 

(25,000

)

 

$

(134,196

)

 

$

167,768,104

 

 

$

(91,932,808

)

$

67,120

 

 

$

(6,987,791

)

 

$

68,823,433

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

411,820

 

 

 

 

 

 

 

 

 

 

411,820

 

Series B detachable warrant

 

 

 

 

 

12,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

361,729

 

 

 

(12,919

)

 

 

 

 

 

 

 

348,810

 

 

 

 

 

 

25,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,838

)

 

 

 

 

 

 

 

(25,838

)

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

40,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,276

)

 

 

 

 

 

 

 

(40,276

)

 

 

 

 

 

94,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(94,207

)

 

 

 

 

 

 

 

(94,207

)

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

18,056

 

 

 

18

 

 

 

 

 

 

 

 

 

(20,458

)

 

 

 

 

 

 

 

 

 

(20,440

)

 

 

 

 

 

 

 

 

43,940

 

 

 

44

 

 

 

 

 

 

 

 

 

(15,220

)

 

 

 

 

 

 

 

 

 

(15,176

)

Proceeds from sale of common stock, net of expenses

 

 

 

 

 

 

 

 

2,633,052

 

 

 

2,633

 

 

 

 

 

 

 

 

 

5,734,449

 

 

 

 

 

 

 

 

 

 

5,737,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153,230

)

 

 

 

 

 

 

 

 

 

(153,230

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

480,280

 

 

 

480,280

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,304,923

)

 

42,668

 

 

 

 

 

 

(7,262,255

)

Balance, March 31, 2022

 

 

1,695

 

 

$

4,691,716

 

 

 

41,565,768

 

 

$

41,566

 

 

 

(25,000

)

 

$

(134,196

)

 

$

162,342,148

 

 

$

(92,865,104

)

$

10,933

 

 

$

(5,578,324

)

 

$

63,817,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

1,695

 

 

$

5,032,942

 

 

 

42,788,423

 

 

$

42,788

 

 

 

(25,000

)

 

$

(134,196

)

 

$

165,444,354

 

 

$

(116,596,626

)

$

30,988

 

 

$

(6,735,375

)

 

$

42,051,933

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

619,892

 

 

 

 

 

 

 

 

 

 

619,892

 

Issuance of common stock for cash upon exercise of stock options

 

 

 

 

 

 

 

 

1,050

 

 

 

1

 

 

 

 

 

 

 

 

 

996

 

 

 

 

 

 

 

 

 

 

997

 

Series B detachable warrant

 

 

 

 

 

25,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,838

)

 

 

 

 

 

 

 

(25,838

)

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

95,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(95,299

)

 

 

 

 

 

 

 

(95,299

)

Subordinated loan & security agreement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,092,000

 

 

 

 

 

 

 

 

 

 

1,092,000

 

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

22,142

 

 

 

23

 

 

 

 

 

 

 

 

 

(12,737

)

 

 

 

 

 

 

 

 

 

(12,714

)

Proceeds from sale of common stock, net of expenses

 

 

 

 

 

 

 

 

102,455

 

 

 

102

 

 

 

 

 

 

 

 

 

152,648

 

 

 

 

 

 

 

 

 

 

152,750

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(172,782

)

 

 

(172,782

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,119,365

 

 

(5,792

)

 

 

 

 

 

32,113,573

 

Balance, March 31, 2023

 

 

1,695

 

 

$

5,154,079

 

 

 

42,914,070

 

 

$

42,914

 

 

 

(25,000

)

 

$

(134,196

)

 

$

167,297,153

 

 

$

(84,598,398

)

$

25,196

 

 

$

(6,908,157

)

 

$

75,724,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine Equity

 

 

Shareholders' Equity

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

Non-
controlling

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

Interests

 

 

Loss

 

 

Equity

 

Balance, June 30, 2021

 

 

 

 

$

 

 

 

36,772,983

 

 

$

36,773

 

 

 

(25,000

)

 

$

(134,196

)

 

$

149,684,357

 

 

$

(69,311,909

)

$

(31,006

)

 

$

(5,850,826

)

 

$

74,393,193

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,821,808

 

 

 

 

 

 

 

 

 

 

1,821,808

 

Issuance of Series B convertible preferred stock

 

 

1,695

 

 

 

4,638,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series B detachable warrant

 

 

 

 

 

12,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

361,729

 

 

 

(12,919

)

 

 

 

 

 

 

 

348,810

 

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

40,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,276

)

 

 

 

 

 

 

 

(40,276

)

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

311,542

 

 

 

312

 

 

 

 

 

 

 

 

 

(179,039

)

 

 

 

 

 

 

 

 

 

(178,727

)

Proceeds from sale of common stock, net of expenses

 

 

 

 

 

 

 

 

4,481,243

 

 

 

4,481

 

 

 

 

 

 

 

 

 

10,653,293

 

 

 

 

 

 

 

 

 

 

10,657,774

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

272,502

 

 

 

272,502

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(160,979

)

 

 

(160,979

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,500,000

)

 

41,939

 

 

 

 

 

 

(23,458,061

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,949,629

)

 

(7,288

)

 

 

 

 

 

(5,956,917

)

Balance, March 31, 2022

 

 

1,695

 

 

$

4,691,716

 

 

 

41,565,768

 

 

$

41,566

 

 

 

(25,000

)

 

$

(134,196

)

 

$

162,342,148

 

 

$

(92,865,104

)

$

10,933

 

 

$

(5,578,324

)

 

$

63,817,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022

 

 

1,695

 

 

$

4,804,819

 

 

 

42,608,758

 

 

$

42,609

 

 

 

(25,000

)

 

$

(134,196

)

 

$

163,892,575

 

 

$

(105,873,557

)

$

41,838

 

 

$

(6,560,600

)

 

$

51,408,669

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,381,898

 

 

 

 

 

 

 

 

 

 

1,381,898

 

Issuance of common stock for cash upon exercise of stock options

 

 

 

 

 

 

 

 

1,050

 

 

 

1

 

 

 

 

 

 

 

 

 

996

 

 

 

 

 

 

 

 

 

 

997

 

Series B detachable warrant

 

 

 

 

 

77,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(77,514

)

 

 

 

 

 

 

 

(77,514

)

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

271,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(271,746

)

 

 

 

 

 

 

 

(271,746

)

Subordinated loan & security agreement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,894,901

 

 

 

 

 

 

 

 

 

 

1,894,901

 

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

201,807

 

 

 

202

 

 

 

 

 

 

 

 

 

(25,865

)

 

 

 

 

 

 

 

 

 

(25,663

)

Proceeds from sale of common stock, net of expenses

 

 

 

 

 

 

 

 

102,455

 

 

 

102

 

 

 

 

 

 

 

 

 

152,648

 

 

 

 

 

 

 

 

 

 

152,750

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(347,557

)

 

 

(347,557

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,624,419

 

 

(16,642

)

 

 

 

 

 

21,607,777

 

Balance, March 31, 2023

 

 

1,695

 

 

$

5,154,079

 

 

 

42,914,070

 

 

$

42,914

 

 

 

(25,000

)

 

$

(134,196

)

 

$

167,297,153

 

 

$

(84,598,398

)

$

25,196

 

 

$

(6,908,157

)

 

$

75,724,512

 

Balance, September 30, 2023

 

 

1,695

 

 

$

5,394,193

 

 

 

43,047,951

 

 

$

43,048

 

 

 

(25,000

)

 

$

(134,196

)

 

$

168,011,474

 

 

$

(98,002,482

)

$

59,832

 

 

$

(7,148,770

)

 

$

62,828,906

 

See notes to condensed consolidated financial statements.

7


S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Nine Months Ended March 31,

 

 

Three Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

21,607,777

 

 

$

(23,458,061

)

Net loss

 

$

(5,956,917

)

 

$

(4,515,203

)

Adjustments to reconcile net income (loss) from operating activities to net

 

 

 

 

 

 

 

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,382,895

 

 

 

1,821,808

 

 

 

411,820

 

 

 

456,112

 

Allowance for doubtful accounts

 

 

(76,575

)

 

 

200,458

 

 

 

165,342

 

 

 

(155,421

)

Inventory write-down

 

 

1,125,715

 

 

 

1,877,229

 

 

 

376,168

 

 

 

537,998

 

Depreciation and amortization

 

 

3,697,544

 

 

 

4,084,554

 

 

 

1,069,022

 

 

 

1,336,434

 

Loss on disposal of property, plant and equipment

 

 

32,914

 

 

 

13,957

 

Gain on disposal of intangible assets

 

 

(1,796,252

)

 

 

 

Gain on sale of business interest

 

 

(38,323,506

)

 

 

 

Gain on sale of equity investment

 

 

(32,030

)

 

 

 

Gain on disposal of property, plant and equipment

 

 

(32,955

)

 

 

(3,660

)

Equity in loss of equity method investees, net of tax

 

 

406,678

 

 

 

 

 

 

861,896

 

 

 

 

Government grant income

 

 

(1,444,044

)

 

 

 

Change in deferred tax provision

 

 

(915,449

)

 

 

 

 

 

13,730

 

 

 

 

Change in foreign exchange contracts

 

 

(167,688

)

 

 

46,157

 

 

 

64,127

 

 

 

503,985

 

Foreign currency transactions

 

 

(1,320,052

)

 

 

 

 

 

(329,196

)

 

 

(1,294,985

)

Change in contingent consideration obligation

 

 

 

 

 

(714,429

)

Amortization of debt discount

 

 

1,559,595

 

 

 

660,191

 

 

 

455,574

 

 

 

283,643

 

Accretion of note receivable

 

 

(63,738

)

 

 

 

Changes in:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(347,874

)

 

 

(4,272,470

)

 

 

(3,712,963

)

 

 

(8,996,608

)

Unbilled accounts receivable

 

 

(149,735

)

 

 

 

Inventories

 

 

(2,961,203

)

 

 

(10,256,441

)

 

 

1,703,845

 

 

 

3,124,383

 

Prepaid expenses and other current assets

 

 

1,470,258

 

 

 

363,963

 

 

 

574,099

 

 

 

(216,080

)

Other non-current assets

 

 

(786,506

)

 

 

(152,621

)

 

 

33,551

 

 

 

72,381

 

Accounts payable

 

 

1,868,140

 

 

 

8,866,376

 

 

 

3,985,916

 

 

 

1,671,381

 

Deferred revenue

 

 

806,691

 

 

 

2,670,287

 

 

 

(156,719

)

 

 

361,348

 

Accrued expenses and other current liabilities

 

 

(1,438,490

)

 

 

360,147

 

 

 

1,291,682

 

 

 

(436,714

)

Other non-current liabilities

 

 

(27,198

)

 

 

(117,524

)

 

 

40,394

 

 

 

(48,989

)

Net cash used in operating activities

 

 

(15,828,395

)

 

 

(18,006,419

)

Net cash provided by (used in) operating activities

 

 

794,678

 

 

 

(7,319,995

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(925,747

)

 

 

(1,637,547

)

 

 

(239,434

)

 

 

(151,376

)

Proceeds from disposal of property, plant and equipment

 

 

6,292

 

 

 

79,862

 

 

 

92,656

 

 

 

3,660

 

Net proceeds from sale of equity investment

 

 

400,000

 

 

 

988,504

 

Proceeds from partnership transaction

 

 

2,000,000

 

 

 

 

Capital contributions to partnerships

 

 

(119,897

)

 

 

 

Proceeds from sale of business interest

 

 

7,000,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

8,360,648

 

 

 

(569,181

)

Net cash used in investing activities

 

 

(146,778

)

 

 

(147,716

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from sale of common stock

 

 

152,750

 

 

 

10,657,775

 

 

 

(153,230

)

 

 

 

Net proceeds from sale of Series B convertible preferred stock

 

 

 

 

 

5,000,250

 

Taxes paid related to net share settlements of stock-based compensation awards

 

 

(25,663

)

 

 

(178,727

)

 

 

(15,176

)

 

 

(8,210

)

Borrowings and repayments on lines of credit, net

 

 

7,825,838

 

 

 

2,757,274

 

 

 

(2,860,874

)

 

 

6,750,048

 

Borrowings of long-term debt

 

 

298,694

 

 

 

860,801

 

 

 

201,322

 

 

 

266,734

 

Repayments of long-term debt

 

 

(131,709

)

 

 

(457,929

)

Debt issuance costs

 

 

(324,629

)

 

 

(169,901

)

 

 

(140,304

)

 

 

(128,879

)

Repayments of long-term debt

 

 

(1,361,496

)

 

 

(1,027,959

)

Net cash provided by financing activities

 

 

6,565,494

 

 

 

17,899,513

 

Net cash provided by (used in) financing activities

 

 

(3,099,971

)

 

 

6,421,764

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

415,208

 

 

 

290,069

 

 

 

40,700

 

 

 

213,839

 

NET DECREASE IN CASH & CASH EQUIVALENTS

 

 

(487,045

)

 

 

(386,018

)

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS

 

 

(2,411,371

)

 

 

(832,108

)

CASH AND CASH EQUIVALENTS, beginning of the period

 

 

2,056,508

 

 

 

3,527,937

 

 

 

3,398,793

 

 

 

2,056,508

 

CASH AND CASH EQUIVALENTS, end of period

 

$

1,569,463

 

 

$

3,141,919

 

 

$

987,422

 

 

$

1,224,400

 

 

See notes to condensed consolidated financial statements.

8


 

S&W SEED COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - GENERAL

The Company is a global multi-crop, middle-market agricultural company that is principally engaged in breeding, growing, processing and selling agricultural seeds. The Company operates seed cleaning and processing facilities, which are located in Texas, New South Wales and South Australia. The Company’s seed products are primarily grown under contract by farmers. The Company is currently focused on growing sales of their proprietary and traited products specifically through the expansion of Double TeamTM for forage and grain sorghum products, improving margins through pricing and operational efficiencies, and developing the camelina market via a newlyrecently formed partnership.

Investments and Partnership Activity

Shell Partnership

On February 6, 2023, S&W and Equilon Enterprises LLC (dba Shell Oil Products US, or Shell), entered into a partnership for the development and production of sustainable biofuel feedstocks through Vision Bioenergy Oilseeds LLC, or Vision Bioenergy. Under the terms of the partnership agreement, S&W contributed production and research facilities, along with certain personal property, including vehicles and other similar equipment, into its Vision Bioenergy subsidiary and subsequently sold a 66% interest in the subsidiary to Shell. See Note 11 for further information.

Trigall Australia Partnership

Effective December 23, 2022, the Company’s wholly owned subsidiary, S&W Seed Company Australia Pty Ltd, or S&W Australia, entered into a partnership with Trigall Genetics S.A., or Trigall, for the development and marketing of wheat varieties in Australia. Under the terms of the partnership agreement, S&W Australia transferred certain intellectual property license rights and equipment into a wholly owned subsidiary and subsequently sold an 80% interest in the subsidiary to Trigall. The subsidiary was renamed Trigall Australia Pty Ltd, or Trigall Australia. See Note 11 for further information.

Bioceres Investment

As of June 30, 2021, the Company held an investment in Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. During the third quarter of fiscal year 2022, the Company sold 71.4% of the investment in Bioceres, S.A. for net proceeds of $988,504, which included a gain on the sale of marketable securities of $68,967. The carrying value of the remainder of the investment was $367,970 at June 30, 2022, which was reported in Equity method investments on the Company's consolidated balance sheet. During the nine months ended March 31, 2023, the Company sold off the remainder of its investment in Bioceres, S.A. for net proceeds of $400,000, which included a gain on the sale of equity investment of $32,030.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the Company’s condensed consolidated balance sheets, statements of operations, comprehensive income (loss),loss, cash flows and mezzanine equity and stockholders’ equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending June 30, 2023.2024. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022,2023, as filed with the SEC.

Certain prior period information has been reclassified to conform to the current period presentation. Operating lease right-of-use assets were reclassified from “Other assets” to “Right-of-use assets – operating leases” on the balance sheet in accordance with the disclosure guidance of ASC 842. Previously, the operating lease right-of-use assets were disclosed in the footnotes.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, inventory valuation, the carrying value of the Company's equity investments, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain

9


intangible assets as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows.

The Company believes the estimates and assumptions underlying the accompanying condensed consolidated financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared. However, certain adverse geopolitical and macroeconomic events, such as the ongoing military conflict between Ukraine and Russia and related sanctions, the armed conflict in Sudan, the war between Israel and Hamas, and uncertain market conditions, including higher inflation and supply chain disruptions, have, among other things, negatively impacted the global economy, created significant volatility and disruption of financial markets, and significantly increased economic and demand uncertainty. These factors make many of the estimates and assumptions reflected in these condensed consolidated financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Liquidity and Going Concern

Excluding the gain recognized in relation to the Vision Bioenergy partnership, theThe Company is not profitable and has recorded negative cash flows for the last several years. For the ninethree months ended March 31,September 30, 2023, the Company reported a net incomeloss of $21.66.0 million andmillion. While the Company did report net cash used inprovided by operations of $15.80.8 million.million for the three months ended September 30, 2023, it expects this to be negative in fiscal 2024. The positive cash flow in operations for the three months ended September 30, 2023 was largely due to changes in operating assets and liabilities. As of March 31,September 30, 2023, the Company had cash on hand of $1.61.0 million. The Company had $1.83.0 million of unused availability from its working capital facilities as of March 31,September 30, 2023 (see Note 78 for further discussion). TheIn relation to the partnerships formed in fiscal 2023, the Company also has accessis entitled to capital under ATM Common Stock Sales (defined below in Note 9), which hadreceive $6.21.0 million remaining availablefrom Trigall Genetics S.A., or Trigall, in December 2023 and $6.0 million from Equilon Enterprises LLC (dba Shell Oil Products, or Shell) in February 2024, subject to sell under the ATM agreement as of March 31, 2023.adjustment in certain circumstances detailed further in Note 7. The Company is obligated to make an additional $0.4 million in capital contributions to Trigall Australia Pty Ltd, or Trigall Australia, through June 2025.

9


The Company’s Amended and Restated Loan and Security Agreement, dated March 22, 2023, or the Amended CIBC Loan Agreement, with CIBC Bank USA, or CIBC, which matures on August 31, 2024 ($18.3 million outstanding as of March 31, 2023),and its debt facilities with National Australia Bank, or NAB, under the NAB Finance Agreement, contain various operating and financial covenants (see(refer to Note 7)8). Adverse geopolitical and macroeconomic events and other factors affecting the Company’s results of operations have increased the risk of the Company’s inability to comply with these covenants, which could result in acceleration of its repayment obligations and foreclosure on its pledged assets. For example, the Company was not in compliance with certain covenants in the CIBC Loan Agreement as of June 30, 2021, December 31, 2021, March 31, 2022, June 15, 2022, and June 30, 2022, and was required to obtain waivers and/or amendments from CIBC. The Amended CIBC Loan Agreement as presently in effect requires the Company to meet minimum Adjustedadjusted EBITDA levels on a quarterly basis and the NAB Finance Agreement (as defined below) includes an undertaking that requires the Company to maintain a net related entity position of not more than USD $18.5 million. Themillion and a minimum interest cover ratio at each fiscal year-end. As of September 30, 2023, the Company met all financialwas in compliance with the CIBC minimum adjusted EBITDA covenant as well as the NAB net related entity position covenant. While the Company was in compliance with these covenants, as of March 31, 2023, but there can be no assurance the Company will be successful in meeting its covenants or securing future waivers and/or amendments from its lenders. Currently, the Company does not expect to meet certain of these covenants in fiscal 2024. If the Company is unsuccessful in doing someeting its covenants or securing future waivers and/or amendments from its lenders and cannot obtain other financing, options, it may need to reduce the scope of its operations, repay amounts owed to its lenders and/or sell certain assets. Further, if the Company cannot renew or obtain other financing when its two major debt facilities with CIBC and NAB expire on August 31, 2024 and September 30, 2024, respectively, it may need to reduce the scope of its operations, repay amounts owed to its lenders and/or sell certain assets. These operating and liquidity factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Cost of Revenue

The Company records purchasing and receiving costs, inspection costs and warehousing costs in Cost of revenue. When the Company is required to pay for outward freight and/or the costs incurred to deliver products to its customers, the costs are included in Cost of revenue.

Cash and Cash Equivalents

For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation. Cash balances located outside of the United States may not be insured and totaled $252,236 and $191,766 on September 30, 2023 and June 30, 2023, respectively. Cash balances residing in the United States exceeding the Federal Deposit Insurance Corporation limit of $250,000 totaled $485,186 and $2,957,028 on September 30, 2023 and June 30, 2023, respectively.

International Operations

The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income (loss). Gains or losses from foreign currency transactions are included in the condensed consolidated statement of operations. For the ninethree months ended March 31,September 30, 2023, a $0.6 million lossforeign currency transaction gain was recognized to costwithin Cost of revenuesrevenue and a $0.70.4 million foreign currency loss was recorded to otherOther (income) expense. For the three months ended March 31, 2023,September 30, 2022, a $0.41.0 million lossforeign currency gain was recognized to costwithin Cost of revenuesrevenue and a $0.30.2 million foreign currency loss was recorded to otherOther (income) expense.

Accounts Receivable

The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. ThatPrior to July 1, 2023, that estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. Effective July 1, 2023, in determining the Company's reserve for credit losses, receivables are assigned an expected loss based on historical information adjusted for forward-looking economic factors. The allowance for doubtful trade receivables was $258,821279,579 and $233,927209,757 on March 31,September 30, 2023 and June 30, 2022,2023, respectively.

Inventories

Inventories consist of seed and packaging materials.

Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and

10


 

Inventorieswasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods based on the normal capacity of the production facilities.

Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Inventory quality is a function of germination percentage. Our experience has shown that our alfalfa seed quality tends to be stable under proper storage conditions; therefore, we do not view inventory obsolescence for alfalfa seed as a material concern. Hybrid crops (sorghum and sunflower) seed quality may be affected by warehouse storage pests such as insects and rodents. The Company maintains a strict pest control program to mitigate risk and maximize hybrid seed quality.

Components of inventory are as follows:

 

As of

 

 

As of

 

 

As of

 

 

As of

 

 

March 31, 2023

 

 

June 30, 2022

 

 

September 30, 2023

 

 

June 30, 2023

 

Raw materials and supplies

 

$

3,312,634

 

 

$

2,645,764

 

 

$

3,380,076

 

 

$

3,309,211

 

Work in progress

 

 

12,890,422

 

 

 

6,677,980

 

 

 

7,094,668

 

 

 

6,409,554

 

Finished goods

 

 

39,463,571

 

 

 

45,192,150

 

 

 

32,466,589

 

 

 

35,379,503

 

Inventories, net

 

$

55,666,627

 

 

$

54,515,894

 

 

$

42,941,333

 

 

$

45,098,268

 

Employee Retention CreditProperty, Plant and Equipment

Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of 5 to 35 years for buildings, 2 to 20 years for machinery and equipment, and 2 to 5 years for vehicles.

Intangible Assets

Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the asset. Periods of 10 to 30 years for technology/IP/germplasm, 5 to 20 years for customer relationships and trade names and 10 to 20 for other intangible assets. The weighted average estimated useful lives are 25 years for technology/IP/germplasm, 19 years for customer relationships, 16 years for trade names, and 18 years for other intangible assets as of September 30, 2023.

Investments

In responsefiscal 2023, the Company entered into two partnerships resulting in a 34% ownership interest in Vision Bioenergy Oilseeds LLC, or Vision Bioenergy, and a 20% ownership interest in Trigall Australia Pty Ltd, or Trigall Australia. Following the initial recording of each investment, the Company assesses and records its share of equity earnings from each investment on a quarterly basis, resulting in the investment carrying value increasing or decreasing depending on whether a gain or loss is recorded. For Trigall Australia, the Company is also required to make capital contributions, which increases the COVID-19 pandemic,carrying value of the Employee Retention Credit, or ERC, was established under the Coronavirus Aid, Relief,investment.

Research and Economic Security Act. The ERC is a refundable tax credit meant for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to December 31, 2021. Companies who meet the eligibility requirements can claim the ERC on an original or adjusted employment tax return for a period within those dates.Development Costs

In March 2023,The Company is engaged in ongoing research and development, or R&D, of proprietary seed varieties. All R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the Company determined that it qualifies for $1.4 million in relief for the period from April 1, 2021 to September 30, 2021. Upon receipt of the relief, the Company will owe $0.2 million in tax advisorycontracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or constructed for R&D activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the assessmentestimated useful life of the tax credit. Further research is ongoing to determine if the Company qualifies for any other reporting periods. As there is no authoritative guidance under US GAAP for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standards 20, or IAS 20, asset.Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, management determined it has reasonable assurance of receipt of the identified ERC amount and recorded the $1.4 million benefit as Government grant income in the condensed consolidated statements of operations during the three and nine month periods ended March 31, 2023. A corresponding accrual of the tax credit receivable was recorded as a current asset on the condensed consolidated balance sheet as of March 31, 2023.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and nine months ended March 31,September 30, 2023 and 2022 has been affected by the valuation allowance on the Company’s deferred tax assets as well as the gain related to the formation of our wheat partnership with Trigall.assets.

Net Income (Loss) Per Common Share Data

The Company computes earnings per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. The Company's Series B Preferred Stock and related warrant, or Series B Warrant (see Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 2022,2023, as filed with the SEC), are participating securities because holders of such shares have non-forfeitable dividend rights and participate in any undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the

11


Company in determining net loss attributable to common shareholders in the two-class earnings per share, or EPS, calculation. Accretion to the redemption value for the Series B Preferred Stock is also treated as a deemed dividend and subtracted from net income attributable to shareholders. There were no undistributed earnings to allocate to the participating securities in the three and nine month periods ended March 31,September 30, 2023 and 2022.

11


The calculation of net loss per common share is shown in the table below:

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to S&W Seed Company

 

$

32,119,365

 

 

$

(7,304,923

)

 

$

21,624,419

 

 

$

(23,500,000

)

Dividends accrued for participating securities

 

 

(95,299

)

 

 

(40,276

)

 

 

(271,746

)

 

 

(40,276

)

Accretion of Series B Preferred Stock redemption value

 

 

(25,838

)

 

 

(12,919

)

 

 

(77,514

)

 

 

(12,919

)

Numerator for net income (loss) per common share - basic and diluted

 

$

31,998,228

 

 

$

(7,358,118

)

 

$

21,275,159

 

 

$

(23,553,195

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic EPS - weighted average shares

 

 

42,790,693

 

 

 

39,515,547

 

 

 

42,681,201

 

 

 

38,240,917

 

Less: weighted average shares - dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options

 

 

182,574

 

 

 

 

 

 

60,858

 

 

 

 

Employee restricted stock options

 

 

192,881

 

 

 

 

 

 

131,771

 

 

 

 

Denominator for diluted EPS - weighted average shares

 

 

43,166,148

 

 

 

39,515,547

 

 

 

42,873,830

 

 

 

38,240,917

 

Net income (loss) per common share - basic

 

$

0.75

 

 

$

(0.19

)

 

$

0.50

 

 

$

(0.62

)

Net income (loss) per common share - diluted

 

$

0.74

 

 

$

(0.19

)

 

$

0.50

 

 

$

(0.62

)

 

 

Three Months Ended September 30,

 

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

Net loss attributable to S&W Seed Company

 

$

(5,949,629

)

 

$

(4,508,941

)

Dividends accrued for participating securities

 

 

(94,207

)

 

 

(88,223

)

Accretion of Series B Preferred Stock redemption value

 

 

(25,838

)

 

 

(25,838

)

Numerator for net loss per common share - basic and diluted

 

$

(6,069,674

)

 

$

(4,623,002

)

Denominator:

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

43,009,221

 

 

 

42,604,020

 

Net loss per common share - basic and diluted

 

$

(0.14

)

 

$

(0.11

)

Anti-dilutive shares, which have been excluded from the computation of diluted income (loss) per share, included 4,319,2324,795,367 employee stock options, 1,695,000 shares issuable upon conversion of the Series B Convertible Preferred Stock, warrants to purchase 2,633,400 shares of common stock related to the MFP Loan Agreement (as defined below), 559,350 warrants issued with the Company's Series B Convertible Preferred Stock, and 48,439406,124 restricted stock units. The terms and conditions of these securities are more fully described in Note 911 and Note 1012 in these condensed consolidated financial statements and in Note 13 and Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 2022,2023, as filed with the SEC. For the period ended March 31,September 30, 2023 and 2022, all potentially dilutive shares were anti-dilutive and excluded from the calculation of diluted loss per share because net losses were recognized.

Concentrations

NoOne single customer accounted for more than 1029% and 18% of the Company's revenue for the three and nine months ended March 31,September 30, 2023 and 2022.2022, respectively.

NoOne customer accounted for 21% of the Company's accounts receivable as of September 30, 2023 and no one customer accounted for more than 10% of the Company’s accounts receivable as of March 31, 2023 and as of June 30, 2022.2023.

The Company sells a substantial portion of its products to international customers (see Note 4). Sales to international markets represented 5582% and 6089% of revenue during the three months ended March 31, 2023 and 2022, respectively. Sales to international markets represented 75% and 70% of revenue during the nine months ended March 31,September 30, 2023 and 2022, respectively. The net book value of fixed assets located outside the United States was 31% and 22% of total fixed assets on March 31,September 30, 2023 and June 30, 2022, respectively. Cash balances located outside of the United States may not be insured and totaled $2023.439,920 and $811,551 on March 31, 2023 and June 30, 2022, respectively. Cash balances residing in the United States exceeding the Federal Deposit Insurance Corporation limit of $250,000 totaled $879,542 and $994,957 on March 31, 2023 and June 30, 2022, respectively.

Derivative Financial Instruments

The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency derivative financial instruments.

The Company has entered into foreign currency forward contracts and foreign currency call options (see Note 8)9) and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging,” which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts and options are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings.

Premiums paid for foreign currency options with strike prices below the spot market price when acquired represent the time value of the option, as there is no intrinsic value. Such premiums are recorded as a current asset and amortized over the option term. Currency options are measured at fair value if the market price at the reporting date exceeds the strike price. When the strike price exceeds the market price, no liability is recorded as the Company has no obligation to exercise the options.

12


Fair Value of Financial Instruments

The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier fair value hierarchy, as follows:

Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

12


Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying value of cash and cash equivalents, financial commitment assets (see Note 9), the promissory note issued from Trigall (see Note 11), accounts payable, short-term and all long-term borrowings, as reflected in the condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments or interest rates commensurate with market rates. There have been no changes in operations and/or credit characteristics since the date of issuance that could impact the relationship between interest ratesrate and market rates.

S&W received a $6.0 million note receivable due from Shell in connection with the Vision Bioenergy partnership transaction (see Note 11)7). The note, which is due in February 2024, was initially recorded at its $5.7 million present value discounted at a rate of 4.4%, which is our estimated discount rate for similar instruments. The receivable balance is being accreted to the full receivable amount on a straight-line basis over the remaining receivable term due to its short-term maturity. The receivable balance was $5.85.9 million as of March 31,at September 30, 2023.

Also in conjunction with the Vision Bioenergy partnership transaction, S&W received a one-time option, or Purchase Option, exercisable at any time on or before the fifth anniversary of the closing of the partnership transaction, to repurchase a 6% membership interest from Shell. The option repurchase prices range between approximately $7.1 and $12.0 million, depending on the date on which such purchase is completed. The Purchase Option was valued at $0.60.7 million using a lattice option valuation model. The valuation model incorporated significant, unobservable inputs including a discounted cash flow model based on management projections of future Vision Bioenergy results and an estimate of the current per share value of Vision Bioenergy shares. In the model, the estimate of the current per share value was discounted to account for lack of control and marketability, which were considered to be part of the unit of account given the restrictions of the limited liability company agreement that governs the ownership rights of the members. Other unobservable inputs included the risk-free rates and the estimated future stock volatility based on the historical stock price volatilities of other market participants. A full fair value analysis will be performed at each fiscal year-end or when there is an indication that there may be an impairment to the valuation. Management will estimate and adjust the balance for interim periods. NoA fair value analysis was performed as of June 30, 2023, which resulted in no material adjustment to the fair value. No indicators have been identified for the three months ended September 30, 2023 to suggest any material change in the fair value was recorded as of March 31,the purchase option. As such, there is no indication of impairment for the three months ended September 30, 2023.

Quantitative information about Level 3 fair value measurement is as follows:

 

 

Fair Value at 3/31/23

 

 

Valuation Technique

 

Unobservable Input

 

Range

Purchase Option

 

$

604,000

 

 

Option Model

 

Risk-free rate

 

3.8% - 4.9%

 

 

 

 

 

 

 

Stock price volatility

 

60% - 65%

 

 

 

 

 

 

 

Lack of control premium

 

13%

 

 

 

 

 

 

 

Lack of marketability premium

 

30%

 

 

Fair Value at 9/30/23

 

 

Valuation Technique

 

Unobservable Input

 

Range

Purchase Option

 

$

695,000

 

 

Option Model

 

Risk-free rate

 

3.8% - 4.9%

 

 

 

 

 

 

 

Stock price volatility

 

60% - 65%

 

 

 

 

 

 

 

Lack of control premium

 

13%

 

 

 

 

 

 

 

Lack of marketability premium

 

30%

Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:

 

Fair Value Measurements as of March 31, 2023 Using:

 

 

Fair Value Measurements as of September 30, 2023 Using:

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Foreign exchange contract liability

 

$

 

 

$

812,362

 

 

$

 

 

$

 

 

$

887,316

 

 

$

 

Note receivable due from Shell

 

 

 

 

 

5,910,628

 

 

 

 

Vision Bioenergy interest purchase option

 

 

 

 

 

 

 

 

604,000

 

 

 

 

 

 

 

 

 

695,000

 

Total

 

$

 

 

$

812,362

 

 

$

604,000

 

 

$

 

 

$

6,797,944

 

 

$

695,000

 

 

 

Fair Value Measurements as of June 30, 2022 Using:

 

 

Fair Value Measurements as of June 30, 2023 Using:

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Foreign exchange contract liability

 

$

 

 

$

996,106

 

 

$

 

 

$

 

 

$

849,033

 

 

$

 

Note receivable due from Shell

 

 

 

 

 

5,846,890

 

 

 

 

Vision Bioenergy interest purchase option

 

 

 

 

 

 

 

 

695,000

 

Total

 

$

 

 

$

996,106

 

 

$

 

 

$

 

 

$

6,695,923

 

 

$

695,000

 

Recent Adopted Accounting Pronouncements

Effective July 1, 2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was subsequently amended in November 2018 through ASU No. 201819, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2016-13”). The amended guidance requires entities to estimate lifetime expected credit losses for trade and other receivables, including those that are current with respect to payment terms, along with other financial instruments which may result in earlier recognition of credit losses. The Company evaluated its existing methodology for estimating an allowance for doubtful accounts and the risk profile of its receivables portfolio and developed a model that includes the qualitative and forecasting aspects of the “expected loss” model under the amended guidance. In determining the Company’s reserve for

13


 

Recent Accounting Pronouncements Not Yet Adoptedcredit losses, receivables are assigned an expected loss based on historical information adjusted for forward-looking economic factors. The adoption of ASU 2016-13 did not have a material impact on the Company’s condensed consolidated financial statements.

We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our condensed consolidated statements of operations, comprehensive income, balance sheets, or cash flows.

NOTE 3 - LEASES

The Company leases office and laboratory space, research plots and equipment used in connection with its operations under various operating and finance leases. The components of lease assets and liabilities as of March 31,September 30, 2023 and June 30, 20222023 are as follows:

Leases

 Balance Sheet Classification:

March 31, 2023

 

June 30, 2022

 

 Balance Sheet Classification:

 

As of September 30, 2023

 

 

As of June 30, 2023

 

Assets:

 

 

 

 

Right of use assets - finance leases

 

$

1,736,128

 

$

2,071,609

 

 

$

1,922,637

 

$

1,759,094

 

Accumulated amortization - finance leases

 

 

(1,104,261

)

 

(1,131,842

)

 

 

(923,233

)

 

(1,088,294

)

Right of use assets - finance leases, net

Other assets

 

631,867

 

 

939,767

 

Other assets

 

999,404

 

 

670,800

 

Right of use assets - operating leases

Right of use assets - operating leases

 

3,344,109

 

 

4,094,253

 

Right of use assets - operating leases

 

3,340,651

 

 

2,983,303

 

Total lease assets

$

3,975,976

 

$

5,034,020

 

$

4,340,055

 

$

3,654,103

 

 

 

 

 

Liabilities:

 

 

 

 

Current lease liabilities - finance leases

Current portion of long-term debt, net

$

402,164

 

$

804,309

 

Current portion of long-term debt, net

$

470,364

 

$

383,403

 

Current lease liabilities - operating leases

Accrued expenses and other current liabilities

 

1,254,357

 

 

1,341,198

 

Accrued expenses and other current liabilities

 

1,365,679

 

 

1,335,568

 

Long-term portion of lease liabilities -
finance leases

Long-term debt, net, less current portion

 

246,977

 

 

500,723

 

Long-term debt, net, less current portion

 

538,178

 

 

304,761

 

Long-term portion of lease liabilities -
operating leases

Other non-current liabilities

 

2,337,168

 

 

3,042,311

 

Other non-current liabilities

 

2,247,363

 

 

1,949,604

 

Total lease liabilities

$

4,240,666

 

$

5,688,541

 

$

4,621,584

 

$

3,973,336

 

The components of lease cost are as follows:

 

Three Months Ended September 30,

 

Lease cost:

Income Statement Classification:

Three Months Ended March 31, 2023

 

Nine Months Ended March 31, 2023

 

Income Statement Classification:

2023

 

2022

 

Operating lease cost

Cost of revenue

$

193,011

 

$

540,260

 

Cost of revenue

$

175,666

 

$

183,860

 

Operating lease cost

Selling, general and administrative expenses

 

45,040

 

 

155,288

 

Selling, general and administrative expenses

 

41,052

 

 

55,334

 

Operating lease cost

Research and development expenses

 

92,016

 

 

316,833

 

Research and development expenses

 

119,227

 

 

136,197

 

Finance lease cost

Depreciation and amortization

 

120,263

 

 

385,901

 

Depreciation and amortization

 

119,469

 

 

139,690

 

Finance lease cost

Interest expense, net

 

 

8,714

 

 

30,033

 

Interest expense, net

 

 

12,117

 

 

16,645

 

Total lease costs

$

459,044

 

$

1,428,315

 

$

467,531

 

$

531,726

 

Maturities of lease liabilities as of March 31,September 30, 2023, are as follows:

Fiscal Year

Operating Leases

 

Finance Leases

 

Operating Leases

 

Finance Leases

 

Remainder of 2023

$

359,999

 

$

126,830

 

2024

 

1,387,727

 

 

367,055

 

Remainder of 2024

 

1,204,384

 

 

421,118

 

2025

 

978,126

 

 

144,272

 

 

1,165,074

 

 

382,219

 

2026

 

641,966

 

 

51,829

 

 

860,785

 

 

281,648

 

2027

 

400,807

 

 

-

 

 

511,682

 

 

43,874

 

2028

 

219,538

 

 

 

Thereafter

 

102,974

 

 

-

 

 

39,472

 

 

 

Total lease payments

 

3,871,599

 

 

689,986

 

 

4,000,935

 

 

1,128,859

 

Less: Interest

 

(280,074

)

 

(40,845

)

 

(387,893

)

 

(120,317

)

Present value of lease liabilities

$

3,591,525

 

$

649,141

 

$

3,613,042

 

$

1,008,542

 

14


The following are the weighted average assumptions used for lease term and discount rate and supplemental cash flow information related to leases as of March 31,September 30, 2023:

Operating lease remaining lease term

3.3 years

 

Operating lease discount rate

 

4.14

%

Finance lease remaining lease term

1.1 years

 

Finance lease discount rate

 

6.04

%

Cash paid for operating leases

$

1,063,242

 

Cash paid for finance leases

 

490,810

 

14


Operating lease remaining lease term

3.2 years

 

Operating lease discount rate

 

4.99

%

Finance lease remaining lease term

1.6 years

 

Finance lease discount rate

 

8.34

%

Cash paid for operating leases

$

324,292

 

Cash paid for finance leases

 

$

156,304

 

 

NOTE 4 - REVENUE RECOGNITION

The Company derives its revenue primarily from the sale of seed products to seed distributors. From time to time, the Company utilizes excess capacity to provide conditioning, treating and packaging services to other seed producers. The Company also derives service revenue from its two partnerships, Trigall Australia and Vision Bioenergy Oilseeds LLC, or Vision Bioenergy, by providing administrative services under a service level agreement.

Revenue from seed product sales is recognized at the point in time at which control of the product is transferred to the customer. Generally, this occurs upon shipment of the product. Pricing for such transactions is negotiated and determined at the time the contracts are signed. We have elected the practical expedient that allows us to account for shipping and handling activities as a fulfillment cost, and we accrue those costs when the related revenue is recognized.

The Company has certain contracts with customers that offer a limited right of return on certain branded products through the end of the current sales year (September through August). The products must be in an unopened and undamaged state and must be resalable in the sole opinion of the Company to qualify for a refund. The Company uses a historical returns percentage to estimate the refund liability and records a reduction of revenue in the period in which revenue is recognized.

Contract Assets and Liabilities

Accounts receivable represent amounts that are payable to the Company by its customers subject only to the passage of time. Payment terms on invoices are generally 30 to 180 days for export customers and end of sales season (September 30th) for branded products sold within the United States. As the period between the transfer of goods and/or services to the customer and receipt of payment is less than one year, the Company does not separately account for a financing component in its contracts with customers.

The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts (see Note 2). When it becomes probable that a trade receivable will not be collected, it is written off against the allowance for doubtful accounts. If an account that has been written off is subsequently corrected, the provision for doubtful receivables is reversed, which can result in a net negative provision in a period. During the three and nine months ended March 31, 2023, the Company recorded a net provision for doubtful receivables of $48,634 and a net reversal of the allowance for doubtful accounts of ($76,575), respectively.

Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation. During the nine months ended March 31, 2023, the Company recognized $0.6 million of revenue that was included in the deferred balance as of June 30, 2022. During the nine months ended March 31, 2022, the Company recognized $0.4 million of revenue that was included in the deferred balance as of June 30, 2021.

ADAMA Collaboration Agreement

The Company has a collaboration agreement, or Collaboration Agreement, with Makhteshim Agan of North America, Inc., or ADAMA, for the development and commercialization of the Double Team Sorghum Weed Control System, or DT, which is comprised of ADAMA’s ACCase herbicide used in concert with the Company’s ACCase tolerant ATS Sorghum product, Double TeamTM Sorghum Cropping Solution. Both parties are active participants in the operating activities of the collaboration and exposed to significant risks and rewards depending on the commercial success of the activities. Although the DT product is designed to be used as a system, the Company sells only the Double TeamTM Sorghum sorghum seed portion of the system and recognizes the revenue consistent with its sales of other seed products.

Under the Collaboration Agreement, the Company will only label and promote ATS Sorghum products with ADAMA herbicides, while ADAMA will not sell ACCase herbicides for use on competing ATS Sorghum products. Further, all DT related trademarks are jointly owned by the Company and ADAMA, and each company grants the other a license free royalty to use these DT related trademarks. The parties have agreed to share the increase in commercial value created and realized by DT, or Total Value Share, with the Company and ADAMA taking 60% and 40% of the Total Share Value, respectively. The Total Share Value is the sum of (a) the increase in gross margin realized by the Company from sale of the Double TeamTM Sorghum product, compared to margins realized by its non-ATS Sorghum products, (b) 100% of the ADAMA’s ACCase herbicide gross margin, and (c) any DT-related technology licensing fees received by either party. The Total Value Share is estimated each calendar quarter and a final net settlement is paid at the end of each market year, which ends in August. Estimated and final net settlement amounts to be paid or received are recorded as adjustments to cost of sales.

15


Double TeamTM Sorghum sorghum seed sales were $3.80.5 million and $5.00.0 million for the three and nine months ended March 31,September 30, 2023 respectively, and $1.7 million for the three and nine months ended March 31, 2022.2022, respectively. The Total Value Share net settlement amounts pursuant to the Collaboration Agreement were not significant for the three and nine months ended March 31,September 30, 2023 and 2022.

Payment Terms and Related Balance Sheet Accounts

Accounts receivable represent amounts that are payable to the Company by its customers subject only to the passage of time. Payment terms on invoices are generally 30 to 180 days for export customers and end of sales season (October 31st) for branded products sold within the United States. As the period between the transfer of goods and/or services to the customer and receipt of payment is less than one year, the Company does not separately account for a financing component in its contracts with customers.

The Company had $203,222 in unbilled receivables as of September 30, 2023 and June 30, 2023, which related to its service level agreement with Vision Bioenergy, as the Company bills Vision Bioenergy on a quarterly basis.

15


Losses on accounts receivable and unbilled receivables are recognized if and when it becomes probable that amounts will not be paid. These losses are reversed in subsequent periods if these amounts are paid. During the three months ended September 30, 2023 and 2022, the Company recognized bad debt expense of $165,342 and ($155,421), respectively, associated with impaired accounts receivable.

Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation. During the three months ended September 30, 2023, the Company recognized $0.4 million of revenue that was included in the deferred balance as of June 30, 2023. During the three months ended September 30, 2022, the Company recognized $0.6 million of revenue that was included in the deferred balance as of June 30, 2022.

Disaggregation of Revenue

The Company disaggregates revenue by type of contract and by destination country. The following table shows revenue from external sources by type of contract:

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

Three Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Seed sales

 

$

17,382,360

 

 

$

22,791,148

 

 

$

50,054,978

 

 

$

49,946,635

 

 

$

16,041,958

 

 

$

19,837,787

 

Services

 

 

279,947

 

 

 

395,729

 

 

 

410,996

 

 

 

1,403,332

 

 

 

390,508

 

 

 

28,078

 

Total revenue

 

$

17,662,307

 

 

$

23,186,877

 

 

$

50,465,974

 

 

$

51,349,967

 

 

$

16,432,466

 

 

$

19,865,865

 

The following tables show revenue and percentage of revenue from external sources by destination country:

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

Three Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Saudi Arabia

 

$

4,359,730

 

 

 

27

%

 

$

5,173,664

 

 

 

26

%

United States

 

$

8,035,365

 

 

 

45

%

 

$

9,270,851

 

 

 

40

%

 

$

12,751,506

 

 

 

25

%

 

$

15,340,257

 

 

 

30

%

 

 

3,014,244

 

 

 

18

%

 

 

2,261,007

 

 

 

11

%

Australia

 

 

7,336,338

 

 

 

42

%

 

 

8,846,660

 

 

 

38

%

 

 

12,522,642

 

 

 

25

%

 

 

14,526,512

 

 

 

28

%

 

 

2,006,197

 

 

 

12

%

 

 

2,585,832

 

 

 

13

%

Saudi Arabia

 

 

292,150

 

 

 

2

%

 

 

1,168,502

 

 

 

5

%

 

 

7,631,494

 

 

 

15

%

 

 

6,316,258

 

 

 

12

%

South Africa

 

 

1,932,333

 

 

 

12

%

 

 

316,266

 

 

 

2

%

Mexico

 

 

482,300

 

 

 

3

%

 

 

602,060

 

 

 

3

%

 

 

4,297,823

 

 

 

8

%

 

 

2,833,622

 

 

 

6

%

 

 

1,562,814

 

 

 

9

%

 

 

2,723,203

 

 

 

14

%

Sudan

 

 

1,421,527

 

 

 

9

%

 

 

796,883

 

 

 

4

%

Libya

 

 

 

 

 

0

%

 

 

929,335

 

 

 

4

%

 

 

2,995,608

 

 

 

6

%

 

 

1,668,044

 

 

 

3

%

 

 

1,072,800

 

 

 

7

%

 

 

2,998,047

 

 

 

15

%

Sudan

 

 

 

 

 

0

%

 

 

265,292

 

 

 

1

%

 

 

2,303,702

 

 

 

5

%

 

 

1,644,073

 

 

 

3

%

Pakistan

 

 

240,935

 

 

 

1

%

 

 

 

 

 

0

%

 

 

1,594,026

 

 

 

3

%

 

 

1,409,147

 

 

 

3

%

 

 

583,132

 

 

 

4

%

 

 

821,620

 

 

 

4

%

South Africa

 

 

(751

)

 

 

0

%

 

 

 

 

 

0

%

 

 

1,063,255

 

 

 

2

%

 

 

1,088,000

 

 

 

2

%

Algeria

 

 

176,000

 

 

 

1

%

 

 

557,510

 

 

 

2

%

 

 

912,040

 

 

 

2

%

 

 

959,810

 

 

 

2

%

Argentina

 

 

(3,188

)

 

 

0

%

 

 

 

 

 

0

%

 

 

803,264

 

 

 

2

%

 

 

819,618

 

 

 

2

%

Uruguay

 

 

244,818

 

 

 

1

%

 

 

214,518

 

 

 

1

%

Jordan

 

 

84,771

 

 

 

0

%

 

 

 

 

 

0

%

Other

 

 

1,103,158

 

 

 

6

%

 

 

1,546,667

 

 

 

7

%

 

 

3,590,614

 

 

 

7

%

 

 

4,744,626

 

 

 

9

%

 

 

150,100

 

 

 

1

%

 

 

1,974,825

 

 

 

10

%

Total revenue

 

$

17,662,307

 

 

 

100

%

 

$

23,186,877

 

 

 

100

%

 

$

50,465,974

 

 

 

100

%

 

$

51,349,967

 

 

 

100

%

 

$

16,432,466

 

 

 

100

%

 

$

19,865,865

 

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


NOTE 5 – INTANGIBLE ASSETS

Intangible assets consist of the following:

 

Balance at
June 30, 2022

 

 

Other Additions and Disposals

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at March 31, 2023

 

 

Balance at
June 30, 2023

 

 

Other Additions and Disposals

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at
September 30, 2023

 

Intellectual property

 

$

21,650,534

 

 

$

 

 

$

(346,229

)

 

$

 

 

$

21,304,305

 

Trade name

 

$

1,084,791

 

 

$

 

 

$

(147,630

)

 

$

(5,737

)

 

$

931,424

 

 

 

880,933

 

 

 

 

 

 

(48,248

)

 

 

(3,790

)

 

 

828,895

 

Customer relationships

 

 

5,499,815

 

 

 

 

 

 

(265,258

)

 

 

(131,244

)

 

 

5,103,313

 

 

 

4,968,675

 

 

 

 

 

 

(86,755

)

 

 

(120,682

)

 

 

4,761,238

 

GI customer list

 

 

42,983

 

 

 

 

 

 

(5,373

)

 

 

 

 

 

37,610

 

 

 

35,819

 

 

 

 

 

 

(1,791

)

 

 

 

 

 

34,028

 

Supply agreement

 

 

775,241

 

 

 

 

 

 

(56,725

)

 

 

 

 

 

718,516

 

 

 

699,608

 

 

 

 

 

 

(18,908

)

 

 

 

 

 

680,700

 

Grower relationships

 

 

1,331,581

 

 

 

 

 

 

(79,055

)

 

 

 

 

 

1,252,526

 

 

 

1,226,175

 

 

 

 

 

 

(26,352

)

 

 

 

 

 

1,199,823

 

Intellectual property

 

 

23,035,925

 

 

 

 

 

 

(1,039,162

)

 

 

 

 

 

21,996,763

 

License agreement

 

 

1,986,598

 

 

 

(1,885,907

)

 

 

(75,610

)

 

 

(25,081

)

 

 

(0

)

Internal use software

 

 

338,893

 

 

 

 

 

 

(50,833

)

 

 

 

 

 

288,060

 

 

 

271,115

 

 

 

 

 

 

(16,944

)

 

 

 

 

 

254,171

 

 

$

34,095,827

 

 

$

(1,885,907

)

 

$

(1,719,646

)

 

$

(162,062

)

 

$

30,328,212

 

 

$

29,732,859

 

 

$

 

 

$

(545,227

)

 

$

(124,472

)

 

$

29,063,160

 

 

16


 

Balance at
June 30, 2021

 

 

Other Additions and Disposals

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at
June 30, 2022

 

 

Balance at
June 30, 2022

 

 

Other Additions and Disposals

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at
 June 30, 2023

 

Intellectual property

 

$

23,035,925

 

 

$

 

 

$

(1,385,391

)

 

$

 

 

$

21,650,534

 

Trade name

 

$

1,310,489

 

 

$

 

 

$

(203,009

)

 

$

(22,689

)

 

$

1,084,791

 

 

 

1,084,791

 

 

 

 

 

 

(196,627

)

 

 

(7,231

)

 

 

880,933

 

Customer relationships

 

 

6,302,591

 

 

 

 

 

 

(373,393

)

 

 

(429,383

)

 

 

5,499,815

 

 

 

5,499,815

 

 

 

 

 

 

(353,000

)

 

 

(178,140

)

 

 

4,968,675

 

Non-compete

 

 

5,058

 

 

 

 

 

 

(5,058

)

 

 

 

 

 

 

GI customer list

 

 

50,146

 

 

 

 

 

 

(7,163

)

 

 

 

 

 

42,983

 

 

 

42,983

 

 

 

 

 

 

(7,164

)

 

 

 

 

 

35,819

 

Supply agreement

 

 

850,874

 

 

 

 

 

 

(75,633

)

 

 

 

 

 

775,241

 

 

 

775,241

 

 

 

 

 

 

(75,633

)

 

 

 

 

 

699,608

 

Grower relationships

 

 

1,436,988

 

 

 

 

 

 

(105,407

)

 

 

 

 

 

1,331,581

 

 

 

1,331,581

 

 

 

 

 

 

(105,406

)

 

 

 

 

 

1,226,175

 

Intellectual property

 

 

24,427,857

 

 

 

 

 

 

(1,391,932

)

 

 

 

 

 

23,035,925

 

License agreement

 

 

2,340,269

 

 

 

 

 

 

(172,004

)

 

 

(181,667

)

 

 

1,986,598

 

 

 

1,986,598

 

 

 

(1,885,907

)

 

 

(75,610

)

 

 

(25,081

)

 

 

 

Internal use software

 

 

406,670

 

 

 

 

 

 

(67,777

)

 

 

 

 

 

338,893

 

 

 

338,893

 

 

 

 

 

 

(67,778

)

 

 

 

 

 

271,115

 

 

$

37,130,942

 

 

$

 

 

$

(2,401,376

)

 

$

(633,739

)

 

$

34,095,827

 

 

$

34,095,827

 

 

$

(1,885,907

)

 

$

(2,266,609

)

 

$

(210,452

)

 

$

29,732,859

 

On December 23, 2022, the Company transferred certain intellectual property rights under a license agreement to Trigall Australia as part of its equity investment in the partnership (see Note 11). Amortization expense totaled $548,438545,227 and $598,399589,996 for the three months ended March 31, 2023 and 2022, respectively. Amortization expense totaled $1,719,646 and $1,798,227 for the nine months ended March 31,September 30, 2023 and 2022, respectively.

Estimated aggregate remaining amortization is as follows:

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

Thereafter

 

Amortization expense

 

$

527,879

 

 

$

2,154,690

 

 

$

2,114,725

 

 

$

1,975,491

 

 

$

1,924,607

 

 

$

21,630,820

 

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

2028

 

 

Thereafter

 

Amortization expense

 

$

2,179,262

 

 

$

2,139,453

 

 

$

2,025,950

 

 

$

1,921,798

 

 

$

1,864,508

 

 

$

18,932,189

 

 

17


NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Components of property, plant and equipment were as follows:

 

As of

 

 

As of

 

 

As of

 

 

As of

 

 

March 31, 2023

 

 

June 30, 2022

 

 

September 30, 2023

 

 

June 30, 2023

 

Land and improvements

 

$

942,919

 

 

$

2,265,087

 

 

$

929,091

 

 

$

939,089

 

Buildings and improvements

 

 

3,371,017

 

 

 

8,119,960

 

 

 

3,328,790

 

 

 

3,356,755

 

Machinery and equipment

 

 

12,622,765

 

 

 

14,972,462

 

 

 

12,539,138

 

 

 

12,667,858

 

Vehicles

 

 

608,002

 

 

 

1,085,342

 

 

 

674,732

 

 

 

605,891

 

Leasehold improvements

 

 

552,810

 

 

 

552,810

 

 

 

552,810

 

 

 

552,810

 

Construction in progress

 

 

20,000

 

 

 

110,107

 

 

 

256,574

 

 

 

177,538

 

Total property, plant and equipment

 

 

18,117,513

 

 

 

27,105,768

 

 

 

18,281,135

 

 

 

18,299,941

 

Less: accumulated depreciation

 

 

(7,875,828

)

 

 

(10,234,099

)

 

 

(8,511,913

)

 

 

(8,217,773

)

Property, plant and equipment, net

 

$

10,241,685

 

 

$

16,871,669

 

 

$

9,769,222

 

 

$

10,082,168

 

Depreciation expense totaled $438,505404,326 and $625,327606,748 for the three months ended March 31,September 30, 2023 and 2022, respectively.

Depreciation expense totaled

NOte 7 - investments

Shell Partnership

The terms and conditions of the Contribution and Membership Interest Purchase Agreement, or Purchase Agreement, with Shell relating to the February 6, 2023 partnership for the development and production of sustainable biofuel feedstocks through Vision Bioenergy are presented in Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023. No new activity occurred during the three months ended September 30, 2023. Activity in the period consisted of the recording of the Company's 34% share of Vision Bioenergy's loss for the period, which is recorded to Equity in loss of equity method investees, net of tax in the condensed consolidated statements of operations.

Per the Purchase Agreement, in February 2024, Shell will be required to pay an additional $1,591,9976.0 andmillion to the Company, subject to adjustment in certain circumstances. The Purchase Agreement provides that this required payment could be decreased by up to $1,809,9154.5 million if (i) certain key personnel transferred to Vision Bioenergy, or Transferred Personnel, are no longer employed by Vision Bioenergy on February 6, 2024 and (ii) the Company or Vision Bioenergy, as applicable, fail to replace such Transferred Personnel with personnel of reasonably similar qualifications within 90 days of the preceding event. The Company’s management deemed that the full $6.0 million payment from Shell to the Company was realizable due to the high likelihood that the Transferred Personnel would remain employed for the nine months ended March 31,first year, or, in any event, could be replaced within 90 days. The fair value of the full amount of this payment, based on the discounted value of the payment as of September 30, 2023, and 2022, respectively.was $5.9 million, which was recorded to Notes receivable, net on the condensed consolidated balance sheets.

The summarized unaudited balance sheet presented below reflects the financial information of Vision Bioenergy as of September 30, 2023:

 

 

As of September 30, 2023 (Unaudited)

 

Cash

 

$

6,079,478

 

Other current assets

 

 

1,798,566

 

Fixed assets

 

 

15,232,881

 

Intangible assets

 

 

18,116,986

 

Goodwill

 

 

11,742,900

 

Other assets

 

 

235,271

 

    TOTAL ASSETS

 

$

53,206,082

 

Current liabilities

 

 

1,619,917

 

Long-term liabilities

 

 

159,304

 

Equity

 

 

51,426,861

 

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

53,206,082

 

 

1718


The summarized unaudited income statement presented below reflects the financial information of Vision Bioenergy for the three months ended September 30, 2023:

 

Three Months Ended September 30, 2023 (Unaudited)

 

Revenue

 

$

110,900

 

Gross profit (loss)

 

 

(549,607

)

Loss from operations

 

 

(2,432,762

)

Net loss

 

 

(2,362,135

)

Trigall Australia Partnership

The terms and conditions of the December 23, 2022 partnership agreement that the Company’s wholly owned subsidiary, S&W Seed Company Australia Pty Ltd, or S&W Australia, entered into with Trigall are presented in Note 7 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023. The partnership, Trigall Australia, was created for the development and marketing of wheat varieties in Australia. No new activity occurred during the three months ended September 30, 2023. Activity in the period consisted of the recording of the Company's 20% share of Trigall Australia's net loss for the period, which is recorded to Equity in loss of equity method investees, net of tax in the condensed consolidated statements of operations. No capital contributions to Trigall were made in the three months ended September 30, 2023. Per the partnership agreement, S&W Australia is entitled to receive an additional $1.0 million in cash from Trigall to be paid in December 2023.

The following summarizes the carrying amount of the Company's equity method investments reflected in the condensed consolidated balance sheets:

 

 

As of September 30, 2023

 

 

As of June 30, 2023

 

 

 

Carrying Amount

 

 

Economic Interest

 

 

Carrying Amount

 

 

Economic Interest

 

Vision Bioenergy

 

$

21,530,513

 

 

 

34

%

 

$

22,307,486

 

 

 

34

%

Trigall Australia

 

 

645,825

 

 

 

20

%

 

 

752,219

 

 

 

20

%

Total equity method investments

 

$

22,176,338

 

 

 

 

 

$

23,059,705

 

 

 

 

 

NOTE 78 - DEBT

Total debt outstanding is presented on the Company's condensed consolidated balance sheetsheets as follows:

 

March 31, 2023

 

 

June 30, 2022

 

 

 

 

 

 

 

 

As of September 30, 2023

 

 

As of June 30, 2023

 

Current portion of working capital lines of credit

 

 

 

 

 

 

 

 

 

 

CIBC

 

$

18,279,289

 

 

$

12,804,611

 

 

$

15,294,047

 

 

$

19,335,427

 

National Australia Bank Limited

 

 

24,771,500

 

 

 

338,314

 

 

 

26,623,733

 

 

 

25,938,839

 

Debt issuance costs

 

 

(267,653

)

 

 

(464,028

)

 

 

(324,150

)

 

 

(373,487

)

Total current portion of working capital lines of credit, net

 

 

42,783,136

 

 

 

12,678,897

 

 

 

41,593,630

 

 

 

44,900,779

 

Long-term portion of working capital lines of credit, less current portion

 

 

 

 

 

 

National Australia Bank Limited

 

 

 

 

 

21,703,286

 

Total long-term portion of working capital lines of credit

 

 

 

 

 

21,703,286

 

Total working capital lines of credit, net

 

$

42,783,136

 

 

$

34,382,183

 

 

$

41,593,630

 

 

$

44,900,779

 

Current portion of long-term debt

 

 

 

 

 

 

 

 

 

 

Finance leases

 

$

402,164

 

 

$

804,309

 

 

$

470,364

 

 

$

383,403

 

Term Loan - National Australia Bank Limited

 

 

334,750

 

 

 

344,400

 

 

 

2,252,250

 

 

 

2,318,050

 

Machinery & equipment loans - National Australia Bank Limited

 

 

257,963

 

 

 

246,547

 

 

 

1,228,264

 

 

 

1,141,349

 

Machinery & equipment loans - Hyster

 

 

11,897

 

 

 

11,834

 

 

 

23,990

 

 

 

11,902

 

Vehicle loans - Ford Credit

 

 

51,277

 

 

 

40,341

 

 

 

70,365

 

 

 

51,278

 

Secured real estate note - Rooster

 

 

 

 

 

6,905,995

 

Debt issuance costs

 

 

 

 

 

(36,643

)

 

 

(106,740

)

 

 

(97,221

)

Total current portion, net

 

 

1,058,051

 

 

 

8,316,783

 

 

 

3,938,493

 

 

 

3,808,761

 

Long-term debt, less current portion

 

 

 

 

 

 

 

 

 

 

Finance leases

 

 

246,977

 

 

 

500,723

 

 

 

538,178

 

 

 

304,761

 

Term loan - National Australia Bank Limited

 

 

2,343,250

 

 

 

2,410,800

 

Machinery & equipment loans - National Australia Bank Limited

 

 

956,029

 

 

 

963,733

 

Machinery & equipment loans - Hyster

 

 

18,944

 

 

 

28,722

 

 

 

 

 

 

15,715

 

Vehicle loans - Ford Credit

 

 

83,532

 

 

 

88,583

 

 

 

131,887

 

 

 

70,103

 

Secured real estate note - AgAmerica

 

 

4,300,000

 

 

 

4,300,000

 

Debt issuance costs

 

 

 

 

 

(21

)

 

 

(183,366

)

 

 

(191,245

)

Total long-term portion, net

 

 

3,648,732

 

 

 

3,992,540

 

 

 

4,786,699

 

 

 

4,499,334

 

Total debt, net

 

$

4,706,783

 

 

$

12,309,323

 

 

$

8,725,192

 

 

$

8,308,095

 

19


CIBC Loan Agreement

On December 26, 2019, the Company entered into the CIBC Loan Agreement with CIBC, which originally provided for a $35.0 million credit facility, or the CIBC Credit Facility. As described in Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022,2023, the CIBC Loan Agreement was subsequently amended on several occasions, throughincluding on March 22, 2023, when the year ended June 30, 2022.Company entered into the Amended CIBC Loan Agreement. During the ninethree months ended March 31,September 30, 2023, the Amended CIBC Loan Agreement was further amended as follows:

onOn September 22, 2022, the CIBC Loan Agreement was amended to, among other things, (i) specify that the borrowing base eligible inventory sublimit cannot be reduced below the proceeds available to be drawn under the MFP Letter of Credit (as defined below), (ii) waive the Company's non-compliance with certain financial covenants under the CIBC Loan Agreement and (iii) establish a minimum liquidity of no less than $1.0 million tested weekly as of the last day of each week for the remainder of the term of the CIBC Loan Agreement;
on October 28, 2022, the CIBC Loan Agreement was amended to, among other things, increase (i) the total revolving loan commitment to $21.0 million from $18.0 million and (ii) the borrowing base eligible inventory sublimit to $12.0 million from $9.0 million;
on December 23, 2022, the CIBC Loan Agreement was amended to, among other things, extend the maturity date of all revolving loans, advances and other obligations outstanding under the CIBC Loan Agreement from December 23, 2022 to March 23, 2023; and
on March 22,25, 2023, the Company entered into an Amended and Restated Loan and Security Agreement, ora First Amendment to the Amended CIBC Loan Agreement, withor the Loan Amendment, which amended the Amended CIBC Loan Agreement, by and among the Company, as borrower, and CIBC, as administrative agent and sole lead arranger,arranger. The Loan Amendment, among other things, (i) waived certain events of default under the CIBC Loan Agreement, (ii) eliminated the minimum EBITDA and fixed charge coverage ratio covenants for the other loan partiesperiod ending of June 30, 2024, (iii) increased the applicable interest rate margin on advances under the CIBC Loan Agreement by 0.5% per annum (i.e. from 2.0% to 2.5% per annum), and lenders party thereto. The(iv) added a fee of $75,000 payable by us to CIBC on the date of the Loan Amendment. Except as modified by the Loan Amendment, all terms and conditions of the Amended CIBC Loan Agreement replaced the existing CIBC Loan Agreement. The Amended CIBC Loan Agreement now matures on August 31, 2024.remain in full force and effect.

18


The Amended CIBC Loan Agreement provides for a senior secured credit facility, or the Amended CIBC Credit Facility, of up to $25.0 million from February 1 to October 31 of each year, and up to $18.0 million from November 1 to January 31 of each year. The proceeds of advances under the Amended CIBC Credit Facility may be used to finance the Company’s ongoing working capital requirements and other general corporate purposes. Availability of funds under the Amended CIBC Credit Facility is subject to a borrowing base equal to (a) up to 85% of eligible domestic accounts receivable, plus (b) up to 90% of eligible foreign accounts receivable, plus (c) up to the lesser of (i) 65% of eligible inventory and (ii) 85% of the appraised net orderly liquidation value of eligible inventory, in each case subject to an eligible inventory sublimit, in each case ((a), (b) and (c)), as more fully set forth in the Amended CIBC Loan Agreement and subject to lender reserves that CIBC may establish from time to time in its sole discretion, determined in good faith. Advances under the Amended CIBC Credit Facility bear interest at a rate per annum equal to a reference rate equal to CIBC’s prime rate at any time (or, if greater, the federal funds rate at such time plus 0.5%) plus an applicable margin of 2.02.5%. per the Loan Amendment. The interest rate for the Amended CIBC Credit Facility was 10.010.50% as of March 31,September 30, 2023. The Company’s obligations under the Amended CIBC Loan Agreement are secured by a first priority security interest in substantially all of the Company’s assets (subject to certain exceptions), including intellectual property. All amounts outstanding under the Amended CIBC Loan Agreement, including, but not limited to, accrued and unpaid principal and interest due under the CIBC Credit Facility, will be due and payable in full on August 31, 2024.

The Amended CIBC Loan Agreement contains certain customary representations and warranties, events of default, and affirmative and negative covenants, including limitations with respect to debt, liens, fundamental changes, asset sales, restricted payments, investments and transactions with affiliates, subject to certain exceptions. Amounts due under the Amended CIBC Loan Agreement may be accelerated upon an “event of default,” as defined in the Amended CIBC Loan Agreement, such as failure to pay amounts owed thereunder when due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject in some cases to cure periods. Additionally, upon the occurrence and during the continuance of an event of default, CIBC may elect to increase the existing interest rate on all of the Company’s outstanding obligations by 2.0% per annum.

All amounts outstanding under the Amended CIBC Loan Agreement, including, but not limited to, accrued and unpaid principal and interest due under the CIBC Credit Facility, will be due and payable in full on August 31, 2024.

The Company actively pursued multiple other lenders prior to entering into the Amended CIBC Loan Agreement on March 22, 2023. The financing charges incurred associated with these other lenders totaled $1.5 million and were written off to Other (income) expenses in the condensed consolidated statements of operations in March 2023.

As of March 31,September 30, 2023, the Company was in compliance with all financial covenants contained in the CIBC Loan Agreement. As of March 31,September 30, 2023, there was approximately $1.02.6 million of unused availability on the CIBC Credit Facility, which had an available borrowing base of $19.317.9 million. With additional collateral consisting of accounts receivable and inventories, the available borrowing base can increaseas of September 30, 2023 could have increased by an additional $5.77.1 million, to a maximum amount of $25.0 million.

Rooster Note

During the nine months ended March 31, 2023, the Rooster Note (as defined in Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022) was amended as follows:

on September 22, 2022, the Company entered into an amendment to extend the Rooster Note’s maturity date to December 23, 2022; and
on December 23, 2022, the Company entered into an amendment to the Rooster Note that (i) increased the interest rate on the Rooster Note from 7.75% to 9.25% per annum and (ii) extended the maturity date of the Rooster Note from December 23, 2022 to March 1, 2023.

On February 6, 2023, Shell paid off the approximately $6.6 million of outstanding principal and accrued interest on the Rooster Note in connection with the Vision Bioenergy partnership (see Note 11).

Australian Facilities

S&W Australia’s debt facilities with National Australia Bank, or NAB, as amended to date, or the NAB Finance Agreement, were amended and restated effective October 24, 2022 and further amended on October 25, 2022. Pursuant2022, as described in Note 8 to the amendments containedConsolidated Financial Statements in the NAB Finance Agreement, among other things:Company’s Annual Report on Form 10-K for the year ended June 30, 2023. The Company's facilities during the three months ended September 30, 2023 were as follows:

the borrowing base lineA Seasonal Credit Facility comprised of two facility lines: (i) a Borrowing Base Line having a credit limit under S&W Australia’s seasonal credit facility was increased from AUD $32.0 million (USD $21.4 million as of March 31, 2023) to AUD $40.0 million (USD $26.825.7 million as of March 31,September 30, 2023), with a one-yearmaturity date extension toof September 30, 2024;
the overdraft and (ii) an Overdraft Facility having a credit limit under S&W Australia’s seasonal credit facility was increased from AUD $1.0 million (USD $0.7 million as of March 31, 2023) to AUD $2.0 million (USD $1.3 million as of March 31,at September 30, 2023), with a one-yearmaturity date extension toof September 29, 2023;. On September 14, 2023, NAB provided a temporary 30-day increase of the Overdraft Facility to AUD $3.6 million (USD $2.3 million as of September 30, 2023) . On September 26, 2023 NAB extended the maturity date on the Overdraft Facility to January 8, 2024. The interest rate for a drawing denominated in a foreign currency is fixed at the time of drawing and will be the foreign currency fixed lending rate plus a customer margin of 1.65% per annum. As of September 30, 2023, the Borrowing Base Line accrued interest on Australian dollar drawings at 8.19% per annum calculated daily. The Overdraft Facility permits S&W Australia to borrow funds on a revolving line of credit up to the credit limit. Interest accrues daily and is calculated by applying the daily interest rate to the balance owing at the end of the day and is payable monthly in arrears. As of September 30, 2023, the Overdraft Facility accrued interest at 9.47% per annum calculated daily. The Seasonal

1920


 

Credit Facility is secured by a fixed and floating lien over all the present and future rights, property, and undertakings of S&W Australia. As of September 30, 2023, approximately AUD $0.6 million (USD $0.4 million) remained available for use under the NAB Finance Agreement, which had an available borrowing base, including the overdraft, of AUD $42.0 million (USD $27.0 million as of September 30, 2023).
A flexible rate loan, or the Term Loan, in the amount of AUD $4.0 million (USD $2.6 million at September 30, 2023). Required annual principal payments of AUD $0.5 million on the Term Loan commenced in May 2023, with the remainder of any unpaid balance becoming due on March 31, 2026. Monthly interest amounts outstanding under the Term Loan are payable in arrears at a floating rate quoted by NAB for the applicable pricing period, plus 2.6%. The interest rate as of September 30, 2023 for this was 8.821%. The Term Loan is secured by a lien on all the present and future rights, property and undertakings of S&W Australia.
S&W Australia finances certain equipment purchases under a master asset finance facility with NAB. Equipment loans under the master asset finance facility have various maturity datedates through 2029, which have interest rates ranging from 2.86% to 6.82%. The total credit limit under the facility is AUD $3.0 million (USD $1.9 million at September 30, 2023). As of September 30, 2023, AUD $1.6 million (USD $1.0 million) was outstanding under S&W Australia’s master asset finance facility was extended by one year to September 29, 2023.facility.

After the amendments, the consolidated debt facilities under the NAB Finance Agreement provide for up to an aggregate of AUD $49.0 (USD $32.831.5 million as of March 31,September 30, 2023) of credit. The NAB Finance Agreement is guaranteed by S&W Seed Company up to a maximum of AUD $15.0 million (USD $10.09.7 million as of March 31,September 30, 2023).

The October 2022 amendments to the NAB Finance Agreement contained an undertaking requiring the Company to maintain a net related entity position of not more than AUD $25.0 million, and the Company's ability to comply with this undertakingwhich was subject to fluctuations in foreign currency conversion rates outside of the Company's control. Due to fluctuations in foreign currency conversion rates, the Company was not in compliance with this undertaking as of December 31, 2022 and the Company subsequently obtained a waiver from NAB with respect to such non-compliance. Onamended on February 8, 2023 the Company further amended the NAB Finance Agreement to change the required net related entity position requirement from AUD $25.0 million to USD $18.5 million. The Company believes that this amendment will provide the Company with greater control over compliance with this undertaking. As of March 31,September 30, 2023, the Company was in compliance with all NAB Finance Agreement covenants.

AgAmerica Note

As of March 31,described in Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023, approximately AUDthe Company entered into a term loan agreement, or the AgAmerica Loan Agreement, with AgAmerica on June 20, 2023 pursuant to which AgAmerica issued a term loan of $1.34.3 million, (USD $or the AgAmerica Term Loan, to the Company and, as security therefor, the Company granted to AgAmerica a mortgage on approximately 0.831 million) remained available for use underacres of land located in Lubbock and Moore Counties, Texas, and certain personal property thereon. No changes to this agreement have occurred during the NAB Finance Agreement, which had an available borrowing base of AUD $three months ended September 30, 2023.37.9 million (USD $25.4 million as of March 31, 2023). With additional collateral consisting of accounts receivable and inventories, the available borrowing base can increase by an additional AUD $4.1 million (USD $2.7 million as of March 31, 2023), to a maximum amount of AUD $42 million (USD $28.6 million as of March 31, 2023).

MFP Loan Agreement

On September 22, 2022, the Company’s largest stockholder, MFP Partners, L.P., or MFP, provided a letter of credit issued by JPMorgan Chase Bank, N.A. for the account of MFP, with an initial face amountMFP. This letter of $9.0 million,credit, or the MFP Letter of Credit, was subsequently amended on October 28, 2022, November 30, 2022, and March 22, 2023, as described in Note 8 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the benefityear ended June 30, 2023. Per the March 22, 2023 amendment, the face amount of CIBC, as additional collateral to support the Company’s obligations under the CIBC Loan Agreement. The MFP Letter of Credit initially matured on increased to $January 23, 202313.0, one month after million and extend the maturity date of the existing CIBC Loan Agreement. Concurrently, onto September 30, 2024.

On September 22, 2022, the Company also entered into a Subordinate Loan and Security Agreement, or the MFP Loan Agreement, with MFP, pursuant to which any draw CIBC may make on the MFP Letter of Credit will be deemed to be a term loan advance made by MFP to the Company. The MFP Loan Agreement initially provided for up to $9.0 million of term loan advances.

Concurrent with the October 28, 2022,March 22, 2023 amendment to the CIBC Loan Agreement, (as described above),the Company entered into a Third Amendment to Subordinate Loan and Security Agreement with MFP, amended theor MFP Letter of CreditAmendment, to (i) increase the faceaggregate amount of cash advances permitted from $9.012.0 million to $12.013.0 million, and the MFP Loan Agreement was amended tomillion; (ii) increase the maximum amount of term loan advances available to the Company from $9.0 million to $12.0 million. In connection with the December 23, 2022, amendment to the CIBC Loan Agreement, MFP amended the MFP Letter of Credit, extending the maturity date from January 23, 2023 to April 30, 2023. In connection with the Company’s entry into the Amended CIBC Loan Agreement, MFP further amended letter of credit to increase the maximum amount of term loan advances to $13.0 million and extend the maturity date to September 30, 2024.

The MFP Loan Agreement will mature on November 30, 2025. Pursuant to the MFP Loan Agreement, the Company will pay to MFP a cash fee through the maturity date of thepayable to MFP Letter of Credit equal to 3.50% per annum on all amounts remaining undrawn under the MFP Letter of Credit.Creditfrom 3.50% to 4.25% per annum; (iii) provide for the issuance of the MFP Warrant to MFP (Note 10); and (iv) reflect the extension of the maturity date of the Letter of Credit to September 30, 2024. In the event any term advances are deemed made under the MFP Loan Agreement, such advances will bear interest at a rate per annum equal to term SOFR (with a floor of 1.25%) plus 9.25%, 50% of which will be payable in cash on the last day of each fiscal quarter and 50% of which will accrue as payment in kind interest payable on the maturity date, unless, with respect to any quarterly payment date, the Company elects to pay such interest in cash. Concurrent withAs amended, the March 22, 2023 amendment to the CIBCMFP Loan Agreement the Company entered into a Third Amendment to Subordinate Loan and Security Agreement with MFP, or MFP Amendment, to (i) increase the aggregate amount of cash advances permitted from $12.0 million to $13.0 million; (ii) increase the cash fee payable to MFPwill mature on all amounts remaining undrawn under the Letter of Creditfrom 3.50% to 4.25% per annum; (iii) provide for the issuance of the MFP Warrant to MFP (see Note 9); and (iv) reflect the extension of the maturity date of the Letter of Credit to SeptemberMarch 30, 20242025.

The MFP Loan Agreement, as amended, includes customary affirmative and negative covenants and events of default, and is secured by substantially all of the Company’s assets and is subordinated to the CIBC Loan Agreement. Upon the occurrence and during the continuance of an event of default, MFP may declare all outstanding obligations under the MFP Loan Agreement immediately due and payable and take such other actions as set forth in the MFP Loan Agreement.

2021


 

Maturities of Long-Term Debt

The annual maturities of long-term debt, excluding finance lease liabilities, are as follows:

Fiscal Year

 

Amount

 

 

Amount

 

Remainder of 2023

 

$

76,909

 

2024

 

 

668,649

 

Remainder of 2024

 

$

3,557,278

 

2025

 

 

632,758

 

 

 

78,701

 

2026

 

 

2,330,226

 

 

 

4,370,777

 

2027

 

 

161,420

 

Thereafter

 

 

187,682

 

Total

 

$

4,057,644

 

 

$

8,006,756

 

 

NOTE 89 - FOREIGN CURRENCY FORWARD CONTRACTS AND OPTIONS

The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company heldmanages through the use of foreign currency forward contracts. These foreign currency contracts withare not designated as hedging instruments; accordingly, changes in the fair value are recorded in current period earnings. These foreign currency contracts had a notional value of $10,621,1558,337,155 on March 31,September 30, 2023, with maturities ranging from AprilOctober 2023 to June 2023January 2024.

The Company records an asset or liability on the condensed consolidated balance sheetsheets for the fair value of the foreign currency forward contracts. The foreign currency contract liabilities totaled $812,362887,316 and $996,106849,033 on March 31,September 30, 2023 and June 30, 2022,2023, respectively. The Company recorded gainslosses of $187,15458,268 and $201,188503,985 on foreign currency forward contracts for the three months ended March 31,September 30, 2023 and 2022, respectively, and gain of $167,688 and loss of $50,971 for the nine months ended March 31, 2023 and 2022, respectively. Gains and losses on foreign exchange contractswhich are reflected in costwithin Cost of revenue.revenue on the condensed consolidated statement of operations.

In MarchSeptember 2023, the Company acquired foreign currency options with a total notional amount of $9.08,600,000 million.. The strike prices on the transaction dates and as of March 31,September 30, 2023 were above the market price, so the options had no intrinsic value. Option premiums of $31,0555,553 are reflected in the caption "Prepaidwithin Prepaid expenses and other current assets"assets on the condensed consolidated balance sheetsheets as of March 31,September 30, 2023.

The Company's accounting policies for foreign currency contracts and options are found in Note 2 under the section titled "Derivative Financial Instruments."

 

NOTE 910 – EQUITY

ATM Common Stock Sales

On September 23, 2020, the Company entered into an At Market Issuance Sales Agreement, or the ATM Agreement, with B. Riley Securities, Inc., or B. Riley, under which it may offer and sell from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $17.1 million through B. Riley as its sales agent. On May 17, 2022, the Company amended the ATM Agreement to have an aggregate offering price of $24.6 million.

For the three and nine months ended March 31,September 30, 2023 and 2022, the Company received gross proceeds of approximately $did 0.2no million from the sale of 102,455t sell any shares of its common stock pursuant to the ATM Agreement. For the three months ended March 31, 2022, the Company received gross proceeds of approximately $6.2 million for the sale of 2,633,052The shares of its common stock issuable under the ATM Agreement were registered under the Securities Act pursuant to the ATM agreement. For the nine months ended March 31, 2022, theCompany’s Registration Statement on Form S-3 (File 333-248974), which ceased to be effective on November 2, 2023. The Company received gross proceeds of approximately $6.2 million for the sale of 2,633,900 shares of its common stock pursuanthas elected to not renew the ATM agreement. As of March 31, 2023, the Company had $6.2 million remaining available to sell under the ATM Agreement.

MFP Warrants

On September 22, 2022, the Company entered into a Subordinate Loan and Security Agreement, or the MFP Loan Agreement, with MFP, pursuant to which any draw CIBC may make on the MFP Letter of Credit will be deemed to be a term loan advance made by MFP to the Company (see Note 7)8). Pursuant to the terms and conditions of the MFP Loan agreement,Agreement and subsequent amendments on September 22, 2022, the Company issued to MFP a warrant, or Initial Warrant, to purchase up to 500,000 shares of the Company’s common stock, or Initial Warrant Shares, at $1.60 per share. The Initial Warrant expires five years from its issue date, or September 22, 2027.

In connection with the October 28, 2022, and December 22, 2022 amendments to the MFP Letter of Credit, the Company issued to MFP additionaland March 22, 2023, warrants to purchase 166,700 and 666,700 sharesa total of the Company’s common stock, respectively, at an exercise price of $1.60 per warrant share. The warrants will each expire five years from the date of issuance.

21


In connection with the MFP Amendment, on March 22, 2023, the Company issued to MFP a warrant to purchase 1,300,000 shares of the Company’s common stock at an exercise price of $2.15 per MFP warrant share. The warrants will expire five years from the date of issuance.

In total, warrants to purchase 2,633,400 shares of the Company’s common stock were issued to MFP in connection withfiscal 2023. All warrants will expire five years from the MFP Loan Agreement, or MFP Warrants, during the nine months ended March 31, 2023.date of issuance and have exercise prices ranging from $1.60 - $2.15 per share. The stated purchase prices of all of the MFP Warrants are subject to adjustment in connection with any stock dividends and splits, distributions with respect to common stock and certain fundamental transactions as described in the MFP Warrant. The MFP Warrants were valued using the Black-Scholes-Merton model as of the respective issue dates and recorded as financial commitment assets within the caption "PrepaidPrepaid expenses and other current assets"assets on the condensed consolidated balance sheet.sheets. The MFP Warrants financial commitment assets are amortized on a straight-line basis over the period from their initial issue dates through the end of the related MFP Letter of Credit commitment periods. During the ninethree months ended March 31,September 30, 2023, an aggregate value of $1,894,901 related to the MFP Warrants was capitalized, of which $626,141212,873 was amortized as interest expense. For further details on the MFP Warrants, refer to Note 12 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2023.

22


MFP is the Company’s largest shareholder. One of the Company’s directors, Alexander C. Matina, is Vice President and Portfolio Manager of MFP Investors LLC, the general partner of MFP.

 

NOTE 1011 - EQUITY-BASED COMPENSATION

Stock Options

DuringThe Company utilizes a Black-Scholes-Merton option pricing model, which includes assumptions regarding the nine months ended March 31, 2023,risk-free interest rate, dividend yield, life of the Company granted options to purchase 1,289,675 sharesaward, and the volatility of itsthe Company's common stock to certainestimate the fair value of employee options grants. During the three months ended September 30, 2023 and 2022, the Company did not grant options to its directors, certain members of the executive management team and other employees, and non-employee service providers at exercise prices ranging from $0.81 - $1.89 per share. These options vest in either quarterly or annual periods over one to three years and expire ten years from the date of grant.employees.

A summary of stock option activity for the ninethree months ended March 31,September 30, 2023 and the year ended June 30, 20222023 is presented below:

 

Number of
Options

 

 

Weighted -
Average
Exercise
Price
Per Share

 

 

Weighted-
Average
Remaining
Contractual
Life (Years)

 

 

Aggregate
Intrinsic
Value

 

 

Number of
Options

 

 

Weighted -
Average
Exercise
Price
Per Share

 

 

Weighted-
Average
Remaining
Contractual
Life (Years)

 

 

Aggregate
Intrinsic
Value

 

Outstanding at June 30, 2021

 

 

3,776,568

 

 

$

2.65

 

 

 

8.0

 

 

$

3,962,766

 

Granted

 

 

994,725

 

 

 

2.63

 

 

 

 

 

 

 

Exercised

 

 

(38,774

)

 

 

2.33

 

 

 

 

 

 

 

Canceled/forfeited/expired

 

 

(95,419

)

 

 

2.82

 

 

 

 

 

 

 

Outstanding at June 30, 2022

 

 

4,637,100

 

 

$

2.64

 

 

 

6.6

 

 

$

 

 

 

4,637,100

 

 

$

2.64

 

 

 

6.6

 

 

$

 

Granted

 

 

1,289,675

 

 

 

1.26

 

 

 

 

 

 

 

 

 

1,389,675

 

 

 

1.25

 

 

 

 

 

 

 

Exercised

 

 

(1,050

)

 

 

0.95

 

 

 

 

 

 

 

 

 

(2,100

)

 

 

0.95

 

 

 

 

 

 

 

Canceled/forfeited/expired

 

 

(844,545

)

 

 

2.79

 

 

 

 

 

 

 

 

 

(947,707

)

 

 

2.84

 

 

 

 

 

 

 

Outstanding at March 31, 2023

 

 

5,081,180

 

 

$

2.27

 

 

 

7.2

 

 

$

459,346

 

Outstanding at June 30, 2023

 

 

5,076,968

 

 

$

2.23

 

 

 

7.1

 

 

$

292,079

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Canceled/forfeited/expired

 

 

(281,601

)

 

 

2.52

 

 

 

 

 

 

 

Outstanding at September 30, 2023

 

 

4,795,367

 

 

$

2.21

 

 

 

7.2

 

 

$

203,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options vested and exercisable at March 31, 2023

 

 

3,235,391

 

 

$

2.59

 

 

 

6.1

 

 

$

39,501

 

Options vested and expected to vest as of March 31, 2023

 

 

5,071,515

 

 

$

2.27

 

 

 

7.2

 

 

$

455,713

 

Options vested and exercisable at September 30, 2023

 

 

3,668,546

 

 

$

2.40

 

 

 

6.7

 

 

$

82,412

 

Options vested and expected to vest at September 30, 2023

 

 

4,787,384

 

 

$

2.21

 

 

 

7.2

 

 

$

201,954

 

The weighted average grant date per share fair value ofThere were no options granted duringfor the three and nine months ended March 31, 2023 was $0.70.September 30, 2023. On March 31,September 30, 2023, the Company had $1,131,866668,860 of unrecognized stock compensation expense, net of estimated forfeitures, related to the options under the S&W Seed Company 2009 Equity Incentive Plan and the S&W Seed Company 2019 Equity Incentive Plan, or 2019 Plan, which will be recognized over the weighted average remaining service period of 1.411.33 years. The Company settles employee stock option exercises with newly issued shares of common stock.

Restricted Stock Units

During the ninethree months ended March 31,September 30, 2023, the Company issued 495,19624,076 restricted stock units to its directors, certain members of the executive management team, other employees, and non-employee service providers. The restricted stock units have varying vesting periods ranging from immediate vesting to quarterly or annual installments over one to three-yearthree years. The fair value of the awards granted during the ninethree months ended March 31,September 30, 2023 and 2022 totaled $563,44629,373 and $829,780, respectively, and was based on the closing stock price on the date of grants.

22


There were no restricted stock units granted during the three months ended September 30, 2022.

A summary of activity related to non-vested restricted stock units is presented below:

 

Number of
Nonvested
Restricted Stock
Units

 

 

Weighted-Average
Grant Date Fair
Value

 

 

Weighted-Average
Remaining
Contractual Life
(Years)

 

 

Number of
Nonvested
Restricted Stock
Units

 

 

Weighted-Average
Grant Date Fair
Value

 

 

Weighted-Average
Remaining
Contractual Life
(Years)

 

Nonvested restricted units outstanding at June 30, 2021

 

 

361,570

 

 

$

2.51

 

 

 

1.3

 

Granted

 

 

304,421

 

 

 

2.78

 

 

 

 

Vested

 

 

(391,036

)

 

 

2.62

 

 

 

 

Forfeited

 

 

(7,036

)

 

 

2.35

 

 

 

 

Nonvested restricted units outstanding at June 30, 2022

 

 

267,919

 

 

$

2.66

 

 

 

1.2

 

 

 

267,919

 

 

$

2.66

 

 

 

1.2

 

Granted

 

 

495,196

 

 

 

1.14

 

 

 

1.6

 

 

 

534,628

 

 

 

1.14

 

 

 

1.5

 

Vested

 

 

(224,164

)

 

 

2.55

 

 

 

 

 

 

(353,649

)

 

 

2.22

 

 

 

 

Forfeited

 

 

(8,750

)

 

 

2.50

 

 

 

 

 

 

(8,750

)

 

 

2.50

 

 

 

 

Nonvested restricted units outstanding at March 31, 2023

 

 

530,201

 

 

$

1.29

 

 

 

1.7

 

Nonvested restricted units outstanding at June 30, 2023

 

 

440,148

 

 

$

1.17

 

 

 

1.4

 

Granted

 

 

24,076

 

 

 

1.22

 

 

 

0.3

 

Vested

 

 

(58,100

)

 

 

1.57

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

Nonvested restricted units outstanding at September 30, 2023

 

 

406,124

 

 

$

1.11

 

 

 

1.4

 

23


On March 31,September 30, 2023, the Company had $461,652231,808 of unrecognized stock compensation expense related to the restricted stock units, which will be recognized over the weighted average remaining service period of 1.511.37 years.

Stock-based Compensation Expense

Stock-based compensation expense recorded for grants of stock options, restricted stock grants and restricted stock units for the three months ended March 31,September 30, 2023 and 2022 totaled$620,887411,820 and $413,293, respectively. Stock-based compensation expense recorded for grants of stock options, restricted stock and restricted stock units for the nine months ended March 31, 2023 and 2022, totaled $1,382,895 and $1,821,808456,112, respectively.

On March 31,September 30, 2023, there were 1,642,1981,918,207 shares available under the 2019 Plan for future grants and awards.

Weighted-average assumptions used in the Black-Scholes-Merton model are set forth below for the periods indicated:

 

 

March 31, 2023

 

 

March 31, 2022

 

Risk free rate

 

2.9% - 4.4%

 

 

0.8% - 1.1%

 

Dividend yield

 

 

 

 

 

 

Volatility

 

64.7% - 66.1%

 

 

61.8% - 63.8%

 

Average forfeiture assumptions

 

8.2%

 

 

2.8%

 

 

NOte 11 - investments

Shell Partnership

On February 6, 2023, or Closing Date, the Company and Shell entered into a Contribution and Membership Interest Purchase Agreement, or Purchase Agreement, relating to a partnership for the development and production of sustainable biofuel feedstocks through its newly created subsidiary Vision Bioenergy Oilseeds LLC, or Vision Bioenergy, pursuant to which:

The Company (i) contributed its Nampa, Idaho production and research facilities, or the Nampa Facilities, to Vision Bioenergy, along with certain personal property, including vehicles, fixed assets and other similar equipment; (ii) caused Vision Bioenergy to make offers of employment to certain key personnel; (iii) assigned to Vision Bioenergy certain contracts and permits; and (iv) agreed to a two-year non-solicitation covenant with respect to the personnel transferred to Vision Bioenergy.
On the Closing Date, Shell (i) made a $13.2 million cash contribution to Vision Bioenergy; (ii) paid $7.0 million to the Company; and (iii) paid $6.8 million to retire in full the principal, accrued interest and related settlement costs of the Rooster Note, which was secured by a priority security interest in the property, plant and fixtures located at the Nampa Facilities.
In February 2024, Shell will be required to pay an additional $6.0 million to the Company, subject to adjustment in certain circumstances. The Purchase Agreement provides that this required payment could be decreased by up to $4.5 million if (i) the effective employment date of the certain key personnel transferred to Vision Bioenergy, or Transferred Personnel, is later than May 7, 2023, or any of the Transferred Personnel are no longer employed by Vision Bioenergy after February 6, 2024 and (ii) the Company or Vision Bioenergy, as applicable, fail to replace such Transferred Personnel with personnel of reasonably similar qualifications within 90 days of the events covered in clause (i) above. The Company’s management deemed that the full $6.0 million payment from Shell to the Company was realizable due to the high likelihood that the key employees would remain employed for the first year, or in any event could be replaced within 90 days. The fair value of the

23


full amount of this payment, based on the discounted value of the payment as of the Closing Date, was $5.7 million, which was recorded on the condensed consolidated balance sheets in the caption Prepaid expenses and other current assets.
In February 2024, Shell will be required to make an additional $12.0 million cash contribution to Vision Bioenergy. The fair value of these February 2024 payments on the Closing Date, based on the face value of the payments discounted at Shell’s (incremental borrowing rate) was $11.5 million.
S&W received a one-time option, or Purchase Option, exercisable at any time on or before the fifth anniversary of the closing of the partnership transaction, to purchase a 6% membership interest from Shell for a purchase price ranging between approximately $7.1 and $12.0 million, depending on the date on which such purchase is completed. The fair market value of the Purchase Option on the Closing Date was $0.6 million based on a third party appraisal.
Upon the achievement of certain specified milestones, measured as of the fourth and seventh anniversaries of the closing of the partnership transaction, the Company is eligible to receive transfers of up to an additional aggregate 10% interest in Vision Bioenergy from Shell, or Contingent Transfers. The basis for recognition and measurement of contingent consideration in deconsolidation is not addressed in ASC 810. The Company has made an accounting policy election to account for these contingent consideration items like property and casualty losses in accordance with ASC 610-30, in which anticipated insurance recoveries are limited to the lesser of (1) the amount of proceeds for which the likelihood of receipt is probable or (2) the total loss recognized. Under this approach, if the consideration received in the deconsolidation, excluding the contingent consideration, is greater than the carrying amount of the deconsolidated net assets, no contingent consideration would be recognized initially. Since the consideration received by the Company in sale of the interest in Vision Bioenergy to Shell was greater than the carrying value of the assets deconsolidated, no contingent consideration was recorded by the Company. Subsequent recognition and measurement of the contingent consideration would be based on the gain contingency model under ASC 450-30.

Although no contingent assets were recorded by the Company, the Contingent Transfers were a material part of the Purchase Agreement negotiated by the parties and therefore were included in the valuation of Shell’s investment of Vision Bioenergy. The fair value of the Contingent Transfers was determined to be $1.1 million based on Monte Carlo analysis of management projections of free cash flows.

The aggregate total value of the Shell’s payments to the Company and cash contributions to Vision Bioenergy on the Closing Date, the present value of Shell’s future cash payments and contributions, and the fair market values of the Purchase Option and Contingent Transfers, was $45.9 million. For this investment, Shell received a 66% interest in Vision Bioenergy, while the Company retained a 34% interest.

Prior to the closing of the Purchase Agreement, the Vision Bioenergy subsidiary of the Company held production and other property, rights to certain proprietary seed varieties and other trade secrets, and an experienced workforce with the necessary skills, knowledge, or experience to perform a process on the inputs that could generate an output, that meet the definition of a business as defined by ASC 805-10. Accordingly, the transfer of the 66% interest in Vision Bioenergy to Shell was accounted for as a sale of a business under ASC 805. Concurrent with the sale of the 66% interest, Vision Bioenergy was deconsolidated from the Company’s books, and the retained interest was recorded as an investment. Shell’s $45.9 million investment for a 66% interest reflected a total valuation of the Vision Bioenergy business of $69.6 million.

The consideration received by the Company for Shell’s 66% interest in Vision Bioenergy comprises the $7.0 million paid to the Company at closing, the retirement of $6.8 million of Company debt, the $5.7 million present value of the future payment to the Company described above, the $0.6 million fair market value of the Purchase Option, and the $23.7 million value of the equity investment, or $43.8 million in total. The total consideration, less the $5.5 million carrying value of the Nampa facility assets and inventory contributed by the Company to Vision Bioenergy, resulted in gain on the sale in the amount of $38.3 million. The gain is reported within the caption “Gain on equity method investments” on the condensed consolidated statements of operations. This consideration is summarized below:

Equity investment

 

$

23,664,195

 

Cash

 

 

7,000,000

 

Debt retirement

 

 

6,840,879

 

Present value of future payment

 

 

5,747,126

 

Fixed assets and inventory transfer

 

 

(5,532,694

)

Fair value of 6% member purchase option

 

 

604,000

 

Gain on equity method investments

 

$

38,323,506

 

Vision Bioenergy’s five-member Board of Directors includes two directors designated by the Company. Through its Board representation and 34% of the voting rights, the Company has significant influence in the management of Vision Bioenergy. Accordingly, the Company’s investment is accounted for using the equity method and reported within the “Equity method investments” caption on the condensed consolidated balance sheet. The Company recognizes its proportionate share of the reported earnings or losses of Vision

24


Bioenergy through net income and as an adjustment to the investment balance. This proportionate share is subject to adjustments, such as for the elimination of intra-entity (intercompany) gains or losses or amortization of basis differences. Vision Bioenergy is a pass-through entity for income tax purposes, with income or loss distributed to the partners.

The fair market values of the assets contributed to Vision Bioenergy by the Company at the Closing Date were determined by third-party market appraisals. The Nampa Facilities and other property with an aggregate carrying amount of $5.5 million were valued at $12.9 million. Rights established under a product uptake agreement with Shell and rights to certain proprietary seed technology with no carrying value on the Company's books, were valued at $18.1 million. These intangible assets were recorded on Vision Bioenergy's opening balance sheet and will be amortized through the end of their useful life. The total gain on the sale of the Vision Bioenergy interest recognized by the Company included $8.6 million related to the remeasurement of the retained investment in Vision Bioenergy to its fair value.

The fair market values of the Nampa Facilities and other property and the Purchase Option are provisional pending receipt of the final valuations for those assets.

On the Closing Date, the Company's proportionate 34% share of Vision Bioenergy’s equity was $23.7 million, calculated from the total valuation of the Vision Bioenergy business of $69.6 million. Of this, the Company’s equity share of Vision Bioenergy’s net identifiable assets was $18.9 million. The $4.8 million difference between the carrying amount of the equity method investment and the Company’s share of the net identifiable assets represented equity method goodwill. The equity method goodwill will not be subject to amortization but will assessed at least annually, or when certain triggering events occur, for impairment using fair value measurement techniques.

The summarized unaudited balance sheet presented below reflects the financial information of Vision Bioenergy as of March 31, 2023:

 

 

As of March 31, 2023

 

Cash

 

$

11,042,929

 

Other current assets

 

 

432,992

 

Fixed assets

 

 

14,385,791

 

Intangible assets

 

 

17,820,005

 

Goodwill

 

 

14,006,268

 

Other assets

 

 

165,796

 

    TOTAL ASSETS

 

$

57,853,781

 

Current liabilities

 

 

581,549

 

Long-term liabilities

 

 

117,492

 

Equity

 

 

57,154,740

 

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

57,853,781

 

The summarized unaudited income statement presented below reflects the financial information of Vision Bioenergy for the three and nine months ended March 31, 2023:

 

Three and Nine Months Ended March 31, 2023

 

Revenue

 

$

83,505

 

Gross profit (loss)

 

 

(206,985

)

Loss from operations

 

 

(953,718

)

Net loss

 

 

(951,582

)

Trigall Australia Partnership

Effective December 23, 2022, the Company’s wholly owned subsidiary, S&W Seed Company Australia Pty Ltd, or S&W Australia, entered into a partnership with Trigall Genetics S.A., or Trigall, for the development and marketing of wheat varieties in Australia. Under the terms of the partnership agreement, S&W Australia transferred certain intellectual property license rights and equipment into a wholly owned subsidiary and subsequently sold an 80% interest in the subsidiary to Trigall. The subsidiary was renamed Trigall Australia Pty Ltd, or Trigall Australia. In return, S&W Australia received $2.0 million in cash, a $1.0 million promissory note to be paid in December 2023, and retained a 20% ownership interest in Trigall Australia. The $1.0 million promissory note is reported within the "Prepaid expenses and other current assets" caption on the condensed consolidated balance sheet. The grossed-up $3.0 million investment by Trigall for an 80% interest in Trigall Australia implied a $3.8 million valuation. S&W Australia’s 20% retained interest, valued accordingly at $0.8 million, as of the transaction date, is reported within the “Equity method investments” caption on the condensed consolidated balance sheet.

Management determined that the assets transferred to Trigall Australia did not meet the definition of a business for accounting purposes, and the sale was accounted for as an asset sale. The $3.8 million valuation, less the $2.0 million carrying value of assets contributed, resulted in a $1.8 million gain on the sale. The gain is reported within the caption “Gain on equity method investment” on the condensed

25


consolidated statement of operations. The Company recognizes its proportionate share of the reported earnings or losses of Trigall, net of tax, through net income and as an adjustment to the investment balance.

S&W Australia is obligated to make an aggregate of $0.6 million in capital contributions to Trigall Australia through June 2025, and has agreed to provide certain marketing, collection and other operational services in support of the partnership.

Bioceres Investment

As of June 30, 2021, the Company held an investment in Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. During the third quarter of fiscal year 2022, the Company sold 71.4% of the investment in Bioceres, S.A. for net proceeds of $1.0 million, which included a gain on the sale of marketable securities of $0.1 million. The carrying value of the remainder of the investment was $0.4 million at June 30, 2022, which was reported in Equity method investments on the Company's consolidated balance sheet. During the nine months ended March 31, 2023, the Company sold off the remainder of its investment in Bioceres, S.A. for net proceeds of $0.4 million, which included a gain on the sale of equity investment of $32,030.

The following summarizes the carrying amount of the Company's equity method investments reflected in the consolidated balance sheet:

 

 

March 31, 2023

 

 

June 30, 2022

 

 

 

Carrying Amount

 

 

Economic Interest

 

 

Carrying Amount

 

 

Economic Interest

 

Vision Bioenergy

 

$

23,340,657

 

 

 

34

%

 

$

 

 

 

0

%

Trigall Australia

 

 

781,114

 

 

 

20

%

 

 

 

 

 

0

%

Bioceres

 

 

 

 

 

0

%

 

 

367,970

 

 

 

1

%

Total equity method investments

 

$

24,121,771

 

 

 

 

 

$

367,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 12 – SERIES B CONVERTIBLE PREFERRED STOCK

The terms and conditions of the Company’s Series B Convertible Preferred Stock and accompanying Warrantwarrant are presented in Note 14 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022.2023. No issuances or conversions of Series B Convertible Preferred Stock occurred during the ninethree months ended March 31,September 30, 2023. Activity in the period consisted of accrual of dividends and accretion of the discount on the Warrants.

The following summarizes changes to the Series B Convertible Preferred Stock:

Balance at June 30, 2021

 

$

 

Issuance of preferred stock

 

 

4,638,521

 

Dividends accrued

 

 

127,541

 

Accretion of discount for warrants

 

 

38,757

 

Balance at June 30, 2022

 

$

4,804,819

 

Dividends accrued

 

 

271,746

 

Accretion of discount for warrants

 

 

77,514

 

Balance at March 31, 2023

 

$

5,154,079

 

26


Balance at June 30, 2022

 

$

4,804,819

 

Dividends accrued

 

 

365,979

 

Accretion of discount for warrants

 

 

103,350

 

Balance at June 30, 2023

 

$

5,274,148

 

Dividends accrued

 

 

94,207

 

Accretion of discount for warrants

 

 

25,838

 

Balance at September 30, 2023

 

$

5,394,193

 

 

NOTE 13 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS

The below table represents supplemental information to the Company’s condensed consolidated statements of cash flows for non-cash activities during the ninethree months ended March 31,September 30, 2023 and 2022, respectively.

 

Nine Months Ended March 31,

 

 

Three Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Non-cash investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

ROU assets financed by lease liabilities

 

$

498,143

 

 

$

271,524

 

 

$

938,003

 

 

$

397,017

 

Consideration received from Shell for equity interest in Vision Bioenergy:

 

 

 

 

 

 

Settlement of long-term debt principal, interest and other related costs

 

 

6,840,879

 

 

 

 

Note receivable

 

 

5,747,127

 

 

 

 

Membership purchase option

 

 

604,000

 

 

 

 

Contribution of property, plant and equipment and inventory to Vision Bioenergy for equity interest

 

 

(5,532,694

)

 

 

 

Contribution of intangible assets to Trigall in exchange for equity investment and promissory note

 

 

(1,750,000

)

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued for financial commitment asset

 

 

1,894,901

 

 

 

 

Dividends accrued for participating securities

 

 

271,746

 

 

 

40,276

 

 

 

94,207

 

 

 

88,223

 

Accretion of discount for Series B preferred stock warrants

 

 

77,514

 

 

 

12,919

 

 

 

25,838

 

 

 

25,838

 

Warrants issued for financial commitment asset

 

 

 

 

 

146,474

 

 

2724


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. In addition to our historical condensed 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 under the heading “Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Factors that could cause or contribute to these differences include those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022,2023, particularly in Part I, Item 1A., “Risk Factors.”

Strategic Review

We recently undertook ahave maintained our strategic review of ourpath for operations and future growth opportunitiesin sorghum while continuing to determine areas we believe areexecute and refine our key centers of value includingfor our sorghum technology operations (led by Double Team™, our non-GMO herbicide tolerant sorghum solution), international forage operations, U.S.and pastures and alfalfa businesses. With grower adoption of our Double Team grain sorghum solution accelerating since its fiscal 2022 launch and the technological development of Double Team planned for forage operations and our specialty crops.

With respect to specialty crops,grain sorghum products in fiscal 2024, we intend to initially focus on stevia and camelina. We believe that an opportunity exists to bring to market new stevia varieties that can both meet consumer taste requirements 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 that would supply major customers in the U.S. market, including pursuant to our previously announced U.S. stevia pilot production supply agreement with Ingredion. We also believe we have an opportunityare in a unique position to enterbe the camelina market as a seed andleading technology provider where we plan to work with large oil companies for biofuel production leveraging our capabilities in producing, processing, and packaging camelina.of this important global crop.

We have also begun workingcontinued to align our cost structure to support theseour key centers of value while assessing other potential value-generating transactionsin order to drive the business towards profitability. We have decided to pause our development of stevia leaf and meansre-evaluate its longer-term profit opportunity with our partners. We have reduced obsolescence costs through improved life cycle management and SKU optimization efforts with the reduction of low margin forage lines and seed treatment offerings. In fiscal 2024, we have already recognized and expect to strengthenfurther recognize improvement in our balance sheet.seed cost position as additional operational efficiency plans are implemented and guided by best-in-class cost standards.

On January 3, 2023, we and Trigall Genetics S.A., or Trigall Genetics, a leader in transgenic wheat, announced our entry into a partnership for the development and marketing of wheat varieties in Australia through Trigall Australia Pty Ltd, a newly formed Australian corporation, or Trigall Australia. S&W Seed Company Australia Pty Ltd, our wholly owned subsidiary, or S&W Australia, contributed its Australia-based wheat breeding program and related assets to Trigall Australia in exchange for $2.0 million in cash, a $1.0 million promissory note to be paid in December 2023 and a 20% ownership interest in Trigall Australia. Pursuant to the partnership, S&W Australia is obligated to make an aggregate of $560,000 of capital contributions to Trigall Australia through June 2025 and has agreed to provide certain marketing, collection and other operational services in support of the partnership.

On February 6,In fiscal 2023, we entered into a Contribution and Membership Interest Purchase Agreement, or Shell Partnership Agreement,partnership with Equilon Enterprises LLC (dba Shell Oil Products, US, or Shell), relating to a partnership for the development and production of sustainable biofuel feedstocks. The closing of the transactions contemplated by the Shell Partnership Agreement occurred on February 6, 2023, or the Shell Partnership Closing. At the Shell Partnership Closing, among other things:

We (i) contributed its Nampa, Idaho production and research facilities, or the Nampa Facilities, to Vision Bioenergy Oilseeds LLC, an entity formed by S&W for purposes of the partnership, or Vision Bioenergy, along with certain personal property, including vehicles, fixed assetsthat we believe will generate value while strengthening our balance sheet. This partnership intends to develop camelina and other similar equipment; (ii) causedoilseed species from which oil and meal can be extracted for future processing into animal feed, biofuels, and other bioproducts. With a limited supply of arable land, camelina provides a long-term opportunity of maximizing farmland food production. The partnership has either met or exceeded all initial cropping acre thresholds and expects to carry out initial grain production later this calendar year on the more than 7,000 acres of camelina planted. Shell is expected to buy all the grain that Vision Bioenergy to make offers of employment to certain key personnel; (iii) assigned to Vision Bioenergy certain contracts and permits; and (iv) agreed to a two-year non-solicitation covenant with respect toproduces through the personnel transferred to Vision Bioenergy; and
Shell (i) made a $13.2 million cash contribution to Vision Bioenergy; (ii) paid $7.0 million to us; and (iii) paid off our outstanding approximately $6.8 million Rooster Note (as defined below), which was secured by a priority security interestofftake agreement that is in the property, plant and fixtures located at the Nampa Facilities.

In addition, under the terms and conditions of the Shell Partnership Agreement, on the one-year anniversary of the Shell Partnership Closing, Shell is required to pay an additional $6.0 million to us (subject to adjustment in certain circumstances) and make an additional $12.0 million cash contribution to Vision Bioenergy.

Shell received a 66% interest in Vision Bioenergy and we retained a 34% interest. Pursuant to the Shell Partnership Agreement, upon the achievement of certain specified milestones, measured as of the fourth and seventh anniversaries of the Shell Partnership Closing, S&W is eligible to receive up to an additional aggregate 10% interest in Vision Bioenergy. In addition, we have a one-time option, exercisable at any time on or before the fifth anniversary of the Shell Partnership Closing, to purchase a 6% membership interest from Shell for a purchase price ranging between approximately $7.1 and $12.0 million, depending on the date on which such purchase is completed.

28


We believe these partnerships will, among other things, enable us to reduce our operating expenses, provide immediate liquidity to fund our ongoing operations and sharpen our focus on key growth priorities. Overall, we have begun implementing our plan to reduce annual operating expenses by approximately $4.0 to 5.0 million. In addition to the above partnerships, we have:place.

streamlined our European sunflower operations by closing our facilities in Hungary, which we expect to decrease operating expense by approximately $0.7 million in fiscal 2023, and
reduced headcount and simplified our organization structure through a reduction in force.

Global Economic Conditions

We are subject to additional risks and uncertainties as a result of adverse geopolitical and macroeconomic events, such as the continued impact of the COVID-19 pandemic, the ongoing military conflict between Ukraine and Russia and related sanctions, the armed conflict in Sudan, the war between Israel and Hamas, uncertain market conditions, including higher inflation and supply chain disruptions, recent bank failures, and other global events, which have had and may continue to have an adverse impact on our business, operations and the markets and communities in which we, our partners and customers operate.

The COVID-19 pandemic negatively impacted our operations and financial results in 2021 and 2022, due to broad-based supply chain disruptions across the U.S. and globally. These supply chain issues negatively impacted our ability to book containers for ocean freight, which delayed customer shipments, which in certain cases, extended our regular sales and collection cycle. In 2023, we experienced a lessening of the severity of these supply chain issues related to the COVID-19 pandemic, though continue to experience negative effects in certain jurisdictions that continue to have various restrictions, which have impacted certain customers of ours.jurisdictions. We continue to work closely with our customers, business units, third party contractors and suppliers, and other external business partners to minimize the potential impact on our business. The extent of the impact of the COVID-19 pandemic on our sales, operating results and financial condition will depend on certain developments, including the location, duration and spread of future outbreaks, and the resulting specific impacts felt by our customers, employees, and vendors, all of which are uncertain and cannot be predicted.

Following the invasion of Ukraine by Russia in early 2022, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia and related sanctions, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets.

The armed conflict in Sudan, which began in April 2023, has disrupted our shipments to the country. At this time, weWe have canceled all shipmentsshipped $1.4 million of our product to Sudan in the first quarter of fiscal 2024 and are actively workingdo not expect any additional sales to find alternative customers for the seed. We expectoccur in fiscal 2024, although we will continue to find alternative outlets to sell this product, possibly including to customers in Sudan if conditions improve.monitor and assess conditions. Also, in Saudi Arabia, unregistered lower priced and lower quality European produced seed is currently being dumped into the country, which has created a short-term imbalance. We believe inventory levels will normalize following the quick flushing out of this seed and we are making the strategic decision not to discount our high value seed to compete with this

25


low-quality product. As a result of the Sudan geopolitical conflict and this short-term impact in Saudi Arabia, we now believe there will be approximately $10.0 million ina significant amount of alfalfa orders that will movewere moved from the second half of fiscal 2023 to the first half of fiscal 2024.

Additionally, in October 2023, Hamas initiated an attack against Israel, resulting in a state of war. The conflict, and the potential escalation or expansion of the conflict, could result in sanctions, cause disruptions to global economic conditions and affect the stability of the Middle East region and our business in that region.

Our product revenue is predicated on our ability to timely fulfill customer orders, which depends in large part upon the consistent availability and operation of shipping and distribution networks operated by third parties. Farmers typically have a limited window during which they can plant seed, and their buying decisions can be shaped by actual or perceived disruptions in our distribution and supply channels, or concerns about our ability to timely fulfill their orders. If our customers delay or decrease their orders due to potential disruptions in our distribution and supply channels, including as a result of the COVID-19 pandemic or other adverse geopolitical and macroeconomic events, this will adversely affect our product revenue.

During the fiscal year ended June 30, 20222023 and the ninethree months ended March 31,September 30, 2023, we experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall volatility of shipping and transportation costs. We expect these logistical challenges to persist throughout fiscal 2023,2024, which may, among other things, delay or reduce our ability to recognize revenues within a particular fiscal period and harm our results of operations.

The ultimate impact that COVID-19 and other adverse geopolitical and macroeconomic events will have on our consolidated financial statements remains uncertain and ultimately will be dictated by the length and severity of the pandemic and any broad-based supply chain disruptions, labor shortages, rising levels of inflation and interest rates, tightening of credit markets or other developments resulting from

29


the pandemic or recent geopolitical and macroeconomic events, as well as the economic recovery and actions taken in response to local, state and national governments around the world, including the distribution of vaccinations. We will continue to evaluate the nature and extent of those potential and evolving impacts to our business and condensed consolidated financial statements.

Components of Our Statements of Operations Data

Revenue

We derive most of our revenue from the sale of our proprietary seed varieties and hybrids. We expect that over the next several years, a substantial majority of our revenue will be generated from the sale of alfalfa, sorghum, and pasture seed, although we are continually assessing other possible product offerings or means to increase revenue, including expanding into higher margin crops.

The mix of our product offerings will continue to change over time with the introduction of new seed varieties and hybrids resulting from our robust research and development efforts, including our potentialefforts. Potential sources of new revenue include expansion of novel, non-GMO product lines, potential entry into gene-edited product markets, potential entry into specialty crop markets, including stevia andsuch as biofuels, and additional strategic transactions.

Our revenue will fluctuate depending on the timing of orders from our customers and distributors and the extent to which markets are impacted by sources of instability and volatility in global markets and industries, including, among other things, the COVID-19 pandemic, the military conflict between Russia and Ukraine, the armed conflict in Sudan, the war between Israel and Hamas, supply chain issues and global inflation. Because some of our large customers and distributors order in bulk only one or two times per year, our product revenue can fluctuate significantly from period to period. Some of this fluctuation is offset by having operations in both the northern and southern hemispheres. In addition, due to the numerous logistical challenges we have experienced in our shipping and distribution networks resulting from current geopolitical and macroeconomic events, our product revenue has fluctuated, and our ability to recognize revenues within a particular fiscal period has been impacted. We expect our product revenue will fluctuate from period to period as a result of the current geopolitical and macroeconomic conditions.

Our specialty crops, including our stevia breeding program and biofuels program, have yet to generate any meaningful revenue. However, management continues to evaluate this portion of our business and assess various opportunities to monetize the results of our research and development efforts. Such potential opportunities include possible collaborations, partnerships and/or joint ventures, licensing agreements and royalty-based agreements. For example, we recently entered into our Vision Bioenergy partnership with Shell in February 2023 in order to develop commercially viable camelina sativa and other oilseeds varieties that produce grain from which oil and meal can be extracted for future processing into biofuels, feed and other potential bioproducts. Although we have received upfront payments from Shell pursuant to the partnership and will be entitled to receive an additional paymentspayment from Shell upon the one-year anniversary of our entry into the partnership, there can be no assurance that this will generate any meaningful revenue.

26


Cost of Revenue and Gross Margin

Cost of revenue relates to sale of our seed products and consists of the cost of procuring seed, plant conditioning and packaging costs, direct labor and raw materials and overhead costs. Gross margin represents the profit remaining after deducting these costs from total revenue. As Double Team sorghum continues to gain market acceptance, we expect to see additional favorability in our gross margin.

Operating Expenses

Selling, General and Administrative Expenses

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 expenses as much as is reasonably possible.

Research and Development Expenses

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. These expenses consist primarily of employee salaries and benefits, consultant services, land leased for field trials, chemicals and supplies and other external expenses.

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, proprietary herbicide tolerance traits and improved safety and palatability in forage products.

30


We expect our research and development expenses will 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 constructed 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.

Depreciation and Amortization

We amortize intangible assets, including those acquired from Pasture Genetics Ltd., or Pasture Genetics, in 2020, Chromatin Inc., or Chromatin, in 2018 and from SV Genetics Pty Ltd in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of periods of 3-3010 to 30 years for technology/IP/germplasm, 5-205 to 20 years for customer relationships and trade names and 3-2010 to 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 5-355 to 35 years for buildings, 2-202 to 20 years for machinery and equipment and 2-52 to 5 years for vehicles.

Other (Income) Expense

Other (income) expense consists primarily of foreign currency gains and losses, gains on disposal of intangible assets and equity investments, changes in contingent consideration obligation, interest expense, and interest expense resulting from the amortization of debt discount.discount, and other income. Interest expense and Interestinterest expense - amortization of debt discount primarily consists of interest costs related to outstanding borrowings on our working capital credit facilities. Amortization of the MFP Letter of Credit (as defined below) asset is also recorded under the captionto Interest expense - amortization of debt discount.

Provision (Benefit) for Income Taxes

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. generally accepted accounting principles, or 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 condensed consolidated financial statements. As a result, our effective tax rate reflected in our condensed 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 condensed consolidated statements of operations. Based on financial projections of taxable income, we do not believehad previously determined that it is more likely than not that our U.S.the deferred tax assets in the United States and South Africa will not be realized,realized. We also previously determined that the deferred tax assets related to certain Australian intangible assets more likely than not would not be realized. Accordingly, a valuation allowance was recorded against the net deferred tax assets in the United States and South Africa and a fullpartial valuation allowance iswas recorded against them.to Australian deferred tax assets.

3127


 

Results of Operations

Three Months Ended March 31,September 30, 2023 Compared to the Three Months Ended March 31,September 30, 2022

The following table presents our results of operations for the periods indicated:

 

Three Months Ended March 31,

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

 

2023

 

 

2022

 

 

Change

 

 

$

 

% of
Revenue
(1)

 

 

$

 

% of
Revenue
(1)

 

 

$

 

% Change

 

 

$

 

% of
Revenue
(1)

 

 

$

 

% of
Revenue
(1)

 

 

$

 

% Change

 

Revenue

 

$

17,662,307

 

 

 

100.0

%

 

$

23,186,877

 

 

 

100.0

%

 

$

(5,524,570

)

 

 

(23.8

)%

 

$

16,432,466

 

 

 

100.0

%

 

$

19,865,865

 

 

 

100.0

%

 

$

(3,433,399

)

 

 

(17.3

)%

Cost of revenue

 

 

13,231,836

 

 

 

74.9

%

 

 

20,481,463

 

 

 

88.3

%

 

 

(7,249,627

)

 

 

(35.4

)%

 

 

11,421,152

 

 

 

69.5

%

 

 

15,361,354

 

 

 

77.3

%

 

 

(3,940,202

)

 

 

(25.7

)%

Gross profit

 

 

4,430,471

 

 

 

25.1

%

 

 

2,705,414

 

 

 

11.7

%

 

 

1,725,057

 

 

 

63.8

%

 

 

5,011,314

 

 

 

30.5

%

 

 

4,504,511

 

 

 

22.7

%

 

 

506,803

 

 

 

11.3

%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

5,990,651

 

 

 

33.9

%

 

 

5,582,060

 

 

 

24.1

%

 

 

408,591

 

 

 

7.3

%

 

 

5,786,579

 

 

 

35.2

%

 

 

5,056,257

 

 

 

25.5

%

 

 

730,322

 

 

 

14.4

%

Research and development expenses

 

 

1,208,038

 

 

 

6.8

%

 

 

1,904,631

 

 

 

8.2

%

 

 

(696,593

)

 

 

(36.6

)%

 

 

1,086,512

 

 

 

6.6

%

 

 

1,515,380

 

 

 

7.6

%

 

 

(428,868

)

 

 

(28.3

)%

Depreciation and amortization

 

 

1,107,206

 

 

 

6.3

%

 

 

1,379,856

 

 

 

6.0

%

 

 

(272,650

)

 

 

(19.8

)%

 

 

1,069,022

 

 

 

6.5

%

 

 

1,336,434

 

 

 

6.7

%

 

 

(267,412

)

 

 

(20.0

)%

Loss (gain) on disposal of property, plant and equipment

 

 

37,325

 

 

 

0.2

%

 

 

49,796

 

 

 

0.2

%

 

 

(12,471

)

 

 

(25.0

)%

 

 

(32,955

)

 

 

(0.2

)%

 

 

(3,660

)

 

 

(0.0

)%

 

 

(29,295

)

 

 

800.4

%

Total operating expenses

 

 

8,343,220

 

 

 

47.2

%

 

 

8,916,343

 

 

 

38.5

%

 

 

(573,123

)

 

 

(6.4

)%

 

 

7,909,158

 

 

 

48.1

%

 

 

7,904,411

 

 

 

39.8

%

 

 

4,747

 

 

 

0.1

%

Loss from operations

 

 

(3,912,749

)

 

 

(22.2

)%

 

 

(6,210,929

)

 

 

(26.8

)%

 

 

2,298,180

 

 

 

(37.0

)%

 

 

(2,897,844

)

 

 

(17.6

)%

 

 

(3,399,900

)

 

 

(17.1

)%

 

 

502,056

 

 

 

(14.8

)%

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

331,889

 

 

 

1.9

%

 

 

146,935

 

 

 

0.6

%

 

 

184,954

 

 

 

125.9

%

 

 

372,189

 

 

 

2.3

%

 

 

190,915

 

 

 

1.0

%

 

 

181,274

 

 

 

95.0

%

Government grant income

 

 

(1,444,044

)

 

 

(8.2

)%

 

 

 

 

 

 

 

 

(1,444,044

)

 

-

 

Gain on sale of business interest

 

 

(38,323,506

)

 

 

(217.0

)%

 

 

 

 

 

 

 

 

(38,323,506

)

 

-

 

Gain on disposal of intangible assets

 

 

 

 

 

 

 

 

(185,800

)

 

 

(0.8

)%

 

 

185,800

 

 

 

(100.0

)%

Change in contingent consideration obligation

 

 

697,840

 

 

 

4.0

%

 

 

246,801

 

 

 

1.1

%

 

 

451,039

 

 

 

182.8

%

Interest expense - amortization of debt discount

 

 

1,163,533

 

 

 

6.6

%

 

 

592,853

 

 

 

2.6

%

 

 

570,680

 

 

 

96.3

%

 

 

455,574

 

 

 

2.8

%

 

 

283,643

 

 

 

1.4

%

 

 

171,931

 

 

 

60.6

%

Interest expense, net

 

 

 

 

 

 

 

 

(68,967

)

 

 

(0.3

)%

 

 

68,967

 

 

 

(100.0

)%

 

 

1,405,767

 

 

 

8.6

%

 

 

786,679

 

 

 

4.0

%

 

 

619,088

 

 

 

78.7

%

Other (income) expenses

 

 

1,641,406

 

 

 

9.3

%

 

 

(3,157

)

 

 

(0.0

)%

 

 

1,644,563

 

 

 

(52092.6

)%

Income (loss) before income taxes

 

 

32,020,133

 

 

 

181.3

%

 

 

(6,939,594

)

 

 

(29.9

)%

 

 

38,959,727

 

 

 

(561.4

)%

Other income

 

 

(37,560

)

 

 

(0.2

)%

 

 

(44,270

)

 

 

(0.2

)%

 

 

6,710

 

 

 

(15.2

)%

Loss before income taxes

 

 

(5,093,814

)

 

 

(31.0

)%

 

 

(4,616,867

)

 

 

(23.2

)%

 

 

(476,947

)

 

 

10.3

%

Provision for (benefit from) income taxes

 

 

(500,118

)

 

 

(2.8

)%

 

 

322,661

 

 

 

1.4

%

 

 

(822,779

)

 

 

(255.0

)%

 

 

1,207

 

 

 

0.0

%

 

 

(101,664

)

 

 

(0.5

)%

 

 

102,871

 

 

 

(101.2

)%

Income (loss) before equity in net earnings of affiliates

 

 

32,520,251

 

 

 

184.1

%

 

 

(7,262,255

)

 

 

(31.3

)%

 

 

39,782,506

 

 

 

(547.8

)%

Loss before equity in net earnings of affiliates

 

 

(5,095,021

)

 

 

(31.0

)%

 

 

(4,515,203

)

 

 

(22.7

)%

 

 

(579,818

)

 

 

12.8

%

Equity in loss of equity method investees, net of tax

 

 

406,678

 

 

 

2.3

%

 

 

 

 

 

 

 

 

406,678

 

 

-

 

 

 

861,896

 

 

 

5.2

%

 

 

 

 

 

 

 

 

861,896

 

 

-

 

Net income (loss)

 

$

32,113,573

 

 

 

181.8

%

 

$

(7,262,255

)

 

 

(31.3

)%

 

$

39,375,828

 

 

 

(542.2

)%

Net loss

 

$

(5,956,917

)

 

 

(36.3

)%

 

$

(4,515,203

)

 

 

(22.7

)%

 

$

(1,441,714

)

 

 

31.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amount in column may not foot due to rounding

The discussion and analysis presented below is concerned with material changes in our results of operations between the three months ended March 31,September 30, 2023 and the three months ended March 31,September 30, 2022. All comparisons presented are with respect to the prior-yearprior year period, unless stated otherwise. This discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended June 30, 2022,2023, as filed with the SEC on September 28, 2022.27, 2023.

Revenue

The $3.4 million year-over-year decrease in revenue was primarilyis due to a $3.9$2.9 million decrease in product revenue from alfalfa sales to the Middle East/East and North Africa region or MENA, United States,sales caused by management's decision to not discount non-dormant alfalfa as cheaper European Asian, and South African regions,seed disrupted the market, a $2.0$1.6 million decrease in pastures and foragesMexico non-dormant alfalfa sales in Australia,due to wet conditions causing missed plantings, a $1.1$0.7 million decrease in conventional sorghumAsia sales due to the United States,COVID using inventory carryover into fiscal 2024 leading to lost sales, and a $0.2$0.4 million decrease in sunflowerAustralia sorghum sales in the United States, and a $0.1 million decrease in service revenue in the United States. Much of this decline in sales to international markets was due to a wet La Nina spring in Australia and overall flooding in Eastern Australia, which caused the harvest to be later and smaller than usual. In the United States, we also experienced delayed plantings from cold temperatures.dry planting conditions. This coupled with a generally weak domestic dormant alfalfa market, is creating a negative impact for us. For the US conventional sorghum, operational challenges led to slower shipping of conventional sorghum. These revenue decreases were partiallydecrease was offset by a $1.5$1.0 million increase in South Africa sorghum sales from the addition of a new customer, a $0.7 million increase in alfalfa sales delivered in the first quarter of fiscal 2024 that have historically been pushed into the second quarter, and a $0.5 million increase in Double Team sorghum sales in the United States, a $0.2 million increase in conventional sorghum sales to the Latin America, or LATAM, region and a $0.1 million increase in alfalfa sales to the LATAM region.revenue.

Cost of Revenue and Gross Margin

The costCost of revenue decreased year-over-year and the gross margin percentage improved from 22.7% to 30.5% compared to the prior year period, primarilyperiod. The margin improvement was driven by the decreasea 4.0% increase in sales. However, the gross margin more than doubled comparedour non-traited sorghum margins due to the third quarter of fiscal 2022, primarilybetter inventory and sales life cycle management, a 3.1% increase in global non-dormant alfalfa margins driven by pricing in the global market, and a 1.6% increase related to Double Team margins due to increased sales and improved margins of higherour high margin Double Team traited sorghum in the United States, reduced lower margin dormant alfalfa sales in the United States, and lower inventory write-downs in fiscal 2023. Inventory write-downs during the three months ended March 31, 2023, decreased to $0.4 million from $1.1 millionSeptember 30, 2023. This was offset by a 0.9% decrease in dormant alfalfa margins in the previous year quarter when we experienced a higher level of certain inventory lots that had deteriorated in quality and germination rates.

32


U.S. domestic market.

Selling, General and Administrative Expenses

The $0.4$0.7 million increase in selling, general and administrative expenses is attributable to a $0.7$0.3 million increase in one-time transaction costsour bad debt allowance, a $0.3 million increase in accounting and legal fees related primarily to the audit of the fiscal 2023 financial statements, a $0.2 million increase in stock-based compensation expense as a result of the accelerated vesting of equity awards of a former executive officer, offset by a $0.3 million decrease in compensationpayroll and other employee compensation related expenses, a $0.1 million increase in advertising and marketing, and a $0.1 million increase in other personnel expenses. The cost increases were partially offset by a $0.2 million decrease in other cost reduction efforts.expenses attributable to services provided to Vision Bioenergy and a $0.1 million decrease in our board of directors fees.

28


Research and Development Expenses

The $0.7 million year-over-year decrease in research and development expenses of $0.4 million is attributable to a $0.2$0.3 million reductiondecrease in field trialsalaries, wages, and related expenses, a $0.2 million reduction in payroll and relatedemployment expenses as a result of management’smanagement's cost reduction efforts a $0.1 million reduction in consulting and professional fees, a $0.1 million reduction in office expenses,narrowed R&D program focus and a $0.1 million reductiondecrease in other researchAustralia field trial and developmentoutside service related expenses.

Depreciation and Amortization

Depreciation and amortization expenses decreased by $0.3 million following contributions of intangible and fixed assets to the Trigall and Vision Bioenergy partnerships.

Foreign Currency Loss

The increase in foreign currency loss was attributable to fluctuations in foreign currency exchange rates between the Australian dollar and U.S. dollar.

Government Grant Income

The $1.4 million in government grant income was attributable to an Employee Retention Credit recognized for certain periods in 2021 under the Coronavirus Aid, Relief, and Economic Security Act.

Gain on Sale of Business Interest

The gain on sale of business interest was related to the sale of a 66% interest in Vision Biofuels to Shell. The $38.3 million gain was determined by the amount of consideration paid by Shell for the 66% interest plus the proportionate valuation of our retained 34% interest, less the carrying value of the assets we contributed to Vision Bioenergy.

Change in Contingent Consideration Obligation

The decrease in benefit to non-cash change in contingent consideration compared to the prior year period is due to the February 2022 final valuation of the contingent consideration obligation from the 2020 acquisition of Pasture Genetics Pty Ltd. The valuation resulted in no contingent consideration due, and a reversal of the remaining $0.5 million accrual.

Interest Expense - Amortization of Debt Discount

The increased debt amortization expense in the third quarter of fiscal 2023 compared to the prior year period wasis due to the amortization of the financial commitment asset established in conjunction with the granted MFP Loan Agreement beginningWarrants in September 2022 (see “Capital Resources and Requirements—MFP Loan Agreement,” below) fiscal 2023 and increased amortization of costs associated with the completion of refinancing our CIBC Credit Facility.

Interest Expense, Net

Interest expense for the three months ended March 31, 2023 and 2022 primarily consisted of interest incurred on the working capital credit facilities, the Rooster Note (as defined below), and equipment capital leases. The $0.5 million increase in interest expense was primarily driven by increases in average borrowings and increased interest rates on the working capital credit facilities.

Other (Income) Expenses

Other (income) expenses for the three months ended March 31, 2023 primarily consisted of $1.5 million in lender fees that were written off due to our coming to an agreement with CIBC, an existing lender. These fees are associated with uncompleted financing efforts with other lenders.

(Benefit from) Provision for Income Tax Benefit

The income tax provision (benefit) totaled ($0.5) million for the three months ended March 31, 2023, compared to a $0.3 million income tax provision for the three months ended March 31, 2022. Our effective tax rate for the three months ended March 31, 2023 was (1.7%) due primarily to the valuation allowance recorded against substantially all of our U.S. deferred tax assets and due to income tax expense

33


related to our Australian operations and minor state taxes. The effective tax rate for the three months ended March 31, 2022 was (4.7%) due to the valuation allowance recorded against substantially all of our deferred tax assets.

Equity in Loss of Equity Method Investees, Net of Tax

The loss on equity investments of $0.4 million was related to our proportionate share of loss from our 34% interest in Vision Bioenergy and our 20% interest in Trigall.

Nine Months Ended March 31, 2023 Compared to the Nine Months Ended March 31, 2022

The following table presents our results of operations for the periods indicated:

 

 

Nine Months Ended March 31,

 

 

 

 

 

 

 

 

 

2023

 

 

2022

 

 

Change

 

 

 

$

 

 

% of
Revenue
(1)

 

 

$

 

 

% of
Revenue
(1)

 

 

$

 

 

% Change

 

Revenue

 

$

50,465,974

 

 

 

100.0

%

 

$

51,349,967

 

 

 

100.0

%

 

$

(883,993

)

 

 

(1.7

)%

Cost of revenue

 

 

38,781,701

 

 

 

76.8

%

 

 

43,857,520

 

 

 

85.4

%

 

 

(5,075,819

)

 

 

(11.6

)%

Gross profit

 

 

11,684,273

 

 

 

23.2

%

 

 

7,492,447

 

 

 

14.6

%

 

 

4,191,826

 

 

 

55.9

%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

17,289,120

 

 

 

34.3

%

 

 

18,260,785

 

 

 

35.6

%

 

 

(971,665

)

 

 

(5.3

)%

Research and development expenses

 

 

4,226,891

 

 

 

8.4

%

 

 

6,010,172

 

 

 

11.7

%

 

 

(1,783,281

)

 

 

(29.7

)%

Depreciation and amortization

 

 

3,697,544

 

 

 

7.3

%

 

 

4,084,554

 

 

 

8.0

%

 

 

(387,010

)

 

 

(9.5

)%

Loss (gain) on disposal of property, plant and equipment

 

 

32,914

 

 

 

0.1

%

 

 

13,957

 

 

 

0.0

%

 

 

18,957

 

 

 

135.8

%

Total operating expenses

 

 

25,246,469

 

 

 

50.0

%

 

 

28,369,468

 

 

 

55.2

%

 

 

(3,122,999

)

 

 

(11.0

)%

Loss from operations

 

 

(13,562,196

)

 

 

(26.9

)%

 

 

(20,877,021

)

 

 

(40.7

)%

 

 

7,314,825

 

 

 

(35.0

)%

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

699,428

 

 

 

1.4

%

 

 

567,963

 

 

 

1.1

%

 

 

131,465

 

 

 

23.1

%

Government grant income

 

 

(1,444,044

)

 

 

(2.9

)%

 

 

 

 

 

 

 

 

(1,444,044

)

 

-

 

Gain on sale of business interest

 

 

(38,323,506

)

 

 

(75.9

)%

 

 

 

 

 

 

 

 

(38,323,506

)

 

-

 

Gain on sale of equity investment

 

 

(1,796,252

)

 

 

(3.6

)%

 

 

 

 

 

 

 

 

(1,796,252

)

 

-

 

Gain on disposal of intangible assets

 

 

 

 

 

 

 

 

(714,429

)

 

 

(1.4

)%

 

 

714,429

 

 

 

(100.0

)%

Change in contingent consideration obligation

 

 

1,559,595

 

 

 

3.1

%

 

 

660,191

 

 

 

1.3

%

 

 

899,404

 

 

 

136.2

%

Interest expense - amortization of debt discount

 

 

3,042,539

 

 

 

6.0

%

 

 

1,735,392

 

 

 

3.4

%

 

 

1,307,147

 

 

 

75.3

%

Interest expense, net

 

 

(32,030

)

 

 

(0.1

)%

 

 

(68,967

)

 

 

(0.1

)%

 

 

36,937

 

 

 

(53.6

)%

Other (income) expenses

 

 

1,601,697

 

 

 

3.2

%

 

 

(13,746

)

 

 

(0.0

)%

 

 

1,615,443

 

 

 

(11752.1

)%

Income (loss) before income taxes

 

 

21,130,377

 

 

 

41.9

%

 

 

(23,043,425

)

 

 

(44.9

)%

 

 

44,173,802

 

 

 

(191.7

)%

Provision for (benefit from) income taxes

 

 

(884,078

)

 

 

(1.8

)%

 

 

414,636

 

 

 

0.8

%

 

 

(1,298,714

)

 

 

(313.2

)%

Income (loss) before equity in net earnings of affiliates

 

 

22,014,455

 

 

 

124.6

%

 

 

(23,458,061

)

 

 

(101.2

)%

 

 

45,472,516

 

 

 

(193.8

)%

Equity in loss of equity method investees, net of tax

 

 

406,678

 

 

 

0.8

%

 

 

 

 

 

 

 

 

406,678

 

 

-

 

Net income (loss)

 

$

21,607,777

 

 

 

42.8

%

 

$

(23,458,061

)

 

 

(45.7

)%

 

$

45,065,838

 

 

 

(192.1

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Amount in column may not foot due to rounding

The discussion and analysis presented below is concerned with material changes in our results of operations between the nine months ended March 31, 2023 and the nine months ended March 31, 2022. All comparisons presented are with respect to the prior year period, unless stated otherwise. This discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the SEC on September 28, 2022.

Revenue

The $0.9 million year-over-year decrease in revenue was primarily due to the decrease in product revenue from alfalfa sales to the United States, European, Asian, and South African regions of $4.6 million, the decrease in conventional sorghum sales to the United States, Asian, South African, and MENA regions of $4.0 million, the decrease in pastures and forages sales in Australia of $2.0 million, and reduced service revenue in the United States of $1.0 million. Much of this decline in sales to international markets was due to wetter and cooler conditions for the Australia harvest, which caused it to be later and smaller than usual. In the US, operational challenges led to slower shipping of conventional sorghum. These revenue decreases were partially offset by an increase in sorghum sales to the MENA and LATAM region of $6.4 million, an increase in Double Team sorghum sales in the United States of $2.7 million, and an increase in conventional sorghum sales to the LATAM region of $1.6 million.

Cost of Revenue and Gross Margin

Cost of revenue decreased year-over-year, as the gross margin percentage improved from 15% to 23% compared to the prior year period. The margin improvement was primarily driven by increased sales of higher margin Double Team sorghum sales in the United States and higher margin non-dormant alfalfa sales in MENA, reduced lower margin sorghum Sudan sales to MENA and Asia, lower margin

34


dormant alfalfa sales in the United States, and lower inventory write-downs in fiscal 2023. Inventory write-downs during the nine months ended March 31, 2023, decreased to $0.9 million from $1.9 million in the previous year period, when we experienced a higher level of certain inventory lots that had deteriorated in quality and germination rates.

Selling, General and Administrative Expenses

The $1.0 million decrease in selling, general and administrative expenses is attributable to a $0.7 million decrease in stock-based compensation expense as a result of the accelerated vesting of equity awards of a former executive officer during the nine months ended March 31, 2022, $0.6 million in reduced payroll and other employee compensation related expenses as a result of management’s cost reduction efforts, $0.3 million in reduced bad debt expense, $0.2 million advertising and marketing spending reductions, $0.2 million of reduced consulting expenses, and $0.3 million in other various cost reductions. The cost reductions were partially offset by a $1.0 million increase in one time transaction costs, a $0.2 million increase in stock-based compensation as a result of the accelerated vesting of equity awards of a former executive officer during the nine months ended March 31, 2023, and $0.2 million of increased travel expenses.

Research and Development Expenses

The year-over-year decrease in research and development expenses is attributable to $0.6 million in reduced salaries, wages and related employment expenses as a result of management’s cost reduction efforts,$0.4 million in reduced United States field trial related expenses, $0.3 million in reduced consulting and professional fees, $0.2 million of reduced investment in our sunflower programs in Hungary, $0.2 million in reduced office expenses, and $0.1 million in reduced other research and development related activities.

Depreciation and Amortization

Depreciation and amortization expenses decreased by $0.4 million following contributions of intangible and fixed assets to the Trigall and Vision Bioenergy partnerships.

Foreign Currency Loss

The increase in foreign currency loss for fiscal 2023 was attributable to fluctuations in foreign currency exchange rates between the Australian dollar and U.S. dollar.

Government Grant Income

The $1.4 million in government grant income was attributable to an Employee Retention Credit recognized for certain periods in 2021 under the Coronavirus Aid, Relief, and Economic Security Act.

Gain on Sale of Business Interest

The gain on sale of business interest was related to the sale of a 66% interest in Vision Biofuels to Shell. The $38.3 million gain was determined by the amount of consideration paid by Shell for the 66% interest plus the proportionate valuation of our retained 34% interest, less the carrying value of the assets we contributed to Vision Bioenergy.

Gain on Disposal of Intangible Assets

The $1.8 million gain on disposal of intangible assets occurred in the second quarter of fiscal 2023, as a result of the contribution of our Australia-based wheat breeding program and related assets to Trigall Australia in furtherance of the partnership with Trigall Australia, as discussed under the caption “Strategic Review,” above.

Change in Contingent Consideration Obligation

The decrease in benefit to non-cash change in contingent consideration compared to the prior year period is due to the February 2022 final valuation of the contingent consideration obligation from the 2020 acquisition of Pasture Genetics Pty Ltd. The valuation resulted in no contingent consideration due and a reversal of the remaining $0.5 million accrual.

Interest Expense - Amortization of Debt Discount

The increased debt amortization expense was due to the amortization of the financial commitment asset established in conjunction with the MFP Loan Agreement beginning in September 2022 (see “Capital Resources and Requirements—MFP Loan Agreement,” below) and increased amortization of costs associated with completion of refinancing our CIBC Credit Facility.

35


Interest Expense, Net

Interest expense for the ninethree months ended March 31,September 30, 2023 and 2022 primarily consisted of interest incurred on theour working capital credit facilities with CIBC and NAB, the Rooster Note (as defined below),MFP Loan, and equipment capital leases. The $0.7 million increase year over year in interest expense was primarily driven by increases in average borrowings and increased interest rates on the working capital credit facilities.

Other (Income) Expenses

Other (income) expenses for the nine months ended March 31, 2023 primarily consisted of $1.5 million in lender fees that were written off due to our coming to an agreement with CIBC, an existing lender. These fees are associated with uncompleted financing efforts with other lenders.

(Benefit from) Provision for Income Tax Benefit

The income tax provision (benefit) totaled ($0.9)$0.0 million for the ninethree months ended March 31,September 30, 2023, compared to a $0.4($0.1) million income tax provision for the ninethree months ended March 31,September 30, 2022. Our effective tax rate was (4.4%)0.0% during the ninethree months ended March 31,September 30, 2023 compared to (1.8)%2.2% for the ninethree months ended March 31,September 30, 2022. Our effective tax rate for the ninethree months ended March 31,September 30, 2023 was due primarily to the valuation allowance recorded against substantially all of our deferred tax assets, the tax effects of the partnership with Trigall Genetics entered into during the second quarter, and income tax expense related to our Australian operations and minor state taxes.assets. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operation results, with the exception of our operations in Australia.

Equity in Loss of Equity Method Investees, Net of Tax

The loss on equity investments of $0.4$0.9 million was related to our proportionate share of loss from our 34% interest in Vision Bioenergy and our 20% interest in Trigall.Trigall Australia.

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 pay our North American contracted growers progressively, starting in the second fiscal quarter. In fiscal year 2023, we paid our North American growers approximately 50% of amounts due in the fall of 2022 and the balance was paid in the spring of 2023. ThisWe expect this payment cycle to our growers was similar in fiscal year 2022, and we expect it to be similar forin fiscal year 2024. S&W Australia and Pasture Genetics, our Australia-based wholly owned subsidiaries, have production cycles that are counter-cyclical to North America; however, the timing of payments to Australian growers, which occurs in the second through fourth quarters, also puts a greater demand on our working capital and working capital requirements during these periods.

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.

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 expenses 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 Australia.

Capital Resources and Material Cash Requirements

Excluding the gain recognized in relation to the Vision Bioenergy partnership, weWe are not profitable and have had negative cash flow from operations for the last several years.years, excluding the fiscal 2023 gain recognized in relation to the Vision Bioenergy partnership. To help fund our operations, we have relied on equity and debt financings, and

29


we will need to obtain additional funding to finance our operations in the future. Accordingly, we are actively evaluating financing and strategic alternatives, including debt and equity financings and potential sales of assets or certain lines of business.

We believe that cash flow from operations, cash payments from Trigall and Shell in fiscal 2024 pursuant to thetheir partnership agreements, where we are entitled to receive $1.0 million from Trigall in December 2023 and $6.0 million from Shell Partnership Agreementin February 2024, and undrawn availability under our existing debt facilities will be sufficient to meet our cash requirements over the next 12 months. We expect to meet our longer-term expected future cash requirements and obligations beyond the next 12 months through a combination of existing cash and cash equivalents, cash flow from operations, our debt facilities and issuances of equity securities or debt offerings, among other sources of

36


capital. Our ability to fund longer-term operating needs will depend on our ability to generate sufficient cash flows through sales of our products, our ability to maintain compliance with, and secure additional funds from, our existing debt facilities, and our ability to access the capital markets, the impacts of adverse geopolitical and macroeconomic events, and other factors, including those discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2022,2023, as filed with the SEC on September 28, 2022.27, 2023.

Below is a summary of material changes to our sources of capital during the ninethree months ended March 31,September 30, 2023:

Shell Partnership

On February 6, 2023, S&W and Shell entered into a partnership for the development and production of sustainable biofuel feedstocks through Vision Bioenergy. We received $7.0 million at the Shell partnership Closing and will be eligible to receive an additional $6.0 million in February 2024, subject to adjustment in certain circumstances.

Trigall Australia Partnership

In connection with our partnership with Trigall Genetics (as discussed under “—Strategic Review”), we received $2.0 million in cash and a promissory note for $1.0 million due in December 2023. Under the partnership agreement we are obligated to make an aggregate of $560,000 of capital contributions to Trigall Australia through June 2025..

CIBC Loan Agreement

Our Loan and Security Agreement with CIBC Bank USA, or CIBC, as amended to date, or the CIBC Loan Agreement, provides for a $25.0 million credit facility. The following amendments to the CIBC Loan Agreement occurred during the ninethree months ended March 31,September 30, 2023:

onOn September 22, 2022, the CIBC Loan Agreement was amended to, among other things: (i) specify that the borrowing base eligible inventory sublimit cannot be reduced below the proceeds available to be drawn under the MFP Letter of Credit (as defined below), (ii) waive our non-compliance with certain financial covenants under the CIBC Loan Agreement and (iii) establish a minimum liquidity of no less than $1.0 million, tested weekly as of the last day of each week for the remainder of the term of the CIBC Loan Agreement;
on October 28, 2022, the CIBC Loan Agreement was amended to, among other things, increase (i) the total revolving loan commitment to $21.0 million from $18.0 million and (ii) the borrowing base eligible inventory sublimit to $12.0 million from $9.0 million;
on December 23, 2022, the CIBC Loan Agreement was further amended to extend the maturity date of all revolving loans, advances and other obligations outstanding under the CIBC Loan Agreement from December 23, 2022 to March 23, 2023. As of March 31,25, 2023, we were in compliance with all covenants contained in the CIBC Loan Agreement, and approximately $4.8 million remained available for use under this credit facility; and
on March 22, 2023, the Company entered into ana First Amendment to Amended and Restated Loan and Security Agreement, or the Loan Amendment, with CIBC Bank USA, or CIBC, which amended the Amended and Restated Loan and Security Agreement, dated March 22, 2023, or the CIBC Loan Agreement, withby and among us, as borrower, and CIBC, as administrative agent and sole lead arranger, andarranger. The Loan Amendment, among other things, (i) waived certain events of default under the other loan parties and lenders party thereto. The Amended CIBC Loan Agreement, replaced(ii) eliminated the existing CIBC Loan Agreement. The Amendedminimum EBITDA and fixed charge coverage ratio covenants for the period ending of June 30, 2024, (iii) increased the applicable interest rate margin on advances under the CIBC Loan Agreement now maturesby 0.5% per annum (i.e. from 2.0% to 2.5% per annum), and (iv) added a fee of $75,000 payable by us to CIBC on August 31, 2024.

The Amendedthe date of the Loan Amendment. Except as modified by the Loan Amendment, all terms and conditions of the CIBC Loan Agreement provides for a senior secured credit facility of up to $25.0 million from February 1 to October 31 of each year,remain in full force and up to $18.0 million from November 1 to January 31 of each year, or the Amended CIBC Credit Facility. The proceeds of advances under the Amended CIBC Credit Facility may be used to finance the Company’s ongoing working capital requirements and other general corporate purposes. Availability of funds under the Amended CIBC Credit Facility is subject to a borrowing base equal to (a) up to 85% of eligible domestic accounts receivable, plus (b) up to 90% of eligible foreign accounts receivable, plus (c) up to the lesser of (i) 65% of eligible inventory and (ii) 85% of the appraised net orderly liquidation value of eligible inventory, in each case subject to an eligible inventory sublimit, in each case ((a), (b) and (c)), as more fully set forth in the Amended CIBC Loan Agreement and subject to lender reserves that CIBC may establish from time to time in its sole discretion, determined in good faith. Advances under the Amended CIBC Credit Facility bear interest at a rate per annum equal to a reference rate equal to CIBC’s prime rate at any time (or, if greater, the federal funds rate at such time plus 0.5%) plus an applicable margin of 2.0%. The Company’s obligations under the Amended CIBC Loan Agreement are secured by a first priority security interest in substantially all of the Company’s assets (subject to certain exceptions), including intellectual property.

The Amended CIBC Loan Agreement contains certain customary representations and warranties, events of default, and affirmative and negative covenants, including limitations with respect to debt, liens, fundamental changes, asset sales, restricted payments, investments and transactions with affiliates, subject to certain exceptions. Amounts due under the Amended CIBC Loan Agreement may be accelerated upon an “event of default,” as defined in the Amended CIBC Loan

37


Agreement, such as failure to pay amounts owed thereunder when due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject in some cases to cure periods. Additionally, upon the occurrence and during the continuance of an event of default, CIBC may elect to increase the existing interest rate on all of the Company’s outstanding obligations by 2.0% per annum.

effect.

All amounts outstanding under the Amended CIBC Loan Agreement, including, but not limited to, accrued and unpaid principal and interest due under the CIBC Credit Facility, will be due and payable in full on August 31, 2024.

NAB Finance Agreement

S&W Australia’s debt facilities with National Australia Bank or NAB, as amendedNo amendments have occurred to date, or the NAB Finance Agreement were amended and restated on October 24, 2022 and further amended on October 25, 2022. Pursuant tofor the amendments contained in the NAB Finance Agreement, among other things:

the borrowing base line credit limit under S&W Australia’s seasonal credit facility was increased from AUD $32.0 million (USD $21.4 million as of March 31, 2023) to AUD $40.0 million (USD $26.8 million as of March 31, 2023), with a one-year maturity date extension tothree months ended September 30, 2024;
the overdraft credit limit under S&W Australia’s seasonal credit facility was increased from AUD $1.0 million (USD $0.7 million as of March 31, 2023) to AUD $2.0 million (USD $1.3 million as of March 31, 2023), with a one-year maturity date extension to September 29, 2023; and
the maturity date of S&W Australia’s master asset finance facility was extended by one year to September 29, 2023.

After the amendments, the consolidated debt facilities under the NAB Finance Agreement provide for up to an aggregate of AUD $49.0 (USD $32.8 million as of March 31, 2023) of credit. The NAB finance agreement is guaranteed by S&W Seed Company up to a maximum of AUD $15.0 million (USD $10.0 million as of March 31, 2023).

Following the October 2022 amendments, the NAB Finance Agreement contained an undertaking requiring us to maintain a net related entity position of not more than AUD $25.0 million, and our ability to comply with this undertaking was subject to fluctuations in foreign currency conversion rates outside of our control. On February 8, 2023, we further amended the NAB Finance Agreement to change the required net related entity position from AUD $25.0 million to USD $18.5 million (see "Amendment of NAB Finance Agreement," below). As of March 31, 2023, the Company was in compliance with all NAB Finance Agreement covenants. As of March 31, 2023, approximately AUD $5.3 million (USD $3.6 million) remained available for use under the NAB Finance Agreement.

Rooster Note

Our promissory note, dated November 30, 2017, originally issued to Conterra Agricultural Capital, LLC, and subsequently endorsed to Rooster, as amended to date, or the Rooster Note, originally bore interest of 7.75% per annum, and on July 1, 2022, we made the final semi-annual principal and interest payment of $454,185. On September 22, 2022, we entered into an amendment to extend the Rooster Note’s maturity date to December 23, 2022. On December 23, 2022, we entered into an amendment to increase the interest rate on the Rooster Note from 7.75% to 9.25% per annum and extend the Rooster Note’s maturity date to March 1, 2023. On February 6, 2023, the Rooster Note was paid off in full by Shell in connection with the Vision Bioenergy partnership (see “—Payoff of Rooster Note”).

MFP Loan Agreement

On September 22, 2022, our largest stockholder, MFP Partners, L.P., or MFP, provided a letter of credit issued by JPMorgan Chase Bank, N.A. for the account of MFP, with an initial face amount of $9.0 million, or the MFP Letter of Credit, for the benefit of CIBC, as additional collateral to support our obligations under the CIBC Loan Agreement. The MFP Letter of Credit initially matured on January 23, 2023, one month after the maturity date of the existing CIBC Loan Agreement. Concurrently, on September 22, 2022, we entered into a Subordinate Loan and Security Agreement, or the MFP Loan Agreement, with MFP, pursuant to which any draw CIBC may make on the MFP Letter of Credit will be deemed to be a term loan advance made by MFP to us. The MFP Loan Agreement initially provided for up to $9.0 million of term loan advances.

Concurrent with the October 28, 2022 amendment to the CIBC Loan Agreement (as described above), MFP amended the MFP Letter of Credit to increase the face amount from $9.0 million to $12.0 million, and the MFP Loan Agreement was amended to increase the maximum amount of term loan advances available to us from $9.0 million to $12.0 million. In connection with the December 23, 2022 amendment to the CIBC Loan Agreement, MFP amended the MFP Letter of Credit, extending the maturity date from January 23, 2023 to April 30, 2023. In connection with the Company’s entry into the Amended CIBC Loan Agreement, MFP further amended letter of credit to increase the maximum amount of term loan advances to $13.0 million and extend the maturity date to September 30, 2024.

The MFP Loan Agreement will mature on November 30, 2025. PursuantNo amendments have occurred to the MFP Loan Agreement we will pay to MFP a cash fee through the maturity date of the MFP Letter of Credit equal to 3.50% per annum on all amounts remaining undrawn under the MFP Letter

38


of Credit. In the event any term advances are deemed made under the MFP Loan Agreement, such advances will bear interest at a rate per annum equal to term SOFR (with a floor of 1.25%) plus 9.25%, half of which will be payable in cash on the last day of each fiscal quarter and half of which will accrue as payment in kind interest payable on the maturity date, unless, with respect to any quarterly payment date, we elect to pay such interest in cash.

Concurrent with the March 22, 2023, amendment to the CIBC Loan Agreement, the Company entered into a Third Amendment to Subordinate Loan and Security Agreement with MFP, or MFP Amendment, to (i) increase the aggregate amount of cash advances permitted from $12.0 million to $13.0 million; (ii) increase the cash fee payable to MFP on all amounts remaining undrawn under the Letter of Creditfrom 3.50% to 4.25% per annum; (iii) provide for the issuance of the MFP Warrant to MFP (see Note 9); and (iv) reflect the extension of the maturity date of the Letter of Credit tothree months ended September 30, 2024. The MFP Loan Agreement, as amended, will mature on November 30, 2025.

The MFP Loan Agreement, as amended, includes customary affirmative and negative covenants and events of default, and is secured by substantially all of the Company’s assets and is subordinated to the CIBC Loan Agreement. Upon the occurrence and during the continuance of an event of default, MFP may declare all outstanding obligations under the MFP Loan Agreement immediately due and payable and take such other actions as set forth in the MFP Loan Agreement.2023.

Summary

The CIBC Loan Agreement and our debt facilities with NAB contain various operating and financial covenants. Adverse geopolitical and macroeconomic events and uncertain market conditions have increased the risk of our inability to comply with these covenants, which could result in acceleration of our repayment obligations and foreclosure on our pledged assets. In addition, these loan agreements contain cross-default provisions, such that certain defaults or breaches under any of our loan agreements may entitle CIBC to invoke default remedies. We were not in compliance with certain covenants in the CIBC Loan Agreement and NAB Finance Agreement as of June 30, 2021, December 31, 2021, March 31, 2022, June 15, 2022, and June 30, 20222023 and were required to obtain waivers and/or amendments from CIBC. In particular,CIBC and NAB for such non-compliance. For the three months ended September 30, 2023, we were in compliance with all covenants related to the CIBC Loan Agreement as presently in effect requires us to maintain minimum liquidity of no less than $1.0 million and the NAB Finance Agreement, as amended, includes an undertaking that requires us to maintain a net related entity position of not more than USD $18.5 million.Agreement.

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

the maturity and repayment of our debt;
the extent and sustainability of future operating income;
the level and timing of future sales and expenditures;
timing for when we are able to recognize revenue;
working capital required to support our growth;
our ability to timely pay our growers;
investment capital for plant and equipment;
investment in our sales and marketing programs;

30


investment capital for potential acquisitions;
our ability to renew and/or refinance our debt on acceptable terms;
our ability to raise equity financing, in order to secure refinancing as well as support our operations, among other things;
competition;
market developments; and
developments related to adverse geopolitical and macroeconomic events, including the COVID-19 pandemic, bank failures, inflation and supply chain disruptions.

We cannot assure you that we will be successful in renewing or refinancing our existing debt, raising additional capital, securing future waivers and/or amendments from CIBC, NAB, or our other lenders, or securing new financing. If we are unsuccessful in doing so, we may need to reduce the scope of our operations, repay amounts owing to our lenders, finance our cash needs through a combination of equity and debt financings, enter into collaborations, strategic alliances and licensing arrangements, sell certain assets or divest certain operations.

39


If we are required or desire to raise additional capital in the future, whether as a condition to loan refinancing or separately, such additional financing may not be available on favorable terms, or available at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest would be diluted and the terms of these securities could 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, and may be on terms less favorable than our existing loans. 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.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the ongoing military conflict between Russia and Ukraine, the armed conflict in Sudan, the war between Israel and Hamas, and other geopolitical and macroeconomic factors beyond our control, the global credit and financial markets have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. On March 10, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of Silicon Valley Bank. While we did not have deposits at Silicon Valley Bank, if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition. It is possible that further deterioration in credit and financial markets and confidence in economic conditions will occur. If equity and credit markets deteriorate, it may affect our ability to raise equity capital, borrow on our existing facilities, access our existing cash, or make any additional necessary debt or equity financing more difficult to obtain, more costly and/or more dilutive. In addition, while we are currently in compliance with our loan agreements or have received waivers of non-compliance, our ability to comply with the terms of our loan agreements has beencan be compromised in the future and could result in an event of default. If an event of default were to occur, our lenders could accelerate our repayment obligations or enforce their other rights under our agreements with them. Any such default may also require us to seek additional or alternative financing, which may not be available on commercially reasonable terms or at all.

Summary of Cash Flows

The following table shows a summary of our cash flows for the ninethree months ended March 31,September 30, 2023 and 2022:

 

Nine Months Ended March 31,

 

 

Three Months Ended September 30,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

$

(15,828,395

)

 

$

(18,006,419

)

 

$

794,678

 

 

$

(7,319,995

)

Cash flows from investing activities

 

 

8,360,648

 

 

 

(569,181

)

 

 

(146,778

)

 

 

(147,716

)

Cash flows from financing activities

 

 

6,565,494

 

 

 

17,899,513

 

 

 

(3,099,971

)

 

 

6,421,764

 

Effect of exchange rate changes on cash

 

 

415,208

 

 

 

290,069

 

 

 

40,700

 

 

 

213,839

 

Net decrease in cash and cash equivalents

 

 

(487,045

)

 

 

(386,018

)

 

 

(2,411,371

)

 

 

(832,108

)

Cash and cash equivalents, beginning of period

 

 

2,056,508

 

 

 

3,527,937

 

 

 

3,398,793

 

 

 

2,056,508

 

Cash and cash equivalents, end of period

 

$

1,569,463

 

 

$

3,141,919

 

 

$

987,422

 

 

$

1,224,400

 

Operating Activities

For the ninethree months ended March 31,September 30, 2023, operating activities used $15.8provided $0.8 million in cash. Of this, the net loss excluding non-cash items as detailed on the statement of cash flows used $14.3$3.0 million in cash and changes in operating assets and liabilities as detailed on the statement of cash flows used $1.6provided $3.8 million in cash. The decreaseincrease in cash from changes in operating assets and liabilities was primarily driven by a $3.0$4.0 million increase in accounts payable, $1.7 million decrease in inventories,inventory, a $1.5$1.3 million decreaseincrease in accrued expenses and other current liabilities, and a $0.8$0.6 million decrease in other non-current assets, and a $0.5 million decrease in accounts receivable, offset by a $1.9 million increase in accounts payable, a $1.5 million increase in prepaid expenses and other current assets, offset by a $3.7 million

31


increase in accounts receivable and a $0.8$0.1 million increasedecrease in deferred revenue from prepayments for our fiscal 2023 United States2024 U.S. domestic business.

For the ninethree months ended March 31,September 30, 2022, operating activities used $18.0$7.3 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $15.5$1.6 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used $2.5$4.5 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by $1.3 million in unrealized foreign currency gains, an increase in inventory of $10.2 million and accounts receivable of $4.3$9.0 million and increased prepaid expenses of $0.2 million offset by a decrease in inventory of $3.1 million, an increase in accounts payable and accruals of $8.9$1.2 million and an increase of $0.4 million in deferred revenue from prepayment on end of season revenue of $2.7 million.prepayments for our fiscal 2023 United States domestic business.

Investing Activities

Investing activities during the ninethree months ended March 31,September 30, 2023 provided $8.4used $0.1 million in cash, which resulted from $7.0 million in proceeds from the partnership transaction with Vision Bioenergy, $2.0 million in proceeds from the partnership transaction between Trigall and S&W Australia, and $0.4 million in proceeds from the sale of our remaining shares of Bioceres stock, offset by $0.9$0.2 million in additions to property, plant and equipment for our United States and Australian facilities andoffset by $0.1 million in capital contributions to Trigall.

40


proceeds from the disposal of property, plant and equipment from our United States and Australian facilities.

Investing activities during the ninethree months ended March 31,September 30, 2022 used $0.6$0.1 million in cash. Additionscash, which resulted from additions to property, plant and equipment accounted for $1.6 million of the cash used offset by an increase in net proceeds from the sale of marketable securities of $1.0 million in investing activities.our United States and Australian facilities.

Financing Activities

Financing activities during the ninethree months ended March 31,September 30, 2023, provided $6.6used $3.1 million in cash, consisting of $7.8$2.9 million in net borrowings and repayments on the working capital lines of credit, $0.3 million of borrowings of long-term debt, and $0.2 million in net proceeds from sale of common stock, partially offset by repayments of long-term debt of $1.4$0.1 million andin debt issuance costs, and $0.1 million in repayments of $0.3 million.long term debt, offset by $0.2 million from borrowings of long-term debt.

Financing activities during the ninethree months ended March 31,September 30, 2022 provided $17.9$6.4 million in cash. During the nine months ended March 31, 2022, we had net proceeds from the salecash, consisting of common stock of $10.7 million, net proceeds from the sale of preferred stock of $5.0 million, and net borrowings on the working capital lines of credit and borrowings of long-term debt of $3.6$7.0 million, partially offset by net repayments of long-term debt of $1.0$0.5 million.

Inflation Risk

Inflationary pressures on labor and commodity price increases directly impacted our condensed consolidated results of operations during the ninethree months ended March 31,September 30, 2023 and we expect this to continue throughout the remainder of fiscal year 2023.2024. We attempt to manage any inflationary costs through selective price increases and changes in product mix, but rapidly changing inflationary pressures from global commodity prices and logistics could impact our costs of goods before pricing adjustments can be implemented. Delays in implementing such price increases, competitive pressures, and other factors may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets could have a significant effect on our results of operations and may have an adverse effect on us in the future. The extent of any impact will depend on our ability to manage such volatility through the product mix that we sell and selective price increases.

Critical Accounting Estimates

This discussion of our financial condition and results of operations is based uponIn preparing our unaudited condensed consolidated financial statements, which are preparedwe must select and apply various accounting policies in accordance with GAAP. The preparation of these financial statements requires usIn applying our accounting policies, we often need to make estimates, judgments and assumptions that affectwe believe are reasonable, based upon the reported amounts of assets, liabilities, revenues, and expenses and related disclosures. On an ongoing basis,information available to us. In making such estimates, we evaluate our estimates, judgments and assumptions. We base our estimates of the carrying value of certain assets and liabilitiesrely on historical experience, market and other conditions, and on various other assumptions that we believe to be reasonable. Our actualHowever, 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 differ from thesebe materially affected. In addition, if our assumptions change, we may need to revise our estimates, under different assumptions or conditions.

A critical accounting estimate is one that involves a significant levelto take other corrective actions, either of estimation uncertainty and has had or is reasonably likely towhich may also have a material impacteffect on our results of operations, financial condition or resultschanges in financial condition. Members of operations. We believe that our estimates for revenue recognition, internal-use software,senior management have discussed the development and business combinations are the most critical to fully understand and evaluate our financial condition and resultsselection of operations. During the nine months ended March 31, 2023, there were changes in our critical accounting estimates, related toand our disclosure regarding them, with the Vision Bioenergy partnership transaction affecting the below financial statement line items:audit committee of our board of directors, and do so on a regular basis.

OtherWe 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.

Intangible Assets

The Purchase Option we receivedAll 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 compared to its fair value, with an impairment loss recognized if the estimated fair value is below carrying value. Fair values are typically estimated using discounted cash flow techniques. Significant changes in connection withkey assumptions about the Vision Bioenergy partnership transaction (referenced in Note 2)business, market conditions and prospects for which the intangible asset is currently valuedutilized or expected to be utilized could result in an impairment charge.

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Stock-Based Compensation

We account for stock-based compensation in accordance with FASB Accounting Standards Codification, or ASC, Topic 718 Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at $0.6 million using a lattice option valuation model, which incorporated significant, unobservable inputs. A fullthe grant date, based on the calculated fair value analysis will be performedof the award, and is recognized as an expense, under the straight-line method, over the employee’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. Stock options issued to non-employees are accounted for at each fiscal year-end or when theretheir estimated fair value. The fair value of options granted to non-employees is an indication that there may be an impairmentre-measured as they vest.

We utilize the Black-Scholes-Merton option pricing model to the valuation. Management will estimate and adjust the balance for interim periods. No adjustment to the fair value was recorded as of March 31, 2023.

Gain on Sale of Business Interest

options granted under share-based compensation plans. The Vision Bioenergy partnership transaction was accounted for as a sale of a business. We recorded a gain on the sale of the business that was based in part on adjustments to fair value of certain tangible and intangible assets we contributed to the partnership and on current and future payments and contributions to us and to the partnership by Shell. The valuation of the contributions and payments made by both partners requiredBlack-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.

Income Taxes

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 condensed consolidated financial performance, intereststatements 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 likelihooddeferred tax assets being materially different from the amounts provided for in the condensed consolidated financial statements. If the actual recovery amount of achieving certain milestones.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’ equity.

For additionalInventories

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 and this may require us in some cases to make significant judgments. 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, regardingexpected business plans and expected market conditions. We perform a review of our critical accountinginventory by product line on a quarterly basis.

Allowance for Doubtful Accounts

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’s trade accounts receivable. Our estimates seeare judgmental in nature and are made at a point in time. Management believes the discussion under "Critical Accounting Policies" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" includedallowance for doubtful accounts is appropriate to cover anticipated losses in our Annual Report on Form 10-K foraccounts receivable under current conditions; however, unexpected, significant deterioration in any of the year ended June 30, 2022, as filed with the SEC on September 28, 2022.factors mentioned above or in general economic conditions could materially change these expectations.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a‑15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31,September 30, 2023, our Principal Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation that have significantly affected, or are reasonably likely to significantly affect, our internal control over financial reporting.

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Part II

OTHER INFORMATION

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.

Item 1A. Risk Factors.

We are a smaller reporting company, and, as such, we are not required to provide the information under this Item of Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit No.

 

Description

 

 

 

3.1(1)

 

Registrant's Articles of Incorporation, as amended.

 

 

 

3.2(2)

 

Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock.

 

 

 

3.3(3)

 

Registrant's SecondThird Amended and Restated Bylaws, together with Amendment One thereto.Bylaws.

 

 

 

4.1

 

Reference is made to Exhibits 3.1, 3.2 and 3.3.

 

 

 

4.2(4)

 

Form of Common Stock Certificate.

 

 

 

4.3(5)

 

Form of Warrant issued on February 18, 2022.

 

 

 

4.4(6)

 

Common Stock Purchase Warrant issued to MFP Partners, L.P. on September 22, 2022.

 

 

 

4.5(7)

 

Common Stock Purchase Warrant issued to MFP Partners, L.P. on October 28, 2022.

 

 

 

4.6(8)

 

Common Stock Purchase Warrant issued to MFP Partners, L.P. on December 22, 2022.

 

 

 

4.7(9)

 

Common Stock Purchase Warrant issued to MFP Partners, L.P. on March 22, 2023.

10.1 †+(9)

Contribution and Membership Interest Purchase Agreement, dated February 6, 2023, by and between S&W Seed Company and Equilon Enterprises LLC (dba Shell Oil Products US).2023.

 

 

 

10.2†10.1+(10)

 

Amendment and Restated Loan and SecuritySeparation Agreement dated March 22, 2023, by and among S&W Seed Companybetween the Registrant and CIBC Bank USA.Mark W. Wong, dated August 18, 2023.

10.2+(11)

Employment Extension Letter by and between the Registrant and Vanessa Baughman, dated September 25, 2023.

 

 

 

10.3(12)

 

ThirdFirst Amendment to Amended and Restated Loan and Security Agreement, dated March 22,September 25, 2023, by and among S&W Seed Company and MFP Partners, L.P..

10.4

Amendment Deed, dated February 8, 2023, by and between National AustraliaCIBC Bank Limited and S&W Seed Company Australia Pty Ltd.USA.

 

 

 

31.1

 

Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

 

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

Inline XBRL Instance Document

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

(1)
Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on February 11, 2021 (File No. 001-34719).
(2)
Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on February 23, 2022 (File No. 001-34719).

44


(3)
Incorporated by reference to Exhibit 3.33.1 to the Registrant’s QuarterlyCurrent Report on Form 10-Q,8-K, filed on May 14, 2020June 26, 2023 (File No. 001-34719).
(4)
Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3, filed on August 4, 2017 (File No. 333-219726).

36


(5)
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on February 23, 2022 (File No. 001-34719).
(6)
Incorporated by reference to Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 14, 2022 (File No. 001-34719).
(7)
Incorporated by reference to Exhibit 4.5 to the Registrant’s Quarterly Report on Form 10-Q, filed on February 13, 2023 (File No. 001-34719).
(8)
Incorporated by reference to Exhibit 4.6 to the Registrant’s Quarterly Report on Form 10-Q, filed on February 13, 2023 (File No. 001-34719).
(9)
Incorporated by reference to Exhibit 10.14.7 to the Registrant’s CurrentRegistrant's Quarterly Report on Form 8-K,10-Q, filed on February 23, 2022May 11, 2023 (File No. 001-34719).
(10)
Incorporated by reference to Exhibit 10.47 to the Registrant's Annual Report on Form 10-K, filed on September 27, 2023 (File No. 001-34719).
(11)
Incorporated by reference to Exhibit 10.48 to the Registrant's Annual Report on Form 10-K, filed on September 27, 2023 (File No. 001-34719).
(12)
Incorporated by reference to Exhibit 10.49 to the Registrant's Annual Report on Form 10-K, filed on September 27, 2023 (File No. 001-34719).

* This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

†Schedules (or similar attachments, including exhibits) to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/+ Indicates management contract or exhibit will be furnished to the Securities and Exchange Commission or its staff upon request.compensatory plan.

+Pursuant to Item 601(b)(10) of Regulation S-K, certain portions of this exhibit have been omitted (indicated by [***]) because S&W has determined that the information is both not material and is the type that S&W treats as private or confidential.

4537


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

S&W SEED COMPANY

 

 

 

 

Date: May 11,November 9, 2023

By:

 

/s/ Elizabeth HortonVanessa Baughman

 

 

 

Elizabeth HortonVanessa Baughman

 

 

 

Chief Financial Officer

(On behalf of the registrant in her capacity as

Principal Financial and Accounting Officer)

 

4638