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
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For the quarterly period year ended December 31, 20212022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _____________ to _____________
Commission File Number: 001-34719
S&W SEED COMPANYCOMPANY
(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) (720) 506-9191
(RegistrantsRegistrant'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 February 10, 20227, 2023 was 38,907,716.42,785,565.
S&W SEED COMPANY
TABLE OF CONTENTS
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Item 1. | 4 | |||
Condensed Consolidated Balance Sheets at December 31, | 4 | |||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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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”,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; any statements concerning projections of revenue, margins, expenses, tax provisions, earnings, cash flows and other financial items; any statements of the plans, strategies and objectives of management for our future operations; any statements regardingoperations, including our expectations for new product introductions during fiscal 2023; our implementation of our recently implemented strategic review (which includes our plans to reduce annual operating expenses) our recent partnerships with Trigall Genetics and Shell and their 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; any statements concerning expected development, performance or market acceptance relating to our products or services or our ability to expand our grower or customer bases or to diversify our product offerings; any statements regarding future economic conditions or performance; any statements of expectation or belief; any statements regarding our ability to retain key employees; and any statements ofour 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 they 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 or secure replacement loan financing, 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, supply chain disruptions, uncertain market conditions and the ongoing military conflict between Russia and Ukraine and related sanctions, 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; • 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 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; • the cost and other implications of pending or future legislation or court decisions and pending or future accounting pronouncements; • our recent partnerships with Trigall Genetics and Shell may not provide the 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, or the Annual Report, and that are otherwise described or updated from time to time in our filings with the Securities Exchange Commission.
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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
2
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 2022,2023,” “fiscal 2021,2022,” and “fiscal 2020”2021” in this Quarterly Report on Form 10-Q refer to the respective fiscal year ended June 30, 2023, 2022 2021 and 2020,2021, 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
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S&W SEED COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS |
| December 31, 2021 |
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| June 30, 2021 |
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| December 31, |
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| June 30, |
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CURRENT ASSETS |
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| CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 2,722,066 |
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| $ | 3,527,937 |
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| $ | 1,328,172 |
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| $ | 2,056,508 |
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Accounts receivable, net |
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| 16,421,053 |
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| 19,389,213 |
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| 24,099,180 |
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| 19,051,236 |
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Inventories, net |
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| 67,700,645 |
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| 63,395,256 |
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| 52,952,095 |
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| 54,515,894 |
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Prepaid expenses and other current assets |
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| 1,361,838 |
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| 1,555,530 |
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| 3,282,244 |
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| 1,605,987 |
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TOTAL CURRENT ASSETS |
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| 88,205,602 |
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| 87,867,936 |
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| 81,661,691 |
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| 77,229,625 |
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Property, plant and equipment, net |
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| 17,677,729 |
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| 17,740,974 |
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| 15,706,571 |
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| 16,871,669 |
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Intangibles, net |
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| 35,671,019 |
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| 37,130,942 |
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| 30,951,270 |
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| 34,095,827 |
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Goodwill |
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| 1,599,649 |
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| 1,651,634 |
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Right of use assets - operating leases |
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| 4,234,241 |
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| 4,094,253 |
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Other assets |
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| 7,096,984 |
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| 7,079,490 |
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| 1,667,034 |
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| 1,496,477 |
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TOTAL ASSETS |
| $ | 150,250,983 |
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| $ | 151,470,976 |
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| $ | 134,220,807 |
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| $ | 133,787,851 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
| $ | 16,727,229 |
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| $ | 15,947,918 |
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| $ | 15,275,082 |
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| $ | 15,901,116 |
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Deferred revenue |
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| 5,888,138 |
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| 385,328 |
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| 6,184,025 |
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| 605,960 |
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Accrued expenses and other current liabilities |
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| 8,691,302 |
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| 9,134,869 |
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| 9,452,112 |
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| 10,788,740 |
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Current portion of working capital lines of credit, net |
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| 15,153,160 |
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| 33,946,565 |
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| 41,410,217 |
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| 12,678,897 |
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Current portion of long-term debt, net |
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| 8,508,018 |
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| 1,681,166 |
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| 7,743,900 |
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| 8,316,783 |
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TOTAL CURRENT LIABILITIES |
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| 54,967,847 |
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| 61,095,846 |
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| 80,065,336 |
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| 48,291,496 |
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Long-term working capital lines of credit, less current portion |
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| 22,344,308 |
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| 0 |
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| — |
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| 21,703,286 |
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Long-term debt, net, less current portion |
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| 4,854,778 |
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| 11,590,500 |
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| 3,731,856 |
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| 3,992,540 |
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Contingent consideration obligation |
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| 183,002 |
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| 741,552 |
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Other non-current liabilities |
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| 3,740,519 |
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| 3,649,885 |
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| 3,338,740 |
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| 3,587,041 |
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TOTAL LIABILITIES |
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| 86,090,454 |
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| 77,077,783 |
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| 87,135,932 |
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| 77,574,363 |
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MEZZANINE EQUITY |
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Preferred stock, $0.001 par value; 3,323 shares authorized; 1,695 issued and outstanding at December 31, 2022 and June 30, 2022 |
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| 5,032,942 |
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| 4,804,819 |
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TOTAL MEZZANINE EQUITY |
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| 5,032,942 |
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| 4,804,819 |
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STOCKHOLDERS' EQUITY |
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Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding |
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| 0 |
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| 0 |
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Common stock, $0.001 par value; 75,000,000 shares authorized; 38,914,660 issued and 38,889,660 outstanding at December 31, 2021; 36,772,983 issued and 36,747,983 outstanding at June 30, 2021; |
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| 38,915 |
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| 36,773 |
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Common stock, $0.001 par value; 75,000,000 shares authorized; 42,788,423 issued and 42,763,423 outstanding at December 31, 2022; 42,608,758 issued and 42,583,758 outstanding at June 30, 2022 |
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| 42,788 |
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| 42,609 |
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Treasury stock, at cost, 25,000 shares |
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| (134,196 | ) |
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| (134,196 | ) |
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| (134,196 | ) |
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| (134,196 | ) |
Additional paid-in capital |
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| 155,853,135 |
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| 149,684,357 |
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| 165,444,354 |
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| 163,892,575 |
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Accumulated deficit |
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| (85,506,986 | ) |
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| (69,311,909 | ) |
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| (116,596,626 | ) |
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| (105,873,557 | ) |
Accumulated other comprehensive loss |
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| (6,058,604 | ) |
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| (5,850,826 | ) |
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| (6,735,375 | ) |
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| (6,560,600 | ) |
Noncontrolling interests |
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| (31,735 | ) |
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| (31,006 | ) |
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| 30,988 |
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| 41,838 |
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TOTAL STOCKHOLDERS' EQUITY |
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| 64,160,529 |
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| 74,393,193 |
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| 42,051,933 |
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| 51,408,669 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ | 150,250,983 |
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| $ | 151,470,976 |
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TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
| $ | 134,220,807 |
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| $ | 133,787,851 |
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See notes to condensed consolidated financial statements.
4
S&W SEED COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| Three Months Ended December 31, |
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| Six Months Ended December 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| Three Months Ended December 31, |
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| Six Months Ended December 31, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Revenue |
| $ | 12,631,409 |
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| $ | 15,051,331 |
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| $ | 28,163,090 |
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| $ | 28,906,717 |
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| $ | 12,937,802 |
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| $ | 12,631,409 |
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| $ | 32,803,667 |
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| $ | 28,163,090 |
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Cost of revenue |
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| 10,971,045 |
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| 13,013,171 |
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| 23,376,057 |
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| 25,087,625 |
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| 10,188,511 |
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| 10,971,045 |
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| 25,549,865 |
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| 23,376,057 |
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Gross profit |
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| 1,660,364 |
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| 2,038,160 |
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| 4,787,033 |
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| 3,819,092 |
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| 2,749,291 |
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| 1,660,364 |
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| 7,253,802 |
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| 4,787,033 |
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Operating expenses |
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Selling, general and administrative expenses |
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| 7,091,093 |
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| 5,920,286 |
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| 12,678,727 |
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| 10,605,030 |
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| 6,241,461 |
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| 7,073,320 |
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| 11,294,058 |
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| 12,642,887 |
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Research and development expenses |
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| 2,110,413 |
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| 2,109,303 |
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| 4,105,541 |
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| 4,125,989 |
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| 1,503,473 |
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| 2,110,413 |
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| 3,018,853 |
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| 4,105,541 |
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Depreciation and amortization |
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| 1,373,653 |
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| 1,411,890 |
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| 2,704,698 |
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| 2,789,978 |
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| 1,253,904 |
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| 1,373,653 |
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| 2,590,338 |
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| 2,704,698 |
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Gain on disposal of property, plant and equipment |
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| (17,773 | ) |
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| (41,068 | ) |
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| (35,840 | ) |
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| (42,068 | ) | ||||||||||||||||
Total operating expenses |
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| 10,557,386 |
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| 9,400,411 |
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| 19,453,126 |
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| 17,478,929 |
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| 8,998,838 |
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| 10,557,386 |
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| 16,903,249 |
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| 19,453,126 |
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Loss from operations |
|
| (8,897,022 | ) |
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| (7,362,251 | ) |
|
| (14,666,093 | ) |
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| (13,659,837 | ) |
|
| (6,249,547 | ) |
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| (8,897,022 | ) |
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| (9,649,447 | ) |
|
| (14,666,093 | ) |
Other expense |
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Foreign currency loss (gain) |
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| 258,482 |
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| (203,770 | ) |
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| 421,028 |
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| (104,553 | ) | ||||||||||||||||
Other (income) expense |
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Foreign currency loss |
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| 176,624 |
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| 258,482 |
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| 367,539 |
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| 421,028 |
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Gain on disposal of intangible assets |
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| (1,796,252 | ) |
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| — |
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| (1,796,252 | ) |
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| — |
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Change in contingent consideration obligation |
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| (466,376 | ) |
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| 330,699 |
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| (528,630 | ) |
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| 435,519 |
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|
| — |
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| (466,376 | ) |
|
| — |
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|
| (528,630 | ) |
Interest expense - amortization of debt discount |
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| 221,196 |
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| 257,523 |
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| 413,391 |
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| 367,660 |
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| 578,112 |
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| 221,196 |
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| 861,755 |
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| 413,391 |
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Interest expense |
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| 613,465 |
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| 606,059 |
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| 1,131,950 |
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| 1,178,342 |
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Interest expense, net |
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| 1,092,327 |
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| 589,694 |
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| 1,879,006 |
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| 1,142,539 |
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Gain on sale of equity investment |
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| (32,030 | ) |
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| — |
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| (32,030 | ) |
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| — |
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Other income (expense) |
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| 4,561 |
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| 23,771 |
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| (39,709 | ) |
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| (10,589 | ) | ||||||||||||||||
Loss before income taxes |
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| (9,523,789 | ) |
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| (8,352,762 | ) |
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| (16,103,832 | ) |
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| (15,536,805 | ) |
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| (6,272,889 | ) |
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| (9,523,789 | ) |
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| (10,889,756 | ) |
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| (16,103,832 | ) |
Provision for income taxes |
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| 257,776 |
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| 42,480 |
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| 91,974 |
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| 44,312 |
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(Benefit from) provision for income taxes |
|
| (282,296 | ) |
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| 257,776 |
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| (383,960 | ) |
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| 91,974 |
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Net loss |
| $ | (9,781,565 | ) |
| $ | (8,395,242 | ) |
| $ | (16,195,806 | ) |
| $ | (15,581,117 | ) |
| $ | (5,990,593 | ) |
| $ | (9,781,565 | ) |
| $ | (10,505,796 | ) |
| $ | (16,195,806 | ) |
Net income (loss) attributed to noncontrolling interests |
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| 13,537 |
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| 71,210 |
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| (729 | ) |
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| 58,095 |
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(Loss) income attributable to noncontrolling interests |
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| (4,588 | ) |
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| 13,537 |
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| (10,850 | ) |
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| (729 | ) | ||||||||||||||||
Net loss attributable to S&W Seed Company |
| $ | (9,795,102 | ) |
| $ | (8,466,452 | ) |
| $ | (16,195,077 | ) |
| $ | (15,639,212 | ) |
| $ | (5,986,005 | ) |
| $ | (9,795,102 | ) |
| $ | (10,494,946 | ) |
| $ | (16,195,077 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss attributable to S&W Seed Company per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | (0.25 | ) |
| $ | (0.25 | ) |
| $ | (0.43 | ) |
| $ | (0.47 | ) | ||||||||||||||||
Diluted |
| $ | (0.25 | ) |
| $ | (0.25 | ) |
| $ | (0.43 | ) |
| $ | (0.47 | ) | ||||||||||||||||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 38,461,049 |
|
|
| 33,547,868 |
|
|
| 37,617,457 |
|
|
| 33,498,952 |
| ||||||||||||||||
Diluted |
|
| 38,461,049 |
|
|
| 33,547,868 |
|
|
| 37,617,457 |
|
|
| 33,498,952 |
| ||||||||||||||||
Calculation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Net loss attributable to S&W Seed Company |
| $ | (5,986,005 | ) |
| $ | (9,795,102 | ) |
| $ | (10,494,946 | ) |
| $ | (16,195,077 | ) | ||||||||||||||||
Dividends accrued for participating securities and accretion |
|
| (114,062 | ) |
|
| — |
|
|
| (228,123 | ) |
|
| — |
| ||||||||||||||||
Net loss attributable to common shareholders |
| $ | (6,100,067 | ) |
| $ | (9,795,102 | ) |
| $ | (10,723,069 | ) |
| $ | (16,195,077 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net loss attributable to S&W Seed Company per common share, |
| $ | (0.14 | ) |
| $ | (0.25 | ) |
| $ | (0.25 | ) |
| $ | (0.43 | ) | ||||||||||||||||
Weighted average number of common shares outstanding, |
|
| 42,651,270 |
|
|
| 38,461,049 |
|
|
| 42,627,645 |
|
|
| 37,617,457 |
|
See notes to condensed consolidated financial statements.
5
S&W SEED COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
|
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net loss |
| $ | (9,781,565 | ) |
| $ | (8,395,242 | ) |
| $ | (16,195,806 | ) |
| $ | (15,581,117 | ) |
| $ | (5,990,593 | ) |
| $ | (9,781,565 | ) |
| $ | (10,505,796 | ) |
| $ | (16,195,806 | ) |
Foreign currency translation adjustment, net of income taxes |
|
| 253,349 |
|
|
| 257,128 |
|
|
| (207,778 | ) |
|
| 533,966 |
|
|
| 539,520 |
|
|
| 253,349 |
|
|
| (174,775 | ) |
|
| (207,778 | ) |
Comprehensive loss |
| $ | (9,528,216 | ) |
| $ | (8,138,114 | ) |
| $ | (16,403,584 | ) |
| $ | (15,047,151 | ) |
|
| (5,451,073 | ) |
|
| (9,528,216 | ) |
|
| (10,680,571 | ) |
|
| (16,403,584 | ) |
Comprehensive income (loss) attributable to noncontrolling interests |
|
| 13,537 |
|
|
| 71,210 |
|
|
| (729 | ) |
|
| 58,095 |
| ||||||||||||||||
Comprehensive (loss) income attributable to noncontrolling interests |
|
| (4,588 | ) |
|
| 13,537 |
|
|
| (10,850 | ) |
|
| (729 | ) | ||||||||||||||||
Comprehensive loss attributable to S&W Seed Company |
| $ | (9,541,753 | ) |
| $ | (8,209,324 | ) |
| $ | (16,402,855 | ) |
| $ | (15,105,246 | ) |
| $ | (5,446,485 | ) |
| $ | (9,541,753 | ) |
| $ | (10,669,721 | ) |
| $ | (16,402,855 | ) |
See notes to condensed consolidated financial statements.
6
S&W SEED COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(UNAUDITED)
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In |
|
| Accumulated |
|
| Noncontrolling |
|
| Accumulated Other Comprehensive |
|
| Total Stockholders' |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interests |
|
| Loss |
|
| Equity |
| |||||||||||
Balance, September 30, 2020 |
|
| — |
|
|
| — |
|
|
| 33,475,569 |
|
| $ | 33,476 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 138,112,664 |
|
| $ | (57,313,702 | ) |
|
| (133,575 | ) |
| $ | (5,834,586 | ) |
| $ | 74,730,081 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 561,216 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 561,216 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 214,773 |
|
|
| 215 |
|
|
| — |
|
|
| — |
|
|
| (30,633 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30,418 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 499,318 |
|
|
| 499 |
|
|
| — |
|
|
| — |
|
|
| 1,385,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,385,926 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 257,128 |
|
|
| 257,128 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,466,452 | ) |
|
| 71,210 |
|
|
| — |
|
|
| (8,395,242 | ) |
Balance, December 31, 2020 |
|
| — |
|
| $ | — |
|
|
| 34,189,660 |
|
| $ | 34,190 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 140,028,674 |
|
| $ | (65,780,154 | ) |
| $ | (62,365 | ) |
| $ | (5,577,458 | ) |
| $ | 68,508,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2021 |
|
| — |
|
| $ | — |
|
|
| 36,802,094 |
|
| $ | 36,802 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 150,040,406 |
|
| $ | (75,711,884 | ) |
| $ | (45,272 | ) |
| $ | (6,311,953 | ) |
| $ | 67,873,903 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,014,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,014,203 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 265,223 |
|
|
| 265 |
|
|
| — |
|
|
| — |
|
|
| (117,838 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (117,573 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 1,847,343 |
|
|
| 1,848 |
|
|
| — |
|
|
| — |
|
|
| 4,916,364 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,918,212 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 253,349 |
|
|
| 253,349 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,795,102 | ) |
|
| 13,537 |
|
|
| — |
|
|
| (9,781,565 | ) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In |
|
| Accumulated |
|
| Noncontrolling |
|
| Accumulated Other Comprehensive |
|
| Total Stockholders' |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interests |
|
| Loss |
|
| Equity |
| |||||||||||
Balance, June 30, 2020 |
|
| — |
|
|
| — |
|
|
| 33,457,861 |
|
| $ | 33,458 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 137,809,540 |
|
| $ | (50,140,942 | ) |
|
| (120,459 | ) |
| $ | (6,111,424 | ) |
| $ | 81,335,977 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 881,625 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 881,625 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 232,481 |
|
|
| 232 |
|
|
| — |
|
|
| — |
|
|
| (47,918 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (47,686 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 499,318 |
|
|
| 499 |
|
|
| — |
|
|
| — |
|
|
| 1,385,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,385,926 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 533,966 |
|
|
| 533,966 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,639,212 | ) |
|
| 58,095 |
|
|
| — |
|
|
| (15,581,117 | ) |
Balance, December 31, 2020 |
|
| — |
|
| $ | — |
|
|
| 34,189,660 |
|
| $ | 34,190 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 140,028,674 |
|
| $ | (65,780,154 | ) |
| $ | (62,365 | ) |
| $ | (5,577,458 | ) |
| $ | 68,508,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,408,515 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,408,515 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 293,486 |
|
|
| 293 |
|
|
| — |
|
|
| — |
|
|
| (158,581 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (158,288 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 1,848,191 |
|
|
| 1,849 |
|
|
| — |
|
|
| — |
|
|
| 4,918,844 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,920,693 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (207,778 | ) |
|
| (207,778 | ) |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,195,077 | ) |
|
| (729 | ) |
|
| — |
|
|
| (16,195,806 | ) |
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 |
|
|
| Mezzanine Equity |
|
| Shareholders' Equity |
| ||||||||||||||||||||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Non- |
|
| Accumulated |
|
| Total |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Interests |
|
| Loss |
|
| Equity |
| |||||||||||
Balance, September 30, 2021 |
|
| — |
|
| $ | — |
|
|
| 36,802,094 |
|
| $ | 36,802 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 150,040,406 |
|
| $ | (75,711,884 | ) |
| $ | (45,272 | ) |
| $ | (6,311,953 | ) |
| $ | 67,873,903 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,014,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,014,203 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 265,223 |
|
|
| 265 |
|
|
| — |
|
|
| — |
|
|
| (117,838 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (117,573 | ) |
Proceeds from sale of common stock, net expenses |
|
| — |
|
|
| — |
|
|
| 1,847,343 |
|
|
| 1,848 |
|
|
| — |
|
|
| — |
|
|
| 4,916,364 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,918,212 |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 253,349 |
|
|
| 253,349 |
|
Net (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,795,102 | ) |
|
| 13,537 |
|
|
| — |
|
|
| (9,781,565 | ) |
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, 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 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 305,894 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 305,894 |
|
Series B detachable warrant |
|
| — |
|
|
| 25,838 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,838 | ) |
|
| — |
|
|
| — |
|
|
| (25,838 | ) |
Accrued dividends on Series B convertible preferred stock |
|
| — |
|
|
| 88,224 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88,224 | ) |
|
| — |
|
|
| — |
|
|
| (88,224 | ) |
Subordinated loan & security agreement warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 656,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 656,427 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 155,838 |
|
|
| 155 |
|
|
| — |
|
|
| — |
|
|
| (4,894 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,739 | ) |
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 539,520 |
|
|
| 539,520 |
|
Net (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,986,005 | ) |
|
| (4,588 | ) |
|
| — |
|
|
| (5,990,593 | ) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Mezzanine Equity |
|
| Shareholders' Equity |
| ||||||||||||||||||||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Non- |
|
| Accumulated |
|
| Total |
| ||||||||||||||||||||
|
| 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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,408,515 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,408,515 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 293,486 |
|
|
| 293 |
|
|
| — |
|
|
| — |
|
|
| (158,581 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (158,288 | ) |
Proceeds from sale of common stock, net of expenses |
|
| — |
|
|
| — |
|
|
| 1,848,191 |
|
|
| 1,849 |
|
|
| — |
|
|
| — |
|
|
| 4,918,844 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,920,693 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (207,778 | ) |
|
| (207,778 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,195,077 | ) |
|
| (729 | ) |
|
| — |
|
|
| (16,195,806 | ) |
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 762,006 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 762,006 |
|
Series B detachable warrant |
|
| — |
|
|
| 51,676 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51,676 | ) |
|
| — |
|
|
| — |
|
|
| (51,676 | ) |
Accrued dividends on Series B convertible preferred stock |
|
| — |
|
|
| 176,447 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (176,447 | ) |
|
| — |
|
|
| — |
|
|
| (176,447 | ) |
Subordinated loan & security agreement warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 802,901 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 802,901 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 179,665 |
|
|
| 179 |
|
|
| — |
|
|
| — |
|
|
| (13,128 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,949 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (174,775 | ) |
|
| (174,775 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,494,946 | ) |
|
| (10,850 | ) |
|
| — |
|
|
| (10,505,796 | ) |
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 |
|
See notes to condensed consolidated financial statements.
7
S&W SEED COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| Six Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (16,195,806 | ) |
| $ | (15,581,117 | ) |
| $ | (10,505,796 | ) |
| $ | (16,195,806 | ) |
Adjustments to reconcile net loss from operating activities to net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
cash used in operating activities |
|
|
|
|
|
|
|
| ||||||||
cash used in operating activities: |
|
|
|
|
|
| ||||||||||
Stock-based compensation |
|
| 1,408,515 |
|
|
| 881,625 |
|
|
| 762,006 |
|
|
| 1,408,515 |
|
Change in allowance for doubtful accounts |
|
| 221,163 |
|
|
| (32,180 | ) | ||||||||
Allowance for doubtful accounts |
|
| (125,209 | ) |
|
| 221,163 |
| ||||||||
Inventory write-down |
|
| 742,035 |
|
|
| 945,748 |
|
|
| 685,200 |
|
|
| 742,035 |
|
Depreciation and amortization |
|
| 2,704,698 |
|
|
| 2,789,978 |
|
|
| 2,590,338 |
|
|
| 2,704,698 |
|
Gain on disposal of property, plant and equipment |
|
| (35,840 | ) |
|
| (42,068 | ) |
|
| (4,411 | ) |
|
| (35,840 | ) |
Gain on sale of equity investment |
|
| (32,030 | ) |
|
| — |
| ||||||||
Gain on disposal of intangible assets |
|
| (1,796,252 | ) |
|
| — |
| ||||||||
Change in deferred tax provision |
|
| (259,747 | ) |
|
| — |
| ||||||||
Change in foreign exchange contracts |
|
| 239,713 |
|
|
| (489,504 | ) |
|
| 19,466 |
|
|
| 239,713 |
|
Foreign currency transactions |
|
| (200,666 | ) |
|
| — |
| ||||||||
Change in contingent consideration obligation |
|
| (528,630 | ) |
|
| 435,519 |
|
|
| — |
|
|
| (528,630 | ) |
Amortization of debt discount |
|
| 413,391 |
|
|
| 367,660 |
|
|
| 861,755 |
|
|
| 413,391 |
|
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| 2,513,639 |
|
|
| 6,774,943 |
|
|
| (3,968,108 | ) |
|
| 2,513,639 |
|
Inventories |
|
| (5,741,778 | ) |
|
| (6,939,539 | ) |
|
| 557,442 |
|
|
| (5,741,778 | ) |
Prepaid expenses and other current assets |
|
| 170,844 |
|
|
| (28,889 | ) |
|
| 20,736 |
|
|
| 170,844 |
|
Other non-current asset |
|
| (95,186 | ) |
|
| 53,188 |
| ||||||||
Other non-current assets |
|
| (733,165 | ) |
|
| (95,186 | ) | ||||||||
Accounts payable |
|
| 1,131,032 |
|
|
| 5,004,596 |
|
|
| (385,529 | ) |
|
| 1,131,032 |
|
Deferred revenue |
|
| 5,504,147 |
|
|
| 721,595 |
|
|
| 5,578,365 |
|
|
| 5,504,147 |
|
Accrued expenses and other current liabilities |
|
| (505,240 | ) |
|
| (2,507,353 | ) |
|
| (1,256,423 | ) |
|
| (505,240 | ) |
Other non-current liabilities |
|
| (12,521 | ) |
|
| (241,281 | ) |
|
| (207,625 | ) |
|
| (12,521 | ) |
Net cash used in operating activities |
|
| (8,065,824 | ) |
|
| (7,887,079 | ) |
|
| (8,399,653 | ) |
|
| (8,065,824 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Additions to property, plant and equipment |
|
| (1,227,368 | ) |
|
| (346,980 | ) |
|
| (154,997 | ) |
|
| (1,227,368 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 21,113 |
|
|
| 629,449 |
|
|
| 3,660 |
|
|
| 21,113 |
|
Net cash (used in) provided by investing activities |
|
| (1,206,255 | ) |
|
| 282,469 |
| ||||||||
Net proceeds from sale of equity investment |
|
| 400,000 |
|
|
| — |
| ||||||||
Proceeds from partnership transaction |
|
| 2,000,000 |
|
|
| — |
| ||||||||
Net cash provided by (used in) investing activities |
|
| 2,248,663 |
|
|
| (1,206,255 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net proceeds from sale of common stock |
|
| 4,920,693 |
|
|
| 1,385,926 |
|
|
| — |
|
|
| 4,920,693 |
|
Taxes paid related to net share settlements of stock-based compensation awards |
|
| (158,288 | ) |
|
| (47,686 | ) |
|
| (12,949 | ) |
|
| (158,288 | ) |
Borrowings and repayments on lines of credit, net |
|
| 3,911,452 |
|
|
| 6,045,840 |
|
|
| 6,598,076 |
|
|
| 3,911,452 |
|
Borrowings of long-term debt |
|
| 875,683 |
|
|
| 0 |
|
|
| 285,005 |
|
|
| 875,683 |
|
Debt issuance costs |
|
| (112,084 | ) |
|
| (92,727 | ) |
|
| (359,527 | ) |
|
| (112,084 | ) |
Repayments of long-term debt |
|
| (737,843 | ) |
|
| (1,462,798 | ) |
|
| (1,063,661 | ) |
|
| (737,843 | ) |
Net cash provided by financing activities |
|
| 8,699,613 |
|
|
| 5,828,555 |
|
|
| 5,446,944 |
|
|
| 8,699,613 |
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| (233,405 | ) |
|
| 579,040 |
|
|
| (24,290 | ) |
|
| (233,405 | ) |
NET DECREASE IN CASH & CASH EQUIVALENTS |
|
| (805,871 | ) |
|
| (1,197,015 | ) |
|
| (728,336 | ) |
|
| (805,871 | ) |
CASH AND CASH EQUIVALENTS, beginning of the period |
| $ | 3,527,937 |
|
| $ | 4,123,094 |
|
|
| 2,056,508 |
|
|
| 3,527,937 |
|
CASH AND CASH EQUIVALENTS, end of period |
| $ | 2,722,066 |
|
| $ | 2,926,079 |
|
| $ | 1,328,172 |
|
| $ | 2,722,066 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
| ||||||||
Cash paid during the period for: |
|
|
|
|
|
|
|
| ||||||||
Interest |
| $ | 1,133,113 |
|
| $ | 1,328,818 |
| ||||||||
Income taxes |
|
| 50,942 |
|
|
| 105,699 |
|
See notes to condensed consolidated financial statements.
8
S&W SEED COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND AND ORGANIZATIONGENERAL
Organization
The Company began as S&W Seed Company,is a general partnership, in 1980 and was originally in the business of breeding, growing, processing and selling alfalfa seed. The Company incorporated a corporation with the same name in Delaware in October 2009, whichglobal multi-crop, middle-market agricultural company that is the successor entity to Seed Holding, LLC, having purchased a majority interest in the general partnership between June 2008 and December 2009. Following the Company’s initial public offering in May 2010, the Company purchased the remaining general partnership interests and became the sole owner of the general partnership’s original business. Seed Holding, LLC remains a consolidated subsidiary of the Company.
In December 2011, the Company reincorporated in Nevada as a result of a statutory short-form merger of the Delaware corporation into its wholly-owned subsidiary, S&W Seed Company, a Nevada corporation.
In April 2013, the Company, together with its wholly-owned subsidiary, S&W Holdings Australia Pty Ltd, an Australia corporation (f/k/a S&W Seed Australia Pty Ltd), or S&W Holdings, consummated an acquisition of all of the issued and outstanding shares of Seed Genetics International Pty Ltd, an Australia corporation, or SGI, from SGI’s shareholders. In April 2018, SGI changed its name to S&W Seed Company Australia Pty Ltd, or S&W Australia.
In September 2018, the Company and AGT Foods Africa Proprietary Limited, or AGT, formed a venture based in South Africa named SeedVision Proprietary Limited, or SeedVision. SeedVision will leverage AGT's African-based production and processing facilities to produce S&W's hybrid sunflower, grain sorghum, and forage sorghum to be sold by SeedVision in the African continent, Middle East countries, and Europe.
As part of the Company’s 2018 acquisition of all the assets of Chromatin, Inc., the Company acquired 51.0% of Sorghum Solutions South Africa.
In February 2020, S&W Australia acquired all of the issued and outstanding shares of Pasture Genetics Ltd., or Pasture Genetics, from Pasture Genetics’ sole shareholder.
Business Overview
Since its establishment, the Company, including its predecessor entities, has been principally engaged in breeding, growing, processing and selling agricultural seeds. The Company ownsoperates seed cleaning and processing facilities, which are located in Nampa, Idaho, Dumas, Texas, New Deal, Texas, Keith, South AustraliaWales and Penfield, South Australia. The Company’s seed products are primarily grown under contract by farmers. The Company began its stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties ofcommercializing stevia products, entering the camelina market and developing marketingproducts to address unmet market needs through high-value improved traits in its crops.
Investments and distribution programsPartnership Activity
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 $367,980 at June 30, 2022, which was reported in Other assets on the Company's consolidated balance sheet. During the six months ended December 31, 2022, the Company sold off the remainder of its stevia products.investment in Bioceres, S.A. for net proceeds of $400,000, which included a gain on the sale of equity investment of $32,030.
TheTrigall Australia Partnership
Effective December 23, 2022, the Company’s wholly owned subsidiary, S&W Seed Company has also been actively engaged in expansion initiatives throughAustralia Pty Ltd, or S&W Australia, entered into a combination of organic growth and strategic acquisitions.
The Company had a long-term distribution agreementpartnership with Pioneer Hi-Bred International, Inc.Trigall Genetics S.A., or Pioneer, now a subsidiaryTrigall, for the development and marketing of Corteva Agriscience, Inc., which is jointly referred to as Corteva, regarding conventional (non-GMO)wheat varieties and a production agreement with Pioneer (relating to GMO-traited varieties). These agreements were terminated on May 20, 2019. See Note 4 for further discussion.
In May 2016,in Australia. Under the Company acquired the assets and business of SV Genetics, a private Australian company specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower seed germplasm, which represented the Company’s initial effort to diversify its product portfolio beyond alfalfa seed and stevia.
In October 2018, the Company acquired substantially allterms of the assets of Chromatin, Inc., a U.S.-based sorghum genetics and seed company, as part of the Company's efforts to expand its penetration into the hybrid sorghum market.
In August 2019,partnership agreement, S&W Australia transferred certain intellectual property license rights and equipment into a wholly owned subsidiary of S&W Seed Company, licensed certain wheat germplasm varieties and acquired certain equipment from affiliates of Corteva.subsequently sold an 80% interest in the subsidiary to Trigall. The subsidiary was renamed Trigall Australia Pty Ltd, or Trigall Australia. In the transaction,return, S&W Australia received $2.0 million in cash, a $1.0 million promissory note to be paid in December 2023, and a one-time license fee of $2.3 million and an equipment purchase price of $0.3 million. The license has an initial term of 15 years.
In February 2020,20% ownership interest in Trigall Australia. S&W Australia acquired Pasture Genetics,realized a $1.8 million gain on the third largest pasture seed companysale. The ownership interest in Trigall Australia as partwas recorded using the equity method and, along with the $1.0 million promissory note, is reported within the “Other assets” caption on the condensed consolidated balance sheet.
S&W Australia is obligated to make an aggregate of $560,000 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.
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 (see Note 13).
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 effortsconsolidated balance sheets, statements of operations, comprehensive income (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 diversify its product offeringsbe expected for the full year ending June 30, 2023. Certain information and expand its distribution channels.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, 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
9
trade receivables, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingent consideration obligations, contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill 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 continued impact of COVID-19, the ongoing conflict between Ukraine and Russia and related sanctions, 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
Basis of PresentationLiquidity and Principles of Consolidation
The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests.
The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest impact on the future economic performance of SeedVision.
The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are considered to be the activities that have the greatest impact on the future economic performance of Sorghum Solutions South Africa.
Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial results are included in these financial statements. The Company recorded a combined $0.5 million of current assets (restricted) and $0.1 million of current liabilities (nonrecourse) for these entities in its consolidated balance sheet as of December 31, 2021. The Company recorded a combined $0.6 million of current assets (restricted) and $0.1 million of current liabilities (nonrecourse) for these entities in its consolidated balance sheet as of June 30, 2021.
Unaudited Interim Financial Information
The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for interim financial reporting. These 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 presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows 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, 2022. 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Annual Report, as filed with the SEC.
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, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingent consideration obligations, contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill 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 COVID-19 pandemic and the efforts to contain it have, among other things, negatively impacted the global economy and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The Company believes the estimates and assumptions underlying the accompanying consolidated financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared.
However, uncertainty over the impact COVID-19 will have on the global economy and the Company’s business in particular makes many of the estimates and assumptions reflected in these consolidated financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.Going Concern
Certain Risks and Concentrations
The Company’s revenue is principally derived from the sale of seed, the market for which is highly competitive. The Company depends on a core group of significant customers. NaN customers accounted for 23% of its revenue for the three months ended December 31, 2021 and 1 customer accounted for 29% of its revenue for the three months ended December 31, 2020. NaN customers accounted for 24% of its revenue forFor the six months ended December 31, 20212022, we reported a net loss of $10.5 million and 1 customer accounted for 21%net cash used in operations of its revenue for the six months ended$8.4 million. At December 31, 2020.
NaN customers accounted for 22%2022, we had cash on hand of the Company’s accounts receivable at December 31, 2021. NaN customer accounted for 11% of the Company’s accounts receivable at June 30, 2021.
The Company sells a substantial portion of its products to international customers. Sales to international markets represented 81% and 55% of revenue during the three months ended December 31, 2021 and 2020, respectively. Sales to international markets represented 78% and 58% of revenue during the six months ended December 31, 2021 and 2020, respectively. The net book value of fixed assets located outside the United States was 23% and 19% of total fixed assets at December 31, 2021 and June 30, 2021, respectively. Cash balances located outside of the United States may not be insured and totaled $216,555 and $204,813 at December 31, 2021 and June 30, 2021, respectively.
The following table shows revenue from external sources by destination country:
|
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
United States |
| $ | 2,404,078 |
|
|
| 19 | % |
| $ | 6,738,493 |
|
|
| 45 | % |
| $ | 6,069,406 |
|
|
| 22 | % |
| $ | 12,100,270 |
|
|
| 42 | % |
Australia |
|
| 2,245,847 |
|
|
| 18 | % |
|
| 2,059,429 |
|
|
| 14 | % |
|
| 5,679,852 |
|
|
| 20 | % |
|
| 4,841,892 |
|
|
| 17 | % |
Saudi Arabia |
|
| 1,680,546 |
|
|
| 13 | % |
|
| 860,282 |
|
|
| 6 | % |
|
| 5,147,756 |
|
|
| 18 | % |
|
| 2,059,192 |
|
|
| 7 | % |
Pakistan |
|
| 2,067,507 |
|
|
| 16 | % |
|
| 1,183,752 |
|
|
| 8 | % |
|
| 2,231,561 |
|
|
| 8 | % |
|
| 1,183,667 |
|
|
| 4 | % |
Argentina |
|
| 1,058,308 |
|
|
| 8 | % |
|
| 312,819 |
|
|
| 2 | % |
|
| 1,409,147 |
|
|
| 5 | % |
|
| 976,894 |
|
|
| 3 | % |
South Africa |
|
| 914,552 |
|
|
| 7 | % |
|
| 187,960 |
|
|
| 1 | % |
|
| 1,378,781 |
|
|
| 5 | % |
|
| 412,960 |
|
|
| 1 | % |
Libya |
|
| 44,000 |
|
|
| 0 | % |
|
| — |
|
|
| 0 | % |
|
| 1,088,000 |
|
|
| 4 | % |
|
| 484,645 |
|
|
| 2 | % |
Sudan |
|
| — |
|
|
| 0 | % |
|
| 480,626 |
|
|
| 3 | % |
|
| 819,618 |
|
|
| 3 | % |
|
| 480,626 |
|
|
| 2 | % |
China |
|
| 265,584 |
|
|
| 2 | % |
|
| 652,766 |
|
|
| 4 | % |
|
| 738,709 |
|
|
| 3 | % |
|
| 1,788,856 |
|
|
| 6 | % |
Canada |
|
| 79,200 |
|
|
| 1 | % |
|
| 1,120 |
|
|
| 0 | % |
|
| 482,020 |
|
|
| 2 | % |
|
| 393,080 |
|
|
| 1 | % |
Other |
|
| 1,871,787 |
|
|
| 16 | % |
|
| 2,574,084 |
|
|
| 17 | % |
|
| 3,118,240 |
|
|
| 10 | % |
|
| 4,184,635 |
|
|
| 15 | % |
Total |
| $ | 12,631,409 |
|
|
| 100 | % |
| $ | 15,051,331 |
|
|
| 100 | % |
| $ | 28,163,090 |
|
|
| 100 | % |
| $ | 28,906,717 |
|
|
| 100 | % |
Liquidity and$1.3 Covid-19 Pandemicmillion.
The Company is monitoring the impact of the COVID-19 pandemic on its business, including its results of operations and financial condition, and has implemented measures designed to protect the health and safety of its employees while continuing its operations.
The Company’s sales efforts historically involved significant in-person interaction with potential customersLoan and distributors. ThroughoutSecurity Agreement, dated December 26, 2019, or the COVID-19 pandemic, many national, state and local governments in its target markets implemented various stay-at-home, shelter-in-place and other quarantine measures. As a result, the Company shifted its sales activities to video conferencing and similar customer interaction models and continues to evaluate its sales approach, but the Company has found these alternative approaches to generally be less effective than in-person sales efforts. In particular, the Company’s sales cycle is highly seasonal, and the majority of its sales season activities for the United States and Australia are typically concentrated between March and June of each year. If ongoing measures to protect against COVID-19 remain in effect throughout the 2022 sales season, the Company may experience similar negative impacts that it experienced during the 2020 and 2021 sales seasons.
Further, vaccine mandates may be enforced in jurisdictions in which our business operates. Although it is not possible to predict with certainty the impact of these measures on our business and workforce, these requirements may result in attrition, difficulty securing future labor needs, and may further disrupt the national supply chain, all of which could have a material adverse effect on our business, financial condition and results of operations.
In addition, the Company’s product revenue is predicated on its 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 the Company’s distribution and supply channels. If the Company’s customers delay or decrease their orders due to potential disruptions in its distribution and supply channels, or if the Company is unable to timely fulfill their orders, this would adversely affect the Company’s product revenue.
During the year ended June 30, 2021 and the three and six months ended December 31, 2021, the Company experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall increases in shipping and transportation costs. The Company expects these logistical challenges to persist throughout fiscal 2022, which may, among other things, delay or reduce its ability to recognize revenue within a particular fiscal period and harm its results of operations.
Given the level of uncertainty regarding the duration and broader impact of the COVID-19 pandemic, the Company is unable to fully assess the extent of its impact on the Company’s operations.
The Company’s loan and security agreementCIBC Loan Agreement, with CIBC Bank USA, or CIBC, which matures on March 23, 2023 ($16.2 million outstanding as of December 31, 2022),and the Company’s secured promissory noteits debt facilities with Conterra Agriculture Capital, LLC,National Australia Bank, or Conterra, which mature on December 23, 2022 and November 30, 2022, respectively,NAB, contain various operating and financial covenants (See(see Note 8)7). The COVID-19 pandemic hasAdverse 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 of these 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 and Conterra. As of December 31, 2021, the Company obtained a covenant waiver from CIBC, due to its CFO transition costs, to continue to be in compliance with the financial covenants under our loan agreement with CIBC. The CIBC loan agreement alsoLoan Agreement as presently in effect requires the Company to maintain minimum liquidity of no less than $3,000,000 at all times.$1.0 million, 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. The Company believes it is uncertain it will be able to generate sufficient cash flow from operations or maintain sufficient liquidity to meet these covenants in future periods. Additionally, there can be no assurance that existing lenders will agree to refinanceactively pursuing refinancing of the CIBC and Conterra loan facilities, either through its existing lenders or potential new lenders. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company will need to raise additional capital or secure future waivers and/or amendments from its lenders or obtain financing from new lenders.Loan Agreement. There can be no assurance the Company will be successful in raising additional capital, securing future waivers and/or amendments from its lenders, or renewing or refinancing its existing debt or obtaining financing fromsecuring new lenders.financing. If the Company is unsuccessful in doing so, it may need to reduce the scope of its operations, repay amounts owing to its lenders or sell certain assets.
International Operations
These operating and liquidity factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars atCompany’s consolidated financial statements do not include any adjustments that might result from the current ratesoutcome 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 consolidated statement of operations.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.
Accounts Receivable
The Company provides 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. The allowance for doubtful trade receivables was $288,831$180,334 and $57,582$233,927 at December 31, 20212022 and June 30, 2021,2022, respectively.
Inventories
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 wasted 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:
|
| December 31, 2021 |
|
| June 30, 2021 |
| ||
Raw materials and supplies |
| $ | 2,258,083 |
|
| $ | 2,722,832 |
|
Work in progress |
|
| 14,496,925 |
|
|
| 6,662,006 |
|
Finished goods |
|
| 50,945,637 |
|
|
| 54,010,418 |
|
|
| $ | 67,700,645 |
|
| $ | 63,395,256 |
|
Property, Plant and Equipment
Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 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 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average estimated useful lives are 26 years for technology/IP/germplasm, 20 years for customer relationships, 16 years for trade names, 18 years for license agreements and 18 years for other intangible assets.
Goodwill
Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value is less than its carrying amount, management conducts a quantitative goodwill impairment test. The goodwill impairment test is used to identify potential impairment by comparing the fair value with its carrying amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to estimate the fair value. If the fair value exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill.
The Company acquired Pasture Genetics in February 2020, and recorded goodwill of $1,452,436 as part of this transaction. The Company performed a quantitative assessment of goodwill at June 30, 2021 on its 1 reporting unit and determined that goodwill was not impaired. See Note 6 for further information.follows:
|
| As of |
|
| As of |
| ||
|
| December 31, 2022 |
|
| June 30, 2022 |
| ||
Raw materials and supplies |
| $ | 3,808,923 |
|
| $ | 2,645,764 |
|
Work in progress |
|
| 11,035,458 |
|
|
| 6,677,980 |
|
Finished goods |
|
| 38,107,714 |
|
|
| 45,192,150 |
|
Inventories, net |
| $ | 52,952,095 |
|
| $ | 54,515,894 |
|
Investment in Bioceres S.A.
The Company owns less than 1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. The carrying value of the investment is $1.3 million at December 31, 2021 and June 30, 2021, and the investment is included in Other Assets on the Consolidated Balance Sheet.
The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities beginning July 1, 2018. As such, this investment is accounted for in accordance with ASC 321, Investments – Equity Securities. As the stock is not publicly traded, the Company has elected to account for its investment at cost, with adjustments to fair value when there are observable transactions that provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated, and the investment written down to that fair value if it is lower than the carrying value.
NaN adjustments for impairment or observable transactions were made for the three months or six months ended December 31, 2021 or December 31, 2020.
Research and Development Costs
The Company is engaged in ongoing research and development, or R&D, of proprietary seed and stevia 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 contracted 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 estimated useful life of the asset.
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
10
assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and six months ended December 31, 20212022 and December 31, 20202021 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.
Net Income (Loss)Loss Per Common Share Data
BasicThe 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, 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 (loss)attributable to the Company in determining net loss attributable to common shareholders. There were $88,224 and $176,447 in accrued dividends subtracted from net income attributable to common shareholders during the three and six months ended December 31, 2022, respectively; there were no undistributed earnings to allocate to the participating securities. Additionally, any accretion to the redemption value for the Series B Preferred Stock is treated as a deemed dividend in the two-class earnings per common share, or EPS, is calculated by dividingcalculation. During the three and six months ended December 31, 2022, $25,838 and $51,676, respectively, was accreted to the redemption value of the Series B Preferred Stock and subtracted from net income (loss) byattributable to common shareholders. During the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting both the numerator (net income (loss))three and the denominator (weighted-average number of shares outstanding) for the dilutive effects of potentially dilutive securities, including options and restricted stock awards.
The treasury stock method is used for stock options and restricted stock awards. Under this method, consideration that would be received upon exercise (as well as remaining compensation costsix months ended December 31, 2022, there were no undistributed earnings to be recognized for awards not yet vested) is assumed to be used to repurchase shares of stock in the market, with net number of shares assumed to be issued addedallocate to the denominator.participating securities.
The calculation of Basic and Diluted EPSnet loss per common share is shown in the table below.
|
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to S&W Seed Company |
| $ | (9,795,102 | ) |
| $ | (8,466,452 | ) |
| $ | (16,195,077 | ) |
| $ | (15,639,212 | ) |
Numerator for basic and diluted EPS |
|
| (9,795,102 | ) |
|
| (8,466,452 | ) |
|
| (16,195,077 | ) |
|
| (15,639,212 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS-weighted- average shares |
|
| 38,461,049 |
|
|
| 33,547,868 |
|
|
| 37,617,457 |
|
|
| 33,498,952 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Employee restricted stock units |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Dilutive potential common shares |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Denominator for diluted EPS - adjusted weighted average shares and assumed conversions |
|
| 38,461,049 |
|
|
| 33,547,868 |
|
|
| 37,617,457 |
|
|
| 33,498,952 |
|
Basic EPS |
| $ | (0.25 | ) |
| $ | (0.25 | ) |
| $ | (0.43 | ) |
| $ | (0.47 | ) |
Diluted EPS |
| $ | (0.25 | ) |
| $ | (0.25 | ) |
| $ | (0.43 | ) |
| $ | (0.47 | ) |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss attributable to S&W Seed Company |
| $ | (5,986,005 | ) |
| $ | (9,795,102 | ) |
| $ | (10,494,946 | ) |
| $ | (16,195,077 | ) |
Dividends accrued for participating securities |
|
| (88,224 | ) |
|
| — |
|
|
| (176,447 | ) |
|
| — |
|
Accretion of Series B Preferred Stock redemption value |
|
| (25,838 | ) |
|
| — |
|
|
| (51,676 | ) |
|
| — |
|
Numerator for net loss per common share - basic and diluted |
| $ | (6,100,067 | ) |
| $ | (9,795,102 | ) |
| $ | (10,723,069 | ) |
| $ | (16,195,077 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding - basic and diluted |
|
| 42,651,270 |
|
|
| 38,461,049 |
|
|
| 42,627,645 |
|
|
| 37,617,457 |
|
Net loss per common share - basic and diluted |
| $ | (0.14 | ) |
| $ | (0.25 | ) |
| $ | (0.25 | ) |
| $ | (0.43 | ) |
The effectsAnti-dilutive shares, which have been excluded from the computation of diluted loss per share, included 4,580,057 employee stock options, and497,921 restricted stock units, are excluded because they would be anti-dilutive dueor RSUs, and warrants to purchase 1,333,400 shares of common stock related to the Company’sMFP Loan Agreement (as defined below), and 559,350 Warrants issued with the Company's Series B Convertible Preferred Stock. The terms and conditions of these securities are more fully described in Note 9 and Note 10 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, 2021, as filed with the SEC. For the periods ending December 31, 2022 and 2021, all potentially dilutive shares were anti-dilutive and excluded from the calculation of diluted loss per share because net losslosses were recognized.
Concentrations
One customer accounted for 8% and 11% of the Company's revenue for the three and six months ended December 31, 20212022, respectively, and 2020. no single customer accounted for more than 10% of the Company's revenue for the three and six months ended December 31, 2021.
ImpairmentOne customer accounted for approximately 15% of Long-Lived Assetsthe Company’s accounts receivable as of December 31, 2022. No customer accounted for more than 10% of the Company’s accounts receivable as of June 30, 2022.
The Company evaluatessells a substantial portion of its long-lived assets for impairment annually or more often if eventsproducts to international customers (see Note 4). Sales to international markets represented 86% and circumstances warrant. Events relating81% of revenue during the three months ended December 31, 2022 and 2021, respectively. Sales to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. international markets represented 81% and 78% of revenue during the six months ended December 31, 2022 and 2021, respectively. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carryingnet book value of long-livedfixed assets will be adjusted, based on estimateslocated outside the United States was 21% and 22% of future discounted cash flows resulting from the usetotal fixed assets at December 31, 2022 and ultimate dispositionJune 30, 2022, respectively. Cash balances located outside of the asset. Refer to Note 6 for impairment discussion.United States may not be insured and totaled $420,595 and $811,551 at December 31, 2022 and June 30, 2022, respectively.
11
Derivative Financial Instruments
Foreign Exchange Contracts
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 forward contracts.derivative financial instruments.
The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts),contracts and foreign currency call options (see Note 8) and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”,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.
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 • 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 1), 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 rate and market rates.rates.
Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:
|
| Fair Value Measurements as of December 31, 2022 Using: |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract liability |
| $ | — |
|
| $ | 1,009,469 |
|
| $ | — |
|
Total |
| $ | — |
|
| $ | 1,009,469 |
|
| $ | — |
|
|
| Fair Value Measurements as of June 30, 2022 Using: |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract liability |
| $ | — |
|
| $ | 996,106 |
|
| $ | — |
|
Total |
| $ | — |
|
| $ | 996,106 |
|
| $ | — |
|
|
| Fair Value Measurements as of December 31, 2021 Using: |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract asset |
| $ | 0 |
|
| $ | 336,796 |
|
| $ | 0 |
|
Contingent consideration obligations |
| $ | 0 |
|
| $ | 0 |
|
| $ | 183,002 |
|
Total |
| $ | 0 |
|
| $ | 336,796 |
|
| $ | 183,002 |
|
|
| Fair Value Measurements as of June 30, 2021 Using: |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract liability |
| $ | 0 |
|
| $ | 96,466 |
|
| $ | 0 |
|
Contingent consideration obligations |
| $ | 0 |
|
| $ | 0 |
|
| $ | 741,552 |
|
Total |
| $ | 0 |
|
| $ | 96,466 |
|
| $ | 741,552 |
|
Recently AdoptedRecent Accounting Pronouncements Not Yet Adopted
The Company adopted ASU 2019-12,Income Taxes (Topic 740): Simplifying theWe have evaluated all issued and unadopted Accounting for Income Taxeseffective July 1, 2020. This ASU is intended to simplify various aspects to accounting for income taxes by removing certain exceptions toStandards Updates and believe the general principles of Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of this ASU had nothese standards will not have a material impact on the Company’sour condensed consolidated financial statements and related disclosures. of operations, comprehensive income, balance sheets, or cash flows.
12
NOTE 3 - LEASES
S&WThe Company leases office and laboratory space, research plots and equipment used in connection with its operations under various operating and finance leases.
Right-of-use, or ROU, assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the net present value of the Company’s obligation to make payments arising from these leases. The lease liabilities are based on the present value of fixed lease payments over the lease term using the implicit lease interest rate or, when unknown, the Company's incremental borrowing rate on the lease commencement date or July 1, 2019 for leases that commenced prior to that date. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option(s). Operating lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less, or short-term leases, are not recorded on the accompanying consolidated balance sheet.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component under the practical expedient provisions of the standard. The Company has lease agreements with terms less than one year. For the qualifying short-term leases, the Company elected the short-term lease recognition exemption in which the Company will not recognize ROU assets or lease liabilities, including the ROU assets or lease liabilities for existing short-term leases of those assets in upon adoption.
Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities. Variable lease payments and short-term lease expenses were immaterial to the Company’s financial statements for the three and six months ended December 31, 2021. The Company’s lease agreements do not contain material restrictive covenants.
The components of lease assets and liabilities as of December 31, 2022 are as follows:
Leases | Balance Sheet Classification: | December 31, 2022 | |||
Assets: | |||||
Right of use assets - operating leases | Right of use assets - operating leases | 4,234,241 | |||
Right of use assets - finance leases | 2,011,082 | ||||
Accumulated amortization - finance leases | (1,361,998 | ) | |||
Right of use assets - finance leases, net | Other assets | 649,084 | |||
Total lease assets | 4,883,325 | ||||
Liabilities: | |||||
Current lease liabilities - finance leases | Current portion of long-term debt, net | 608,663 | |||
Current lease liabilities - operating leases | Accrued expenses and other current liabilities | 1,429,482 | |||
Long-term portion of lease liabilities - finance leases | Long-term debt, net, less current portion | 239,238 | |||
Long-term portion of lease liabilities - operating leases | Other non-current liabilities | 3,078,345 | |||
Total lease liabilities | 5,355,728 |
Leases |
| Balance Sheet Classification |
| December 31, 2021 |
| |
Assets: |
|
|
|
|
|
|
Right of use assets - operating leases |
| Other assets |
| $ | 4,460,066 |
|
|
|
|
|
|
|
|
Right of use assets - finance leases |
| Other assets |
|
| 2,323,133 |
|
Accumulated amortization - finance leases |
| Other assets |
|
| (1,194,418 | ) |
Right of use assets - finance leases, net |
| Other assets |
|
| 1,128,715 |
|
Total lease assets |
|
|
| $ | 5,588,781 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Current portion of long-term debt, net |
| Current portion of long-term debt, net |
|
| 865,143 |
|
Current lease liabilities |
| Accrued expenses and other current liabilities |
|
| 1,338,791 |
|
Long-term debt, net |
| Long-term debt, net |
|
| 783,665 |
|
Long-term lease liabilities |
| Other long-term liabilities |
|
| 3,524,463 |
|
Total lease liabilities |
|
|
| $ | 6,512,062 |
|
The components of lease cost are as follows:
Lease cost: | Income Statement Classification: |
| Three Months Ended December 31, 2022 |
|
| Six Months Ended December 31, 2022 |
| ||
Operating lease cost | Cost of revenue |
| $ | 163,389 |
|
| $ | 347,249 |
|
Operating lease cost | Selling, general and administrative expenses |
|
| 54,914 |
|
|
| 110,248 |
|
Operating lease cost | Research and development expenses |
|
| 88,620 |
|
|
| 224,817 |
|
Finance lease cost | Depreciation and amortization |
|
| 125,949 |
|
|
| 265,639 |
|
Finance lease cost | Interest expense, net |
|
| 12,841 |
|
|
| 28,791 |
|
Total lease costs |
|
| $ | 445,713 |
|
| $ | 976,744 |
|
Leases |
| Income Statement Classification |
| Three Months Ended December 31, 2021 |
|
| Six Months Ended December 31, 2021 |
| ||
Operating lease cost |
| Cost of revenue |
| $ | 172,759 |
|
| $ | 345,341 |
|
Operating lease cost |
| Selling, general and administrative expenses |
|
| 81,481 |
|
|
| 163,524 |
|
Operating lease cost |
| Research and development expenses |
|
| 108,158 |
|
|
| 230,438 |
|
Finance lease cost |
| Depreciation and amortization |
|
| 163,815 |
|
|
| 347,077 |
|
Total lease costs |
|
|
| $ | 526,213 |
|
| $ | 1,086,380 |
|
Maturities of lease liabilities as of December 31, 20212022 are as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
2023 |
| $ | 907,671 |
|
| $ | 440,777 |
|
2024 |
|
| 1,527,845 |
|
|
| 321,631 |
|
2025 |
|
| 1,024,653 |
|
|
| 98,337 |
|
2026 |
|
| 791,258 |
|
|
| 23,091 |
|
2027 |
|
| 509,239 |
|
|
| — |
|
Thereafter |
|
| 102,165 |
|
|
| — |
|
Total lease payments |
|
| 4,862,831 |
|
|
| 883,836 |
|
Less: Interest |
|
| (355,004 | ) |
|
| (35,935 | ) |
Present value of lease liabilities |
| $ | 4,507,827 |
|
| $ | 847,901 |
|
|
|
|
| Operating Leases |
| Finance Leases |
| ||
Remainder of 2022 |
|
|
| $ | 908,679 |
| $ | 475,062 |
|
2023 |
|
|
|
| 1,250,404 |
|
| 874,196 |
|
2024 |
|
|
|
| 1,147,436 |
|
| 295,238 |
|
2025 |
|
|
|
| 807,304 |
|
| 62,881 |
|
2026 |
|
|
|
| 720,727 |
|
| 23,577 |
|
After 2026 |
|
|
|
| 447,434 |
|
| — |
|
Total lease payments |
|
|
|
| 5,281,984 |
|
| 1,730,954 |
|
Less: Interest |
|
|
|
| (418,730 | ) |
| (82,146 | ) |
Present value of lease liabilities |
|
|
| $ | 4,863,254 |
| $ | 1,648,808 |
|
The following are the weighted average assumptions used for lease term and discount rate and supplemental cash flow information related to leases as of December 31, 2021:2022:
Operating lease remaining lease term |
| 4.4 years |
|
| 3.5 |
| ||
Operating lease discount rate |
|
| 4.16 | % |
|
| 4.14 | % |
Finance lease remaining lease term |
| 1.9 years |
|
| 1.2 years |
| ||
Finance lease discount rate |
|
| 5.11 | % |
|
| 5.49 | % |
Cash paid for operating leases |
| $ | 558,284 |
|
| $ | 603,304 |
|
Cash paid for finance leases |
| $ | 719,092 |
|
|
| 527,384 |
|
NOTE 4 – PIONEER RELATIONSHIP
Distribution and Production Agreements with Pioneer
In 2014, the Company purchased from Pioneer certain assets related to alfalfa and entered into a long-term contract to sell alfalfa seed to Pioneer under a production agreement (GMO varieties) and a distribution agreement (conventional varieties). Under the production and distribution agreements with Pioneer, the Company grew, processed, and delivered alfalfa seed for and to Pioneer. See Note 5 for a discussion of the recognition of revenue under these agreements.
On May 22, 2019, the Company and Pioneer terminated the production and distribution agreements. As part of the termination, Pioneer’s parent company, Corteva, agreed to purchase from the Company certain quantities of seed held by the Company as of that date that Pioneer was not previously obligated to purchase. Those quantities of seed were delivered to Corteva periodically through March 2021.
The Company does not expect to sell any other products to Pioneer or Corteva beyond those quantities of seed.
License Agreement with Corteva
Contemporaneously with the terminations discussed above, the Company entered into a license agreement with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. The Company also assigned to Corteva grower production contract rights, and Corteva assumed grower production contract obligations, related to the licensed and certain other alfalfa varieties. Corteva received no license to the Company's other commercial alfalfa varieties or pre-commercial alfalfa pipeline products and no rights to any future products developed by the Company.
Payments Due from Corteva and Pioneer
The Company received payments of $45.0 million in fiscal 2019, $16.7 million in fiscal 2020, and $8.3 million in fiscal 2021, which totaled $70.0 million. Approximately $34.2 million of these amounts referenced above has been allocated to the license to the Company’s alfalfa varieties. The $34.2 million was reported as licensing revenue in the consolidated statement of operations for the fiscal year ended June 30, 2019. 13
The remaining amounts were recognized as revenue as the seed was delivered to Corteva through March 2021. The amount allocated to the seed represented the estimated standalone selling price of those quantities of seed, determined based on the Company’s normal profit margin on the quantities and varieties of seed that Corteva agreed to purchase. The Company allocated approximately $1.8 million to an unbilled receivable related to revenue recognition at contract termination and the remainder of the payments was allocated to the license using a residual method approach. The unbilled receivable is $0 as of December 31, 2021 and June 30, 2021.
NOTE 54 - REVENUE RECOGNITION
The Company derives its revenue primarily from 1) the sale of seed 2) millingproducts to seed distributors. From time to time, the Company utilizes excess capacity to provide conditioning, treating and packaging services 3) research and development services and 4) product licensing agreements.
The following table disaggregates the Company’s revenue by type of contract:
|
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Pioneer product sales |
| $ | — |
|
| $ | 4,069,433 |
|
| $ | — |
|
| $ | 5,699,955 |
|
Other product sales |
|
| 11,818,392 |
|
|
| 10,408,743 |
|
|
| 26,723,793 |
|
|
| 22,271,496 |
|
Services |
|
| 813,017 |
|
|
| 573,155 |
|
|
| 1,439,297 |
|
|
| 935,266 |
|
|
| $ | 12,631,409 |
|
| $ | 15,051,331 |
|
| $ | 28,163,090 |
|
| $ | 28,906,717 |
|
Pioneer Product Salesto other seed producers.
In the three and six months ended December 31, 2020, Pioneer product sales consisted of product shipments to Pioneer under the termination agreement discussed in Note 4.
Other Product Sales
Revenue from otherseed 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.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 refund. Returns are only accepted on product received by August 31st of the current sales year. 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.
ServicesContract Assets and Liabilities
Revenue from milling, conditioning, and treating and packaging services, which are performed on the customer's product, is recognized as services are completed and the milled product is delivered to the customer.
Revenue from research and development services is recognized over time as the services are performed.
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 120180 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.
UnbilledThe Company provides an allowance for doubtful trade receivables represent contract assets that arise whenequal to the Company has partially performed under a contract but is not yet able to invoice the customer until the Company has made additional progress. Unbilled receivables arose from the distribution and production agreements for which the Company recognized revenue over time, as the Company bills for these arrangements upon product delivery, while revenue was recognized, as described above, as costs were incurred. Unbilled receivables may arise as much as three months before billing is expected to occur. Unbilled receivables are generally expected to be generated in the first and second fiscal quarters, and to be billed in the second, third and fourth fiscal quarters.
Losses on accounts receivable and unbilled receivables are recognized if and whenestimated uncollectible amounts (see Note 2). When it becomes probable that amountsa trade receivable will not be paid. These losses arecollected, 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 subsequent periods if these amounts are paid.a net negative provision in a period. During the three months ended December 31, 2021, the Company recognized a net loss on amounts written off to bad debt expense of $124,135. During theand six months ended December 31, 2021,2022, the Company recognizedrecorded a net loss on amounts written off to bad debt expenseprovision for doubtful receivables of $221,163.$30,212 and a net reversal of the provision for doubtful receivables of $(125,209), respectively.
Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation. During the six months ended December 31, 2021,2022, the Company recognized $0.4$0.6 million of revenue that was included in the deferred balance as of June 30, 2021.2022. During the six months ended December 31, 2020,2021, the Company recognized $5.7$0.4 million of revenue that was included in the deferred balance as of June 30, 2020.2021.
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 December 31, |
|
| Six Months Ended December 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Seed sales |
| $ | 12,834,831 |
|
| $ | 11,818,392 |
|
| $ | 32,672,618 |
|
| $ | 26,723,793 |
|
Services |
|
| 102,971 |
|
|
| 813,017 |
|
|
| 131,049 |
|
|
| 1,439,297 |
|
Total revenue |
| $ | 12,937,802 |
|
| $ | 12,631,409 |
|
| $ | 32,803,667 |
|
| $ | 28,163,090 |
|
The following tables show revenue and percentage of revenue from external sources by destination country:
|
| Three Months Ended December 31, |
|
| Six Months Ended December 31, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
Saudi Arabia |
| $ | 2,165,680 |
|
|
| 17 | % |
| $ | 1,680,546 |
|
|
| 13 | % |
| $ | 7,337,966 |
|
|
| 22 | % |
| $ | 5,147,756 |
|
|
| 18 | % |
United States |
|
| 1,843,826 |
|
|
| 14 | % |
| $ | 2,404,078 |
|
|
| 19 | % |
|
| 6,104,580 |
|
|
| 19 | % |
|
| 6,069,406 |
|
|
| 22 | % |
Australia |
|
| 2,501,634 |
|
|
| 19 | % |
| $ | 2,245,847 |
|
|
| 18 | % |
|
| 5,059,366 |
|
|
| 15 | % |
|
| 5,679,852 |
|
|
| 20 | % |
Libya |
|
| 1,162 |
|
|
| 0 | % |
| $ | 44,000 |
|
|
| 0 | % |
|
| 2,999,209 |
|
|
| 9 | % |
|
| 1,088,000 |
|
|
| 4 | % |
Mexico |
|
| 1,799,590 |
|
|
| 14 | % |
| $ | 94,000 |
|
|
| 1 | % |
|
| 2,530,690 |
|
|
| 8 | % |
|
| 322,420 |
|
|
| 1 | % |
Sudan |
|
| 1,508,599 |
|
|
| 12 | % |
| $ | — |
|
|
| 0 | % |
|
| 2,310,643 |
|
|
| 7 | % |
|
| 819,618 |
|
|
| 3 | % |
Pakistan |
|
| 531,471 |
|
|
| 4 | % |
| $ | 2,067,506 |
|
|
| 16 | % |
|
| 1,353,091 |
|
|
| 4 | % |
|
| 2,231,561 |
|
|
| 8 | % |
South Africa |
|
| 933,927 |
|
|
| 7 | % |
| $ | 1,378,781 |
|
|
| 11 | % |
|
| 933,927 |
|
|
| 3 | % |
|
| 1,378,781 |
|
|
| 5 | % |
Argentina |
|
| 443,474 |
|
|
| 3 | % |
| $ | 1,058,308 |
|
|
| 8 | % |
|
| 806,452 |
|
|
| 2 | % |
|
| 1,409,147 |
|
|
| 5 | % |
Algeria |
|
| — |
|
|
| 0 | % |
| $ | 186,000 |
|
|
| 1 | % |
|
| 754,680 |
|
|
| 2 | % |
|
| 186,000 |
|
|
| 1 | % |
Other |
|
| 1,208,439 |
|
|
| 9 | % |
| $ | 1,472,343 |
|
|
| 12 | % |
|
| 2,613,063 |
|
|
| 8 | % |
|
| 3,830,549 |
|
|
| 14 | % |
Total revenue |
| $ | 12,937,802 |
|
|
| 100 | % |
| $ | 12,631,409 |
|
|
| 100 | % |
| $ | 32,803,667 |
|
|
| 100 | % |
| $ | 28,163,090 |
|
|
| 100 | % |
14
NOTE 65 – GOODWILL AND INTANGIBLE ASSETS
TheIntangible assets consist of the following:
|
| Balance at |
|
| Transfer to Trigall Australia |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at December 31, 2022 |
| |||||
Trade name |
| $ | 1,084,791 |
|
| $ | — |
|
| $ | (98,148 | ) |
| $ | (3,290 | ) |
| $ | 983,353 |
|
Customer relationships |
|
| 5,499,815 |
|
|
| — |
|
|
| (176,526 | ) |
|
| (59,071 | ) |
|
| 5,264,218 |
|
GI customer list |
|
| 42,983 |
|
|
| — |
|
|
| (3,582 | ) |
|
| — |
|
|
| 39,401 |
|
Supply agreement |
|
| 775,241 |
|
|
| — |
|
|
| (37,817 | ) |
|
| — |
|
|
| 737,424 |
|
Grower relationships |
|
| 1,331,581 |
|
|
| — |
|
|
| (52,703 | ) |
|
| — |
|
|
| 1,278,878 |
|
Intellectual property |
|
| 23,035,925 |
|
|
| — |
|
|
| (692,933 | ) |
|
| — |
|
|
| 22,342,992 |
|
License agreement |
|
| 1,986,598 |
|
|
| (1,885,907 | ) |
|
| (75,610 | ) |
|
| (25,081 | ) |
|
| — |
|
Internal use software |
|
| 338,893 |
|
|
| — |
|
|
| (33,889 | ) |
|
| — |
|
|
| 305,004 |
|
|
| $ | 34,095,827 |
|
| $ | (1,885,907 | ) |
| $ | (1,171,208 | ) |
| $ | (87,442 | ) |
| $ | 30,951,270 |
|
|
| Balance at |
|
| Other Additions and Disposals |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at |
| |||||
Trade name |
| $ | 1,310,489 |
|
| $ | — |
|
| $ | (203,009 | ) |
| $ | (22,689 | ) |
| $ | 1,084,791 |
|
Customer relationships |
|
| 6,302,591 |
|
|
| — |
|
|
| (373,393 | ) |
|
| (429,383 | ) |
|
| 5,499,815 |
|
Non-compete |
|
| 5,058 |
|
|
| — |
|
|
| (5,058 | ) |
|
| — |
|
|
| — |
|
GI customer list |
|
| 50,146 |
|
|
| — |
|
|
| (7,163 | ) |
|
| — |
|
|
| 42,983 |
|
Supply agreement |
|
| 850,874 |
|
|
| — |
|
|
| (75,633 | ) |
|
| — |
|
|
| 775,241 |
|
Grower relationships |
|
| 1,436,988 |
|
|
| — |
|
|
| (105,407 | ) |
|
| — |
|
|
| 1,331,581 |
|
Intellectual property |
|
| 24,427,857 |
|
|
| — |
|
|
| (1,391,932 | ) |
|
| — |
|
|
| 23,035,925 |
|
License agreement |
|
| 2,340,269 |
|
|
| — |
|
|
| (172,004 | ) |
|
| (181,667 | ) |
|
| 1,986,598 |
|
Internal use software |
|
| 406,670 |
|
|
| — |
|
|
| (67,777 | ) |
|
| — |
|
|
| 338,893 |
|
|
| $ | 37,130,942 |
|
| $ | — |
|
| $ | (2,401,376 | ) |
| $ | (633,739 | ) |
| $ | 34,095,827 |
|
On December 23, 2022, the Company acquired Pasture Genetics in February 2020, and recorded goodwill of $1,452,436,transferred certain intellectual property rights under a license agreement to Trigall Australia as part of this transaction. The Company performed a quantitative assessment of goodwill at June 30,its equity investment in the partnership (see Note 1). Amortization expense totaled $581,212 and $601,649 for the three months ended December 31, 2022 and 2021, on its 1 reporting unitrespectively. Amortization expense totaled $1,171,208 and determined that goodwill was not impaired$.1,206,138
The following table summarizes the activity of goodwill for the six months ended December 31, 20212022 and the year ended June 30, 2021, respectively.
|
| Balance at July 1, 2021 |
|
| Additions |
|
| Impairment |
|
| Currency Translation Adjustment |
|
| Balance at December 31, 2021 |
| |||||
Goodwill |
| $ | 1,651,634 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (51,985 | ) |
| $ | 1,599,649 |
|
|
| Balance at July 1, 2020 |
|
| Additions |
|
| Impairment |
|
| Currency Translation Adjustment |
|
| Balance at June 30, 2021 |
| |||||
Goodwill |
| $ | 1,508,675 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 142,959 |
|
| $ | 1,651,634 |
|
Intangible assets consist of the following:
|
| Balance at July 1, 2021 |
|
| Additions |
|
| Impairment |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at December 31, 2021 |
| ||||||
Trade name |
| $ | 1,310,489 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (101,876 | ) |
| $ | (10,178 | ) |
| $ | 1,198,435 |
|
Customer relationships |
|
| 6,302,591 |
|
|
| 0 |
|
|
| 0 |
|
|
| (187,888 | ) |
|
| (170,599 | ) |
|
| 5,944,104 |
|
Non-compete |
|
| 5,058 |
|
|
| 0 |
|
|
| 0 |
|
|
| (5,058 | ) |
|
| 0 |
|
|
| 0 |
|
GI customer list |
|
| 50,146 |
|
|
| 0 |
|
|
| 0 |
|
|
| (3,582 | ) |
|
| 0 |
|
|
| 46,564 |
|
Supply agreement |
|
| 850,874 |
|
|
| 0 |
|
|
| 0 |
|
|
| (37,817 | ) |
|
| 0 |
|
|
| 813,057 |
|
Grower relationships |
|
| 1,436,988 |
|
|
| 0 |
|
|
| 0 |
|
|
| (52,702 | ) |
|
| 0 |
|
|
| 1,384,286 |
|
Intellectual property |
|
| 24,427,857 |
|
|
| 0 |
|
|
| 0 |
|
|
| (696,600 | ) |
|
| 0 |
|
|
| 23,731,257 |
|
License agreement |
|
| 2,340,269 |
|
|
| 0 |
|
|
| 0 |
|
|
| (86,725 | ) |
|
| (73,008 | ) |
|
| 2,180,536 |
|
Internal use software |
|
| 406,670 |
|
|
| 0 |
|
|
| 0 |
|
|
| (33,890 | ) |
|
| 0 |
|
|
| 372,780 |
|
|
| $ | 37,130,942 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (1,206,138 | ) |
| $ | (253,785 | ) |
| $ | 35,671,019 |
|
|
| Balance at July 1, 2020 |
|
| Additions |
|
| Impairment |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at June 30, 2021 |
| ||||||
Trade name |
| $ | 1,479,278 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (206,311 | ) |
| $ | 37,522 |
|
| $ | 1,310,489 |
|
Customer relationships |
|
| 6,187,086 |
|
|
| 0 |
|
|
| 0 |
|
|
| (376,431 | ) |
|
| 491,936 |
|
|
| 6,302,591 |
|
Non-compete |
|
| 21,312 |
|
|
| 0 |
|
|
| 0 |
|
|
| (16,254 | ) |
|
| 0 |
|
|
| 5,058 |
|
GI customer list |
|
| 57,310 |
|
|
| 0 |
|
|
| 0 |
|
|
| (7,164 | ) |
|
| 0 |
|
|
| 50,146 |
|
Supply agreement |
|
| 926,507 |
|
|
| 0 |
|
|
|
|
|
|
| (75,633 | ) |
|
| 0 |
|
|
| 850,874 |
|
Grower relationships |
|
| 1,542,393 |
|
|
| 0 |
|
|
| 0 |
|
|
| (105,405 | ) |
|
| 0 |
|
|
| 1,436,988 |
|
Intellectual property |
|
| 25,415,665 |
|
|
| 388,499 |
|
|
| 0 |
|
|
| (1,376,307 | ) |
|
| 0 |
|
|
| 24,427,857 |
|
In process research and development |
|
| 380,000 |
|
|
| (380,000 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
License agreement |
|
| 2,300,059 |
|
|
| 0 |
|
|
| 0 |
|
|
| (176,646 | ) |
|
| 216,856 |
|
|
| 2,340,269 |
|
Internal use software |
|
| 474,448 |
|
|
| 0 |
|
|
| 0 |
|
|
| (67,778 | ) |
|
| 0 |
|
|
| 406,670 |
|
|
| $ | 38,784,058 |
|
| $ | 8,499 |
|
| $ | 0 |
|
| $ | (2,407,929 | ) |
| $ | 746,314 |
|
| $ | 37,130,942 |
|
Amortization expense totaled $601,649 and $599,068 for the three months ended December 31, 2021 and 2020, respectively. Amortization expense totaled $1,206,138 and $1,193,788 for the six months ended December 31, 2021 and 2020, respectively.
Estimated aggregate remaining amortization is as follows:
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
| ||||||
Amortization expense |
| $ | 1,080,323 |
|
| $ | 2,160,322 |
|
| $ | 2,119,891 |
|
| $ | 1,979,781 |
|
| $ | 1,928,897 |
|
| $ | 21,682,056 |
|
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| ||||||
Amortization expense |
| $ | 1,170,033 |
|
| $ | 2,359,400 |
|
| $ | 2,336,865 |
|
| $ | 2,325,315 |
|
| $ | 2,238,898 |
|
| $ | 25,240,508 |
|
NOTE 76 - PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment were as follows:
|
| As of |
|
| As of |
| ||
|
| December 31, 2022 |
|
| June 30, 2022 |
| ||
Land and improvements |
| $ | 2,260,672 |
|
| $ | 2,265,087 |
|
Buildings and improvements |
|
| 8,130,736 |
|
|
| 8,119,960 |
|
Machinery and equipment |
|
| 14,839,714 |
|
|
| 14,972,462 |
|
Vehicles |
|
| 1,082,908 |
|
|
| 1,085,342 |
|
Leasehold improvements |
|
| 552,811 |
|
|
| 552,810 |
|
Construction in progress |
|
| 24,585 |
|
|
| 110,107 |
|
Total property, plant and equipment |
|
| 26,891,426 |
|
|
| 27,105,768 |
|
Less: accumulated depreciation |
|
| (11,184,855 | ) |
|
| (10,234,099 | ) |
Property, plant and equipment, net |
| $ | 15,706,571 |
|
| $ | 16,871,669 |
|
15
|
| December 31, 2021 |
|
| June 30, 2021 |
| ||
Land and improvements |
| $ | 2,284,977 |
|
| $ | 2,297,529 |
|
Buildings and improvements |
|
| 8,171,925 |
|
|
| 8,196,593 |
|
Machinery and equipment |
|
| 14,864,323 |
|
|
| 13,935,053 |
|
Vehicles |
|
| 1,051,938 |
|
|
| 1,046,937 |
|
Leasehold improvements |
|
| 552,810 |
|
|
| 552,810 |
|
Construction in progress |
|
| 139,265 |
|
|
| 48,480 |
|
Total property, plant and equipment |
|
| 27,065,238 |
|
|
| 26,077,402 |
|
Less: accumulated depreciation |
|
| (9,387,509 | ) |
|
| (8,336,428 | ) |
Property, plant and equipment, net |
| $ | 17,677,729 |
|
| $ | 17,740,974 |
|
Depreciation expense totaled $614,078$546,743 and $646,187$614,078 for the three months ended December 31, 2022 and 2021, and 2020, respectively.
Depreciation expense totaled $1,184,588$1,153,491 and $1,337,670$1,184,588 for the six months ended December 31, 2022 and 2021, and 2020, respectively.
NOTE 87 - DEBT
Total debt outstanding is presented on the consolidated balance sheet as follows:
|
| December 31, 2022 |
|
| June 30, 2022 |
| ||||||||||
|
| December 31, 2021 |
|
| June 30, 2021 |
|
|
|
|
|
|
| ||||
Current portion of working capital lines of credit |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
CIBC |
| $ | 13,784,913 |
|
| $ | 14,500,000 |
|
| $ | 16,207,360 |
|
| $ | 12,804,611 |
|
National Australia Bank Limited |
|
| 894,092 |
|
|
| 19,494,800 |
|
|
| 24,473,556 |
|
|
| 338,314 |
|
National Australia Bank Limited Overdraft Facility |
|
| 886,281 |
|
|
| 617,471 |
|
|
| 1,160,587 |
|
|
| — |
|
Debt issuance costs |
|
| (412,126 | ) |
|
| (665,706 | ) |
|
| (431,286 | ) |
|
| (464,028 | ) |
Total current portion of working capital lines of credit, net |
|
| 15,153,160 |
|
|
| 33,946,565 |
|
|
| 41,410,217 |
|
|
| 12,678,897 |
|
Long-term portion of working capital lines of credit, less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
National Australia Bank Limited |
|
| 22,344,308 |
|
|
| — |
|
|
| — |
|
|
| 21,703,286 |
|
Total long-term portion of working capital lines of credit |
|
| 22,344,308 |
|
|
| — |
|
|
| — |
|
|
| 21,703,286 |
|
Total working capital lines of credit, net |
| $ | 37,497,468 |
|
| $ | 33,946,565 |
|
| $ | 41,410,217 |
|
| $ | 34,382,183 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Finance lease |
| $ | 865,143 |
|
| $ | 909,413 |
| ||||||||
Debt issuance costs |
|
| (3,473 | ) |
| $ | (5,077 | ) | ||||||||
Term loan - National Australia Bank Limited |
|
| 363,100 |
|
|
| 374,900 |
| ||||||||
Finance leases |
| $ | 608,663 |
|
| $ | 804,309 |
| ||||||||
Term Loan - National Australia Bank Limited |
|
| 340,250 |
|
|
| 344,400 |
| ||||||||
Machinery & equipment loans - National Australia Bank Limited |
|
| 274,229 |
|
|
| 165,802 |
|
|
| 254,414 |
|
|
| 246,547 |
|
Secured real estate note - Conterra |
|
| 7,085,612 |
|
|
| 275,684 |
| ||||||||
Machinery & equipment loans - Hyster |
|
| 11,957 |
|
|
| 11,834 |
| ||||||||
Vehicle loans - Ford Credit |
|
| 40,341 |
|
|
| 40,341 |
| ||||||||
Secured real estate note - Rooster |
|
| 6,527,849 |
|
|
| 6,905,995 |
| ||||||||
Debt issuance costs |
|
| (76,593 | ) |
|
| (39,556 | ) |
|
| (39,574 | ) |
|
| (36,643 | ) |
Total current portion, net |
|
| 8,508,018 |
|
|
| 1,681,166 |
|
|
| 7,743,900 |
|
|
| 8,316,783 |
|
Long-term debt, less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Finance lease |
|
| 783,665 |
|
|
| 1,108,709 |
| ||||||||
Debt issuance costs |
|
| (518 | ) |
|
| (1,847 | ) | ||||||||
Finance leases |
|
| 239,238 |
|
|
| 500,723 |
| ||||||||
Term loan - National Australia Bank Limited |
|
| 2,904,800 |
|
|
| 2,999,200 |
|
|
| 2,381,750 |
|
|
| 2,410,800 |
|
Machinery & equipment loans - National Australia Bank Limited |
|
| 1,166,831 |
|
|
| 526,564 |
|
|
| 1,022,603 |
|
|
| 963,733 |
|
Secured real estate note - Conterra |
|
| 0 |
|
|
| 6,974,356 |
| ||||||||
Machinery & equipment loans - Hyster |
|
| 22,331 |
|
|
| 28,722 |
| ||||||||
Vehicle loans - Ford Credit |
|
| 65,934 |
|
|
| 88,583 |
| ||||||||
Debt issuance costs |
|
| 0 |
|
|
| (16,482 | ) |
|
| — |
|
|
| (21 | ) |
Total long-term portion, net |
|
| 4,854,778 |
|
|
| 11,590,500 |
|
|
| 3,731,856 |
|
|
| 3,992,540 |
|
Total debt, net |
| $ | 13,362,796 |
|
| $ | 13,271,666 |
|
| $ | 11,475,756 |
|
| $ | 12,309,323 |
|
CIBC Loan Agreement
On December 26, 2019, the Company entered into a Loan and Security Agreement, or the CIBC Loan Agreement with CIBC, which originally provided for a $35.0$35.0 million credit facility, or the CIBC Credit Facility. TheAs 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, the CIBC Loan Agreement was subsequently amended on several occasions through the year ended June 30, 2022. During the six months ended December 31, 2022, the CIBC Loan Agreement was further amended as follows:
The following is a summarywas 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 terms offinancial covenants under the CIBC Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the September 2021 amendment to the Loan Agreement CIBC waived noncompliance with the Company’s fixed charge coverage ratio as of June 30, 2021 and suspended the Company’s fixed charge coverage ratio financial covenants for the fiscal quarters ending September 30, 2021 and December 31, 2021 and replaced that financial covenant with(iii) establish a minimum EBITDA threshold tested quarterly for the quarters ending September 30, 2021 and December 31, 2021. Pursuant to the September 2021 amendment, the Company reverts back to its previous financial covenant to require that it maintain a fixed charge coverage ratio equal to or greater than (i) 1.00 to 1.00 for the quarter ending March 31, 2022 and (ii) 1.15 to 1.00 for each fiscal quarter thereafter. In addition, pursuant to the September 2021 amendment, the Company is required to maintain liquidity of no less than $3,000,000 at all times$
16
As of December 31, 2022, the Company was in compliance with all covenants contained in the CIBC Loan Agreement. As of December 31, 2021, the Company obtained a covenant waiver from CIBC, due to our CFO transition costs, to continue to be in compliance with the financial covenants under the loan agreement with CIBC.
As of December 31, 2021,2022, there was approximately $2.2$4.8 million of unused availability on the CIBC Credit Facility.
Rooster Note
In November 2017,During the Company entered into a secured note financing transaction, orsix months ended December 31, 2022, the Loan Transaction, with Conterra Agricultural Capital, LLC, or Conterra, for $12.5 millionRooster Note (as defined in gross proceeds. PursuantNote 8 to the Loan Transaction, the Company issued a secured real estate note to ConterraConsolidated Financial Statements in the principal amount of $10.4 million, which bears interest of 7.75% per annum and is secured by a first priority security interest inCompany’s Annual Report on Form 10-K for the property, plant and fixtures located at the Company's Nampa, Idaho production facilities and its Nampa, Idaho research facilities. On December 24, 2019,year ended June 30, 2022) was amended as follows:
On February 6, 2023, Shell paid off the Company agreed to make (i) aapproximately $7.0 million of outstanding principal and accrued interest payment of approximately $515,711 on January 1, 2020; (ii) five consecutive semi-annual principal and interest payments of approximately $454,185, beginning on July 1, 2020; and (iii) a one-time final payment of approximately $8,957,095 on November 30, 2022. The Company may prepay the Secured Real EstateRooster Note in whole or in part, at any time. In January 2021,connection with the Company completed the sale of its NaN Points facility which resulted in the Company making a one-time principal pay-down of $1,706,845 on the secured real estate note. The Company will also make three consecutive semi-annual principal and interest payments of approximately $388,045, beginning on July 1, 2021; and a one-time final payment of approximately $7,184,109 on November 30, 2022. The Company was in compliance with all debt covenants as of December 31, 2021.Vision Bioenergy partnership (see Note 13).
On August 15, 2018, the Company completed a sale and leaseback transaction with American AgCredit involving certain equipment located at the Company's NaN Points, California and Nampa, Idaho production facilities. Due to its terms, the sale and leaseback transaction was required to be accounted for as a financing arrangement. Accordingly, the proceeds received from American AgCredit were accounted for as proceeds from a debt financing. Under the terms of the transaction:
|
|
|
|
Australian Facilities
At December 31, 2021, S&W Australia hasAustralia’s debt facilities with National Australia Bank, or NAB, allas amended to date, or the NAB Finance Agreement, were amended and restated effective October 24, 2022, and further amended on October 25, 2022. Pursuant to the amendments contained in the NAB Finance Agreement, among other things:
After the amendments, the consolidated debt facilities under the NAB Finance Agreement provide for up to an aggregate of AUD $49.0 (USD $33.3 million as of December 31, 2022) of credit. The NAB Finance Agreement is guaranteed by S&W Seed Company up to a maximum of AUD $15,000,000$15.0 million (USD $10,983,000).$10.2
In June 2020, S&W Australia executed documentation to consolidate the Pasture Genetics debt facility with NAB into its debt facilities with NAB. The documentation became effective in July 2020.
On November 11, 2021, S&W Australia amended its debt facilities with NAB pursuant to which:
|
|
|
|
|
|
|
|
After the amendment, the consolidated debt facilities with NAB provide for up to an aggregate of AUD $41,500,000 (USD $30,137,300) of creditmillion as of December 31, 2021,2022).
Following the October 2022 amendments, 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 include the following:
|
|
|
|
|
|
S&W AustraliaCompany's ability to comply with this undertaking 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 all debt covenantsthis undertaking as of December 31, 2022, and the Company subsequently obtained a waiver from NAB with respect to such non-compliance as of December 31, 2022. On February 8, 2023, the Company further amended the NAB Finance Agreement to change the required net related entity position 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 December 31, 2022, approximately AUD $4.3 million (USD $2.9 million) remained available for use under the debt facilitiesNAB Finance Agreement.
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 NABan initial face amount of $9.0 million, or the MFP Letter of Credit, for the benefit of CIBC, as additional collateral to support the Company’s 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, 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. 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 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.
17
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 the MFP Letter of Credit equal to 3.50% per annum on all amounts remaining undrawn under the MFP Letter of Credit. In the event any term advances are deemed made under the MFP Loan Agreement, such advances will bear interest at December 31, 2021.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.
The MFP Loan Agreement includes customary affirmative and negative covenants and events of default. The MFP Loan Agreement 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.
Maturities of Long-Term Debt
The annual maturities of short-term and long-term debt, excluding finance lease liabilities, are as follows:
Fiscal Year |
| Amount |
| |
2023 |
| $ | 6,699,960 |
|
2024 |
|
| 675,326 |
|
2025 |
|
| 585,624 |
|
2026 |
|
| 2,351,682 |
|
2027 |
|
| 164,072 |
|
Thereafter |
|
| 190,765 |
|
Total |
| $ | 10,667,429 |
|
Fiscal Year |
| Amount |
| |
Remaining in 2022 |
| $ | 1,057,780 |
|
2023 |
|
| 8,439,509 |
|
2024 |
|
| 924,159 |
|
2025 |
|
| 2,451,485 |
|
2026 |
|
| 291,907 |
|
Thereafter |
|
| 278,540 |
|
Total |
| $ | 13,443,380 |
|
NOTE 98 - 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 manages through the use ofheld foreign currency forward contracts. These foreign currency contracts are not designated as hedging instruments; accordingly, changes in the fair value are recorded in current period earnings. These foreign currency contracts hadwith a notional value of $13,810,450$18,760,948 at December 31, 2021,2022, with maturities ranging from January 2023to August 2022.June 2023.
The Company records an asset or liability on the condensed consolidated balance sheet for the fair value of the foreign currency forward contracts. The foreign currency contract liabilities totaled $336,796$1,009,469 and $996,106 at December 31, 20212022 and foreign currency contract liabilities totaled $96,466 at June 30, 2021.2022, respectively. The Company recorded again of $484,518 and loss of $13,256 on foreign exchangecurrency forward contracts of $13,256 and a gain on foreign exchange contracts of $484,758, which is reflected in cost of revenue for the three months ended December 31, 2022 and 2021, respectively, and 2020,
respectively. The Company recorded a loss on foreign exchange contractslosses of $252,05919,466 and a gain on foreign exchange contracts of $489,504, which is reflected in cost of revenue252,059 for the six months ended December 31, 2022 and 2021, respectively. Gains and 2020, respectively.losses on foreign exchange contracts are reflected in cost of revenue.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Contingencies
Based on information currently available, management is not awareIn December 2022, the Company acquired foreign currency options with a total notional amount of any other matters that would have a material adverse effectAUD $8,451,123. The strike prices on the transaction dates and as of December 31, 2022, were above the market price, so the options had no intrinsic value. Option premiums of AUD $42,080 are reflected in the caption "Prepaid expenses and other current assets" on the condensed consolidated balance sheet as of December 31, 2022.
The Company's financial condition, resultsaccounting policies for foreign currency contracts and options is found in Note 2 under the section titled "Derivative Financial Instruments."
NOTE 9 – EQUITY
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 operations or cash flows.
Legal Matters
TheCredit will be deemed to be a term loan advance made by MFP to the Company may be subject(see Note 7). Pursuant to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty,the terms and regardlessconditions of the outcome, litigation can haveMFP Loan agreement, 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 (subject to adjustment in connection with any stock dividends and splits, distributions with respect to the Company's common stock and certain fundamental transactions as described in the Initial Warrant). The Initial Warrant expires 5 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 additional warrants to purchase 166,700 and 666,700 shares of the Company’s common stock, respectively, at an adverse impactexercise price of $1.60 per warrant share. The warrants will each expire five years from the date of issuance.
18
In total, warrants to purchase 1,333,400 shares of the Company’s common stock were issued to MFP in connection with the MFP Loan Agreement, or MFP Warrants, during the six months ended December 31, 2022. The MFP Warrants were valued using the Black-Scholes-Merton model as of the respective issue dates and recorded as a financial commitment asset within the caption "Prepaid expenses and other current assets" on the Company becausecondensed consolidated balance sheet. The MFP Warrant current assets are amortized on a straight-line basis over the period from their initial issue dates through the end of defensethe related MFP Letter of Credit commitment periods. During the six months ended December 31, 2022, an aggregate value of $802,901 related to the MFP Warrants was capitalized, of which $291,487 was amortized as interest expense.
MFP is the Company’s largest shareholder. One of the Company’s directors, Alexander C. Matina, is Vice President and settlement costs, diversionPortfolio Manager of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.MFP Investors LLC, the general partner of MFP.
NOTE 1110 - EQUITY-BASED COMPENSATION
Equity Incentive PlansStock Options
In October 2009 and January 2010, the Company's Board of Directors and stockholders, respectively, approved the 2009 Equity Incentive Plan, or as amended and/or restated from time to time, the 2009 Plan. The plan authorized the grant and issuance of options, restricted shares and other equity compensation to the Company's directors, employees, officers and consultants, and those of the Company's subsidiaries and parent, if any. In October 2012 and December 2012, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,250,000 shares. In September 2013 and December 2013, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,700,000 shares. In September 2015 and December 2015, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 2,450,000 shares.
In December 2018 and January 2019, the Company's Board of Directors and stockholders, respectively, approved the 2019 Equity Incentive Plan, or the 2019 Plan, as a successor to and continuation of the 2009 Plan. In October 2020 and December 2020, the Company’s Board of Directors and stockholders approved, respectively, the amendment to the 2019 Plan to increase the number of shares available for issues as grants and awards by 4,000,000 shares. Subject to adjustment for certain changes in the Company's capitalization, the aggregate number of shares of the Company's common stock that may be issued under the 2019 Plan, as amended, will not exceed 8,243,790 shares, which is the sum of (i) 4,000,000 new shares, (ii) 2,750,000 additional shares that were reserved as of the effective date of the 2019 Plan, (iii) 350,343 shares (the number of unallocated shares that were available for grant under the 2009 Plan as of January 16, 2019, the effective date of the 2019 Plan), and (iv) 1,143,447 shares, which is the number of shares subject to outstanding stock awards granted under the 2009 Plan that on or after the effective date of the 2019 Plan may expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to us, or are reacquired, withheld or not issued to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award.
The term of incentive stock options granted under the Company’s equity incentive plans may not exceed ten years, or five years for incentive stock options granted to an optionee owning more than 10% of the Company's voting stock. The exercise price of options granted under the Company’s equity incentive plans must be equal to or greater than the fair market value of the shares of the common stock on the date the option is granted. An incentive stock option granted to an optionee owning more than 10% of voting stock must have an exercise price equal to or greater than 110% of the fair market value of the common stock on the date the option is granted.
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest. The Company amortizes stock-based compensation expense on a straight-line basis over the requisite service period.
The Company utilizes a Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of the Company's common stock to estimate the fair value of employee options grants.
Weighted average assumptions used in the Black-Scholes-Merton model are set forth below:
|
| December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Risk free rate |
| 0.8% - 1.1% |
|
| 0.2% - 0.3% |
| ||
Dividend yield |
|
| 0 | % |
|
| 0 | % |
Volatility |
| 61.8% - 62.4% |
|
| 52.1% |
| ||
Average forfeiture assumptions |
| 2.8% |
|
| 2.3% |
|
During the six months ended December 31, 2021,2022, the Company granted options to purchase 944,725787,502 shares of its common stock to certain of its Directors,directors, members of the executive management team and other employees at exercise prices ranging from $2.64$0.81 - $3.39$1.04 per share. These options vest in either quarterly or annual periods over one to three years,years and expire ten years from the date of grant.
A summary of stock option activity for the six months ended December 31, 20212022 and the year ended June 30, 20212022 is presented below:
|
| Number Outstanding |
|
| Weighted - Average Exercise Price Per Share |
|
| Weighted- Average Remaining Contractual Life (Years) |
|
| Aggregate Intrinsic Value |
| ||||||||||||||||||||
Outstanding at June 30, 2020 |
|
| 2,875,894 |
|
| $ | 2.74 |
|
|
| 8.6 |
|
| $ | 22,409 |
| ||||||||||||||||
Granted |
|
| 976,924 |
|
|
| 2.41 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Exercised |
|
| (65,990 | ) |
|
| 2.48 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Canceled/forfeited/expired |
|
| (10,260 | ) |
|
| 2.94 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
|
| Number of |
|
| Weighted - |
|
| Weighted- |
|
| Aggregate |
| ||||||||||||||||||||
Outstanding at June 30, 2021 |
|
| 3,776,568 |
|
|
| 2.65 |
|
|
| 8.0 |
|
|
| 3,962,766 |
|
|
| 3,776,568 |
|
| $ | 2.65 |
|
|
| 8.0 |
|
| $ | 3,962,766 |
|
Granted |
|
| 944,725 |
|
|
| 2.69 |
|
|
| — |
|
|
| — |
|
|
| 994,725 |
|
|
| 2.63 |
|
|
|
|
|
|
| ||
Exercised |
|
| (38,774 | ) |
|
| 2.33 |
|
|
| — |
|
|
| — |
|
|
| (38,774 | ) |
|
| 2.33 |
|
|
|
|
|
|
| ||
Canceled/forfeited/expired |
|
| (67,919 | ) |
|
| 2.86 |
|
|
| — |
|
|
| — |
|
|
| (95,419 | ) |
|
| 2.82 |
|
|
|
|
|
|
| ||
Outstanding at December 31, 2021 |
|
| 4,614,600 |
|
|
| 2.65 |
|
|
| 7.1 |
|
|
| 1,068,461 |
| ||||||||||||||||
Options vested and exercisable at December 31, 2021 |
|
| 2,694,607 |
|
|
| 2.75 |
|
|
| 5.7 |
|
|
| 646,060 |
| ||||||||||||||||
Options vested and expected to vest as of December 31, 2021 |
|
| 4,607,611 |
|
| $ | 2.65 |
|
|
| 7.1 |
|
| $ | 1,067,301 |
| ||||||||||||||||
Outstanding at June 30, 2022 |
|
| 4,637,100 |
|
|
| 2.64 |
|
|
| 6.6 |
|
|
| — |
| ||||||||||||||||
Granted |
|
| 787,502 |
|
|
| 0.87 |
|
|
|
|
|
|
| ||||||||||||||||||
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||||||||||||||||||
Canceled/forfeited/expired |
|
| (844,545 | ) |
|
| 2.79 |
|
|
|
|
|
|
| ||||||||||||||||||
Outstanding at December 31, 2022 |
|
| 4,580,057 |
|
|
| 2.31 |
|
|
| 7.2 |
|
|
| 491,508 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Options vested and exercisable at December 31, 2022 |
|
| 3,048,678 |
|
| $ | 2.63 |
|
|
| 6.2 |
|
| $ | 1,875.00 |
| ||||||||||||||||
Options vested and expected to vest as of December 31, 2022 |
|
| 4,568,721 |
|
|
| 2.31 |
|
|
| 7.2 |
|
|
| 486,844 |
|
The weighted average grant date per share fair value of options granted during the three and outstanding atsix months ended December 31, 20212022 was $1.13.$0.47. At December 31, 2021,2022, the Company had $1,666,520$1,019,195 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 Plans,Equity Incentive Plan, or 2019 Plan, which will be recognized over the weighted average remaining service period of 2.1 1.93 years. The Company settles employee stock option exercises with newly issued shares of common stock.
Restricted Stock Units
During the six months ended December 31, 2021,2022, the Company issued 294,421431,704 restricted stock units to its directors, certain members of the executive management team, and other employees. The restricted stock units have varying vesting periods ranging from immediate vesting to quarterly or annual installments over one to three-years.three-years. The fair value of the awards granted during the six months ended December 31, 2022 and 2021 totaled $443,375and 2020 totaled $829,780 and $714,368,$829,780, respectively, and was based on the closing stock price on the date of grants.
19
The Company recorded $648,232 and $454,904 of stock-based compensation expense associated with grants of restricted stock units during the six months ended December 31, 2021 and 2020, respectively. 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) |
| |||||||||||||||||||
Nonvested restricted units outstanding at June 30, 2020 |
|
| 396,803 |
|
| $ | 2.33 |
|
|
| 1.6 |
| ||||||||||||||||
Granted |
|
| 291,206 |
|
|
| 2.59 |
|
|
| 1.9 |
| ||||||||||||||||
Vested |
|
| (326,439 | ) |
|
| 2.36 |
|
|
| — |
| ||||||||||||||||
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
|
| Number of |
|
| Weighted-Average |
|
| Weighted-Average |
| |||||||||||||||||||
Nonvested restricted units outstanding at June 30, 2021 |
|
| 361,570 |
|
|
| 2.51 |
|
|
| 1.3 |
|
|
| 361,570 |
|
| $ | 2.51 |
|
|
| 1.3 |
| ||||
Granted |
|
| 294,421 |
|
|
| 2.82 |
|
|
| 2.9 |
|
|
| 304,421 |
|
|
| 2.78 |
|
|
| — |
| ||||
Vested |
|
| (335,695 | ) |
|
| 2.63 |
|
|
| — |
|
|
| (391,036 | ) |
|
| 2.62 |
|
|
| — |
| ||||
Forfeited |
|
| (7,036 | ) |
|
| 2.35 |
|
|
| — |
|
|
| (7,036 | ) |
|
| 2.35 |
|
|
| — |
| ||||
Nonvested restricted units outstanding at December 31, 2021 |
|
| 313,260 |
|
| $ | 2.67 |
|
|
| 1.6 |
| ||||||||||||||||
Nonvested restricted units outstanding at June 30, 2022 |
|
| 267,919 |
|
|
| 2.66 |
|
|
| 1.2 |
| ||||||||||||||||
Granted |
|
| 431,704 |
|
|
| 1.03 |
|
|
| — |
| ||||||||||||||||
Vested |
|
| (192,952 | ) |
|
| 2.72 |
|
|
| — |
| ||||||||||||||||
Forfeited |
|
| (8,750 | ) |
|
| 2.50 |
|
|
| — |
| ||||||||||||||||
Nonvested restricted units outstanding at December 31, 2022 |
|
| 497,921 |
|
|
| 1.22 |
|
|
| 1.7 |
|
At December 31, 2021,2022, the Company had $752,646$546,369 of unrecognized stock compensation expense related to the restricted stock units, which will be recognized over the weighted average remaining service period of 1.51.72 years.
Stock-based Compensation Expense
Stock-based compensation expense recorded for grants of stock options, restricted stock and restricted stock units for the three months ended December 31, 2022 and 2021 totaled $305,894 and $1,014,203, respectively. Stock-based compensation expense recorded for grants of stock options, restricted stock and restricted stock units for the six months ended December 31, 2022 and 2021 totaled $762,006 and $1,418,515, respectively.
At December 31, 2021,2022, there were 2,568,3862,198,793 shares available under the 2019 Plan for future grants and awards.
Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock unitsWeighted-average assumptions used in the Black-Scholes-Merton model are set forth below for the three monthsperiods indicated:
|
| Six Months Ended December 31, 2022 |
|
| Year Ended | |
Risk free rate |
| 2.87% - 4.41% |
|
| 0.8% - 1.1% | |
Dividend yield |
| 0 |
|
| 0% | |
Volatility |
| 64.7% - 66.1% |
|
| 61.8% - 62.4% | |
Average forfeiture assumptions |
|
| 8.7 | % |
| 2.8% |
NOTE 11 – SERIES B CONVERTIBLE PREFERRED STOCK
The terms and conditions of the Company’s Series B Convertible Preferred Stock and accompanying Warrant are presented in Note 14 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and 2020, totaled $1,014,203 and $561,216, respectively. Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units forJune 30, 2022. No issuances or conversions of Series B Convertible Preferred Stock occurred during the six months ended December 31, 20212022. Activity in the period consisted of accrual of dividends and 2020, totaled $1,408,515 and $881,625, respectively.
NOTE 12 – EQUITY
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 the Company 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 $14 million through B. Riley as its sales agent. The Company agreed to pay B. Riley a commission of 3.5%accretion of the gross proceeds ofdiscount on the sales price per share of any common stock sold through B. Riley under the ATM Agreement. Warrants.
For the year ended June 30, 2021, the Company received gross proceeds of approximately $10.9 million from the sale of 3,008,015 shares of its common stock pursuantThe following summarizes changes to the ATM Agreement.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 |
|
| 176,447 |
|
Accretion of discount for warrants |
|
| 51,676 |
|
Balance at December 31, 2022 |
| $ | 5,032,942 |
|
20
On September 27, 2021, the Company entered into an amendment to the At Market Issuance Sales Agreement, under which the aggregate offering price was increased from $14 million to $17.1 million. For the six months ended December 31, 2021, the Company received gross proceeds of approximately $2,586 from the sale of 848 shares of its common stock pursuant to the ATM Agreement.
On October 14, 2021, the Company entered into a Securities Purchase Agreement with MFP Partners, L.P., the Company’s largest stockholder, Starlight 4, LLLP, an entity affiliated with Mark W. Wong, the Company’s Chief Executive Officer and a member of its board of directors, and Alan D. Willits, Charles B. Seidler and Robert Straus, each a member of its board of directors, pursuant to which the Company sold and issued an aggregate of 1,847,343 shares of its common stock at a purchase price of $2.73 per share, for aggregate gross proceeds of approximately $5.0 million. Alexander C. Matina, a member of the Company’s board of directors, is Vice President of Investments of the general partner of MFP.
As of December 31, 2021, the Company had $6.2 million remaining under the ATM Agreement.
In December 2020, the Company’s shareholders approved the amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of common stock from 50,000,000 shares to 75,000,000 shares.
NOTE 1312 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS
The below table represents supplemental information to the Company'sCompany’s condensed consolidated statements of cash flows for non-cash activities during the six months ended December 31, 2022 and 2021, respectively.
|
| Six Months Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Non-cash investing activities: |
|
|
|
|
|
| ||
Contribution of intangible assets to partnership in exchange for equity investment and promissory note |
| $ | 1,750,000 |
|
| $ | — |
|
ROU assets financed by lease liabilities |
|
| — |
|
|
| (122,863 | ) |
Non-cash financing activities: |
|
|
|
|
|
| ||
Warrants issued for financial commitment asset |
|
| 802,901 |
|
|
| — |
|
Accretion of discount for Series B preferred stock warrants |
|
| 51,676 |
|
|
| — |
|
Dividends accrued for participating securities |
|
| 176,447 |
|
|
| — |
|
NOTE 13 – SUBSEQUENT EVENTS
Shell Partnership
On February 6, 2023, S&W and 2020, respectively.Shell entered into a Contribution and Membership Interest Purchase Agreement, relating to a joint venture for the development and production of sustainable biofuel feedstocks, pursuant to which:
In February 2024, Shell will be required to pay an additional $6.0 million, and make an additional $12.0 million cash contribution to Vision Bioenergy.
|
| Six Months Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Purchases of equipment classified as finance lease |
| $ | (122,863 | ) |
| $ | (454,146 | ) |
Shell received a 66% interest in Vision Bioenergy and S&W retained a 34% interest. Additionally, upon the achievement of certain specified milestones, measured as of the fourth and seventh anniversaries of the closing of the joint venture transaction, S&W is eligible to receive up to an additional aggregate 10% interest in Vision Bioenergy. In addition, S&W has a one-time option, exercisable at any time on or before the fourth anniversary of the closing of the joint venture 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.
Amendment of NAB Finance Agreement
On February 8, 2023, the NAB Finance Agreement was amended to change the maximum permissible net related entity position from AUD $25.0 million to USD $18.5 million.
21
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 on page 2 ofunder 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, 2021,2022, particularly in Part I, Item 1A,1A., “Risk Factors”.Factors.”
Executive OverviewStrategic Review
We arerecently undertook a global multi-crop, middle-market agricultural company. We are market leaders in the breeding, production and salestrategic review of alfalfa seed and sorghum seed. We also have a growing commercial market presence in sunflower, wheat and pasture seed and maintain an active stevia development program.
Our seed platform develops and supplies high quality germplasm designed to produce higher yields for farmers worldwide. We sell over 500 seed products in more than 40 countries. We maintain an active product pipeline and expect to introduce more than 20 new products during the 2022-2023 fiscal years.
Founded in 1980, we began our operations as a limited producerand future growth opportunities to determine areas we believe are key centers of non-dormant alfalfa seed varieties bred for warm climatesvalue, including our sorghum technology operations (led by Double Team™, our non-GMO herbicide tolerant sorghum solution), international forage operations, U.S. forage operations and high-yields, includingour specialty crops.
With respect to specialty crops, we intend to initially focus on stevia and camelina. We believe that an opportunity exists to bring to market new stevia varieties that can thriveboth meet consumer taste requirements and have yield quality that would enable farmers to profitably grow stevia in poor, saline soils. OverNorth 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 yearsU.S. market, including pursuant to our previously announced U.S. stevia pilot production supply agreement with Ingredion. We also believe we have builtan opportunity to enter the camelina market as a diversified, global agricultural platformseed and technology provider, where we plan to work with large oil companies for biofuel production leveraging our capabilities in producing, processing, and packaging camelina.
We have also begun working to align our cost structure to support these centers of value while assessing other potential value-generating transactions and means to strengthen our balance sheet.
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, 2023, S&W entered into a Contribution and Membership Interest Purchase Agreement, or Shell Partnership Agreement, 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:
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 S&W and make an additional $12.0 million cash contribution to Vision Bioenergy.
Shell received a 66% interest in Vision Bioenergy and S&W 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, S&W has a one-time option, exercisable at any time on or before the fourth 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.
22
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:
Global Economic Conditions
We are subject to additional risks and strategic acquisitions and collaborations, including:
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|
|
|
|
In 2019, we restructured our relationship with Corteva, under which, among other things:
|
|
|
|
|
|
|
|
As a result of the 2018 Chromatin acquisition, the 2019 restructuring of our relationship with Corteva,adverse geopolitical and our February 2020 acquisition of Pasture Genetics, we expect that our results of operations for fiscal 2022 and future periods will differ significantly from prior periodsmacroeconomic events, such as the mix of our product portfolio rebalances away from a reliance on alfalfa sales (sales of alfalfa seed to Corteva totaled $14.2 million and $19.7 million during the year ended June 30, 2021 and 2020) to a more diverse product mix. We do not expect any other significant revenue from sales to Corteva in the future.
COVID-19 Update
We are monitoring thecontinued impact of the COVID-19 pandemic, the ongoing military conflict between Ukraine and Russia and related sanctions, uncertain market conditions, including higher inflation and supply chain disruptions, and other global pandemicevents, 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 may cause further disruptions in the various markets in which we 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 lessoning of the severity of these supply chain issues, though continue to experience effects in certain jurisdictions that continue to have implemented measures designed to protect the health and safetyvarious restrictions, which have impacted certain of our workforce, including a voluntary work-from-home policy for employees who can perform their jobs offsite.customers. We are continuingcontinue to work closely with our activitiescustomers, business units, third party contractors and are taking precautionary measuressuppliers and other external business partners to protectminimize the potential impact on our employees working in our facilities. business.
As the COVID-19 pandemic continues to affect the areas in which we operate, we believe the outbreak has and will continue tofuture outbreaks could have a negative impact on our sales, operating results and financial condition. 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 outbreak, impact onresulting specific impacts felt by our customers, employees and vendors, all of which are uncertain and cannot be predicted.
Our sales efforts historically involved significant in-person interaction with potential customersFollowing the invasion of Ukraine by Russia in early 2022, the U.S. and distributors. Throughout the COVID-19 pandemic, many national, stateglobal financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and local governments in our target markets implemented various stat-at-home, shelter-in-place and other quarantine measures inreduced access to liquidity globally. In response to the COVID-19 pandemic. As a result, we have shifted certain of our sales activities to video conferencing and similar customer interaction models. We continue to evaluate our sales approach, but we have found these alternative approaches to generally be less effective than in-person sales efforts. In particular, our sales cycle is highly seasonal, and the majority of our sales season activities forinvasion, the United States, United Kingdom and Australia are typically concentrated between MarchEuropean Union, along with others, imposed significant new sanctions and June each year. If ongoingexport 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 designed to protect against COVID-19 remain in effect throughout the 2022 sales season, we may experience similar negative impacts that we experienced during the 2020 and 2021 sales seasons.
Further, vaccine mandates may be enforcedimplemented, as well as the counter measures imposed by Russia, in jurisdictions inaddition to the ongoing military conflict between Ukraine and Russia and related sanctions, which our business operates. Although it is not possiblecould conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to predict with certainty the impact of these measures on our business and workforce, these requirements may result in attrition, difficulty securing future labor needs, and may further disrupt the nationaldisruptions to trade, commerce, pricing stability, credit availability, supply chain all of which could have a material adverse effectcontinuity and reduced access to liquidity on our business, financial conditionacceptable terms, in both Europe and results of operations.globally, and has introduced significant uncertainty into global markets.
In addition, ourOur 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 year ended June 30, 20212022 and the three and six months ended December 31, 2021,2022, we experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall rising costsvolatility of shipping and transportation costs. We expect these logistical challenges to persist throughout fiscal 2022,2023, which may, among other things, delay or reduce our ability to recognize revenues within a particular fiscal period and harm our results of operations.
Given these uncertainties, at this time we cannot reasonably estimateThe 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 overall impactlength and severity of the COVID-19 pandemic onand any broad-based supply chain disruptions, labor shortages, rising levels of inflation and interest rates, tightening of credit markets or other developments resulting from 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 operating results and consolidated financial condition.statements.
23
Components of Our Statements of Operations Data
Revenue and Cost of Revenue
Product and Other 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 other, 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 potential expansion of novel, non-GMO product lines, potential entry into gene-edited products in future periods,product markets, potential entry into specialty crop markets, including stevia and ourbiofuels, and additional strategic acquisitions.transactions.
Our revenue will fluctuate depending on the timing of orders from our customers and distributors.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 conflict between Russia and Ukraine, 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. However, someSome 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, including the COVID-19 pandemic, 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 hasand biofuels program, have yet to generate any meaningful revenue. However, management continues to evaluate this portion of our business and assess various meansopportunities to monetize the results of our effort to breed new, better-tasting stevia varieties.research and development efforts. Such potential opportunities include possible collaborations and/or joint ventures, licensing agreements and royalty-based agreements. For example, we recently entered into our Vision Bioenergy partnership with Shell 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 additional payments from Shell upon the one-year anniversary of our entry into partnership, there can be no assurance that this will generate any meaningful revenue.
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.
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 expense 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. 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 construedconstructed for research and development activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset.
Selling, General and Administrative Expenses24
Selling, general, and administrative expenses consist primarily of employee costs, including salaries, employee benefits and share-based compensation, as well as professional service fees, insurance, marketing, travel and entertainment expense, public company expense and other overhead costs. We proactively take steps on an ongoing basis to control selling, general and administrative expense as much as is reasonably possible.
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 10-303-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 years for other intangible assets. Property,
plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset, consisting of periods of 5-35 years for buildings, 2-20 years for machinery and equipment and 2-5 years for vehicles.
Other (Income) Expense
Other (income) expense consists primarily of foreign currency gains and losses, changegains on disposal of intangible assets and equity investments, changes in contingent consideration obligation, interest expense and interest expense in connection withresulting from the amortization of debt discount. Interest expense and Interest expense - amortization of debt discount primarily consists of interest costs related to outstanding borrowings on our working capital credit facilities and our financing with Conterra AgriculturalRooster Capital, LLC, or Conterra.Rooster. Amortization of the MFP Letter of Credit (as defined below) asset is also recorded under the caption 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 consolidated statements of operations. In the fourth quarter of fiscal year 2017, we recorded a valuation allowance against all of our deferred tax assets. The full valuation allowance was recorded during the fiscal year 2017 as a result of changes to our operating results and futureBased on financial projections, resulting from a decline in export sales to Saudi Arabia. As a result, we do not believe that it is more likely than not that our U.S. deferred tax assets will be realized.realized, and a full valuation allowance is recorded against them.
Results of Operations
Three Months Ended December 31, 20212022 Compared to the Three Months Ended December 31, 20202021
The following table presents our results of operations for the periods indicated:
|
| Three Months Ended December 31, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
|
| $ |
|
| % of |
|
| $ |
|
| % of |
|
| $ |
|
| % Change |
| ||||||
Revenue |
| $ | 12,937,802 |
|
|
| 100.0 | % |
| $ | 12,631,409 |
|
|
| 100.0 | % |
| $ | 306,393 |
|
|
| 2.4 | % |
Cost of revenue |
|
| 10,188,511 |
|
|
| 78.7 | % |
|
| 10,971,045 |
|
|
| 86.9 | % |
|
| (782,534 | ) |
|
| (7.1 | )% |
Gross profit |
|
| 2,749,291 |
|
|
| 21.3 | % |
|
| 1,660,364 |
|
|
| 13.1 | % |
|
| 1,088,927 |
|
|
| 65.6 | % |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Selling, general and administrative expenses |
|
| 6,241,461 |
|
|
| 48.2 | % |
|
| 7,073,320 |
|
|
| 56.0 | % |
|
| (831,859 | ) |
|
| (11.8 | )% |
Research and development expenses |
|
| 1,503,473 |
|
|
| 11.6 | % |
|
| 2,110,413 |
|
|
| 16.7 | % |
|
| (606,940 | ) |
|
| (28.8 | )% |
Depreciation and amortization |
|
| 1,253,904 |
|
|
| 9.7 | % |
|
| 1,373,653 |
|
|
| 10.9 | % |
|
| (119,749 | ) |
|
| (8.7 | )% |
Total operating expenses |
|
| 8,998,838 |
|
|
| 69.6 | % |
|
| 10,557,386 |
|
|
| 83.6 | % |
|
| (1,558,548 | ) |
|
| (14.8 | )% |
Loss from operations |
|
| (6,249,547 | ) |
|
| (48.3 | )% |
|
| (8,897,022 | ) |
|
| (70.4 | )% |
|
| 2,647,475 |
|
|
| (29.8 | )% |
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign currency loss |
|
| 176,624 |
|
|
| 1.4 | % |
|
| 258,482 |
|
|
| 2.0 | % |
|
| (81,858 | ) |
|
| (31.7 | )% |
Gain on disposal of intangible assets |
|
| (1,796,252 | ) |
|
| (13.9 | )% |
|
| — |
|
|
| — |
|
|
| (1,796,252 | ) |
| - |
| |
Change in contingent consideration obligation |
|
| — |
|
|
| — |
|
|
| (466,376 | ) |
|
| (3.7 | )% |
|
| 466,376 |
|
|
| (100.0 | )% |
Interest expense - amortization of debt discount |
|
| 578,112 |
|
|
| 4.5 | % |
|
| 221,196 |
|
|
| 1.8 | % |
|
| 356,916 |
|
|
| 161.4 | % |
Interest expense, net |
|
| 1,092,327 |
|
|
| 8.4 | % |
|
| 589,694 |
|
|
| 4.7 | % |
|
| 502,633 |
|
|
| 85.2 | % |
Gain on sale of equity investment |
|
| (32,030 | ) |
|
| (0.2 | )% |
|
| — |
|
|
| — |
|
|
| (32,030 | ) |
| - |
| |
Other expense |
|
| 4,561 |
|
|
| 0.0 | % |
|
| 23,771 |
|
|
| 0.2 | % |
|
| (19,210 | ) |
|
| (80.8 | )% |
Loss before income taxes |
|
| (6,272,889 | ) |
|
| (48.5 | )% |
|
| (9,523,789 | ) |
|
| (75.4 | )% |
|
| 3,250,900 |
|
|
| (34.1 | )% |
(Benefit from) provision for income taxes |
|
| (282,296 | ) |
|
| (2.2 | )% |
|
| 257,776 |
|
|
| 2.0 | % |
|
| (540,072 | ) |
|
| (209.5 | )% |
Net loss |
| $ | (5,990,593 | ) |
|
| (46.3 | )% |
| $ | (9,781,565 | ) |
|
| (77.4 | )% |
| $ | 3,790,972 |
|
|
| (38.8 | )% |
(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 December 31, 2022 and the three months ended December 31, 2021. All comparisons presented are with respect to the prior-year
25
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 year-over-year increase in revenue for the second quarter ended December 31, 2022 was primarily due to an increase of $1.9 million in alfalfa sales to the Middle East North Africa, or MENA, region, a $1.0 million increase in North America sorghum sales, and a $0.2 million increase in pastures sales in Australia. This was offset by a decrease in sales of sorghum to the MENA region of $1.4 million, a $0.7 million decrease in alfalfa sales to North America, and a $0.7 million decrease in North America service revenue.
Cost of Revenue and Gross Margin
RevenueDespite an increase in sales, the cost of revenue for the second quarter ended December 31, 2022 decreased compared to the prior year period, primarily driven by increased sales of higher margin alfalfa in the MENA region and grain sorghum in North America, along with decreased sales of lower margin sorghum products in the MENA region and dormant alfalfa in North America. Write-downs of inventory lots that had deteriorated in quality and germination rates were reduced from $0.4 million in the second quarter of fiscal 2022 to $0.1 million in the second quarter of fiscal 2023.
Selling, General and Administrative Expenses
The decrease in selling, general and administrative expenses for the three months ended December 2022 compared to the three months ended December 31, 2021 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 three months ended December 2021, $0.3 million in reduced payroll and related expenses as a result of management’s cost reduction efforts, offset by a $0.1 million increase in consulting and professional fees.
Research and Development Expenses
The year-over-year decrease in research and development expenses for the second quarter ended December 31, 2022 is attributable to a $0.3 million reduction in field trial related expenses, a $0.2 million reduction in payroll and related expenses as a result of management’s cost reduction efforts, and a $0.1 million reduction in consulting and professional fees.
Depreciation and Amortization
The decrease in depreciation and amortization expenses for the three months ended December 31, 2022 compared to the three months ended December 31, 2021 was $12.6 million comparedattributable to $15.1 milliondecreased depreciation expense on assets held by S&W Australia, our wholly owned Australian subsidiary.
Foreign Currency Loss
The decrease in foreign currency loss for the three months ended December 31, 2020. The $2.5 million decrease in revenue for2022 compared to the three months ended December 31, 2021 was primarily dueattributable to fluctuations in foreign currency exchange rates between the decrease in product revenue from PioneerAustralian dollar and U.S. dollar.
Gain on Disposal of $4.1Intangible Assets
The $1.8 million offset by a $1.6 million increase in product revenue from an increase in alfalfa revenuegain on disposal of intangible assets in the Middle East, Argentina and South Africa and pasture products in Australia. During the three months ended December 31, 2021 we recorded no sales to Pioneer, compared to $4.1 million for the three months ended December 31, 2020.
Core Revenue (which we define as total revenue, excluding product revenue attributable to Pioneer) for the three months ended December 31, 2021second quarter of fiscal 2023 was $12.6 million compared to Core Revenue for the three months ended December 31, 2020 of $11.0 million, representing an increase of $1.6 million or 15%. Due to the revised agreements with Pioneer in May 2019, we plan to provide Core Revenuerecognized by S&W Australia as a metric to track performance of our business until product revenue attributable to our revised agreements with Pioneer is no longer reflected in comparisons between fiscal periods. The increase in Core Revenue for the three months ended December 31, 2021 can be attributed to $1.6 million from an increase in alfalfa revenue in the Middle East, Argentina and South Africa and pasture products in Australia.
Sales into international markets represented 81% and 55% of our total revenue during the three months ended December 31, 2021 and 2020, respectively. Domestic revenue accounted for 19% and 45% of our total revenue for the three months ended December 31, 2021 and 2020, respectively. The decrease in domestic revenue as a percentage of total revenue is primarily attributable to the terminationresult of the Pioneercontribution of its Australia-based wheat breeding program and Corteva agreement mentioned above.
The following table shows revenue from external sources by destination country:
|
| Three Months Ended December 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||
United States |
| $ | 2,404,078 |
|
|
| 19 | % |
| $ | 6,738,493 |
|
|
| 45 | % |
Australia |
|
| 2,245,847 |
|
|
| 18 | % |
|
| 2,059,429 |
|
|
| 14 | % |
Saudi Arabia |
|
| 1,680,546 |
|
|
| 13 | % |
|
| 860,282 |
|
|
| 6 | % |
Pakistan |
|
| 2,067,507 |
|
|
| 16 | % |
|
| 1,183,752 |
|
|
| 8 | % |
Argentina |
|
| 1,058,308 |
|
|
| 8 | % |
|
| 312,819 |
|
|
| 2 | % |
South Africa |
|
| 914,552 |
|
|
| 7 | % |
|
| 187,960 |
|
|
| 1 | % |
Libya |
|
| 44,000 |
|
|
| 0 | % |
|
| — |
|
|
| 0 | % |
Sudan |
|
| — |
|
|
| 0 | % |
|
| 480,626 |
|
|
| 3 | % |
China |
|
| 265,584 |
|
|
| 2 | % |
|
| 652,766 |
|
|
| 4 | % |
Canada |
|
| 79,200 |
|
|
| 1 | % |
|
| 1,120 |
|
|
| 0 | % |
Other |
|
| 1,871,787 |
|
|
| 16 | % |
|
| 2,574,084 |
|
|
| 17 | % |
Total |
| $ | 12,631,409 |
|
|
| 100 | % |
| $ | 15,051,331 |
|
|
| 100 | % |
Cost of revenue of $11.0 million for the three months ended December 31, 2021 was equalrelated assets to 86.9% of total revenue for the three months ended December 31, 2021, while the cost of revenue of $13.0 million for the three months ended December 31, 2020 was equal to 86.5% of total revenue for the three months ended December 31, 2020. Cost of revenue for the three months ended December 31, 2021 and 2020 included inventory write-downs of $0.4 million and $37,251, respectively. The write-down of inventory during the three months ended December 31, 2021 and 2020 related to certain inventory lots that deterioratedTrigall Australia in quality and germination rates during the quarter.
Gross profit margin for the three months ended December 31, 2021 was 13.1% compared to 13.5% for the three months ended December 31, 2020. The decrease in gross margin for the three months ended December 31, 2021 is primarily driven by the increase in inventory write-downs, offset with higher margin alfalfa seed and pasture product sales. During the three months ended December 31, 2021, the Company experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall rising costs increases of shipping and transportation costs. The Company expects these logistical challenges to persist throughout the remainder of fiscal 2022.
Selling, General and Administrative Expenses
Selling, General and Administrative, or SG&A, expense for the three months ended December 31, 2021 totaled $7.1 million compared to $5.9 million for the three months ended December 31, 2020. The $1.2 million increase in SG&A expense versus the comparable periodfurtherance of the prior year was primarily due to $0.7 million of non-recurring severance and other costs associatedpartnership with Trigall Australia, as discussed under the change in our Chief Financial Officer as well as a $0.5 million increase in our stock-based compensation. As a percentage of revenue, SG&A
expenses were 56.1% for the three months ended December 31, 2021, compared to 39.3% for the three months ended December 31, 2020.caption “Strategic Review,” above.
Research and Development Expenses
Research and development expenses for the three months ended December 31, 2021 totaled $2.1 million compared to $2.1 million for the three months ended December 31, 2020. We expect that research and development costs will total approximately $8.0 million for the year ended June 30, 2022.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended December 31, 2021 was $1.4 million compared to $1.4 million for the three months ended December 31, 2020. Included in these amounts was amortization expense for intangible assets, which totaled $0.6 million for the three months ended December 31, 2021 and $0.6 million for the three months ended December 31, 2020.
Foreign Currency Loss
We recorded a foreign currency loss of $0.3 million for the three months ended December 31, 2021 compared to a gain of $0.2 million for the three months ended December 31, 2020. The foreign currency gains and losses are primarily associated with S&W Australia and S&W Hungary, our wholly-owned subsidiaries.
Change in Contingent Consideration Obligation
The contingent consideration obligation is considered a level 3 fair value financial instrument and will be measured at each reporting period. The $0.5 million gaindecrease in benefit to non-cash change in contingent consideration obligation forcompared to the quarter ended December 31, 2021 representsprior year period is due to the decrease in the estimated fair valueFebruary 2022 final valuation of the contingent consideration obligation associated withfrom the February 2020 acquisition of Pasture Genetics acquisition.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
Non-cashThe increased debt amortization expense in the second quarter of debt discount expense for the three months ended December 31, 2021 was $0.2 millionfiscal 2023 compared to $0.3 million for the three months ended December 31, 2020. The expense in both periods representsprior year period was due to the amortization of the debt issuance costs associatedfinancial commitment asset established in conjunction with our working capital facilities, our secured property note,the MFP Loan Agreement beginning in September 2022 (see “Capital Resources and our equipment capital leases.Requirements—MFP Loan Agreement,” below).
26
Interest Expense, Net
Interest expense for the three months ended December 31, 2021 totaled $0.6 million compared to $0.6 million for the three months ended December 31, 2020. Interest expense for the three months ended December 31, 20212022, and 20202021 primarily consisted of interest incurred on the working capital credit facilities, the secured property loan entered into in November 2017,Rooster Note (as defined below), and equipment capital leases. The $0.5 million increase in interest expense for the three months ended December 31, 2022, was primarily driven by increases in average borrowings on the working capital credit facilities and increased interest rates on both our United States and Australian wholly owned subsidiaries.
Gain on Sale of Equity Investment
The gain on sale of equity investment was a result of the sale of the remainder of our investment in Bioceres.
(Benefit from) Provision for Income TaxesTax Benefit
Income tax (benefit) totaled ($0.3) million for the three months ended December 31, 2022 compared to income tax expense totaledof $0.3 million for the three months ended December 31, 2021 compared to income2021. Our effective tax expense of $42,480rate was 4.5% for the three months ended December 31, 2020. Our2022 compared to an effective tax rate wasof (2.7)% for the three months ended December 31, 2021 compared to an effective tax rate of (0.5)% for the three months ended December 31, 2020. Our effective tax rate was relatively consistent period over period. 2021. Our effective tax rate for the three months ended December 31, 20212022 was (2.7)%4.5% due primarily to the valuation allowance recorded against substantially all of our deferred tax assets.assets, and the tax effects of the partnership with Trigall Genetics entered into during the quarter. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operatingoperation results, with the exception of our operations in Australia. Our effective tax rate for the current quarter is primarily due to this Australianincome tax expense related to our foreign operations and minor state taxes.
27
Six Months Endedended December 31, 20212022 Compared to the Six Months Ended December 31, 2020
Revenue and Cost of Revenue2021
The following table presents our results of operations for the periods indicated:
|
| Six Months Ended December 31, |
|
|
|
|
|
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||||||||||
|
| $ |
|
| % of |
|
| $ |
|
| % of |
|
| $ |
|
| % Change |
| ||||||
Revenue |
| $ | 32,803,667 |
|
|
| 100.0 | % |
| $ | 28,163,090 |
|
|
| 100.0 | % |
| $ | 4,640,577 |
|
|
| 16.5 | % |
Cost of revenue |
|
| 25,549,865 |
|
|
| 77.9 | % |
|
| 23,376,057 |
|
|
| 83.0 | % |
|
| 2,173,808 |
|
|
| 9.3 | % |
Gross profit |
|
| 7,253,802 |
|
|
| 22.1 | % |
|
| 4,787,033 |
|
|
| 17.0 | % |
|
| 2,466,769 |
|
|
| 51.5 | % |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Selling, general and administrative expenses |
|
| 11,294,058 |
|
|
| 34.4 | % |
|
| 12,642,887 |
|
|
| 44.9 | % |
|
| (1,348,829 | ) |
|
| (10.7 | )% |
Research and development expenses |
|
| 3,018,853 |
|
|
| 9.2 | % |
|
| 4,105,541 |
|
|
| 14.6 | % |
|
| (1,086,688 | ) |
|
| (26.5 | )% |
Depreciation and amortization |
|
| 2,590,338 |
|
|
| 7.9 | % |
|
| 2,704,698 |
|
|
| 9.6 | % |
|
| (114,360 | ) |
|
| (4.2 | )% |
Total operating expenses |
|
| 16,903,249 |
|
|
| 51.5 | % |
|
| 19,453,126 |
|
|
| 69.1 | % |
|
| (2,549,877 | ) |
|
| (13.1 | )% |
Loss from operations |
|
| (9,649,447 | ) |
|
| (29.4 | )% |
|
| (14,666,093 | ) |
|
| (52.1 | )% |
|
| 5,016,646 |
|
|
| (34.2 | )% |
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign currency loss |
|
| 367,539 |
|
|
| 1.1 | % |
|
| 421,028 |
|
|
| 1.5 | % |
|
| (53,489 | ) |
|
| (12.7 | )% |
Gain on disposal of intangible assets |
|
| (1,796,252 | ) |
|
| (5.5 | )% |
|
| — |
|
|
| — |
|
|
| (1,796,252 | ) |
| -- |
| |
Change in contingent consideration obligation |
|
| — |
|
|
| — |
|
|
| (528,630 | ) |
|
| (1.9 | )% |
|
| 528,630 |
|
|
| (100.0 | )% |
Interest expense - amortization of debt discount |
|
| 861,755 |
|
|
| 2.6 | % |
|
| 413,391 |
|
|
| 1.5 | % |
|
| 448,364 |
|
|
| 108.5 | % |
Interest expense, net |
|
| 1,879,006 |
|
|
| 5.7 | % |
|
| 1,142,539 |
|
|
| 4.1 | % |
|
| 736,467 |
|
|
| 64.5 | % |
Gain on sale of equity investment |
|
| (32,030 | ) |
|
| (0.1 | )% |
|
| — |
|
|
| — |
|
|
| (32,030 | ) |
| -- |
| |
Other income |
|
| (39,709 | ) |
|
| (0.1 | )% |
|
| (10,589 | ) |
|
| (0.0 | )% |
|
| (29,120 | ) |
|
| 275.0 | % |
Loss before income taxes |
|
| (10,889,756 | ) |
|
| (33.2 | )% |
|
| (16,103,832 | ) |
|
| (57.2 | )% |
|
| 5,214,076 |
|
|
| (32.4 | )% |
(Benefit from) provision for income taxes |
|
| (383,960 | ) |
|
| (1.2 | )% |
|
| 91,974 |
|
|
| 0.3 | % |
|
| (475,934 | ) |
|
| (517.5 | )% |
Net loss |
|
| (10,505,796 | ) |
|
| (32.0 | )% |
|
| (16,195,806 | ) |
|
| (57.5 | )% |
|
| 5,690,010 |
|
|
| (35.1 | )% |
(1) Amount in column may not foot due to rounding
Revenue forThe discussion and analysis presented below is concerned with material changes in our results of operations between the six months ended December 31, 2021 was $28.2 million compared to $28.9 million for2022 and the six months ended December 31, 2020. 2021. 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 $0.7 million decreaseyear-over-year increase in revenue for the six months ended December 31, 20212022 was primarily due to the $5.7 million decreaseincrease in product revenue received from Pioneer (subsidiaryalfalfa sales to the MENA region of Corteva),$6.6 million and increased alfalfa and sorghum sales to North America of $2.0 million. These revenue increases were partially offset by a $5.0decrease in sorghum sales to the MENA region of $1.7 million, increasea decrease in core productservice revenue in the United States of $1.3 million, a decrease in pasture product sales to Australia of $0.5 million, a decrease in sorghum sales to Asia of $0.3 million, and a decrease in alfalfa sales to South America of $0.3 million.
Cost of Revenue and pasture products. DuringGross Margin
Cost of revenue increased year-over-year due to increased sales in the six months ended December 31, 2021 we recorded no sales to Pioneer,2022, but gross margin improved compared to $5.7 million for the six months ended December 31, 2020.
Core Revenue (which we define as total revenue, excluding product revenue attributable to Pioneer) for the six months ended December 31, 2021 was $28.2 million compared to Core Revenue for the six months ended December 31, 2020prior year period, primarily driven by increased sales of $23.2 million, representing an increase of $5.0 million or 21.4%. Due to revised agreements with Pioneer in May 2019, S&W plans to provide Core Revenue as a metric to track performance of our business until product revenue attributable to our revised agreements with Pioneer is no longer reflected in comparisons between fiscal periods. The increase in Core Revenue for the six months ended December 31, 2021 can be attributed to an increase inhigher margin alfalfa revenuesseed in the Middle East, ArgentinaMENA region and thegrain sorghum seed in North and South Africa regions and pastureAmerica, as well as decreased sales of lower margin sorghum products in Australia.the MENA region.
Sales into international markets represented 78% and 58% of our total revenue during the six months ended December 31, 2021 and 2020, respectively. Domestic revenue accounted for 22% and 42% of our total revenue for the six months ended December 31, 2021 and 2020, respectively. The decrease in domestic revenue as a percentage of total revenue was primarily attributable to the termination of the Pioneer and Corteva agreement mentioned above.
The following table shows revenue from external sources by destination country:
|
| Six Months Ended December 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||
United States |
| $ | 6,069,406 |
|
|
| 22 | % |
| $ | 12,100,270 |
|
|
| 42 | % |
Australia |
|
| 5,679,852 |
|
|
| 20 | % |
|
| 4,841,892 |
|
|
| 17 | % |
Saudi Arabia |
|
| 5,147,756 |
|
|
| 18 | % |
|
| 2,059,192 |
|
|
| 7 | % |
Pakistan |
|
| 2,231,561 |
|
|
| 8 | % |
|
| 1,183,667 |
|
|
| 4 | % |
Argentina |
|
| 1,409,147 |
|
|
| 5 | % |
|
| 976,894 |
|
|
| 3 | % |
South Africa |
|
| 1,378,781 |
|
|
| 5 | % |
|
| 412,960 |
|
|
| 1 | % |
Libya |
|
| 1,088,000 |
|
|
| 4 | % |
|
| 484,645 |
|
|
| 2 | % |
Sudan |
|
| 819,618 |
|
|
| 3 | % |
|
| 480,626 |
|
|
| 2 | % |
China |
|
| 738,709 |
|
|
| 3 | % |
|
| 1,788,856 |
|
|
| 6 | % |
Canada |
|
| 482,020 |
|
|
| 2 | % |
|
| 393,080 |
|
|
| 1 | % |
Other |
|
| 3,118,240 |
|
|
| 10 | % |
|
| 4,184,635 |
|
|
| 15 | % |
Total |
| $ | 28,163,090 |
|
|
| 100 | % |
| $ | 28,906,717 |
|
|
| 100 | % |
Cost of revenue of $23.4 million for the six months ended December 31, 2021 was equal to 83.0% of total revenue for the six months ended December 31, 2021, while the cost of revenue of $25.1 million for the six months ended December 31, 2020 was equal to 86.8% of total revenue for the six months ended December 31, 2020. Cost of revenue for the six months ended December 31, 20212022 and 20202021 included inventory write-downs of $0.7 million and $0.9$0.7 million, respectively. respectively, related to certain inventory lots that had deteriorated in quality and germination rates.
Selling, General and Administrative Expenses
The write-downdecrease in selling, general and administrative expenses for the six months ended December 2022 compared to the prior year period is attributable to a $0.7 million decrease in stock-based compensation expense as a result of inventorythe accelerated vesting of equity awards of a former executive officer during the six months ended December 31, 2021, $0.6 million in reduced payroll and 2020, respectively, related to certain inventory lots that deteriorated in qualityexpenses as a result of management’s cost reduction efforts, and germination rates during the period.
Total gross profit margin for the six months ended December 31, 2021 was 17.0% compared to 13.2% in the six months ended December 31, 2020. The increase in gross margin for the six months ended December 31, 2021 is primarily driven by the$0.2 million decrease in inventory write-downs, coupled with higher margin alfalfa seedadvertising and pasture product sales. During the six months ended December 31, 2021, the Company experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall rising costs increases of shipping and transportation costs. The Company expects these logistical challenges to persist throughout the remainder of fiscal 2022.
Selling, General and Administrative Expenses
SG&A expense for the six months ended December 31, 2021 totaled $12.7 million compared to $10.6 million for the six months ended December 31, 2020. The $2.1marketing, offset by a $0.1 million increase in SG&A expense versus the comparable period of the prior year was primarily due to a $0.6 million change in our incentive compensation accruals, $0.7 million incurred for the change in CFO during November 2021, $0.5 million increase in our stock-based compensationconsulting and a $0.3 million increase in other expenses including professional fees, travel, rent and salaries and wages. As a percentage of revenue, SG&A expenses were 45.0% for the six months ended December 31, 2021, compared to 36.7% for the six months ended December 31, 2020.fees.
28
Research and Development Expenses
ResearchThe year-over-year decrease in research and development expenses for the six months ended December 31, 2021 totaled $4.12022 is attributable to a $0.4 million reduction in United States field trial related expenses, $0.4 million in reduced salaries, wages and related employment expenses as a result of management’s cost reduction efforts,$0.2 million reduction of investment in our sunflower programs in Hungary and $0.1 million reduction in consulting and professional fees.
Depreciation and Amortization
The decrease in depreciation and amortization expenses for the six months ended December 2022 compared to $4.1 millionthe six months ended 2021 was attributable to decreased depreciation expense on assets held by S&W Australia.
Foreign Currency Loss
The decrease in foreign currency loss for the six months ended December 31, 2020. We expect that research and development costs will total approximately $8.0 million for the year ended June 30, 2022.
Depreciation and Amortization
Depreciation and amortization expense for2022 compared to the six months ended December 31, 2021 was $2.7attributable to fluctuations in foreign currency exchange rates between the Australian dollar and U.S. dollar.
Gain on Disposal of Intangible Assets
The $1.8 million compared to $2.8 million for the six months ended December 31, 2020. Included in these amounts was amortization expense forgain on disposal of intangible assets which totaled $1.2 million forin the six months ended December 31, 2021 and $1.2 million for the six months ended December 31, 2020.
Foreign Currency Loss
We recorded a foreign currency losssecond quarter of $0.4 million for the six months ended December 31, 2021 compared to a gain of $0.1 million for the six months ended December 31, 2020. The foreign currency gains and losses are primarily associated withfiscal 2023 was recognized by S&W Australia as a result of its contribution of its Australia-based wheat breeding program and S&W Hungary, our wholly-owned subsidiaries.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 contingent consideration obligation is considered a level 3 fair value financial instrument and will be measured at each reporting period. The $0.5 milliondecrease 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 forfrom 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 six months ended December 31, 2021 represents the decrease in the estimated fair value of the contingent consideration obligation associated with the February 2020 Pasture Genetics acquisition.
Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the six months ended December 31, 2021 was $0.4 million2022 compared to $0.4 million for the six months ended December 31, 2020. The expense in both periods representsprior year period was due to the amortization of the debt issuance costs associatedfinancial commitment asset established in conjunction with our working capital facilities, our secured property note,the MFP Loan Agreement beginning in September 2022 (see “Capital Resources and our equipment capital leases.Requirements—MFP Loan Agreement,” below).
Interest Expense, Net
Interest expense for the six months ended December 31, 2021 totaled $1.1 million compared to $1.2 million for the six months ended December 31, 2020. Interest expense for the six months ended December 31, 20212022, and 20202021 primarily consisted of interest incurred on the working capital credit facilities, the secured property loan entered into in November 2017,Rooster Note (as defined below), and equipment capital leases. The $0.7 million increase in interest expense for the six months ended December 31, 2022 was primarily driven by increases in average borrowings on the working capital credit facilities and increased interest rates on both our United States and Australian wholly owned subsidiaries.
Gain on Sale of Equity Investment
The gain on sale of equity investment was a result of the sale of the remainder of our investment in Bioceres.
(Benefit from) Provision for Income TaxesTax Benefit
IncomeThe income tax expense(benefit) totaled $0.1$(0.4) million for the six months ended December 31, 20212022 compared to a $0.1 million income tax expense of $44,312provision for the six months ended December 31, 2020.2021. Our effective tax rate was (0.6)%3.5% during the six months ended December 31, 2022 compared to -0.6% for the six months ended December 31, 2021 compared to (0.3)% for the six months ended December 31, 2020.2021. Our effective tax rate for the six months ended December 31, 20212022 was (0.6)%3.5% due primarily to the full valuation allowance establishedrecorded against substantially all of our deferred tax assets, which was recordedand the tax effects of the partnership with Trigall Genetics entered into during the fourth quarter of fiscal year 2017.second quarter. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operatingoperation results, with the exception of our operations in Australia. Our effective tax rate for the current quarter is primarily due to this Australianincome tax expense related to our foreign operations and minor state taxes.
Liquidity and Capital Resources
Our working capital and working capital requirements fluctuate from quarter to quarter depending on the phase of the growing and sales cycle that falls during a particular quarter. Our need for cash has historically been highest in the second and third fiscal quarters (October through March) because we historically have paid our North American contracted growers progressively, starting in the second fiscal quarter. In fiscal year 2021,2022, we paid our North American growers approximately 50% of amounts due in the fall of 20202021 and the balance was paid in the spring of 2021.2022. This payment cycle to our growers was similar in fiscal year 2020,2021, and we expect it to be similar for fiscal year 2022.2023. S&W Australia and Pasture Genetics, our Australia-based wholly owned subsidiaries, have production cycles that are
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counter-cyclical to North America; however, thisthe 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 the second, third and fourth fiscal quarters based on timing of payments to growers in the second through fourth quarters.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 expenseexpenses and other current assets, accounts payable and our working capital lines of credit.
In addition to funding our business with cash from operations, we have historically relied upon occasional sales of our debt and equity securities and credit facilities from financial institutions, both in the United States and South Australia.
Capital Resources and Material Cash Requirements
We are not profitable and have had negative cash flow from operations for the last several years. To help fund our operations, we have relied on equity and debt financings, and 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 Shell pursuant to the Shell Partnership Agreement 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, the undrawn availability under our debt facilities and issuances of equity securities or debt offerings, among other sources of 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 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, as filed with the SEC on September 28, 2022.
Below is a summary of material changes to our sources of capital during the six months ended December 31, 2022:
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 loanLoan and security agreementSecurity Agreement with CIBC Bank USA, or CIBC, as amended to date, or the CIBC Loan Agreement, provides for a $21.0 million credit facility. The following amendments to the CIBC Loan Agreement occurred during the six months ended December 31, 2022:
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NAB Finance Agreement
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 on October 24, 2022, and further amended on October 25, 2022. Pursuant to the amendments contained in the NAB Finance Agreement, among other things:
After the amendments, the consolidated debt facilities under the NAB Finance Agreement provide for up to an aggregate of AUD $49.0 (USD $33.3 million as of December 31, 2022) of credit. The NAB finance agreement is guaranteed by S&W Seed Company up to a maximum of AUD $15.0 million (USD $10.2 million as of December 31, 2022).
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 securedability to comply with this undertaking was subject to fluctuations in foreign currency conversion rates outside of our control. Due to recent fluctuations in foreign currency conversion rates, we were not in compliance with this undertaking as of December 31, 2022, and we subsequently obtained a waiver from NAB with respect to such non-compliance as of December 31, 2022. 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 December 31, 2022, approximately AUD $4.3 million (USD $2.9 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 Conterrathe 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
The MFP Loan Agreement will mature on November 30, 2025. Pursuant 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 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.
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The MFP Loan Agreement includes customary affirmative and negative covenants and events of default. The MFP Loan Agreement is secured by substantially all of our 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.
Below is a summary of material changes to our sources of capital during subsequent to the six months ended December 31, 2022:
Shell Partnership
On February 6, 2023, S&W and Shell entered into a joint venture for the development and production of sustainable biofuel feedstocks through Vision Bioenergy (see “—Strategic Review” above), and we received $7.0 million at the Shell JV Closing and will be eligible to receive an additional $6.0 million in February 2024.
Payoff of Rooster Note
On February 6, 2023, the principal and accrued interest on the Rooster Note was paid off in its entirety in connection with the Vision Bioenergy partnership.
Amendment of NAB Finance Agreement
On February 8, 2023, we further amended the NAB Finance Agreement to change the maximum permissble net related entity position from AUD $25.0 million to USD $18.5 million. We believe that this amendment to the NAB Finance Agreement will provide us with greater control over our compliance with this undertaking.
Summary
The CIBC Loan Agreement and our debt facilities with NAB contain various operating and financial covenants,covenants. Adverse geopolitical and the COVID-19 pandemic hasmacroeconomic 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 or Conterra to invoke default remedies. As of June 30, 2021, weWe were not in compliance with certain covenants in the CIBC Loan Agreement as of these covenantsJune 30, 2021, December 31, 2021, March 31, 2022, June 15, 2022 and weJune 30, 2022, and were required to obtain waivers and/or amendments from CIBC. In particular, the CIBC Loan Agreement as presently in effect requires us to maintain minimum liquidity of no less than $1.0 million and Conterra. Asthe NAB Finance Agreement, as amended, includes an undertaking that requires us to maintain a net related entity position of December 31, 2021, we obtained a covenant waiver fromnot more than USD $18.5 million. We are actively pursuing refinancing of the CIBC due to our CFO transition costs, to continue to be in compliance with the financial covenants under our loan agreement with CIBC. We believe it is uncertain we will be able to generate sufficient cash flow from operations or maintain sufficient liquidity to meet these covenants in future periods. These factors raise substantial doubt regarding our ability to continue as a going concern. If we are unable to meet these covenants, we will need to raise additional capital or secure future waivers and/or amendments from our lenders. This may include, for example, the need to finance our cash needs through a combination of equity and debt financings, as well as potentially entering into collaborations, strategic alliances and licensing arrangements, selling certain assets or divesting certain operations.Loan Agreement.
Our future liquidity and capital requirements will be influenced by numerous factors, including:
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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, ConterraNAB or our other lenders, or renewing or refinancing our existing debt.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, orfinance our cash needs through a combination of equity and debt financings, enter into collaborations, strategic alliances and licensing arrangements, sell certain assets. assets or divest certain operations.
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 couldwould be diluted and the terms of these securities maycould 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, 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. 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 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, the COVID-19 pandemic may compromise our ability to comply with the terms of our loan agreements has been compromised 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.
Below is a summary of our material sources of capital in recent periods:
Debt Financings
Loan and Security Agreement with CIBC
On December 26, 2019, we entered into a Loan and Security Agreement with CIBC, or the Loan Agreement, which we amended on September 22, 2020, December 30, 2020, May 12, 2021 and September 27, 2021. As amended, the Loan Agreement provides for a $25.0 million credit facility, or the CIBC Credit Facility. The key terms of the amended Loan Agreement include the following:
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Pursuant to the September 2021 amendment to the Loan Agreement, CIBC waived noncompliance with our fixed charge coverage ratio as of June 30, 2021 and suspended our fixed charge coverage ratio financial covenants for the fiscal quarters ended September 30, 2021 and December 31, 2021 and replaced that financial covenant with the minimum EBITDA threshold tested quarterly for the quarters ending September 30, 2021 and December 31, 2021. Pursuant to the September 2021 amendment, we revert back to our previous financial covenant to require that we maintain a fixed charge coverage ratio equal to or greater than (i) 1.00 to 1.00, beginning with the fiscal quarter ending March 31, 2022 and (ii) 1.15 to 1.00 for each fiscal quarter thereafter. In addition, pursuant to the September 2021 amendment, we are required to maintain liquidity of no less than $3,000,000 at all times for the remainder of the term of the Loan Agreement. As of December 31, 2021, we obtained a covenant waiver from CIBC, due to our CFO transition costs, to continue to be in compliance with the financial covenants under the loan agreement with CIBC.
We cannot guarantee that we will be able to comply with our covenants in the Loan Agreement in the future, or secure additional waivers if or when required. If we are unable to comply with or obtain a waiver of any noncompliance under the Loan Agreement, CIBC could declare an event of default or require us to further renegotiate the Loan Agreement on terms that may be significantly less favorable to us, or we may be required to seek additional or alternative financing. If we were to seek additional or alternative financing, any such financing may not be available to us on commercially reasonable terms or at all. Any declaration by CIBC of an event of default could significantly harm our liquidity, financial condition, operating results, business, and prospects and cause the price of our securities to decline.
We are actively engaging with potential lenders to refinance the Loan Agreement prior to its maturity on December 23, 2022. However, we cannot assure you that we will succeed in securing such refinancing on commercially reasonable terms, if at all, and whether such terms may be more restrictive than the provisions governing the Loan Agreement. In addition, we cannot assure you that we will not experience an event of default or be required to further renegotiate with, or see additional waivers from, CIBC, including on terms that may be significantly less favorable to us, before we are able to refinance the Loan Agreement, if ever.
Debt Facilities with National Australia Bank
At December 31, 2021, S&W Australia has debt facilities with National Australia Bank, or NAB, all of which are guaranteed by S&W Seed Company up to a maximum of AUD $15,000,000 (USD $10,983,000) and cross-guaranteed by S&W Australia.
In June 2020, S&W Australia executed documentation to consolidate the Pasture Genetics debt facility with NAB into its debt facilities with NAB. The documentation became effective in July 2020.
On November 11, 2021, S&W Australia amended its debt facility with NAB pursuant to which:
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After the amendment, the consolidated debt facilities with NAB provide for up to an aggregate of AUD $41,500,000 (USD $30,137,300) of credit as of December 31, 2020, and include the following:
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S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at December 31, 2021.
Secured Note with Conterra
In November 2017, we entered into a secured note financing transaction with Conterra for $12.5 million in gross proceeds. Pursuant to this transaction, we issued a secured real estate note to Conterra in the principal amount of $10.4 million, which bears interest of 7.75% per annum and is secured by a first priority security interest in the property, plant and fixtures located at our Nampa, Idaho production facilities and our Nampa, Idaho research facilities. We may prepay the secured note, in whole or in part, at any time. In January 2021, the Company completed the sale of its Five Points facility which resulted in the Company making a one-time principal pay-down of $1,706,845 on the secured real estate note. We are required to make our last semi-annual principal and interest payment of approximately $388,045, on July 1, 2022 and a one-time final payment of approximately $7,184,109 on November 30, 2022. We were in compliance with all debt covenants as of December 31, 2021. We are actively engaging with Conterra and potential lenders to refinance the Conterra note prior to the final payment under the Conterra note coming due. However, we cannot assure you that we will succeed in securing such refinancing on commercially reasonable terms, if at all, and whether such terms may be more restrictive than the provisions governing the Conterra note. In addition, we cannot assure you that we will not experience an event of default or be required to further renegotiate with, or see additional waivers from, Conterra, including on terms that may be significantly less favorable to us, before we are able to refinance the Conterra note, if ever.
Equity Issuances
On September 23, 2020 and as amended on September 27, 2021, we entered into an At Market Issuance Sales Agreement, or the ATM Agreement, with B. Riley Securities, Inc., or B Riley, under which we may offer and sell from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $17.1 million through B. Riley as our sales agent.
For the year ended June 30, 2021, we received gross proceeds of approximately $10.9 million from the sale of 3,008,015 shares of our common stock pursuant to the ATM Agreement. For the six months ended December 31, 2021, we received gross proceeds of approximately $2,586 from the sale of 848 shares of our common stock pursuant to the ATM Agreement.
As of December 31, 2021, the Company had $6.2 million remaining under the ATM Agreement.
On October 14, 2021, we entered into a Securities Purchase Agreement, or the Purchase Agreement, with the purchasers named therein, or the Purchasers, pursuant to which we agreed to sell and issue to the Purchasers an aggregate of1,847,343 shares of our common stock, or the Shares, at a purchase price of $2.73 per share, for aggregate gross proceeds of approximately $5.0 million.
The Purchasers included MFP Partners, L.P., our largest stockholder, Starlight 4, LLLP, an entity affiliated with Mark W. Wong, our Chief Executive Officer and a member of our board of directors, and Alan D. Willits, Charles B. Seidler and Robert Straus, each a member of our board of directors. Alexander C. Matina, a member of our board of directors, is Vice President of Investments of the general partner of MFP.
Summary of Cash Flows
The following table shows a summary of our cash flows for the six months ended December 31, 20212022 and 2020:2021:
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| Six Months Ended December 31, |
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| 2022 |
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| 2021 |
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Cash flows from operating activities |
| $ | (8,399,653 | ) |
| $ | (8,065,824 | ) |
Cash flows from investing activities |
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| 2,248,663 |
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| (1,206,255 | ) |
Cash flows from financing activities |
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| 5,446,944 |
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| 8,699,613 |
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Effect of exchange rate changes on cash |
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| (24,290 | ) |
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| (233,405 | ) |
Net decrease in cash and cash equivalents |
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| (728,336 | ) |
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| (805,871 | ) |
Cash and cash equivalents, beginning of period |
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| 2,056,508 |
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| 3,527,937 |
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Cash and cash equivalents, end of period |
| $ | 1,328,172 |
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| $ | 2,722,066 |
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OperatingActivities
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| Six Months Ended December 31, |
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| 2021 |
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| 2020 |
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Cash flows from operating activities |
| $ | (8,065,824 | ) |
| $ | (7,887,079 | ) |
Cash flows from investing activities |
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| (1,206,255 | ) |
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| 282,469 |
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Cash flows from financing activities |
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| 8,699,613 |
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| 5,828,555 |
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Effect of exchange rate changes on cash | �� |
| (233,405 | ) |
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| 579,040 |
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Net increase (decrease) in cash and cash equivalents |
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| (805,871 | ) |
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| (1,197,015 | ) |
Cash and cash equivalents, beginning of period |
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| 3,527,937 |
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| 4,123,094 |
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Cash and cash equivalents, end of period |
| $ | 2,722,066 |
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| $ | 2,926,079 |
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For the six months ended December 31, 2022, operating activities used $8.4 million in cash. Of this, the net loss excluding non-cash items as detailed on the statement of cash flows used $8.0 million in cash and changes in operating assets and liabilities as detailed on the statement of cash flows used $0.4 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by a $5.6 million increase in deferred revenue from prepayments for our fiscal 2023 United States domestic business and decreased inventories of $0.6 million, offset by a $4.0 million increase in accounts receivable, a decrease in accounts payable and accruals of $1.6 million, and a $0.7 million increase in other non-current assets.
OperatingActivities
For the six months ended December 31, 2021, operating activities used $8.1 million in cash. NetOf this, the net loss plus and minus the adjustments forexcluding non-cash items as detailed on the statement of cash flows used $11.0 million in cash, andwhile changes in operating assets and liabilities as detailed on the statement of cash flows provided $3.0 million in cash. The increase in cash from changes in operating assets and liabilities was primarily driven by an increase in accounts payabledeferred revenue from prepayment on end of $1.1season revenue of $5.5 million, a decrease in accounts receivable of $2.5 million, and an increase in deferred revenue from prepayment on endaccounts payable of season revenue of $5.5$1.1 million, partially offset by an increase in inventory of $5.7 million.
Investing Activities
ForInvesting activities during the six months ended December 31, 2020, operating activities used $7.9 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $10.72022 provided $2.2 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows provided $2.8which resulted from $2.0 million in cash. The increaseproceeds from the partnership transaction between Trigall Genetics and S&W Australia, $0.4 million in cashproceeds from changes in operating assets and liabilities was primarily driven by an increase in accounts payablethe sale of $5.0 million, a decrease in accounts receivableour
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remaining shares of $6.9 million, partiallyBioceres stock, offset by an increase$0.2 million in inventory of $6.9 millionadditions to property, plant and decrease in accrued expensesequipment for our United States and other current liabilities of $2.5 million.Australian facilities.
Investing Activities
Investing activities during the six months ended December 31, 2021 used $1.2 million in cash. Additionsof cash, consisting of additions to property, plant and equipment accounted for $1.2 million of the cash used in investing activities.equipment.
Financing Activities
InvestingFinancing activities during the six months ended December 31, 20202022 provided $5.4 million in cash, consisting of $6.6 million in net borrowings on the working capital lines of credit and $0.3 million in cash. Proceeds from the disposal of property, plantborrowings of long-term debt, partially offset by repayments of long-term debt of $1.1 million and equipment accounted for $0.6 milliondebt issuance costs of the cash provided in investing activities. We also had additions to property, plant and equipment of $0.3$0.4 million.
Financing Activities
Financing activities during the six months ended December 31, 2021 provided $8.7 million in cash. During the six months ended December 31, 2021, we had net borrowings on the working capital lines of credit and borrowings of $3.9long-term debt of $4.8 million, net proceeds from sale of common stock of $4.9 million, borrowings of long-term debt of $0.9 million andpartially offset by net repayments of long-term debt of $0.7 million.
Inflation Risk
Financing activitiesInflationary pressures on labor and commodity price increases directly impacted our condensed consolidated results of operations during the six months ended December 31, 2020 provided $5.8 million2022, and we expect this to continue throughout the remainder of fiscal year 2023. We attempt to manage any inflationary costs through selective price increases and changes in cash. 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 upon our unaudited condensed consolidated financial statements, which are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, judgments and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Our actual results may differ from these estimates under different assumptions or conditions.
A critical accounting estimate is one that involves a significant level of estimation uncertainty and has had or is reasonably likely to have a material impact on our financial condition or results of operations. Accordingly, we believe that our estimates for revenue recognition, internal-use software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.
During the six months ended December 31, 2020, we had net borrowings on the working capital lines of credit of $6.0 million, net proceeds from sale of common stock of $1.4 million and net repayments of long-term debt of $1.5 million.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations, including our revenue and income from continuing operations. However, if our costs2022, there were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the three and six months ended December 31, 2021.
Critical Accounting Policies
The accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated financial statements.
In preparing our financial statements, we must select and apply various accounting policies. Our most significant policies are described in Note 2 – Summary of Significant Accounting Policies of the footnotes to the consolidated financial statements. In order to apply our accounting policies, we often need to make estimates based on judgments about future events. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition andno changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection ofcritical accounting estimates. For additional information regarding our critical accounting estimates, see the discussion under "Critical Accounting Policies" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our disclosure regarding them, with the audit committee of our board of directors, and do soAnnual Report on a regular basis.
We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our results of operations, financial condition or changes in financial condition for the current period could have been materially different from those presented.
Goodwill
Goodwill is assessed annually for impairment or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit. We adopted Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment, or ASU 2017-04, effective July 1, 2018. This standard eliminates Step 2 from the goodwill impairment test. Instead, we perform our annual or interim goodwill impairment test by comparing the fair value of our one reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
The goodwill balance at December 31, 2021 and June 30, 2021 relates to our February 2020 acquisition of Pasture Genetics. Upon completing the impairment test on our one reporting unit, there was no impairmentForm 10-K for the year ended June 30, 2021.
Intangible Assets
All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over2022, as filed with 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 fair value is below carrying value. Fair values are typically estimated using discounted cash flow techniques. Significant changes in key assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized or expected to be utilized could result in an impairment charge.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718 Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under such provisions, stock-based compensation cost is measured at the grant date, basedSEC on the calculated fair value of 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 (FASB ASC 505-50). Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest.
We utilize the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under share-based compensation plans. The Black-Scholes-Merton model requires us to estimate a variety of factors including, but not limited to, the expected term of the award, stock price volatility, dividend rate, risk-free interest rate. The input factors to use in the valuation model are based on subjective future expectations combined with management judgment. The expected term used represents the weighted-average period that the stock options are expected to be outstanding. We have used the historical volatility for our stock for the expected volatility assumption required in the model, as it is more representative of future stock price trends. We use a risk-free interest rate that is based on the implied yield available on U.S. Treasury issued with an equivalent remaining term at the time of grant. We have not paid dividends in the past and currently do not plan to pay any dividends in the foreseeable future, and as such, dividend yield is assumed to be zero for the purposes of valuing the stock options granted. We evaluate the assumptions used to value stock
awards on a quarterly basis. If factors change, and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. When there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense. To the extent that we grant additional equity securities to employees, our share-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants.September 28, 2022.
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 consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws, statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the remaining deferred tax asset and increase the tax provision, resulting in a reduction of earnings and stockholders’ equity.
Inventories
All inventories are accounted for on a lower of cost or net realizable value. Inventories consist of raw materials and finished goods. Depending on market conditions, the actual amount received on sale could differ from our estimated value of inventory. In order to determine the value of inventory at the balance sheet date, we evaluate a number of factors to determine the adequacy of provisions for inventory. The factors include the age of inventory, the amount of inventory held by type, future demand for products and the expected future selling price we expect to realize by selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions. We perform a review of our inventory by product line on a quarterly basis.
During the six months ended December 31, 2021, we recognized a write-down of inventory in the amount of $0.7 million which is included in Cost of Revenue in the Consolidated Statement of Operations. The write-down of inventory during the six months ended December 31, 2021 was primarily related to certain inventory lots that deteriorated in quality / germination rates during the quarter.
During the six months ended December 31, 2020, we recognized a write-down of inventory in the amount of $0.9 million which is included in Cost of Revenue in the Consolidated Statement of Operations. The write-down of inventory during the six months ended December 31, 2020 was primarily related to certain inventory lots that deteriorated in quality / germination rates during the quarter.
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 are judgmental in nature and are made at a point in time. Management believes the allowance for doubtful accounts is appropriate to cover anticipated losses in our accounts receivable under current conditions; however, unexpected, significant deterioration in any of the factors mentioned above or in general economic conditions could materially change these expectations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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We are a smaller reporting company and, therefore, we are not required to provide information required bytypically disclosed under this item of Form 10-Q.item.
Item 4. Controls and Procedures.
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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 September 30, 2021.December 31, 2022. 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,
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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 December 31, 2021,2022, 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
Item 1. Legal Proceedings. 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. |
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None.
Item 1A. Risk Factors.
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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. |
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None.
Item 3. Defaults Upon Senior Securities. None. |
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None.
Item 4. Mine Safety Disclosures.
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Not applicable.
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None.Item 5. Other Information.
On February 8, 2023, S&W Australia, our wholly owned Australian subsidiary, entered into an amendment to the NAB Finance Agreement to revise the maximum permissible net related entity position from AUD $25.0 million to USD $18.5 million.
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Item 6. Exhibits. |
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Exhibit No. | Description | |
3.1 | ||
3.2 | ||
3.3 | Registrant's Second Amended and Restated Bylaws, together with Amendment One | |
4.1 | ||
4.2 | ||
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4.4(6) | Common Stock Purchase Warrant issued to MFP Partners, L.P. on September 22, 2022. | |
4.5 | Common Stock Purchase Warrant issued to MFP Partners, L.P. on October 28, 2022. | |
4.6 | Common Stock Purchase Warrant issued to MFP Partners, L.P. on December 22, 2022. | |
10.1 | ||
10.2 | ||
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10.4 | ||
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10.6 | ||
10.7 | ||
10.8+ | ||
31.1 | ||
31.2 | ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 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 | |
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| Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
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(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). (3) Incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 14, 2020 (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). (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). * 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. + Indicates management contract or compensatory plan. 38 |
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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: February | By: | /s/ Elizabeth Horton | |
Elizabeth Horton | |||
Chief Financial Officer (On behalf of the registrant in her capacity as Principal Financial and Accounting Officer) |
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