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 March 31,September 30, 2022
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 COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Nevada |
| 27-1275784 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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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 | ☐ |
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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 Act). ☐ Yes ☒ No
The number of shares outstanding of common stock of the registrant as of May 16,November 4, 2022 was 41,559,732.42,623,445.
S&W SEED COMPANY
TABLE OF CONTENTS
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Item 1. |
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| Consolidated Balance Sheets at |
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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:concerning our loan agreements, including our ability to comply with and/or secure refinancing for such loan agreements; the potential effects of global macroeconomic events and the COVID-19 pandemic on our business; the plans, strategies and objectives of management for our future operations;operations, including our expectations for new product introductions during fiscal 2023 and our implementation of our recently implemented strategic review (which includes our plans to reduce annual operating expenses); our ability to raise capital in the future; expected development, performance or market acceptance relating to our products or services or our ability to expand our grower or customer bases or to diversify our product offerings; future economic conditions or performance; our ability to retain key employees; and our assumptions, expectations and beliefs underlying any of the foregoing. These forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations about future events. Such forward-looking statements are subject to risks, uncertainties and other important factors, including certain assumptions, that, if they never materialize or 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, 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 preliminary, nonbinding discussions for a joint venture in wheat with Trigall Genetics may not result in a consummated transaction, the joint venture may not be created in the manner or on the terms expected, or at all, and the joint venture 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. 2
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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.
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
2
uncertain and actual results may differ materially from those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Furthermore, such forward-looking statements represent our views as of, and speak only as of, the date of this Quarterly Report on Form 10-Q, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We undertake no obligation to publicly update any forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “S&W” and “S&W Seed” refer to S&W Seed Company and its subsidiaries or, as the context may require, S&W Seed Company only. Our fiscal year ends on June 30, and accordingly, the terms “fiscal 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
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS |
| March 31, 2022 |
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| June 30, 2021 |
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| September 30, 2022 |
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| June 30, 2022 |
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CURRENT ASSETS |
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| CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 3,141,919 |
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| $ | 3,527,937 |
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| $ | 1,224,400 |
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| $ | 2,056,508 |
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Accounts receivable, net |
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| 23,559,952 |
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| 19,389,213 |
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| 27,707,851 |
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| 19,051,236 |
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Inventories, net |
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| 71,917,710 |
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| 63,395,256 |
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| 49,831,196 |
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| 54,515,894 |
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Prepaid expenses and other current assets |
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| 1,181,307 |
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| 1,555,530 |
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| 1,940,218 |
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| 1,605,987 |
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TOTAL CURRENT ASSETS |
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| 99,800,888 |
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| 87,867,936 |
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| 80,703,665 |
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| 77,229,625 |
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Property, plant and equipment, net |
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| 17,466,927 |
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| 17,740,974 |
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| 16,204,434 |
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| 16,871,669 |
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Intangibles, net |
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| 35,303,431 |
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| 37,130,942 |
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| 33,111,696 |
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| 34,095,827 |
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Goodwill |
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| 1,649,211 |
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| 1,651,634 |
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Other assets |
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| 5,936,816 |
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| 7,079,490 |
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| 5,272,985 |
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| 5,590,730 |
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TOTAL ASSETS |
| $ | 160,157,273 |
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| $ | 151,470,976 |
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| $ | 135,292,780 |
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| $ | 133,787,851 |
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LIABILITIES, SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
| $ | 25,004,563 |
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| $ | 15,947,918 |
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| $ | 17,073,969 |
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| $ | 15,901,116 |
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Deferred revenue |
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| 3,056,588 |
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| 385,328 |
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| 963,435 |
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| 605,960 |
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Accrued expenses and other current liabilities |
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| 9,497,053 |
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| 9,134,869 |
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| 10,540,681 |
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| 10,788,740 |
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Current portion of working capital lines of credit, net |
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| 13,678,143 |
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| 33,946,565 |
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| 39,798,376 |
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| 12,678,897 |
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Current portion of long-term debt, net |
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| 8,424,681 |
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| 1,681,166 |
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| 8,108,613 |
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| 8,316,783 |
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TOTAL CURRENT LIABILITIES |
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| 59,661,028 |
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| 61,095,846 |
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| 76,485,074 |
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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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| 23,590,666 |
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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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| 4,966,090 |
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| 11,590,500 |
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| 3,767,839 |
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| 3,992,540 |
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Contingent consideration obligation |
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| 0 |
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| 741,552 |
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Other non-current liabilities |
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| 3,430,750 |
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| 3,649,885 |
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| 3,461,501 |
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| 3,587,041 |
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TOTAL LIABILITIES |
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| 91,648,534 |
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| 77,077,783 |
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| 83,714,414 |
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| 77,574,363 |
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SERIES B CONVERTIBLE PREFERRED STOCK |
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Preferred stock, $0.001 par value; 3,323 shares authorized; 1,695 shares issued and outstanding |
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| 4,691,716 |
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| 0 |
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Preferred stock, $0.001 par value; 3,323 shares authorized; |
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| 4,918,880 |
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| 4,804,819 |
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TOTAL SERIES B CONVERTIBLE PREFERRED STOCK |
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| 4,691,716 |
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| 0 |
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| 4,918,880 |
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| 4,804,819 |
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STOCKHOLDERS' EQUITY |
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Common stock, $0.001 par value; 75,000,000 shares authorized; 41,565,768 issued and 41,540,768 outstanding at March 31, 2022; 36,772,983 issued and 36,747,983 outstanding at June 30, 2021; |
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| 41,566 |
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| 36,773 |
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Common stock, $0.001 par value; 75,000,000 shares authorized; |
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| 42,633 |
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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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| 162,342,148 |
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| 149,684,357 |
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| 164,486,927 |
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| 163,892,575 |
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Accumulated deficit |
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| (92,865,104 | ) |
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| (69,311,909 | ) |
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| (110,496,559 | ) |
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| (105,873,557 | ) |
Accumulated other comprehensive loss |
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| (5,578,324 | ) |
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| (5,850,826 | ) |
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| (7,274,895 | ) |
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| (6,560,600 | ) |
Noncontrolling interests |
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| 10,933 |
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| (31,006 | ) |
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| 35,576 |
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| 41,838 |
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TOTAL STOCKHOLDERS' EQUITY |
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| 63,817,023 |
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| 74,393,193 |
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| 46,659,486 |
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| 51,408,669 |
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TOTAL LIABILITIES, SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY |
| $ | 160,157,273 |
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| $ | 151,470,976 |
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| $ | 135,292,780 |
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| $ | 133,787,851 |
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See notes to consolidated financial statements.
4
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| Three Months Ended March 31, |
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| Nine Months Ended March 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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| Three Months Ended September 30, |
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| 2022 |
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| 2021 |
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Revenue |
| $ | 23,186,877 |
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| $ | 32,376,697 |
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| $ | 51,349,967 |
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| $ | 61,283,414 |
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| $ | 19,865,865 |
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| $ | 15,531,682 |
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Cost of revenue |
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| 20,481,463 |
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| 26,206,066 |
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| 43,857,520 |
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| 51,293,692 |
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| 15,361,354 |
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| 12,405,012 |
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Gross profit |
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| 2,705,414 |
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| 6,170,631 |
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| 7,492,447 |
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| 9,989,722 |
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| 4,504,511 |
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| 3,126,670 |
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Operating expenses |
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Selling, general and administrative expenses |
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| 5,582,060 |
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| 5,797,322 |
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| 18,260,785 |
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| 16,402,352 |
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| 5,056,257 |
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| 5,587,635 |
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Research and development expenses |
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| 1,904,631 |
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| 2,357,905 |
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| 6,010,172 |
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| 6,483,894 |
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| 1,515,380 |
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| 1,995,128 |
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Depreciation and amortization |
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| 1,379,856 |
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| 1,336,798 |
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| 4,084,554 |
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| 4,126,776 |
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| 1,336,434 |
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| 1,331,045 |
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Loss (gain) on disposal of property, plant and equipment |
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| 49,796 |
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| (1,311,346 | ) |
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| 13,957 |
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| (1,353,415 | ) | ||||||||
Gain on disposal of property, plant and equipment |
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| (3,660 | ) |
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| (18,067 | ) | ||||||||||||||||
Total operating expenses |
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| 8,916,343 |
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| 8,180,679 |
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| 28,369,468 |
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| 25,659,607 |
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| 7,904,411 |
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| 8,895,741 |
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Loss from operations |
|
| (6,210,929 | ) |
|
| (2,010,048 | ) |
|
| (20,877,021 | ) |
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| (15,669,885 | ) |
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| (3,399,900 | ) |
|
| (5,769,071 | ) |
Other expense |
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Foreign currency loss (gain) |
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| 146,935 |
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| 87,849 |
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| 567,963 |
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| (16,704 | ) | ||||||||
Other (income) expense |
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Foreign currency loss |
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| 190,915 |
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| 162,545 |
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Change in contingent consideration obligation |
|
| (185,800 | ) |
|
| (683,611 | ) |
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| (714,429 | ) |
|
| (248,092 | ) |
|
| — |
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|
| (62,254 | ) |
Interest expense - amortization of debt discount |
|
| 246,801 |
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|
| 133,941 |
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| 660,191 |
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| 501,601 |
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| 283,643 |
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| 192,195 |
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Interest expense |
|
| 589,696 |
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| 558,494 |
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| 1,721,646 |
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| 1,736,836 |
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Gain on sale of marketable security |
|
| (68,967 | ) |
|
| — |
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| (68,967 | ) |
|
| — |
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Interest expense, net |
|
| 742,409 |
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| 518,486 |
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Loss before income taxes |
|
| (6,939,594 | ) |
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| (2,106,721 | ) |
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| (23,043,425 | ) |
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| (17,643,526 | ) |
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| (4,616,867 | ) |
|
| (6,580,043 | ) |
Provision (benefit) for income taxes |
|
| 322,661 |
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| (257,633 | ) |
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| 414,636 |
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| (213,320 | ) | ||||||||
Benefit from income taxes |
|
| (101,664 | ) |
|
| (165,802 | ) | ||||||||||||||||
Net loss |
| $ | (7,262,255 | ) |
| $ | (1,849,088 | ) |
| $ | (23,458,061 | ) |
| $ | (17,430,206 | ) |
| $ | (4,515,203 | ) |
| $ | (6,414,241 | ) |
Net income (loss) attributed to noncontrolling interests |
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| 42,668 |
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| (1,796 | ) |
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| 41,939 |
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| 56,298 |
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Net loss attributable to noncontrolling interests |
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| (6,262 | ) |
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| (14,266 | ) | ||||||||||||||||
Net loss attributable to S&W Seed Company |
| $ | (7,304,923 | ) |
| $ | (1,847,292 | ) |
| $ | (23,500,000 | ) |
| $ | (17,486,504 | ) |
| $ | (4,508,941 | ) |
| $ | (6,399,975 | ) |
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Calculation of net loss for earning (loss) per share: |
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Calculation of net loss for loss per share: |
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Net loss attributable to S&W Seed Company |
| $ | (7,304,923 | ) |
| $ | — |
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| $ | (23,500,000 | ) |
| $ | — |
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| $ | (4,508,941 | ) |
| $ | (6,399,975 | ) |
Dividends accrued for participating securities and accretion |
| $ | (53,195 | ) |
| $ | — |
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| $ | (53,195 | ) |
| $ | — |
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| (114,061 | ) |
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| — |
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Net loss attributed to common shareholders |
| $ | (7,358,118 | ) |
| $ | — |
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| $ | (23,553,195 | ) |
| $ | — |
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Net loss attributable to common shareholders |
| $ | (4,623,002 | ) |
| $ | (6,399,975 | ) | ||||||||||||||||
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Net loss attributable to S&W Seed Company per common share: |
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|
|
|
| ||
Basic |
| $ | (0.19 | ) |
| $ | (0.05 | ) |
| $ | (0.62 | ) |
| $ | (0.51 | ) |
| $ | (0.11 | ) |
| $ | (0.17 | ) |
Diluted |
| $ | (0.19 | ) |
| $ | (0.05 | ) |
| $ | (0.62 | ) |
| $ | (0.51 | ) |
| $ | (0.11 | ) |
| $ | (0.17 | ) |
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic |
|
| 39,515,547 |
|
|
| 34,945,476 |
|
|
| 38,240,917 |
|
|
| 33,976,517 |
|
|
| 42,604,020 |
|
|
| 36,773,864 |
|
Diluted |
|
| 39,515,547 |
|
|
| 34,945,476 |
|
|
| 38,240,917 |
|
|
| 33,976,517 |
|
|
| 42,604,020 |
|
|
| 36,773,864 |
|
See notes to consolidated financial statements.
5
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
|
| Three Months Ended September 30, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
Net loss |
| $ | (7,262,255 | ) |
| $ | (1,849,088 | ) |
| $ | (23,458,061 | ) |
| $ | (17,430,206 | ) |
| $ | (4,515,203 | ) |
| $ | (6,414,241 | ) |
Foreign currency translation adjustment, net of income taxes |
|
| 480,280 |
|
|
| 36,875 |
|
|
| 272,502 |
|
|
| 570,841 |
|
|
| (714,295 | ) |
|
| (461,127 | ) |
Comprehensive loss |
| $ | (6,781,975 | ) |
| $ | (1,812,213 | ) |
| $ | (23,185,559 | ) |
| $ | (16,859,365 | ) |
|
| (5,229,498 | ) |
|
| (6,875,368 | ) |
Comprehensive income (loss) attributable to noncontrolling interests |
|
| 42,668 |
|
|
| (1,796 | ) |
|
| 41,939 |
|
|
| 56,298 |
| ||||||||
Comprehensive loss attributable to noncontrolling interests |
|
| (6,262 | ) |
|
| (14,266 | ) | ||||||||||||||||
Comprehensive loss attributable to S&W Seed Company |
| $ | (6,824,643 | ) |
| $ | (1,810,417 | ) |
| $ | (23,227,498 | ) |
| $ | (16,915,663 | ) |
| $ | (5,223,236 | ) |
| $ | (6,861,102 | ) |
See notes to consolidated financial statements.
6
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF 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, 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 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 421,814 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 421,814 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 20,718 |
|
|
| 21 |
|
|
| — |
|
|
| — |
|
|
| (28,727 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,706 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 1,080,902 |
|
|
| 1,081 |
|
|
| — |
|
|
| — |
|
|
| 3,740,910 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,741,991 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,875 |
|
|
| 36,875 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,847,292 | ) |
|
| (1,796 | ) |
|
| — |
|
|
| (1,849,088 | ) |
Balance, March 31, 2021 |
|
| — |
|
| $ | — |
|
|
| 35,291,280 |
|
| $ | 35,291 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 144,162,671 |
|
| $ | (67,627,446 | ) |
| $ | (64,161 | ) |
| $ | (5,540,583 | ) |
| $ | 70,831,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Stock-based compensation - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 413,293 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 413,293 |
|
Series B Detachable Warrant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 361,729 |
|
|
| (12,919 | ) |
|
| — |
|
|
| — |
|
|
| 348,810 |
|
Accrued dividends on Series B Convertible Preferred Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40,276 | ) |
|
| — |
|
|
| — |
|
|
| (40,276 | ) |
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 18,056 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| (20,458 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,440 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 2,633,052 |
|
|
| 2,633 |
|
|
| — |
|
|
| — |
|
|
| 5,734,449 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,737,082 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 480,280 |
|
|
| 480,280 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,304,923 | ) |
|
| 42,668 |
|
|
| — |
|
|
| (7,262,255 | ) |
Balance, March 31, 2022 |
|
| — |
|
| $ | — |
|
|
| 41,565,768 |
|
| $ | 41,566 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 162,342,148 |
|
| $ | (92,865,104 | ) |
| $ | 10,933 |
|
| $ | (5,578,324 | ) |
| $ | 63,817,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,303,439 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,303,439 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 253,199 |
|
|
| 253 |
|
|
| — |
|
|
| — |
|
|
| (76,645 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (76,392 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 1,580,220 |
|
|
| 1,580 |
|
|
| — |
|
|
| — |
|
|
| 5,126,337 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,127,917 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 570,841 |
|
|
| 570,841 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,486,504 | ) |
|
| 56,298 |
|
|
| — |
|
|
| (17,430,206 | ) |
Balance, March 31, 2021 |
|
| — |
|
| $ | — |
|
|
| 35,291,280 |
|
| $ | 35,291 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 144,162,671 |
|
| $ | (67,627,446 | ) |
| $ | (64,161 | ) |
| $ | (5,540,583 | ) |
| $ | 70,831,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,821,808 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,821,808 |
|
Series B Detachable Warrant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 361,729 |
|
|
| (12,919 | ) |
|
| — |
|
|
| — |
|
|
| 348,810 |
|
Accrued dividends on Series B Convertible Preferred Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40,276 | ) |
|
| — |
|
|
| — |
|
|
| (40,276 | ) |
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 311,542 |
|
|
| 312 |
|
|
| — |
|
|
| — |
|
|
| (179,039 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (178,727 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 4,481,243 |
|
|
| 4,481 |
|
|
| — |
|
|
| — |
|
|
| 10,653,293 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,657,774 |
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 272,502 |
|
|
| 272,502 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,500,000 | ) |
|
| 41,939 |
|
|
| — |
|
|
| (23,458,061 | ) |
Balance, March 31, 2022 |
|
| — |
|
| $ | — |
|
|
| 41,565,768 |
|
| $ | 41,566 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 162,342,148 |
|
| $ | (92,865,104 | ) |
| $ | 10,933 |
|
| $ | (5,578,324 | ) |
| $ | 63,817,023 |
|
|
| Preferred Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Noncontrolling |
|
| 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 - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 394,312 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 394,312 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 28,263 |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| (40,743 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40,715 | ) |
Proceeds from sale of common stock, net of fees and expenses |
|
| — |
|
|
| — |
|
|
| 848 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 2,480 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,481 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (461,127 | ) |
|
| (461,127 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,399,975 | ) |
|
| (14,266 | ) |
|
| — |
|
|
| (6,414,241 | ) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance, June 30, 2022 |
|
| — |
|
| $ | — |
|
|
| 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 - options, restricted stock, and RSUs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 456,112 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 456,112 |
|
Series B detachable warrant |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,838 | ) |
|
| — |
|
|
| — |
|
|
| (25,838 | ) |
Accrued dividends on Series B convertible preferred stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (88,223 | ) |
|
| — |
|
|
| — |
|
|
| (88,223 | ) |
Subordinated loan & security agreement warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 146,474 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 146,474 |
|
Net issuance to settle RSUs |
|
| — |
|
|
| — |
|
|
| 23,827 |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| (8,234 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,210 | ) |
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (714,295 | ) |
|
| (714,295 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,508,941 | ) |
|
| (6,262 | ) |
|
| — |
|
|
| (4,515,203 | ) |
Balance, September 30, 2022 |
|
| — |
|
| $ | — |
|
|
| 42,632,585 |
|
| $ | 42,633 |
|
|
| (25,000 | ) |
| $ | (134,196 | ) |
| $ | 164,486,927 |
|
| $ | (110,496,559 | ) |
| $ | 35,576 |
|
| $ | (7,274,895 | ) |
| $ | 46,659,486 |
|
See notes to consolidated financial statements.
7
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| Nine Months Ended March 31, |
|
| Three Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss |
| $ | (23,458,061 | ) |
| $ | (17,430,206 | ) |
| $ | (4,515,203 | ) |
| $ | (6,414,241 | ) |
Adjustments to reconcile net loss from operating activities to net |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
cash used in operating activities |
|
|
|
|
|
|
|
| ||||||||
cash used in operating activities: |
|
|
|
|
|
| ||||||||||
Stock-based compensation |
|
| 1,821,808 |
|
|
| 1,303,439 |
|
|
| 456,112 |
|
|
| 394,312 |
|
Change in allowance for doubtful accounts |
|
| 200,458 |
|
|
| (234,270 | ) |
|
| (155,421 | ) |
|
| 97,028 |
|
Inventory write-down |
|
| 1,877,229 |
|
|
| 1,253,073 |
|
|
| 537,998 |
|
|
| 307,000 |
|
Depreciation and amortization |
|
| 4,084,554 |
|
|
| 4,126,776 |
|
|
| 1,336,434 |
|
|
| 1,331,045 |
|
Loss (gain) on disposal of property, plant and equipment |
|
| 13,957 |
|
|
| (1,353,415 | ) | ||||||||
Gain on disposal of property, plant and equipment |
|
| (3,660 | ) |
|
| (18,067 | ) | ||||||||
Change in foreign exchange contracts |
|
| 46,157 |
|
|
| (94,123 | ) |
|
| 503,985 |
|
|
| 235,912 |
|
Foreign currency transactions |
|
| (1,294,985 | ) |
|
| — |
| ||||||||
Change in contingent consideration obligation |
|
| (714,429 | ) |
|
| (248,092 | ) |
|
| — |
|
|
| (62,254 | ) |
Amortization of debt discount |
|
| 660,191 |
|
|
| 501,601 |
|
|
| 283,643 |
|
|
| 192,195 |
|
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
|
| (4,272,470 | ) |
|
| (3,934,992 | ) |
|
| (8,996,608 | ) |
|
| (3,247,001 | ) |
Inventories |
|
| (10,256,441 | ) |
|
| (1,410,638 | ) |
|
| 3,124,383 |
|
|
| (1,040,417 | ) |
Prepaid expenses and other current assets |
|
| 363,963 |
|
|
| 475,607 |
|
|
| (216,080 | ) |
|
| (17,504 | ) |
Other non-current asset |
|
| (152,621 | ) |
|
| 53,924 |
|
|
| 72,381 |
|
|
| (17,800 | ) |
Accounts payable |
|
| 8,866,376 |
|
|
| 13,560,980 |
|
|
| 1,671,381 |
|
|
| 1,949,750 |
|
Deferred revenue |
|
| 2,670,287 |
|
|
| (4,425,381 | ) |
|
| 361,348 |
|
|
| 324,688 |
|
Accrued expenses and other current liabilities |
|
| 360,147 |
|
|
| (1,951,704 | ) |
|
| (436,714 | ) |
|
| 566,298 |
|
Other non-current liabilities |
|
| (117,524 | ) |
|
| (41,940 | ) |
|
| (48,989 | ) |
|
| (65,426 | ) |
Net cash used in operating activities |
|
| (18,006,419 | ) |
|
| (9,849,361 | ) |
|
| (7,319,995 | ) |
|
| (5,484,482 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Additions to property, plant and equipment |
|
| (1,637,547 | ) |
|
| (772,531 | ) |
|
| (151,376 | ) |
|
| (470,960 | ) |
Proceeds from disposal of property, plant and equipment |
|
| 79,862 |
|
|
| 643,194 |
|
|
| 3,660 |
|
|
| 18,313 |
|
Net proceeds from sale of marketable securities |
|
| 988,504 |
|
|
| 0 |
| ||||||||
Proceeds from sale of assets held for sale |
|
| 0 |
|
|
| 2,229,352 |
| ||||||||
Acquisition of germplasm |
|
| 0 |
|
|
| (8,499 | ) | ||||||||
Net cash (used in) provided by investing activities |
|
| (569,181 | ) |
|
| 2,091,516 |
| ||||||||
Net cash used in by investing activities |
|
| (147,716 | ) |
|
| (452,647 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net proceeds from sale of common stock |
|
| 10,657,775 |
|
|
| 5,127,917 |
|
|
| — |
|
|
| 2,481 |
|
Net proceeds from sale of preferred stock |
|
| 5,000,250 |
|
|
| — |
| ||||||||
Taxes paid related to net share settlements of stock-based compensation awards |
|
| (178,727 | ) |
|
| (76,392 | ) |
|
| (8,210 | ) |
|
| (40,715 | ) |
Borrowings and repayments on lines of credit, net |
|
| 2,757,274 |
|
|
| 5,744,377 |
|
|
| 6,750,048 |
|
|
| 5,274,959 |
|
Borrowings of long-term debt |
|
| 860,801 |
|
|
| 152,200 |
|
|
| 266,734 |
|
|
| 150,768 |
|
Debt issuance costs |
|
| (169,901 | ) |
|
| (93,670 | ) |
|
| (128,879 | ) |
|
| (103,261 | ) |
Repayments of long-term debt |
|
| (1,027,959 | ) |
|
| (4,189,648 | ) |
|
| (457,929 | ) |
|
| (452,544 | ) |
Net cash provided by financing activities |
|
| 17,899,513 |
|
|
| 6,664,784 |
|
|
| 6,421,764 |
|
|
| 4,831,688 |
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| 290,069 |
|
|
| 334,478 |
|
|
| 213,839 |
|
|
| (527,769 | ) |
NET DECREASE IN CASH & CASH EQUIVALENTS |
|
| (386,018 | ) |
|
| (758,583 | ) |
|
| (832,108 | ) |
|
| (1,633,210 | ) |
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 |
| $ | 3,141,919 |
|
| $ | 3,364,511 |
|
| $ | 1,224,400 |
|
| $ | 1,894,727 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
| ||||||||
Cash paid during the period for: |
|
|
|
|
|
|
|
| ||||||||
Interest |
| $ | 1,916,894 |
|
| $ | 2,160,742 |
| ||||||||
Income taxes |
|
| 278,095 |
|
|
| 244,062 |
|
See notes to consolidated financial statements.
8
S&W SEED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND AND ORGANIZATION
Organization
The Company began as S&W Seed Company, 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, which 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%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 of stevia and developing marketing and distribution programs for its stevia products.
The Company has also been actively engaged in expansion initiatives through a combination of organic growth and strategic acquisitions.
The Company had a long-term distribution agreement with Pioneer Hi-Bred International, Inc., or Pioneer, now a subsidiary of Corteva Agriscience, Inc., which is jointly referred to as Corteva, regarding conventional (non-GMO) 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, 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 all 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, S&W Australia, a wholly owned subsidiary of S&W Seed Company, licensed certain wheat germplasm varieties and acquired certain equipment from affiliates of Corteva Agriscience, Inc., or Corteva. In the transaction, S&W Australia paid a one-time license fee of $2.3$2.3 million and an equipment purchase price of $0.3$0.3 million. The license has an initial term of 15 years.
In February 2020, S&W Australia acquired Pasture Genetics, the third largest pasture seed company in Australia, as part of the Company’s efforts to diversify its product offerings and expand its distribution channels.
9
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation 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 CompanyCompany's exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests.
The Company owns 50.1%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. 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%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$0.4 million of current assets (restricted) and $0.1 million$27,762 of current liabilities (nonrecourse) for these entities in itsour consolidated balance sheet as of March 31,September 30, 2022.
The Company recorded a combined $0.6$0.5 million of current assets (restricted) and $0.1 million$31,307 of current liabilities (nonrecourse) for these entities in its consolidated balance sheet as of June 30, 2021. 2022.
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, 2022.2023. 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.
TheCertain adverse geopolitical and macroeconomic events, such as the continued impact of COVID-19, pandemicthe ongoing conflict between Ukraine and the efforts to contain itRussia and related sanctions, and uncertain market conditions, including higher inflation and supply chain disruptions, have, among other things, negatively impacted the global economy, and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic hasmarkets, and 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.
10
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.historically.
Certain Risks and Concentrations
The Company’s revenue is principally derived from the sale of seed, the market for which is highly competitive. NaNOne customer accounted for 15%16% of its revenue for the three months ended March 31,September 30, 2022 and 1no single customer accounted for 28%more than 10% of its revenue for the three months ended March 31,September 30, 2021. NaN customers accounted for 14% of its revenue for the nine months ended March 31, 2022 and 1
No customer accounted for 25% of its revenue for the nine months ended March 31, 2021.
NaN customers accounted for 13%more than 10% of the Company’s accounts receivable at March 31, 2022. NaN customer accounted for 11%as of the Company’s accounts receivable at June 30, 2021.2022 and September 30, 2022.
The Company sells a substantial portion of its products to international customers. Sales to international markets represented 60%79% and 52%76% of revenue during the three months ended March 31,September 30, 2022 and 2021, respectively. Sales to international markets represented 70% and 55% of revenue during the nine months ended March 31, 2022 and 2021, respectively. The net book value of fixed assets located outside the United States was 23%21% and 19%22% of total fixed assets at March 31,September 30, 2022 and June 30, 2021,2022, respectively. Cash balances located outside of the United States may not be insured and totaled $363,694$195,158 and $204,813$811,551 at March 31,September 30, 2022 and June 30, 2021,2022, respectively.
The following table shows revenue from external sources by destination country:
|
| Three Months Ended September 30, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Saudi Arabia |
| $ | 5,172,286 |
|
|
| 26 | % |
| $ | 3,467,210 |
|
|
| 22 | % |
United States |
|
| 4,260,754 |
|
|
| 21 | % |
|
| 3,665,328 |
|
|
| 24 | % |
Libya |
|
| 2,998,047 |
|
|
| 15 | % |
|
| 1,044,000 |
|
|
| 7 | % |
Australia |
|
| 2,557,732 |
|
|
| 13 | % |
|
| 3,434,005 |
|
|
| 22 | % |
Pakistan |
|
| 821,620 |
|
|
| 4 | % |
|
| 164,055 |
|
|
| 1 | % |
Sudan |
|
| 802,044 |
|
|
| 4 | % |
|
| 819,618 |
|
|
| 5 | % |
Algeria |
|
| 754,680 |
|
|
| 4 | % |
|
| — |
|
|
| — |
|
Mexico |
|
| 731,100 |
|
|
| 4 | % |
|
| 228,420 |
|
|
| 2 | % |
China |
|
| 468,500 |
|
|
| 2 | % |
|
| 473,125 |
|
|
| 3 | % |
Argentina |
|
| 362,978 |
|
|
| 2 | % |
|
| 350,839 |
|
|
| 2 | % |
Other |
|
| 936,124 |
|
|
| 5 | % |
|
| 1,885,082 |
|
|
| 12 | % |
Total revenue |
| $ | 19,865,865 |
|
|
| 100 | % |
| $ | 15,531,682 |
|
|
| 100 | % |
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
United States |
| $ | 9,270,851 |
|
|
| 40 | % |
| $ | 15,672,861 |
|
|
| 48 | % |
| $ | 15,340,257 |
|
|
| 30 | % |
| $ | 27,773,152 |
|
|
| 45 | % |
Australia |
|
| 8,846,660 |
|
|
| 38 | % |
|
| 11,426,369 |
|
|
| 35 | % |
|
| 14,526,512 |
|
|
| 28 | % |
|
| 16,268,261 |
|
|
| 27 | % |
Saudi Arabia |
|
| 1,168,502 |
|
|
| 5 | % |
|
| 324,000 |
|
|
| 1 | % |
|
| 6,316,258 |
|
|
| 12 | % |
|
| 2,383,192 |
|
|
| 4 | % |
Pakistan |
|
| 602,060 |
|
|
| 3 | % |
|
| 444,353 |
|
|
| 1 | % |
|
| 2,833,622 |
|
|
| 6 | % |
|
| 2,041,548 |
|
|
| 3 | % |
China |
|
| 929,335 |
|
|
| 4 | % |
|
| 1,366,381 |
|
|
| 4 | % |
|
| 1,668,044 |
|
|
| 3 | % |
|
| 1,847,007 |
|
|
| 3 | % |
South Africa |
|
| 265,292 |
|
|
| 1 | % |
|
| 946,631 |
|
|
| 3 | % |
|
| 1,644,073 |
|
|
| 3 | % |
|
| 1,923,525 |
|
|
| 3 | % |
Argentina |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 0 | % |
|
| 1,409,147 |
|
|
| 3 | % |
|
| 1,183,667 |
|
|
| 2 | % |
Libya |
|
| — |
|
|
| 0 | % |
|
| 306,000 |
|
|
| 1 | % |
|
| 1,088,000 |
|
|
| 2 | % |
|
| 718,960 |
|
|
| 1 | % |
Egypt |
|
| 557,510 |
|
|
| 2 | % |
|
| 79,890 |
|
|
| 0 | % |
|
| 959,810 |
|
|
| 2 | % |
|
| 472,970 |
|
|
| 1 | % |
Sudan |
|
| — |
|
|
| 0 | % |
|
| — |
|
|
| 0 | % |
|
| 819,618 |
|
|
| 2 | % |
|
| 484,645 |
|
|
| 1 | % |
Other |
|
| 1,546,667 |
|
|
| 7 | % |
|
| 1,810,212 |
|
|
| 6 | % |
|
| 4,744,626 |
|
|
| 9 | % |
|
| 6,186,487 |
|
|
| 10 | % |
Total |
| $ | 23,186,877 |
|
|
| 100 | % |
| $ | 32,376,697 |
|
|
| 100 | % |
| $ | 51,349,967 |
|
|
| 100 | % |
| $ | 61,283,414 |
|
|
| 100 | % |
Liquidity and Capital Resources
The Company is monitoring the impact of adverse geopolitical and macroeconomic events, including the COVID-19 pandemic and the ongoing military conflict between Russia and Ukraine and related sanctions, and uncertain market conditions, including higher inflation and supply chain disruptions, 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. condition.
The Company’s sales efforts historically involved significant in-person interaction with potential customers and distributors. Throughout 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, regular in-person customer interactions did not resume until February 2022 in some locations where 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.Company operates. If ongoing measures to protect against COVID-19 remain in effect throughoutare reinstated during the 2022fiscal 2023 sales season, the Company may experience similar negative impacts that it experienced during the 2020fiscal 2021 and 20212022 sales seasons.
Following the recent invasion of Ukraine by Russia, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia and related sanctions, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, the Company’s business, including its ability to deliver seed and timely receive payment from customers, and access to capital may be adversely affected by the ongoing military conflict
11
between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.
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, 20212022 and the three and nine months ended March 31,September 30, 2022, 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.costs, which the Company attributes to the COVID-19 pandemic and the general disruptions from the ongoing conflict between Ukraine and Russia and related sanctions. The Company expects these logistical challenges to persist throughout fiscal 2022,2023, 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,these adverse geopolitical and macroeconomic events, the Company is unable to fully assess the extent of itstheir impact on the Company’s operations.
For the ninethree months ended March 31,September 30, 2022, we reported a net loss of $23.5$4.5 million and net cash used in operations of $18.0$7.3 million. At March 31,September 30, 2022, we had cash on hand of $3.1$1.2 million.
The Company’s loanLoan and security agreementSecurity Agreement, dated December 26, 2019, or the CIBC Loan Agreement, with CIBC Bank USA, or CIBC, and the Company’s secured promissory note, withor Rooster Note, that it executed in favor of Conterra Agriculture Capital, LLC, or Conterra, and subsequently endorsed to Rooster Capital, LLC, or Rooster, which maturematures on December 23, 2022, and November 30, 2022, respectively,its debt facilities with National Australia Bank, or NAB, contain various operating and financial covenants (See Note 8)7). The COVID-19 pandemicAdverse 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 and the Rooster Note as of June 30, 2021, December 31, 2021, and March 31, 2022, June 15, 2022 and June 30, 2022, and was required to obtain waivers and/or amendments from CIBC and Conterra.Rooster. In particular, the CIBC loan agreementLoan Agreement as presently in effect requires the Company to maintain minimum liquidity of no less than $1,000,000 through$1,000,000, and including June 29, 2022 and $2,500,000 thereafter. Thethe NAB Finance Agreement (as defined below) includes an undertaking that requires the Company doesto maintain a net related entity position of not more than AUD $25,000,000. Accordingly, the Company’s ability to comply with this undertaking is subject to fluctuations in foreign currency conversion rates, which are outside of the Company’s control. Due to recent fluctuations in foreign currency conversion rates, the Company is currently expect itnot in compliance with this undertaking. Although the Company is currently in discussions with NAB to revise how compliance with this undertaking is measured, there can be no assurances that the Company will be able to generate sufficient cash flow from operationssecure an amendment to the NAB Finance Agreement or maintain sufficient liquidity to meet these covenants in certain periods prior to maturity. The Company will need to either raise additional capital, secure future waivers and/or amendments from its lenders, obtain financing from new lenders, and/or accomplish some combination of these items to maintain sufficient liquidity.regain compliance with this undertaking. The Company is actively pursuing refinancing of the CIBC debt facility.Loan Agreement and the Rooster Note. There can be no assurance the Company will be successful in raising additional capital, securing future waivers and/or amendments from its lenders, renewing or refinancing its existing debt or securing new 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. The Company is also exploring strategic alternatives for underutilized assets, including plans to enter the camelina market as a seed and technology provider. These operating and liquidity factors raise substantial doubt regarding the Company’s ability to continue as a going concern. OurThe Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
International Operations
The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income (loss). Gains or losses from foreign currency transactions are included in the consolidated statement of operations.operations, and included approximately $1.0 million benefit to cost of revenues and $0.2 million foreign currency loss to other (income) expense for the three months ended September 30, 2022.
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.
12
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 $264,892$80,743 and $57,582$233,927 at March 31,September 30, 2022 and June 30, 2021,2022, respectively.
Inventories
Inventories consist of seed and packaging materials.
Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and 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:are as follows:
|
| As of |
|
| As of |
| ||
Raw materials and supplies |
| $ | 3,138,774 |
|
| $ | 2,645,764 |
|
Work in progress |
|
| 8,345,528 |
|
|
| 6,677,980 |
|
Finished goods |
|
| 38,346,894 |
|
|
| 45,192,150 |
|
Inventories, net |
| $ | 49,831,196 |
|
| $ | 54,515,894 |
|
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Raw materials and supplies |
| $ | 2,676,366 |
|
| $ | 2,722,832 |
|
Work in progress |
|
| 20,398,537 |
|
|
| 6,662,006 |
|
Finished goods |
|
| 48,842,807 |
|
|
| 54,010,418 |
|
|
| $ | 71,917,710 |
|
| $ | 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 5-355-35 years for buildings, 2-202-20 years for machinery and equipment, and 2-52-5 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 3-303-30 years for technology/IP/germplasm, 5-205-20 years for customer relationships and trade names and 3-203-20 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 1819 years for other intangible assets.
Goodwill
GoodwillThe Company acquired Pasture Genetics in February 2020, and recorded goodwill of $1,452,436 as part of this transaction.
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
13
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, 20212022 on its 1one reporting unit and determined that goodwill was notfully impaired. See Note 65 for further information.
Investment in Bioceres S.A.
The Company owns less than 1%1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. The carrying value of the investment is $0.4$0.4 million at March 31,September 30, 2022 and $1.3$0.4 million at June 30, 2021,2022, and the investment is included in Other Assets on the Consolidated Balance Sheet.Company’s 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.
During the three months ended March 31,third quarter of fiscal year 2022, the Company sold 71.4%71.4% of the investment in Bioceres, S.A. for net proceeds of $988,504,$988,504, which included a gain on the sale of marketable securities of $68,967. NaN$68,967.
No adjustments for impairment were made for the three months or nine months ended March 31,September 30, 2022 or March 31,September 30, 2021.
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 assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and nine months ended March 31,September 30, 2022 and March 31,September 30, 2021 has been affected by the valuation allowance on the Company’s deferred tax assets.assets.
Net Income (Loss) Per Common Share Data
Basic net income (loss) per common share, or EPS, is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting both the numerator (net income (loss)) 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 cost 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 added to the denominator.
The Company computes earnings per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. The Company’s Series B Preferred Stock (as defined below) and warrantthe Warrant (as defined below) are participating securities because holders of such sharesequity have non-forfeitable dividend rights and participate in any undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net loss attributable to common shareholders. During the three and nine months ended March 31,September 30, 2022, there were $40,276$88,223 in accrued dividends subtracted from net income attributable to common shareholders; there were 0no undistributed earnings to allocate
14
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 EPS calculation. During the three and nine months ended March 31,September 30, 2022, $12,919$25,838 was accreted to the redemption value of the Series B Preferred Stock and subtracted from net income attributable to common shareholders.
The calculation of Basic and Diluted EPS is shown in the table below.
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
|
| Three Months Ended September 30, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss attributable to S&W Seed Company |
| $ | (7,304,923 | ) |
| $ | (1,847,292 | ) |
| $ | (23,500,000 | ) |
| $ | (17,486,504 | ) |
| $ | (4,508,941 | ) |
| $ | (6,399,975 | ) |
Dividends accrued for participating securities and accretion |
|
| (53,195 | ) |
|
| 0 |
|
|
| (53,195 | ) |
|
| 0 |
|
|
| (114,061 | ) |
|
| — |
|
Numerator for basic and diluted EPS |
|
| (7,358,118 | ) |
|
| (1,847,292 | ) |
|
| (23,553,195 | ) |
|
| (17,486,504 | ) |
| $ | (4,623,002 | ) |
| $ | (6,399,975 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Denominator for basic EPS-weighted- average shares |
|
| 39,515,547 |
|
|
| 34,945,476 |
|
|
| 38,240,917 |
|
|
| 33,976,517 |
| ||||||||
Denominator for basic EPS - weighted average |
|
| 42,604,020 |
|
|
| 36,773,864 |
| ||||||||||||||||
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 |
|
| 39,515,547 |
|
|
| 34,945,476 |
|
|
| 38,240,917 |
|
|
| 33,976,517 |
|
|
| 42,604,020 |
|
|
| 36,773,864 |
|
Basic EPS |
| $ | (0.19 | ) |
| $ | (0.05 | ) |
| $ | (0.62 | ) |
| $ | (0.51 | ) |
| $ | (0.11 | ) |
| $ | (0.17 | ) |
Diluted EPS |
| $ | (0.19 | ) |
| $ | (0.05 | ) |
| $ | (0.62 | ) |
| $ | (0.51 | ) |
| $ | (0.11 | ) |
| $ | (0.17 | ) |
The effects of employee stock options and restricted stock units are excluded because they would be anti-dilutive due to the Company’s net loss for the three and nine months ended March 31,September 30, 2022 and 20212021. .
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating 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. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. Refer to Note 65 for impairment discussion.
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.
The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings.
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. 15
|
|
|
|
|
|
The carrying value of cash and cash equivalents, accounts payable, short-term and all long-term borrowings, as reflected in the 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 |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract liability |
| $ | — |
|
| $ | 1,421,980 |
|
| $ | — |
|
Contingent consideration obligations |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | — |
|
| $ | 1,421,980 |
|
| $ | — |
|
|
| Fair Value Measurements as of |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract liability |
| $ | — |
|
| $ | 996,106 |
|
| $ | — |
|
Contingent consideration obligations |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | — |
|
| $ | 996,106 |
|
| $ | — |
|
|
| Fair Value Measurements as of March 31, 2022 Using: |
| |||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||
Foreign exchange contract asset |
| $ | 0 |
|
| $ | 93,800 |
|
| $ | 0 |
|
Contingent consideration obligations |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Total |
| $ | 0 |
|
| $ | 93,800 |
|
| $ | 0 |
|
|
| 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 AdoptedNew Accounting Pronouncements
The Company adopted ASU 2020-06,Accounting for Convertiblepronouncements not yet adopted
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments and Contracts in an Entity’s Own Equity effective July 1, 2021. This ASU simplifiesThe standard introduces new guidance for the accounting for convertiblecredit losses on instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversionwithin its scope, including trade and Other Options, for convertible instruments. The ASU updatesother receivables. In addition, the guidance on certain embedded conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, such that those features are no longer required to be separated from the host contract. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate when applying the guidance in Topic 835, Interest. Further, the ASU madeFASB subsequently issued several amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impactthis standard. All of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU also made revisions to Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. The amendments to Topic 815-40 change the scope of contracts thatthese standards are recognized as assets or liabilities. The ASU is effective for interimthe Company on July 1, 2023 and annual periods beginning after December 15, 2021, with earlyrequire adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be onusing a modified retrospective or full retrospective basis. At the timeapproach. The Company does not expect application of adoption, we had no outstanding convertible instruments and no adjustments were recognizedthese standards to our July 1, 2021 accumulated deficit. The adoption of this ASU had nohave a significant impact on the Company’s consolidatedits results of operations or financial statements and related disclosures. position.
NOTE 3 - LEASES
S&W 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.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 nine months ended March 31,September 30, 2022. The Company’s lease agreements do not contain material restrictive covenants.
16
The components of lease assets and liabilities as of September 30, 2022 are as follows:
Leases |
| Balance Sheet Classification: |
|
|
| |
Assets: |
|
|
|
|
| |
Right of use assets - operating leases |
| Other assets |
| $ | 4,014,379 |
|
|
|
|
|
|
| |
Right of use assets - finance leases |
| Other assets |
| $ | 2,021,839 |
|
Accumulated amortization - finance leases |
| Other assets |
|
| (1,244,915 | ) |
Right of use assets - finance leases, net |
| Other assets |
| $ | 776,924 |
|
Total lease assets |
|
|
| $ | 4,791,303 |
|
|
|
|
|
|
| |
Liabilities: |
|
|
|
|
| |
Current portion of long-term debt, net |
| Current portion of long-term debt, net |
| $ | 754,818 |
|
Current lease liabilities |
| Accrued expenses and other current liabilities |
|
| 1,233,912 |
|
Long-term debt, net, less current portion |
| Long-term debt, net, less current portion |
|
| 313,605 |
|
Long-term lease liabilities |
| Other non-current liabilities |
|
| 3,019,216 |
|
Total lease liabilities |
|
|
| $ | 5,321,551 |
|
Leases |
| Balance Sheet Classification |
| March 31, 2022 |
| |
Assets: |
|
|
|
|
|
|
Right of use assets - operating leases |
| Other assets |
| $ | 4,257,123 |
|
|
|
|
|
|
|
|
Right of use assets - finance leases |
| Other assets |
|
| 2,301,350 |
|
Accumulated amortization - finance leases |
| Other assets |
|
| (1,120,890 | ) |
Right of use assets - finance leases, net |
| Other assets |
|
| 1,180,460 |
|
Total lease assets |
|
|
| $ | 5,437,583 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Current portion of long-term debt, net |
| Current portion of long-term debt, net |
|
| 883,251 |
|
Current lease liabilities |
| Accrued expenses and other current liabilities |
|
| 1,314,027 |
|
Long-term debt, net |
| Long-term debt, net |
|
| 735,257 |
|
Long-term lease liabilities |
| Other long-term liabilities |
|
| 3,189,188 |
|
Total lease liabilities |
|
|
| $ | 6,121,723 |
|
The components of lease cost are as follows:
Lease cost: |
| Income Statement Classification: |
| Three Months Ended |
| |
Operating lease cost |
| Cost of revenue |
| $ | 183,860 |
|
Operating lease cost |
| Selling, general and administrative expenses |
|
| 55,334 |
|
Operating lease cost |
| Research and development expenses |
|
| 136,197 |
|
Finance lease cost |
| Depreciation and amortization and interest expense |
|
| 156,335 |
|
Total lease costs |
|
|
| $ | 531,726 |
|
Leases |
| Income Statement Classification |
| Three Months Ended March 31, 2022 |
|
| Nine Months Ended March 31, 2022 |
| ||
Operating lease cost |
| Cost of revenue |
| $ | 172,582 |
|
| $ | 527,354 |
|
Operating lease cost |
| Selling, general and administrative expenses |
|
| 82,043 |
|
|
| 235,868 |
|
Operating lease cost |
| Research and development expenses |
|
| 122,280 |
|
|
| 312,341 |
|
Finance lease cost |
| Depreciation and amortization |
|
| 183,261 |
|
|
| 533,877 |
|
Total lease costs |
|
|
| $ | 560,166 |
|
| $ | 1,609,440 |
|
Maturities of lease liabilities as of March 31, 2022 are as follows:
|
| Operating Leases |
|
| Finance Leases |
| ||
2023 |
| $ | 1,055,368 |
|
| $ | 662,269 |
|
2024 |
|
| 1,293,732 |
|
|
| 320,703 |
|
2025 |
|
| 923,092 |
|
|
| 97,299 |
|
2026 |
|
| 756,049 |
|
|
| 36,804 |
|
2027 |
|
| 477,765 |
|
|
| — |
|
After 2027 |
|
| 122,223 |
|
|
| — |
|
Total lease payments |
|
| 4,628,229 |
|
|
| 1,117,075 |
|
Less: Interest |
|
| (375,101 | ) |
|
| (48,652 | ) |
Present value of lease liabilities |
| $ | 4,253,128 |
|
| $ | 1,068,423 |
|
|
|
|
| Operating Leases |
| Finance Leases |
| ||
Remainder of 2022 |
|
|
| $ | 429,195 |
| $ | 271,001 |
|
2023 |
|
|
|
| 1,254,993 |
|
| 956,902 |
|
2024 |
|
|
|
| 1,153,370 |
|
| 375,811 |
|
2025 |
|
|
|
| 811,971 |
|
| 109,016 |
|
2026 |
|
|
|
| 726,553 |
|
| 23,816 |
|
After 2026 |
|
|
|
| 505,569 |
|
| — |
|
Total lease payments |
|
|
|
| 4,881,651 |
|
| 1,736,546 |
|
Less: Interest |
|
|
|
| (378,436 | ) |
| (118,038 | ) |
Present value of lease liabilities |
|
|
| $ | 4,503,215 |
| $ | 1,618,508 |
|
The following are the weighted average assumptions used for lease term and discount rate and supplemental cash flow information related to leases as of March 31,September 30, 2022:
Operating lease remaining lease term |
| 3.8 years |
| |
Operating lease discount rate |
|
| 4.24 | % |
Finance lease remaining lease term |
| 1.3 years |
| |
Finance lease discount rate |
|
| 5.51 | % |
Cash paid for operating leases |
| $ | 349,947 |
|
Cash paid for finance leases |
|
| 306,812 |
|
17
Operating lease remaining lease term |
| 4.3 years |
| |
Operating lease discount rate |
|
| 4.09 | % |
Finance lease remaining lease term |
| 1.8 years |
| |
Finance lease discount rate |
|
| 5.09 | % |
Cash paid for operating leases |
| $ | 859,713 |
|
Cash paid for finance leases |
| $ | 1,244,746 |
|
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.
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 March 31, 2022 and June 30, 2021.
NOTE 54 - REVENUE RECOGNITION
The Company derives its revenue from 1) the sale of seed, 2) milling and packaging services 3) research and development services and 4)3) product licensing agreements.
The following table disaggregates the Company’s revenue by type of contract:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Pioneer product sales |
| $ | — |
|
| $ | 8,507,062 |
|
| $ | — |
|
| $ | 14,198,857 |
|
Other product sales |
|
| 22,791,148 |
|
|
| 22,987,351 |
|
|
| 49,946,635 |
|
|
| 45,267,007 |
|
Services |
|
| 395,729 |
|
|
| 882,284 |
|
|
| 1,403,332 |
|
|
| 1,817,550 |
|
|
| $ | 23,186,877 |
|
| $ | 32,376,697 |
|
| $ | 51,349,967 |
|
| $ | 61,283,414 |
|
Pioneer Product Sales
In the three and nine months ended March 31, 2021, Pioneer product sales consisted of product shipments to Pioneer under the termination agreement discussed in Note 4.
|
| Three Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Other product sales |
| $ | 19,837,787 |
|
| $ | 14,905,402 |
|
Services |
|
| 28,078 |
|
|
| 626,280 |
|
Total revenue |
| $ | 19,865,865 |
|
| $ | 15,531,682 |
|
Other Product Sales
Revenue from other 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. 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.
Services
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 180 days for export customers and end of sales season (September 30th) for branded products sold within the United States. As the period between the transfer of goods and/or services to the customer and receipt of payment is less than one year, the Company does not separately account for a financing component in its contracts with customers.
Unbilled receivables represent contract assets that arise when 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 when it becomes probable that amounts will not be paid. These losses are reversed in subsequent periods if these amounts are paid. During the three months ended March 31,September 30, 2022, the Company recognized a gain on amounts previously written off to bad debt expense of $(20,705)$155,421. During the nine months ended March 31, 2022, the Company recognized a net loss on amounts written off to bad debt expense of $200,458.
Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation. During the ninethree months ended March 31,September 30, 2022, the Company recognized $0.4$0.6 million of revenue that was included in the deferred balance as of June 30, 2022. During the three months ended September 30, 2021, the Company recognized $0.2 million of revenue that was included in the deferred balance as of June 30, 2021. During the nine months ended March 31, 2021, the Company recognized $6.2 million of revenue that was included in the deferred balance as of June 30, 2020.
NOTE 65 – GOODWILL AND INTANGIBLE ASSETS
During the fourth quarter of the fiscal year ended June 30, 2022, the Company had a sustained decline in market valuation of its common stock, thereby triggering a potential indicator of goodwill impairment. As a result, the Company initiated a goodwill impairment test for the year ended June 30, 2022.
The Company acquired Pasture Genetics in February 2020, and recorded goodwillcompared the carrying value of $1,452,436, as part of this transaction. The Company performed a quantitative assessment of goodwillits invested capital to estimated fair values at June 30, 20212022. The Company estimated the fair value using the market approach and a control premium (based on its 1 reporting unit andmanagement’s best estimate) was added.
18
Upon completing the impairment test, the Company determined that the estimated fair value of invested capital was less than the carrying value by approximately 3%, thus indicating an impairment. The Company recognized a goodwill was not impairedimpairment charge of $.1.5 million for the year ended June 30, 2022, which represented the entire goodwill balance prior to the impairment charge.
The following table summarizes the activity of goodwill for the ninethree months ended March 31,September 30, 2022 and the year ended June 30, 2021,2022, respectively.
Balance at | Additions | Impairment | Currency Translation Adjustment | Balance at | ||||||||||||||||
Goodwill | $ | — | $ | — | $ | — | $ | — | $ | — |
|
| Balance at |
|
| Additions |
|
| Impairment |
|
| Currency Translation Adjustment |
|
| Balance at |
| |||||
Goodwill |
| $ | 1,651,634 |
|
| $ | — |
|
| $ | (1,548,324 | ) |
| $ | (103,310 | ) |
| $ | — |
|
For the year ended June 30, 2022, the Company determined there was no impairment on its intangible assets.
|
| Balance at July 1, 2021 |
|
| Additions |
|
| Impairment |
|
| Currency Translation Adjustment |
|
| Balance at March 31, 2022 |
| |||||
Goodwill |
| $ | 1,651,634 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (2,423 | ) |
| $ | 1,649,211 |
|
|
| 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 |
|
| Additions |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at |
| |||||
Trade name |
| $ | 1,084,791 |
|
| $ | — |
|
| $ | (49,481 | ) |
| $ | (11,783 | ) |
| $ | 1,023,527 |
|
Customer relationships |
|
| 5,499,815 |
|
|
| — |
|
|
| (89,285 | ) |
|
| (269,916 | ) |
|
| 5,140,614 |
|
Non-compete |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
GI customer list |
|
| 42,983 |
|
|
| — |
|
|
| (1,791 | ) |
|
| — |
|
|
| 41,192 |
|
Supply agreement |
|
| 775,241 |
|
|
| — |
|
|
| (18,908 | ) |
|
| — |
|
|
| 756,333 |
|
Grower relationships |
|
| 1,331,581 |
|
|
| — |
|
|
| (26,352 | ) |
|
| — |
|
|
| 1,305,229 |
|
Intellectual property |
|
| 23,035,925 |
|
|
| — |
|
|
| (346,704 | ) |
|
| — |
|
|
| 22,689,221 |
|
License agreement |
|
| 1,986,598 |
|
|
| — |
|
|
| (40,531 | ) |
|
| (112,436 | ) |
|
| 1,833,631 |
|
Internal use software |
|
| 338,893 |
|
|
| — |
|
|
| (16,944 | ) |
|
| — |
|
|
| 321,949 |
|
|
| $ | 34,095,827 |
|
| $ | — |
|
| $ | (589,996 | ) |
| $ | (394,135 | ) |
| $ | 33,111,696 |
|
|
| Balance at July 1, 2021 |
|
| Additions |
|
| Impairment |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at March 31, 2022 |
|
| Balance at |
|
| Additions |
|
| Amortization |
|
| Currency Translation Adjustment |
|
| Balance at |
| |||||||||||
Trade name |
| $ | 1,310,489 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (152,569 | ) |
| $ | (2,289 | ) |
| $ | 1,155,631 |
|
| $ | 1,310,489 |
|
| $ | — |
|
| $ | (203,009 | ) |
| $ | (22,689 | ) |
| $ | 1,084,791 |
|
Customer relationships |
|
| 6,302,591 |
|
|
| 0 |
|
|
| 0 |
|
|
| (281,047 | ) |
|
| (13,754 | ) |
|
| 6,007,790 |
|
|
| 6,302,591 |
|
|
| — |
|
|
| (373,393 | ) |
|
| (429,383 | ) |
|
| 5,499,815 |
|
Non-compete |
|
| 5,058 |
|
|
| 0 |
|
|
| 0 |
|
|
| (5,058 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 5,058 |
|
|
| — |
|
|
| (5,058 | ) |
|
| — |
|
|
| — |
|
GI customer list |
|
| 50,146 |
|
|
| 0 |
|
|
| 0 |
|
|
| (5,373 | ) |
|
| 0 |
|
|
| 44,773 |
|
|
| 50,146 |
|
|
| — |
|
|
| (7,163 | ) |
|
| — |
|
|
| 42,983 |
|
Supply agreement |
|
| 850,874 |
|
|
| 0 |
|
|
| 0 |
|
|
| (56,725 | ) |
|
| 0 |
|
|
| 794,149 |
|
|
| 850,874 |
|
|
| — |
|
|
| (75,633 | ) |
|
| — |
|
|
| 775,241 |
|
Grower relationships |
|
| 1,436,988 |
|
|
| 0 |
|
|
| 0 |
|
|
| (79,055 | ) |
|
| 0 |
|
|
| 1,357,933 |
|
|
| 1,436,988 |
|
|
| — |
|
|
| (105,407 | ) |
|
| — |
|
|
| 1,331,581 |
|
Intellectual property |
|
| 24,427,857 |
|
|
| 0 |
|
|
| 0 |
|
|
| (1,044,266 | ) |
|
| 0 |
|
|
| 23,383,591 |
|
|
| 24,427,857 |
|
|
| — |
|
|
| (1,391,932 | ) |
|
| — |
|
|
| 23,035,925 |
|
In process research and development |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
License agreement |
|
| 2,340,269 |
|
|
| 0 |
|
|
| 0 |
|
|
| (129,612 | ) |
|
| (6,930 | ) |
|
| 2,203,727 |
|
|
| 2,340,269 |
|
|
| — |
|
|
| (172,004 | ) |
|
| (181,667 | ) |
|
| 1,986,598 |
|
Internal use software |
|
| 406,670 |
|
|
| 0 |
|
|
| 0 |
|
|
| (50,833 | ) |
|
| 0 |
|
|
| 355,837 |
|
|
| 406,670 |
|
|
| — |
|
|
| (67,777 | ) |
|
| — |
|
|
| 338,893 |
|
|
| $ | 37,130,942 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | (1,804,538 | ) |
| $ | (22,973 | ) |
| $ | 35,303,431 |
|
| $ | 37,130,942 |
|
| $ | — |
|
| $ | (2,401,376 | ) |
| $ | (633,739 | ) |
| $ | 34,095,827 |
|
|
| 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 |
|
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 $598,399$589,996 and $604,439$604,489 for the three months ended March 31,September 30, 2022 and 2021, respectively. Amortization expense totaled $1,804,538 and $1,798,227 for the nine months ended March 31, 2022 and 2021, respectively.
Estimated aggregate remaining amortization is as follows:
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
| ||||||
Amortization expense |
| $ | 1,856,468 |
|
| $ | 2,298,113 |
|
| $ | 2,267,090 |
|
| $ | 2,181,123 |
|
| $ | 2,130,239 |
|
| $ | 22,378,663 |
|
19
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| ||||||
Amortization expense |
| $ | 609,303 |
|
| $ | 2,502,920 |
|
| $ | 2,480,385 |
|
| $ | 2,319,707 |
|
| $ | 2,233,290 |
|
| $ | 25,157,826 |
|
NOTE 76 - PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment were as follows:
|
| March 31, 2022 |
|
| June 30, 2021 |
|
| As of |
|
| As of |
| ||||
Land and improvements |
| $ | 2,296,944 |
|
| $ | 2,297,529 |
|
| $ | 2,243,972 |
|
| $ | 2,265,087 |
|
Buildings and improvements |
|
| 8,201,738 |
|
|
| 8,196,593 |
|
|
| 8,065,798 |
|
|
| 8,119,960 |
|
Machinery and equipment |
|
| 14,975,940 |
|
|
| 13,935,053 |
|
|
| 14,931,729 |
|
|
| 14,972,462 |
|
Vehicles |
|
| 1,191,797 |
|
|
| 1,046,937 |
|
|
| 1,073,704 |
|
|
| 1,085,342 |
|
Leasehold improvements |
|
| 552,810 |
|
|
| 552,810 |
|
|
| 552,810 |
|
|
| 552,810 |
|
Construction in progress |
|
| 141,093 |
|
|
| 48,480 |
|
|
| 39,473 |
|
|
| 110,107 |
|
Total property, plant and equipment |
|
| 27,360,322 |
|
|
| 26,077,402 |
|
|
| 26,907,486 |
|
|
| 27,105,768 |
|
Less: accumulated depreciation |
|
| (9,893,395 | ) |
|
| (8,336,428 | ) |
|
| (10,703,052 | ) |
|
| (10,234,099 | ) |
Property, plant and equipment, net |
| $ | 17,466,927 |
|
| $ | 17,740,974 |
|
| $ | 16,204,434 |
|
| $ | 16,871,669 |
|
Depreciation expense totaled $625,327$606,748 and $604,080$570,510 for the three months ended March 31,September 30, 2022 and 2021, respectively. Depreciation expense totaled $1,809,915 and $1,941,750 for the nine months ended March 31, 2022 and 2021, respectively.
NOTE 87 - DEBT
Total debt outstanding is presented on the consolidated balance sheet as follows:
|
| As of |
|
| As of |
| ||
Current portion of working capital lines of credit |
|
|
|
|
|
| ||
CIBC |
| $ | 15,778,748 |
|
| $ | 12,804,611 |
|
National Australia Bank Limited |
|
| 24,016,700 |
|
|
| 338,314 |
|
National Australia Bank Limited Overdraft Facility |
|
| 313,687 |
|
|
| — |
|
Debt issuance costs |
|
| (310,759 | ) |
|
| (464,028 | ) |
Total current portion of working capital lines of credit, net |
|
| 39,798,376 |
|
|
| 12,678,897 |
|
Long-term portion of working capital lines of credit, less current portion |
|
|
|
|
|
| ||
National Australia Bank Limited |
|
| — |
|
|
| 21,703,286 |
|
Total long-term portion of working capital lines of credit |
|
| — |
|
|
| 21,703,286 |
|
Total working capital lines of credit, net |
| $ | 39,798,376 |
|
| $ | 34,382,183 |
|
Current portion of long-term debt |
|
|
|
|
|
| ||
Finance leases |
| $ | 754,818 |
|
| $ | 804,309 |
|
Debt issuance costs |
|
| (1,079 | ) |
|
| (1,828 | ) |
Term Loan - National Australia |
|
| 324,550 |
|
|
| 344,400 |
|
Machinery & equipment loans - |
|
| 273,874 |
|
|
| 246,547 |
|
Machinery & equipment loans - Hyster |
|
| 11,278 |
|
|
| 11,834 |
|
Vehicle loans - Ford Credit |
|
| 40,341 |
|
|
| 40,341 |
|
Secured real estate note - Rooster |
|
| 6,726,376 |
|
|
| 6,905,995 |
|
Debt issuance costs |
|
| (21,545 | ) |
|
| (34,815 | ) |
Total current portion, net |
|
| 8,108,613 |
|
|
| 8,316,783 |
|
Long-term debt, less current portion |
|
|
|
|
|
| ||
Finance leases |
|
| 313,605 |
|
|
| 500,723 |
|
Debt issuance costs |
|
| — |
|
|
| (21 | ) |
Term loan - National Australia |
|
| 2,271,850 |
|
|
| 2,410,800 |
|
Machinery & equipment loans - |
|
| 1,080,841 |
|
|
| 963,733 |
|
Machinery & equipment loans - Hyster |
|
| 24,200 |
|
|
| 28,722 |
|
Vehicle loans - Ford Credit |
|
| 77,343 |
|
|
| 88,583 |
|
Total long-term portion, net |
|
| 3,767,839 |
|
|
| 3,992,540 |
|
Total debt, net |
| $ | 11,876,452 |
|
| $ | 12,309,323 |
|
|
| March 31, 2022 |
|
| June 30, 2021 |
| ||
Current portion of working capital lines of credit |
|
|
|
|
|
|
|
|
CIBC |
| $ | 13,000,000 |
|
| $ | 14,500,000 |
|
National Australia Bank Limited |
|
| 367,734 |
|
|
| 19,494,800 |
|
National Australia Bank Limited Overdraft Facility |
|
| 611,014 |
|
|
| 617,471 |
|
Debt issuance costs |
|
| (300,605 | ) |
|
| (665,706 | ) |
Total current portion of working capital lines of credit, net |
|
| 13,678,143 |
|
|
| 33,946,565 |
|
Long-term portion of working capital lines of credit, less current portion |
|
|
|
|
|
|
|
|
National Australia Bank Limited |
|
| 23,590,666 |
|
|
| — |
|
Total long-term portion of working capital lines of credit |
|
| 23,590,666 |
|
|
| — |
|
Total working capital lines of credit, net |
| $ | 37,268,809 |
|
| $ | 33,946,565 |
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
Finance lease |
| $ | 883,251 |
|
| $ | 909,413 |
|
Debt issuance costs |
|
| (2,656 | ) |
| $ | (5,077 | ) |
Term loan - National Australia Bank Limited |
|
| 374,350 |
|
|
| 374,900 |
|
Machinery & equipment loans - National Australia Bank Limited |
|
| 266,385 |
|
|
| 160,632 |
|
Machinery & equipment loans - Hyster |
|
| 12,720 |
|
|
| 5,170 |
|
Vehicle loans - Ford Credit |
|
| 40,341 |
|
|
| — |
|
Secured real estate note - Conterra |
|
| 6,905,995 |
|
|
| 275,684 |
|
Debt issuance costs |
|
| (55,705 | ) |
|
| (39,556 | ) |
Total current portion, net |
|
| 8,424,681 |
|
|
| 1,681,166 |
|
Long-term debt, less current portion |
|
|
|
|
|
|
|
|
Finance lease |
|
| 735,257 |
|
|
| 1,108,709 |
|
Debt issuance costs |
|
| (163 | ) |
|
| (1,847 | ) |
Term loan - National Australia Bank Limited |
|
| 2,994,800 |
|
|
| 2,999,200 |
|
Machinery & equipment loans - National Australia Bank Limited |
|
| 1,101,381 |
|
|
| 508,641 |
|
Machinery & equipment loans - Hyster |
|
| 34,489 |
|
|
| 17,923 |
|
Vehicle loans - Ford Credit |
|
| 100,326 |
|
|
| — |
|
Secured real estate note - Conterra |
|
| 0 |
|
|
| 6,974,356 |
|
Debt issuance costs |
|
| 0 |
|
|
| (16,482 | ) |
Total long-term portion, net |
|
| 4,966,090 |
|
|
| 11,590,500 |
|
Total debt, net |
| $ | 13,390,771 |
|
| $ | 13,271,666 |
|
20
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. The CIBC Loan Agreement was subsequently amended on September 22, 2020, December 30, 2020, May 13, 2021, September 27, 2021, and May 13, 2022, September 22, 2022 and October 28, 2022. As amended, the CIBC Loan Agreement provides for a $20.0 milliontotal revolving credit facility.
loan commitment of $21.0 million. The following is a summary of certain terms of the amended loan agreement:
CIBC Loan Agreement and the CIBC Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to the May 13,lesser of (i) 65% of eligible inventory, (ii) 85% of the appraised net orderly liquidation value of eligible inventory, and (iii) an eligible inventory sublimit of $12,000,000, in each case, subject to lender reserves.
The October 28, 2022 amendment to the CIBC Loan Agreement, among other things, increased (i) the total revolving loan commitment provided underto $21.0 million from $18.0 million; and (ii) the Loan Agreement has been reducedborrowing base eligible inventory sublimit to $20,000,000$12.0 million from $25,000,000; (ii) CIBC waived noncompliance with$9.0 million. As of September 30, 2022, the Company’s fixed charge coverage ratio financial covenant as of March 31, 2022; (iii) the fixed charge coverage ratio financial covenant has been eliminated for periods after March 31, 2022; (iv) the minimum liquidity financial covenant has been adjusted to require maintenance of no less than $1,000,000 of Liquidity (as defined in the Loan Agreement) (reduced from $3,000,000) through June 29, 2022 and , thereafter, no less than $2,500,000 for the remainder of the Loan Agreement, in each case tested weekly. The Company was not in compliance with all covenants contained in the fixed charge coverage ratio financial covenant as of March 31, 2022, however, pursuant to the May 2022 amendment, the Company obtained a waiver from CIBC to continue to be in compliance with the financial covenants under the Loan Agreement.
As of March 31,September 30, 2022, there was approximately $2.3$2.2 million of unused availability onunder the CIBC Credit Facility.
In November 2017, the Company entered into a secured note financing transaction, or the Loan Transaction, with Conterra Agricultural Capital, LLC, or Conterra, for $12.5$12.5 million in gross proceeds. Pursuant to the Loan Transaction, the Company issued a secured real estate notethe Rooster Note to Conterra (which was subsequently endorsed to Rooster) in the principal amount of $10.4$10.4 million, which bears interest of 7.75%at 7.75% per annum and is secured by a first priority security interest in the property, plant and fixtures located at the Company's Nampa, Idaho production facilities and its Nampa, Idaho research facilities. On December 24, 2019, the Company entered into an amendment to extend the note’s maturity date toNovember 30, 2022 and revise the amounts payable under the note. Pursuant to the December 2019 amendment, the Company agreed to make (i) a principal and 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 Estate Note, in whole or in part, at any time. In January 2021, the Company completed the sale of its NaNFive Points facility which resulted in the Company making a one-time principal pay-down of $1,706,845$1,706,845 on the secured real estate note. The Company will also make three consecutivefinal semi-annual principal and interest paymentspayment of $454,185 was made on July 1, 2022. On September 22, 2022, the Company entered into an amendment to extend the Rooster Note’s maturity date to December 23, 2022. The Company is required to make a one-time final payment of approximately $388,045, beginning$6,969,668 on July 1, 2021; and a one-time final payment of approximately $7,184,109 on November 30, 2022.December 23, 2022. The Company was not in compliance with allthe total debt covenantscoverage ratio as of March 31, 2022.June 30, 2022; Rooster provided a waiver.
On August 15, 2018, the Company completed a sale and leaseback transaction with American AgCredit involving certain equipment located at the Company's NaNFive 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:transaction:
• The Company sold the equipment to American AgCredit for $2,106,395 million in proceeds. The proceeds were used to pay off in full a note (in the principal amount of $2,081,527, plus accrued interest of $24,868) held by Conterra, which had an interest rate of 9.5% per annum and was secured by, among other things, the equipment. • The Company entered into a lease agreement with American AgCredit relating to the equipment. The lease agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an annual interest rate of 5.6%). At the end of the lease term, the Company will repurchase the equipment for $1. During January 2021, the Company completed the sale of its Five Points facility which triggered the Company making a one-time principal pay down of $294,163 on the finance lease agreement.
|
|
|
|
Australian Facilities
At March 31, 2022, S&W Australia has debt facilities with National Australia Bank,NAB, pursuant to an amended and restated finance agreement, entered into on October 24, 2022, as amended on October 25, 2022, or the NAB Finance Agreement, all of which are guaranteed by S&W Seed Company up to a maximum of AUD $15,000,000$15,000,000 (USD $11,230,500)$9,736,500 as of September 30, 2022). As of September 30, 2022, approximately AUD $1.4 million (USD $0.9 million) remained available for use under the NAB Finance Agreement.
On November 11, 2021,21
Pursuant to the amendments contained in the NAB Finance Agreement, among other things:
|
|
|
|
• the maturity date of S&W Australia’s master asset finance facility was extended by one year to September 29, 2023. |
|
|
|
After the amendment, theThe consolidated debt facilities withunder the NAB Finance Agreement provide for up to an aggregate of AUD $41,500,000$49,000,000 (USD $31,071,050) of credit$31,805,900 as of March 31, 2022,September 30, 2022) of credit, and include the following:following:
• S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facility comprised of two facility lines: (i) an overdraft facility having a credit limit of AUD $2,000,000 (USD $1,298,200 as of September 30, 2022) and (ii) a borrowing base line having a credit limit of AUD $40,000,000 (USD $25,964,000 as of September 30, 2022). As of September 30, 2022, the borrowing base line accrued interest on Australian dollar drawings at approximately 6.43% per annum calculated daily. The borrowing base line permits S&W Australia to borrow funds on a revolving line of credit up to the credit limit. Interest accrues daily and is calculated by applying the daily interest rate to the balance owing at the end of the day and is payable monthly in arrears. As of September 30, 2022, the borrowing base line accrued interest at approximately 7.22% per annum calculated daily. As of September 30, 2022, AUD $37,483,264 (USD $24,330,387) was outstanding under S&W Australia’s seasonal credit facility with NAB, which is secured by a fixed and floating lien over all the present and future rights, property, and undertakings of S&W Australia. • S&W Australia has a flexible term rate loan, in the amount of AUD $4,000,000 (USD $2,596,400 as of September 30, 2022). Required annual principal payments of AUD $500,000 (USD $324,550 as of September 30, 2022) on the term loan commenced on November 30, 2020, with the remainder of any unpaid balance becoming due on May 31, 2026. Monthly interest amounts outstanding under the term loan are payable in arrears at a floating rate quoted by NAB for the applicable pricing period, plus 2.6%. The term loan is secured by a lien on all the present and future rights, property and undertakings of S&W Australia. • S&W Australia finances certain equipment purchases under a master asset finance facility with NAB. The master asset finance facility has various maturity dates through 2029 and have interest rates ranging from 2.86% to 6.61%. The credit limit under the facility is AUD $3,000,000 (USD $1,947,300 as of September 30, 2022). As of September 30, 2022, AUD $2,087,067 (USD $1,354,715) was outstanding under S&W Australia’s master asset finance facility.
|
|
|
|
|
|
S&W Australia was in compliance with all debt covenants under the debt facilities under its loan agreement with NAB as of September 30, 2022. Pursuant to the NAB Finance Agreement in effect after September 30, 2022, the Company must comply with an undertaking that requires the Company to maintain a net related entity position of not more than AUD $25,000,000. Accordingly, the Company’s ability to comply with this undertaking is subject to fluctuations in foreign currency conversion rates, which are outside of the Company’s control. Due to recent fluctuations in foreign currency conversion rates, the Company is currently not in compliance with this undertaking. Although the Company is currently in discussions with NAB to revise how compliance with this undertaking is measured, there can be no assurances that the Company will be able to secure an amendment to the NAB Finance Agreement or regain compliance with this undertaking.
MFP Loan Agreement
On September 22, 2022, the Company’s largest stockholder, MFP Partners, L.P., or MFP, provided a letter of credit, issued by JPMorgan Chase Bank, N.A. for the account of MFP, with an initial face amount of $9,000,000, 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 matures on January 23, 2023, one month after the maturity date of the CIBC Loan Agreement. On October 28, 2022 MFP amended the MFP Letter of Credit to increase the face amount from $9,000,000 to $12,000,000, in order to provide collateral to support the Company's obligations under the 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 $9,000,000 of term loan advances. On October 28, 2022, the MFP Loan Agreement was amended to increase the maximum amount of term loan advances available to the Company under the MFP Loan Agreement from $9,000,000 to $12,000,000. As of September 30, 2022, no amounts were outstanding under the MFP Loan Agreement.
22
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 March 31, 2022.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, 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.
On September 22, 2022, in connection with the Company's entry into the MFP Loan Agreement, the Company issued to MFP a warrant, or the MFP Warrant, to purchase 500,000 shares of the Company’s Common Stock, at an exercise price of $1.60 per share (subject to adjustment in connection with any stock dividends and splits, distributions with respect to common stock and certain fundamental transactions). The MFP Warrant will expire five years from the date of issuance. The $146,474 fair value of the warrant was determined using the Black-Scholes-Merton model and recorded in the consolidated statements of stockholders’ equity. The fair value of the MFP Warrant will be recognized as a component of interest expense over the term of the MFP Loan Agreement.
The annual maturities of short-term and long-term debt are as follows:
Fiscal Year |
| Amount |
| |
2023 |
| $ | 7,949,167 |
|
2024 |
|
| 986,564 |
|
2025 |
|
| 683,719 |
|
2026 |
|
| 1,941,163 |
|
2027 |
|
| 156,501 |
|
Thereafter |
|
| 181,962 |
|
Total |
| $ | 11,899,076 |
|
Fiscal Year |
| Amount |
| |
Remaining in 2022 |
| $ | 685,513 |
|
2023 |
|
| 8,502,505 |
|
2024 |
|
| 1,076,166 |
|
2025 |
|
| 2,596,971 |
|
2026 |
|
| 300,969 |
|
Thereafter |
|
| 287,171 |
|
Total |
| $ | 13,449,295 |
|
NOTE 98 - FOREIGN CURRENCY 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 manages through the use of 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 had a notional value of $14,423,111$17,149,868 at March 31,September 30, 2022, with maturities ranging from JanuaryOctober 2022 to October 2022.June 2023.
The Company records an asset or liability on the consolidated balance sheet for the fair value of the foreign currency forward contracts. The foreign currency contract liabilities totaled $143,195$1,421,980 at March 31,September 30, 2022 and foreign currency contract liabilities totaled $96,466$996,106 at June 30, 2021. The Company recorded a gain on foreign exchange contracts of $(201,188) and a gain on foreign exchange contracts of $(476,224), which is reflected in cost of revenue for the three months ended March 31, 2022 and 2021, respectively.2022. The Company recorded a loss on foreign exchange contracts of $46,157$503,985 and a gainloss on foreign exchange contracts of $(94,123)$238,803, for the three months ended September 30, 2022 and 2021, respectively, which isare reflected in cost of revenue for the nine months ended March 31, 2022 and 2021, respectively.revenue.
NOTE 109 - COMMITMENTS AND CONTINGENCIES
Contingencies
Based on information currently available, management is not aware of any other matters that would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Legal Matters
The Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. Any current litigation is considered immaterial and counter claims have been assessed as remote.
23
NOTE 10 – 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 $14.0 million through B. Riley as its sales agent. The Company agreed to pay B. Riley a commission of 3.5% of the gross proceeds of the sales price per share of any common stock sold through B. Riley under the ATM Agreement. 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 pursuant to the ATM Agreement.
On September 27, 2021, the Company entered into an amendment to the ATM Agreement, under which the aggregate offering price was increased from $14.0 million to $17.1 million. For the three months ended September 30, 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. No sales were made pursuant to the ATM Agreement during the three months ended September 30, 2022.
On May 17, 2022, the Company amended the ATM Agreement to increase the aggregate offering price to $24.6 million. As of September 30, 2022, the Company had $6.3 million remaining under the ATM Agreement.
On October 14, 2021, the Company entered into a Securities Purchase Agreement with MFP Partners, L.P., or MFP, 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, Alan D. Willits, a member of its board of directors, and Charles B. Seidler and Robert Straus, each then 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.
NOTE 11 - EQUITY-BASED COMPENSATION
Equity Incentive Plans
In October 2009 and January 2010, the Company's Boardboard of Directorsdirectors and stockholders, respectively, approved the 2009 Equity Incentive Plan, or as amended and/or restated from time to time, the 2009 Plan. The plan2009 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 Boardboard of Directorsdirectors 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 2009 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 1,250,0001,700,000 shares. In September 20132015 and December 2013,2015, the Company's Boardboard of Directorsdirectors 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 1,700,0002,450,000 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 Boardboard of Directorsdirectors 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 Boardboard of Directorsdirectors 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%10% of voting stock must have an exercise price equal to or greater than 110%110% of the fair market value of the common stock on the date the option is granted.
24
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 averageWeighted-average assumptions used in the Black-Scholes-Merton model are set forth below:
As of | As of | |||
Risk free rate | N/A | N/A | ||
Dividend yield | N/A | N/A | ||
Volatility | N/A | N/A | ||
Average forfeiture assumptions | N/A | N/A |
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Risk free rate |
| 0.8% - 1.1% |
|
| 0.2% - 0.3% |
| ||
Dividend yield |
|
| 0 | % |
|
| 0 | % |
Volatility |
| 61.8% - 62.4% |
|
| 55.2% - 58.1% |
| ||
Average forfeiture assumptions |
| 2.8% |
|
| 2.3% |
|
During the ninethree months ended March 31,September 30, 2022 and 2021, the Company granteddid not grant options to purchase 944,725 shares of its common stock todirectors, certain of its Directors, members of the executive management team and other employees at exercise prices ranging from $2.64 - $3.39 per share. These options vest in either quarterly or annual periods over one to three years, and expire ten years from the date of grant.employees.
A summary of stock option activity for the ninethree months ended March 31,September 30, 2022 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 |
|
| 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 March 31, 2022 |
|
| 4,614,600 |
|
|
| 2.65 |
|
|
| 6.8 |
|
|
| — |
| ||||||||||||||||
Options vested and exercisable at March 31, 2022 |
|
| 2,966,330 |
|
|
| 2.72 |
|
|
| 5.7 |
|
|
| — |
| ||||||||||||||||
Options vested and expected to vest as of March 31, 2022 |
|
| 4,609,186 |
|
| $ | 2.65 |
|
|
| 6.8 |
|
| $ | — |
| ||||||||||||||||
Outstanding at June 30, 2022 |
|
| 4,637,100 |
|
|
| 2.64 |
|
|
| 6.6 |
|
|
| — |
| ||||||||||||||||
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||||||||||||||||||
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
|
| ||||||||||||||||||
Canceled/forfeited/expired |
|
| (125,307 | ) |
|
| 2.62 |
|
|
|
|
|
|
| ||||||||||||||||||
Outstanding at September 30, 2022 |
|
| 4,511,793 |
|
|
| 2.64 |
|
|
| 5.8 |
|
|
| — |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Options vested and exercisable at September 30, 2022 |
|
| 3,527,758 |
|
| $ | 2.68 |
|
|
| 5.1 |
|
| $ | — |
| ||||||||||||||||
Options vested and expected to vest as of |
|
| 4,507,581 |
|
|
| 2.64 |
|
|
| 5.8 |
|
|
| — |
|
The weighted average grant date fair value ofThere were no options granted and outstanding at March 31, 2022 was $1.13.for the three months ended September 30, 2022. At March 31,September 30, 2022, the Company had $1,414,086$796,441 of unrecognized stock compensation expense, net of estimated forfeitures, related to the options under the 2009 Plan and 2019 Plans,Plan, which will be recognized over the weighted average remaining service period of 1.91.72 years. The Company settles employee stock option exercises with newly issued shares of common stock.
During the nine months ended March 31, 2022, the Company issued 294,421There were no 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. The fair value of the awards granted during the ninethree months ended March 31,September 30, 2022 and 2021 totaled $829,780 and $714,368, respectively, and was based on the closing stock price on the date of grants.2021.
25
The Company recorded $807,587$173,994 and $640,350$171,524 of stock-based compensation expense associated with grants of restricted stock units during the ninethree months ended March 31,September 30, 2022 and 2021, 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 Nonvested |
|
| 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 |
|
|
| 2.4 |
| ||||
Vested |
|
| (361,245 | ) |
|
| 2.62 |
|
|
| — |
|
|
| (391,036 | ) |
|
| 2.62 |
|
|
| — |
| ||||
Forfeited |
|
| (7,036 | ) |
|
| 2.35 |
|
|
| — |
|
|
| (7,036 | ) |
|
| 2.35 |
|
|
| — |
| ||||
Nonvested restricted units outstanding at March 31, 2022 |
|
| 287,710 |
|
| $ | 2.69 |
|
|
| 1.3 |
| ||||||||||||||||
Nonvested restricted units outstanding at June 30, 2022 |
|
| 267,919 |
|
|
| 2.66 |
|
|
| 1.2 |
| ||||||||||||||||
Granted |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Vested |
|
| (30,332 | ) |
|
| 2.44 |
|
|
| — |
| ||||||||||||||||
Forfeited |
|
| (8,750 | ) |
|
| 2.50 |
|
|
| — |
| ||||||||||||||||
Nonvested restricted units outstanding at September 30, 2022 |
|
| 228,837 |
|
|
| 2.70 |
|
|
| 1.2 |
|
At March 31,September 30, 2022, the Company had $595,014$251,317 of unrecognized stock compensation expense related to the restricted stock units, which will be recognized over the weighted average remaining service period of 1.31.19 years.
At March 31,September 30, 2022, there were 2,575,8802,691,979 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 units for the three months ended March 31,September 30, 2022 and 2021, totaled $413,293$456,112 and $421,814,$394,312, respectively. Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units for the nine months ended March 31, 2022 and 2021, totaled $1,821,808 and $1,303,439, respectively.
NOTE 12 – SERIES B CONVERTIBLE PREFERRED STOCK
On February 18, 2022, the Company entered into a Securities Purchase Agreement, or the Purchase Agreement, with MFP, pursuant to which the Company sold and issued to MFP, in a private placement, 1,695 shares of its Series B Redeemable Convertible Non-Voting Preferred Stock, par value $0.001$0.001 per share, or the Series B Preferred Stock, and an accompanying warrant, or the Warrant, to purchase up to 559,350 shares of the Company’s common stock, or the Common Stock par value $0.001 per share, at a combined unit price of $2,950$2,950 per share, or the Stated Value, for aggregate gross proceeds of approximately $5.0$5.0 million.
The Warrant first becomes exercisable on the date that is six months after the date of issuance, at an exercise price of $5.00$5.00 per share (subject to adjustment in connection with any stock dividends and splits, distributions with respect to Common Stock and certain fundamental transactions as described in the Warrant) and will expire five years from the date it first becomes exercisable.
The Series B Preferred Stock is initially convertible into shares of Common Stock at the rate of 1,000 shares of Common Stock per share of Series B Preferred Stock, at any time at the option of the holder of such shares, subject to the following limitations: (i) unless a holder was a stockholder of the Company as of February 18, 2022 (in which case such limitation shall not apply), the Company shall not affect any conversion of Series B Preferred Stock to the extent that, after giving effect to an attempted conversion, such holder, together with its affiliates, would beneficially own a number of shares of Common Stock in excess of 4.99%4.99% of the total number of shares of Common Stock outstanding immediately after giving effect to the issuance of such shares, which limit may be decreased or increased (not to exceed 19.99%19.99%) upon written notice to the Company, with any increase not becoming effective until at least 61 days after such notice; (ii) a holder may not acquire shares of Common Stock upon conversion of Series B Preferred Stock if such conversion would result in the total number of shares of Common Stock issued or issuable upon conversion or exercise of the securities issued pursuant to the Purchase Agreement to exceed 7,777,652 shares, or 19.99%19.99% of the outstanding shares of Common Stock as of the date of the Purchase Agreement; and (iii) to the extent Nasdaq Listing Rule 5635(c) is applicable or deemed applicable to a holder, such holder may not acquire shares of Common Stock upon conversion of Series B Preferred Stock that would exceed the maximum number of all shares of Common Stock that could be issued by the Company to such holder without requiring stockholder approval pursuant to Nasdaq Listing Rule 5635(c). Upon receiving shareholder approval of a proposal to be submitted to the shareholders of the Company for the purpose of approving the transactions contemplated by the Purchase Agreement, pursuant to Nasdaq Listing Rules 5635(a), (c) and (d), the foregoing limitations in (ii) and (iii) above shall no longer have any force or effect.
Pursuant to the Purchase Agreement, the Company agreed to use its reasonable best efforts to solicit the approval of its shareholders for the issuance of all shares of Common Stock otherwise issuable upon the conversion of the Series B Preferred Stock, or the Requisite Approval, at the next annual meeting of the Company’s shareholders, and at each annual meeting of shareholders thereafter, if necessary, until the Requisite Approval is obtained.
A holder of Series B Preferred Stock is entitled to receive cumulative cash dividends of 5%5% per annum, payable semi-annually in arrears on the last day of March and September of each calendar year. In lieu of paying such cash dividends, the Company may elect to add an amount to the Stated Value, provided that the dividend rate shall be 7%7% per annum, calculated semi-annually in arrears on the last day of March and September of each calendar year. A holder of Series B Preferred Stock is also entitled to receive any dividend declared and paid to holders of the Common Stock as if such Series B Preferred Stock had been converted into Common
26
Stock. In addition, a holder of Series B Preferred Stock is entitled to a liquidation preference equal to the greater of (i) the Stated Value, plus any cash dividends accrued but unpaid thereon, and (ii) the payment such holder would have received had the Series B Preferred Stock been converted into shares of Common Stock immediately prior to such liquidation event.
Unless prohibited by Nevada law governing distributions to stockholders, the Series B Preferred Stock is redeemable, at any time after August 18, 2025, upon written request from the holders of a majority of the outstanding shares of Series B Preferred Stock, at a price equal to the Stated Value, plus any cash dividends accrued but unpaid thereon.
The Series B Preferred Stock is non-voting except with respect to certain matters affecting the Series B Preferred Stock. In addition, the approval of a majority of the outstanding shares of Series B Preferred Stock is required if after February 18, 2022 the Company seeks to issue Common Stock, pursuant to the Sales Agreement, dated September 27, 2021, between the Company and B. Riley Securities, for cumulative gross proceeds in excess of $6.1$6.1 million.
Since the holder has the option to redeem their shares of Series B Preferred Stock at any time after August 18, 2025, the stock is considered contingently redeemable and, accordingly, is classified as temporary equity, net of the relative fair value assigned to the warrant of $361,709$361,729 recorded in the Statementunaudited consolidated statement of Equity, on the Consolidated Balance Sheetstockholders’ equity as of March 31,September 30, 2022. Over the initial 42-month42-month term the $4,638,521$4,638,521 relative fair value of the Series B Preferred Stock will be accreted to its redemption value of $5,000,250.$5,000,250. Dividends will be accrued and recognized through retained earnings.
The following summarizes changes to our Series B 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 |
|
Issuance of preferred stock |
|
| — |
|
Dividends accrued |
|
| 88,223 |
|
Accretion of discount for warrants |
|
| 25,838 |
|
Balance at September 30, 2022 |
| $ | 4,918,880 |
|
Balance at June 30, 2021 |
| $ | — |
|
Issuance of preferred stock |
| $ | 4,638,521 |
|
Dividends accrued |
| $ | 40,276 |
|
Accretion of discount for warrants |
|
| 12,919 |
|
Balance at March 31, 2022 |
| $ | 4,691,716 |
|
NOTE 13 – 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 $14.0 million through B. Riley as its sales agent. The Company agreed to pay B. Riley a commission of 3.5% of the gross proceeds of the sales price per share of any common stock sold through B. Riley under the ATM Agreement. 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 pursuant to the ATM Agreement.27
On September 27, 2021, the Company entered into an amendment to the ATM Agreement, under which the aggregate offering price was increased from $14.0 million to $17.1 million. For the nine months ended March 31, 2022, the Company received gross proceeds of approximately $6.2 million from the sale of 2,633,900 shares of its common stock pursuant to the ATM Agreement. As of March 31, 2022, the Company had $0 million remaining under the ATM Agreement.
On October 14, 2021, the Company entered into a Securities Purchase Agreement with MFP Partners, L.P., or MFP, 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.
NOTE 14 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS
The below table represents supplemental information to the Company’s consolidated statements of cash flows for non-cash activities during the nine months ended March 31, 2022 and 2021, respectively.
|
| Nine Months Ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Purchases of equipment classified as finance lease |
| $ | (271,524 | ) |
| $ | (381,464 | ) |
Dividends accrued for participating securities and accretion |
| $ | (53,195 | ) |
| $ | 0 |
|
NOTE 1513 – SUBSEQUENT EVENTS
On October 24, 2022, S&W Australia and NAB entered into an amended and restated finance agreement, pursuant to which, among other things:
The NAB Finance Agreement, inclusive of the October 25, 2022 amendment, includes an undertaking that requires the Company to maintain a net related entity position of not more than AUD $25,000,000. Accordingly, the Company’s ability to comply with this undertaking is subject to fluctuations in foreign currency conversion rates, which are outside of the Company’s control. Due to recent fluctuations in foreign currency conversion rates, the Company is currently not in compliance with this undertaking. Although the Company is currently in discussions with NAB to revise how compliance with this undertaking is measured, there can be no assurances that the Company will be able to secure an amendment to the NAB Finance Agreement or regain compliance with this undertaking.
On May 13,October 28, 2022, the Company entered into a Fifth Amendment to Loan and Security Agreement with CIBC, which amended the CIBC Loan Agreement. Pursuant to the amendment, among other thingsAgreement, which increased (i) the total revolving loan commitment provided under the CIBC Loan Agreement has been reducedfrom $18,000,000 to $20,000,000,$21,000,000 and (ii) the borrowing base eligible inventory sublimit from $25,000,000; (ii)$9,000,000 to $12,000,000.
On October 28, 2022, MFP amended the MFP Letter of Credit to increase the face amount from $9,000,000 to $12,000,000, as additional collateral to support the Company’s obligations under the CIBC waived noncomplianceLoan Agreement.
Concurrently, on October 28, 2022, the Company amended the MFP Loan Agreement to increase the maximum amount of term loan advances available to the Company from $9,000,000 to $12,000,000. On October 28, 2022, in connection with the Company’s fixed charge coverage ratio financial covenant as of March 31, 2022; (iii)amendment to the fixed charge coverage ratio financial covenant has been eliminated for future periods after March 31, 2022; and (iv)MFP Loan Agreement, the minimum liquidity financial covenant has been adjustedCompany issued to require maintenance of no less than $1,000,000 in Liquidity (as defined inMFP a warrant, or the Loan Agreement) through June 29, 2022 and, thereafter, no less than $2,500,000 for the remainderAdditional MFP Warrant, to purchase 166,700 shares of the Loan Agreement,Company’s Common Stock, at an exercise price of $1.60 per share (subject to adjustment in each case tested weekly. Except as modified byconnection with any stock dividends and splits, distributions with respect to common stock and certain fundamental transactions). The Additional MFP Warrant will expire five years from the foregoing amendment, all terms and conditiondate of issuance.
MFP is the Company’s largest shareholder. One of the Loan Agreement remain in full forceCompany’s directors, Alexander C. Matina, is Vice President and effect.Portfolio Manager of MFP Investors LLC, the general partner of MFP.
28
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 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 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 Overview
We are a global multi-crop, middle-market agricultural company. We are market leaders in the breeding, production and sale of alfalfa seed and sorghum seed. We also have a 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.2023.
Founded in 1980, we began our operations as a limited producer of non-dormant alfalfa seed varieties bred for warm climates and high-yields, including varieties that can thrive in poor, saline soils. Over the years we have built a diversified, global agricultural platform through a combination of organic growth and strategic acquisitions and collaborations, including:
• Our 2012 acquisition of Imperial Valley Seeds, Inc., which enabled us to expand production of non-GMO alfalfa seed into California's Imperial Valley, thereby ensuring a non-GMO uncontaminated source of alfalfa seed due to the prohibition on growing GMO crops in the Imperial Valley, as well as enabling us to diversify our production areas and distribution channels; • Our 2012 acquisition of a portfolio of dormant alfalfa germplasm, which launched our entry into the dormant alfalfa market; • Our 2013 acquisition of Seed Genetics International Pty Ltd (now S&W Seed Company Australia Pty Ltd, or S&W Australia), the leading producer of non-dormant alfalfa seed in South Australia, which made us the largest non-dormant alfalfa seed company in the world, with production capabilities in both hemispheres; • Our 2014 acquisition of alfalfa production and research facility assets and conventional (non-GMO) alfalfa germplasm from Pioneer Hi-Bred International, Inc., or Pioneer (now a subsidiary of Corteva Agriscience, Inc., or Corteva), which substantially broadened and improved our dormant alfalfa germplasm portfolio and deepened our production, research and product development capabilities; • Our 2016 acquisition of the business and assets of SV Genetics Pty Ltd, a developer of proprietary hybrid sorghum and sunflower seed germplasm, which expanded our crop focus into two areas which we believe have high global growth potential; • Our 2018 acquisition of the assets of Chromatin, Inc. and related companies, which positioned us to become a global leader in the hybrid sorghum seed market and enhanced our distribution channels both internationally and within a U.S.-based farmer-dealer network; • Our 2018 joint venture with AGT Foods Africa Proprietary Limited and 2019 joint venture with Zaad Holdings Limited, both based in South Africa, each of which were formed to produce our hybrid sunflower, grain sorghum and forage sorghum seed in Africa for sale in Africa, the Middle East and Europe; • Our 2019 license of commercialized and developmental wheat germplasm from Corteva, through which we entered the largest grain crop market in Australia; • Our 2020 acquisition of Pasture Genetics Ltd., or Pasture Genetics, the third largest pasture seed company in Australia, which further diversified our product offerings in Australia and strengthened our Australian sales team and distribution relationships; • Our 2020 collaboration with ADAMA Ltd., or ADAMA, a subsidiary of China National Chemical Engineering Co Ltd., or ChemChina, to bring to the U.S. sorghum market the Double Team™ grassy weed management system, consisting of ADAMA’s proprietary herbicides and our non-GMO, herbicide tolerant sorghum hybrids; and 29 • Our 2020 licensing agreement with The Agricultural Alumni Seed Improvement Association, Inc., an affiliate of Purdue University in West Lafayette, IN, to develop and commercialize worldwide a non-GMO, dhurrin-free trait in sorghum species, which essentially eliminates potential livestock death from hydrogen cyanide poisoning when grazing sorghum.
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In 2019, we restructured our relationship with Corteva, under which, among other things:
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As a result of the 2018 Chromatin acquisition, the 2019 restructuring of our relationshipalfalfa varieties world-wide (except South America). The licensed varieties include certain of our existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. Corteva received no license to our other commercial alfalfa varieties or pre-commercial alfalfa pipeline products and no rights to any future products developed by us.
Strategic Review
We recently undertook a strategic review of our operations and future growth opportunities to determine areas we believe are key centers of value, including our U.S. sorghum technology operations (led by Double Team™, our non-GMO herbicide tolerant sorghum solution), international forage operations, U.S. forage operations and our specialty crop and U.S. alfalfa businesses.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 both meet consumer taste requirements and have yield quality that would enable farmers to profitably grow stevia in North and South America. We plan to leverage our proprietary stevia germplasm to form collaborations and commercial agreements with supply chain partners to create a U.S.-based stevia production industry for high-quality stevia sweetener with superior taste profiles that would supply major customers in the U.S. market, including pursuant to our previously announced U.S. stevia pilot production supply agreement with Ingredion. We also believe we have an opportunity to enter the camelina market as a seed 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 May 11, 2022, we and Trigall Genetics, a leader in transgenic wheat, announced that we have entered into preliminary, nonbinding discussion to potentially combine our respective wheat operations through a joint venture in Australia. While we believe this joint venture could be beneficial in a number of respects, there can be no assurance that these preliminary, nonbinding discussions will result in a consummated transaction.
In addition, we intendhave begun implementing our plan to reduce annual operating expenses by approximately $5.0 million, including through efforts to streamline our European sunflower operations by closing our facilities in Hungary, which we estimate could result in operating expense reductions of approximately $700,000.
Global Economic Conditions
TheWe are subject to additional risks and uncertainties as a result of adverse geopolitical and macroeconomic events, such as the continued impact of the COVID-19 pandemic, the ongoing military conflictsconflict between Ukraine and Russia and related sanctions, uncertain market conditions, including higher inflation and supply chain disruptions, and other global events, which have had and may continue to have an adverse impact on our business, operations and the markets and communities in which we, our partners and customers operate. The COVID-19 pandemic continues to rapidly evolve and may cause further disruptions in the various markets in which we operate. In addition, although we have not been materially impacted to date, the military conflict in Russia and Ukraine, and related sanctions imposed against Russia, could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations.
The COVID-19 pandemic has negatively impacted our operations and financial results. Beginning in 2021 and continuing into 2022, ongoing strong demand for consumer goods and the effects of COVID-19 mitigation strategies have led to broad-based supply chain disruptions across the U.S. and globally, including inflation on many consumer products, labor shortages and demand outpacing supply. We continue to work closely with our business units, 3rdthird party contractors and suppliers and other external business partners to minimize the potential impact on our business.
As the COVID-19 pandemic continues to affect the areas in which we operate, we believe the outbreak has and will continue to 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 duration and spread of the outbreak, impact on our customers, employees and vendors, all of which are uncertain and cannot be predicted.
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Following the recent invasion of Ukraine by Russia, the U.S. and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, United Kingdom and European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia and possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia and related sanctions, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europe and globally, and has introduced significant uncertainty into global markets. As a result, although we have not been materially impacted to date, our business, including our ability to deliver seed and timely receive payment from customers, and access to capital could become adversely affected by the ongoing military conflict between Ukraine and Russia and related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict.
Our product revenue is predicated on our ability to timely fulfill customer orders, which depends in large part upon the consistent availability and operation of shipping and distribution networks operated by third parties. Farmers typically have a limited window during which they can plant seed, and their buying decisions can be shaped by actual or perceived disruptions in our distribution and supply channels, or concerns about our ability to timely fulfill their orders. If our customers delay or decrease their orders due to potential disruptions in our distribution and supply channels, including as a result of the COVID-19 pandemic or other adverse geopolitical and macroeconomic events, this will adversely affect our product revenue.
During the year ended June 30, 20212022 and the three and nine months ended March 31,September 30, 2022, we experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall rising costs 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.
The ultimate impact that COVID-19 and other adverse geopolitical and macroeconomic events will have on our consolidated financial statements remains uncertain and ultimately will be dictated by the length and severity of the pandemic includingand 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 spread of COVID-19 variancepandemic or resurgences,recent geopolitical and macroeconomic events, as well as the economic recovery and actions taken in response to local, state and national governments around the world, including the distribution of vaccinations. We will continue to evaluate the nature and extent of those potential and evolving impacts to our business and consolidated financial statements.
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 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 product markets, potential entry into specialty crop markets, including stevia and biofuels, and potential additional strategic transactions.
Our revenue will fluctuate depending on the timing of orders from our customers and distributors and the extent to which markets are impacted by sources of instability and volatility in global markets and industries, including, among other things, the COVID-19 pandemic, the 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. Some of this fluctuation is offset by having operations in both the northern and southern hemispheres. In addition, due to the numerous logistical challenges we have experienced in our shipping and distribution networks resulting from current geopolitical and macroeconomic events, 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 COVID-19 pandemic.current geopolitical and macroeconomic conditions.
Our specialty crops, including our stevia breeding program and biofuels program, have yet to generate any meaningful revenue. However, management continues to evaluate this portion of our business and assess various opportunities to monetize the results of
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our research and development efforts. Such potential opportunities include possible collaborations, licensing agreements and royalty-based agreements.
Cost of Revenue
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
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 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.
Depreciation and Amortization
We amortize intangible assets, including those acquired from Pasture Genetics in 2020, Chromatin in 2018 and from SV Genetics in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of periods of 3-30 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 Expense
Other expense consists primarily of foreign currency gains and losses, change in contingent consideration obligation and interest expense in connection with amortization of debt discount. Interest expense primarily consists of interest costs related to outstanding borrowings on our working capital credit facilities and our financing with Conterra Agricultural Capital, LLC, and its affiliates, or Conterra.
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 consolidated financial statements. As a result, our effective tax rate reflected in our consolidated financial statements is different from that reported in our tax returns. Some of these differences are permanent, such as meals and entertainment expenses that are not fully deductible on our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years for which we have already recorded the tax benefit in our consolidated statements of operations. In the fourth quarter of fiscal year 2017, we recorded a valuation allowance against all of our deferred tax assets. The full valuation
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allowance was recorded during the fiscal year 2017 as a result of changes to our operating results and future 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 deferred tax assets will be realized.
Results of Operations
Three Months Ended March 31,September 30, 2022 Compared to the Three Months Ended March 31,September 30, 2021
Revenue and Cost of Revenue
Revenue for the three months ended March 31,September 30, 2022 was $23.2$19.9 million compared to $32.4$15.5 million for the three months ended March 31, 2021. September 30, 2021, representing an increase of $4.4 million or 27.9%. The $9.2$4.4 million decreaseincrease in revenue for the three months ended March 31,September 30, 2022 was primarily due to the increase in product revenue from alfalfa sales to the Middle East North Africa, or MENA, region of $5.0 million, a $1.5 million increase in alfalfa and sorghum sales to North America, partially offset by a decrease of $0.9 million in product revenue from pasture product sales to Australia, a decrease of $0.7 million of service revenue in the United States and a decrease in product revenue from Pioneer of $8.5 millionpasture and a $0.7 million decrease in product revenue from a decrease in alfalfa revenue in the Middle East, Argentina andsales to South Africa and pasture products in Australia. During the three months ended March 31, 2022 we recorded no sales to Pioneer, compared to $8.5 million for the three months ended March 31, 2021. of $0.3 million.
Core Revenue (which we define as total revenue, excluding product revenue attributable to Pioneer) for the three months ended March 31, 2022 was $23.2 million compared to Core Revenue for the three months ended March 31, 2021 of $23.9 million, representing a decrease of $0.7 million or (-3)%. Due to the revised agreements with Pioneer in May 2019, we plan 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 decrease in Core Revenue for the three months ended March 31, 2022 can be attributed to primarily to the decrease in pasture products in Australia of $2.6 million, partially offset by an increase in sorghum product revenue in the United States by $2.1 million.
Sales into international markets represented 60%79% and 52%76% of our total revenue during the three months ended March 31,September 30, 2022 and 2021, respectively. Domestic revenue accounted for 40%21% and 48%24% of our total revenue for the three months ended March 31,September 30, 2022 and 2021, respectively. The decrease in domestic revenue as a percentage of total revenue is primarily attributable to the termination ofincrease in alfalfa sales to the Pioneer and Corteva agreement mentioned above.MENA region. In addition, wet conditions in Australia have led to a slow start in our domestic business.
The following table shows revenue from external sources by destination country:
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| Three Months Ended March 31, |
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| 2021 |
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| Three Months Ended September 30, |
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| 2022 |
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| 2021 |
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Saudi Arabia |
| $ | 5,172,286 |
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| 26 | % |
| $ | 3,467,210 |
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| 22 | % | ||||||||||||||||
United States |
| $ | 9,270,851 |
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| 40 | % |
| $ | 15,672,861 |
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| 48 | % |
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| 4,260,754 |
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| 21 | % |
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| 3,665,328 |
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| 24 | % |
Libya |
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| 2,998,047 |
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| 15 | % |
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| 1,044,000 |
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| 7 | % | ||||||||||||||||
Australia |
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| 8,846,660 |
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| 38 | % |
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| 11,426,369 |
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| 35 | % |
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| 2,557,732 |
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| 13 | % |
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| 3,434,005 |
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| 22 | % |
Saudi Arabia |
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| 1,168,502 |
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| 5 | % |
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| 324,000 |
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| 1 | % | ||||||||||||||||
Pakistan |
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| 602,060 |
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| 3 | % |
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| 444,353 |
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| 1 | % |
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| 821,620 |
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| 4 | % |
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| 164,055 |
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| 1 | % |
Sudan |
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| 802,044 |
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| 4 | % |
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| 819,618 |
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| 5 | % | ||||||||||||||||
Algeria |
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| 754,680 |
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| 4 | % |
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| — |
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| — |
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Mexico |
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| 731,100 |
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| 4 | % |
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| 228,420 |
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| 2 | % | ||||||||||||||||
China |
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| 929,335 |
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| 4 | % |
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| 1,366,381 |
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| 4 | % |
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| 468,500 |
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| 2 | % |
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| 473,125 |
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| 3 | % |
South Africa |
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| 265,292 |
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| 1 | % |
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| 946,631 |
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| 3 | % | ||||||||||||||||
Argentina |
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| — |
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| 0 | % |
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| — |
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| 0 | % |
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| 362,978 |
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| 2 | % |
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| 350,839 |
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| 2 | % |
Libya |
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| — |
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| 0 | % |
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| 306,000 |
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| 1 | % | ||||||||||||||||
Egypt |
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| 557,510 |
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| 2 | % |
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| 79,890 |
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| 0 | % | ||||||||||||||||
Sudan |
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| — |
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| 0 | % |
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| — |
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| 0 | % | ||||||||||||||||
Other |
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| 1,546,667 |
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| 7 | % |
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| 1,810,212 |
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| 7 | % |
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| 936,124 |
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| 5 | % |
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| 1,885,082 |
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| 12 | % |
Total |
| $ | 23,186,877 |
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| 100 | % |
| $ | 32,376,697 |
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| 100 | % | ||||||||||||||||
Total revenue |
| $ | 19,865,865 |
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| 100 | % |
| $ | 15,531,682 |
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| 100 | % |
Cost of revenue of $20.5$15.4 million for the three months ended March 31,September 30, 2022 was equal to 88.3%77.3% of total revenue for the three months ended March 31,September 30, 2022, while the cost of revenue of $26.2$12.4 million for the three months ended March 31,September 30, 2021 was equal to 80.9%79.9% of total revenue for the three months ended March 31,September 30, 2021. Cost of revenue for the three months ended March 31,September 30, 2022 and 2021 included inventory write-downs of $1.1$0.5 million and $0.3 million, respectively. The write-down of inventory during the three months ended March 31,September 30, 2022 and 2021 related to certain inventory lots that deteriorated in quality and germination rates during the quarter has beenquarter. The write-down of inventory during the three months ended September 30, 2022 also related to amounts reserved for as an estimated amount that is expected to deteriorate in quality and germination before being saleable.
Gross profit margin for the three months ended March 31,September 30, 2022 was 11.7%22.7% compared to 19.1%20.1% for the three months ended March 31,September 30, 2021. The decreaseincrease in gross margin for the three months ended March 31,September 30, 2022, iswas primarily driven by the increase in inventory reserves, coupled with higher production costs, offset by pasture product sales and higher margins on DoubleTeam™Alfalfa sales in the MENA region, partially offset by a decrease in margins from conventional grain sorghum sales. During the three months ended March 31, 2022, the Company experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports,sales and overall rising costs increases of shipping and transportation costs. The Company expects these logistical challenges to persist throughout the remainder of fiscal 2022.inventory write-downs, as discussed above.
Selling, General and Administrative Expenses
Selling, General and Administrative, or SG&A, expense for the three months ended March 31,September 30, 2022 totaled $5.6$5.1 million compared to $5.8$5.6 million for the three months ended March 31,September 30, 2021. The $0.5 million decrease in SG&A expense compared to the prior year-period was primarily due to a $0.3 million decrease in salaries and wages, a $0.3 million decrease in bad debt expense and a $0.2 million decrease in advertising and marketing expenses, offset by $0.1 million incurred for contract labor changes, $0.1 million in stock-based compensation expense, and $0.1 million in travel related expenses. As a percentage of revenue, SG&A expenses were 24.1%25.5% for the three months ended March 31,September 30, 2022, compared to 17.9%36.0% for the three months ended March 31,September 30, 2021.
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Research and Development Expenses
Research and development expensesexpense for the three months ended March 31,September 30, 2022 totaled $1.9$1.5 million compared to $2.4$2.0 million for the three months ended March 31,September 30, 2021. The $0.5 million decrease in research and development expense compared to the prior year-period was primarily driven by a $0.2 million reduction of investment in our sunflower programs in Hungary, a $0.2 million reduction in salaries and wages, and a $0.1 million reduction in Unites States field trials. We expect that research and development costs will total approximately $8.0$5.4 million for the year ended June 30, 2022.2023.
Depreciation and Amortization
Depreciation and amortization expense for each of the three months ended March 31,September 30, 2022 and 2021 was $1.4$1.3 million. For each of the three months ended September 30, 2022 and 2021, depreciation and amortization expense consisted of $0.6 million compared to $1.3of depreciation expense of fixed assets, $0.6 million of amortization expense of intangible assets and $0.1 million of amortization expense of finance leases.
Gain on Disposal of Property, Plant and Equipment
Gain on disposal of property, plant and equipment for the three months ended March 31, 2021. Included in these amountsSeptember 30, 2022 was amortization expense for intangible assets, which totaled $0.6 million$3,660 compared to $18,067 for the three months ended March 31, 2022 and $0.5 millionSeptember 30, 2021.
Foreign Currency Loss
Foreign currency loss for the three months ended March 31, 2021.
September 30, 2022 and 2021 was $0.2 million. Foreign Currency Gain
We recorded a foreign currency loss of $(0.1) million for the three months ended March 31, 2022 compared to a loss of $(0.1) million for the three months ended March 31, 2021. The foreign currencylosses and gains and losses are primarily associated with S&W Australia and S&W Hungary, our wholly-owned subsidiaries.
Change in Contingent Consideration Obligation
The change in contingent consideration obligation for the three months ended September 30, 2022 was $0 compared to a $0.1 million benefit for the three months ended September 30, 2021. Contingent consideration obligation is considered a level 3 fair value financial instrument and will beis measured at each reporting period. The $0.2$0.1 million gaindecrease in benefit to non-cash change in contingent consideration obligation forcompared to the quarter ended March 31, 2022 representsprior year-period was driven by the decrease in the estimated fair value of the contingent consideration obligation associated with the February 2020our acquisition of Pasture Genetics acquisition.in February 2020.
Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the three months ended March 31,September 30, 2022 was $0.2$0.3 million compared to $0.1$0.2 million for the three months ended March 31,September 30, 2021. The expense in both periods represents the amortization of the debt issuance costs associated with our working capital facilities, our secured property note and our equipment capital leases.
Interest Expense, Net
Interest expense for the three months ended March 31,September 30, 2022 totaled $0.6$0.7 million compared to $0.6$0.5 million for the three months ended March 31,September 30, 2021. Interest expense for the three months ended March 31,September 30, 2022 and 2021 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 $0.2 million increase in interest expense for the three months ended September 30, 2022 was primarily driven by increases in S&W Australia’s average borrowings on the working capital credit facilities and increased interest rates.
Provision for Income TaxesTax Benefit
Income tax expensebenefit totaled $0.3$0.1 million for the three months ended March 31,September 30, 2022 compared to income tax benefit of $0.3$0.2 million for the three months ended March 31,September 30, 2021. Our effective tax rate was (4.65)%2.2% for the three months ended March 31,September 30, 2022 compared to an effective tax rate of 11.8%2.5% for the three months ended March 31,September 30, 2021. Our effective tax rate for the three months ended March 31,September 30, 2022 was (4.65)% due to the valuation allowance recorded against substantially all of our deferred tax assets. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operating results, with the exception of our operations in Australia. Our effective tax rate for the current quarter is primarily due to income tax expense related to our foreign operations and minor state taxes.
Nine months ended March 31, 2022 Compared to the Nine Months Ended March 31, 2021
Revenue and Cost of Revenue
Revenue for the nine months ended March 31, 2022 was $51.3 million compared to $61.3 million for the nine months ended March 31, 2021. The $10.0 million decrease in revenue for the nine months ended March 31, 2022 was primarily due to the $14.2 million decrease in product revenue received from Pioneer (subsidiary of Corteva), offset by a $4.2 million increase in core product revenue in alfalfa and pasture products. During the nine months ended March 31, 2022 we recorded no sales to Pioneer, compared to $14.2 million for the nine months ended March 31, 2021. 34
Core Revenue (which we define as total revenue, excluding product revenue attributable to Pioneer) for the nine months ended March 31, 2022 was $51.3 million compared to Core Revenue for the nine months ended March 31, 2021 of $47.1 million, representing an increase of $4.2 million or 8.9%. 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 nine months ended March 31, 2022 can be attributed to an increase in sorghum products in the United States, alfalfa revenues in the Middle East, Argentina and the North and South Africa regions and pasture products in Australia.
Sales into international markets represented 70% and 55% of our total revenue during the nine months ended March 31, 2022 and 2021, respectively. Domestic revenue accounted for 30% and 45% of our total revenue for the nine months ended March 31, 2022 and 2021, 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:
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| Nine Months Ended March 31, |
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| 2022 |
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| 2021 |
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United States |
| $ | 15,340,257 |
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| 30 | % |
| $ | 27,773,152 |
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| 45 | % |
Australia |
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| 14,526,512 |
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| 28 | % |
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| 16,268,261 |
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| 27 | % |
Saudi Arabia |
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| 6,316,258 |
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| 12 | % |
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| 2,383,192 |
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| 4 | % |
Pakistan |
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| 2,833,622 |
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| 6 | % |
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| 2,041,548 |
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| 3 | % |
China |
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| 1,668,044 |
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| 3 | % |
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| 1,847,007 |
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| 3 | % |
South Africa |
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| 1,644,073 |
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| 3 | % |
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| 1,923,525 |
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| 3 | % |
Argentina |
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| 1,409,147 |
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| 3 | % |
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| 1,183,667 |
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| 2 | % |
Libya |
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| 1,088,000 |
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| 2 | % |
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| 718,960 |
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| 1 | % |
Egypt |
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| 959,810 |
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| 2 | % |
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| 472,970 |
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| 1 | % |
Sudan |
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| 819,618 |
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| 2 | % |
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| 484,645 |
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| 1 | % |
Other |
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| 4,744,626 |
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| 9 | % |
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| 6,186,487 |
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| 10 | % |
Total |
| $ | 51,349,967 |
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| 100 | % |
| $ | 61,283,414 |
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| 100 | % |
Cost of revenue of $43.9 million for the nine months ended March 31, 2022 was equal to 85.4% of total revenue for the nine months ended March 31, 2022, while the cost of revenue of $51.3 million for the nine months ended March 31, 2021 was equal to 83.7% of total revenue for the nine months ended March 31, 2021. Cost of revenue for the nine months ended March 31, 2022 and 2021 included inventory write-downs of $1.9 million and $1.3 million, respectively. The write-down of inventory during the nine months ended March 31, 2022 and 2021, respectively, related to certain inventory lots that deteriorated in quality and germination rates during the period or has been reserved for as an estimated amount that is expected to deteriorate in quality and germination before being saleable.
Total gross profit margin for the nine months ended March 31, 2022 was 14.6% compared to 16.3% in the nine months ended March 31, 2021. The decrease in gross margin for the nine months ended March 31, 2022 is primarily driven by the increase in inventory reserves, coupled with higher production costs, offset by higher margin alfalfa seed, DoubleTeam™ grain sorghum and pasture product sales. During the nine months ended March 31, 2022, 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 nine months ended March 31, 2022 totaled $18.3 million compared to $16.4 million for the nine months ended March 31, 2021. The $1.9 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 compensation 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 35.6% for the nine months ended March 31, 2022, compared to 26.8% for the nine months ended March 31, 2021.
Research and Development Expenses
Research and development expenses for the nine months ended March 31, 2022 totaled $6.0 million compared to $6.5 million for the nine months ended March 31, 2021. 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 nine months ended March 31, 2022 was $4.1 million compared to $4.1 million for the nine months ended March 31, 2021. Included in these amounts was amortization expense for intangible assets, which totaled $1.8 million for the nine months ended March 31, 2022 and $1.7 million for the nine months ended March 31, 2021.
Foreign Currency Loss
We recorded a foreign currency loss of $0.6 million for the nine months ended March 31, 2022 compared to no gain or loss for the nine months ended March 31, 2021. 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 $0.7 million benefit to non-cash change in contingent consideration obligation for the nine months ended March 31, 2022 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 nine months ended March 31, 2022 was $0.7 million compared to $0.5 million for the nine months ended March 31, 2021. The expense in both periods represents the amortization of the debt issuance costs associated with our working capital facilities, our secured property note, and our equipment capital leases.
Interest Expense
Interest expense for the nine months ended March 31, 2022 totaled $1.7 million compared to $1.7 million for the nine months ended March 31, 2021. Interest expense for the nine months ended March 31, 2022 and 2021 primarily consisted of interest incurred on the working capital credit facilities, the secured property loan entered into in November 2017, and equipment capital leases.
Provision for Income Taxes
Income tax expense totaled $0.4 million for the nine months ended March 31, 2022 compared to income tax benefit of $0.2 million for the nine months ended March 31, 2021. Our effective tax rate was (1.8)% for the nine months ended March 31, 2022 compared to 1.2% for the nine months ended March 31, 2021. Our effective tax rate for the nine months ended March 31, 2022 was (1.8)% due to the valuation allowance recorded against substantially all of our deferred tax assets. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operating results, with the exception of our operations in Australia. Our effective tax rate for the current quarter is primarily due to income 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 2022, we paid our North American growers approximately 50% of amounts due in the fall of 2021 and the balance was paid in the spring of 2022. This payment cycle to our growers was similar in fiscal year 2021, and we expect it to be similar for fiscal year 2023. S&W Australia and Pasture Genetics, our Australia-based wholly-owned subsidiaries, have production cycles that are counter-cyclical to North America; however, this also puts a greater demand on our working capital and working capital requirements during the second, third and fourth fiscal quarters based on timing of payments to growers in the second through fourth quarters.
Historically, due to the concentration of sales to certain distributors, our month-to-month and quarter-to-quarter sales and associated cash receipts are highly dependent upon the timing of deliveries to and payments from these distributors, which varies significantly from year to year.
We continuously monitor and evaluate our credit policies with all of our customers based on historical collection experience, current economic and market conditions and a review of the current status of the respective trade accounts receivable balance. Our principal working capital components include cash and cash equivalents, accounts receivable, inventory, prepaid expense and other current assets, accounts payable and our working capital lines of credit.
In addition to funding our business with cash from operations, we have historically relied upon occasional sales of our debt and equity securities and credit facilities from financial institutions, both in the United States and South Australia.
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 our existing cash and cash equivalents, accounts receivable, cash flow from revenues derived from sales of our products, and the undrawn availability under our debt facilities will be sufficient to meet our cash requirements over the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations beyond the next 12 months through a combination of existing cash and cash equivalents, accounts receivable, cash flow from operations, the undrawn availability under our debt facilities and issuances of equity securities or debt offerings. 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.
Our loan and security agreementThe CIBC Loan Agreement (as defined below), with CIBC Bank USA, or CIBC, and ourthe secured promissory note, withor the Rooster Note, we executed in favor of Conterra in November 2017 and subsequently endorsed to Rooster Capital, LLC, or Rooster, which maturematures on December 23, 2022, and November 30, 2022, respectively,our debt facilities with National Australia Bank, or NAB, contain various operating and financial covenants. TheAdverse geopolitical and macroeconomic events, such as the continued impact of the COVID-19 pandemic, the ongoing conflict between Ukraine and Russia and related sanctions, and uncertain market conditions, including higher inflation and supply chain disruptions, and other factors affecting our results of operations 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 ConterraRooster to invoke default remedies. We were not in compliance with certain of these covenants in the CIBC Loan Agreement and the Rooster Note as of June 30, 2021, December 31, 2021, and March 31, 2022, June 15, 2022 and June 30, 2022, and were required to obtain waivers and/or amendments from CIBC and Conterra.Rooster. In particular, the CIBC Loan Agreement as presently in effect requires us to maintain minimum liquidity of no less than $1,000,000 through June 29, 2022 and $2,500,000 thereafter,the NAB Finance Agreement (as defined below) includes an undertaking that requires us to maintain a net related entity position of not more than AUD $25,000,000. Accordingly, our ability to comply with this undertaking is subject to fluctuations in each case tested weekly. We doforeign currency conversion rates, which are outside of our control. Due to recent fluctuations in foreign currency conversion rates, we are currently not in compliance with this undertaking. Although we are currently expectin discussions with NAB to revise how compliance with this undertaking is measured, there can be no assurances that we will be able to generate sufficient cash flow from operationssecure an amendment to the NAB Finance Agreement or maintain sufficient liquidity to meet these covenants in certain periods prior to maturity. We will need to either raise additional capital, secure future waivers and/or amendments from our lenders, obtain financing from new lenders, and/or accomplish some combination of these items to maintain sufficient liquidity.regain compliance with this undertaking. We are actively pursuing refinancing of the CIBC loan facility.Loan Agreement and the Rooster Note.
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Our future liquidity and capital requirements will be influenced by numerous factors, including:
• the maturity and repayment of our debt; • the extent and sustainability of future operating income; • the level and timing of future sales and expenditures; • timing for when we are able to recognize revenue; • working capital required to support our growth; • our ability to timely pay our growers; • investment capital for plant and equipment; • investment in our sales and marketing programs; • investment capital for potential acquisitions; • our ability to renew and/or refinance our debt on acceptable terms; • our ability to raise equity financing, in order to secure refinancing as well as support our operations, among other things; • competition; • market developments; and • developments related to adverse geopolitical and macroeconomic events, including the COVID-19 pandemic, inflation and supply chain disruptions.
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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, ConterraRooster or our other lenders, renewing or refinancing our existing debt, or securing new financing. If we are unsuccessful in doing so, we may need to reduce the scope of our operations, repay amounts owing to our lenders, finance our cash needs through a combination of equity and debt financings, enter into collaborations, strategic alliances and licensing arrangements, sell certain assets or divest certain operations. We are also exploring strategic alternatives for underutilized assets, including plans to enter the camelina market as a seed and technology provider.
If we are required or desire to raise additional capital in the future, whether as a condition to loan refinancing or separately, such additional financing may not be available on favorable terms, or available at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest would be diluted and the terms of these securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may be secured by all or a portion of our assets, and may be on terms less favorable than our existing loans. If we fail to obtain additional capital as and when required, such failure could have a material impact on our business, results of operations and financial condition.
As a result of the COVID-19 pandemic and actions taken to slow its spread, the ongoing military conflict between Russia and Ukraine, 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, 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 CIBC Loan Agreement, which we amended on September 22, 2020, December 30, 2020, May 12, 2021, September 27, 2021, and May 13, 2022, September 22, 2022 and October 28, 2022. As amended, the CIBC Loan Agreement provides for a $20.0$21.0 million credit facility, or the CIBC Credit Facility. As of March 31,September 30, 2022, there was approximately $2.3$2.2 million of unused availability on the CIBC Credit Facility. As of May 13, 2022, we had a combined aggregate of $1.5 million of cash on hand and availabilityremained available for use under the CIBC Credit Facility.
The key terms of the amendedCIBC Loan Agreement include the following:
| • Advances under the CIBC Credit Facility are to be used: (i) to finance our ongoing working capital requirements; and (ii) for general corporate purposes. We may also use a portion of borrowings incurred under the CIBC Credit Facility to finance permitted acquisitions and related costs. 36 • All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest due under the CIBC Credit Facility, will be payable in full on December 23, 2022. • The CIBC Credit Facility generally establishes a borrowing base of up to 85% of eligible domestic accounts receivable (90% of eligible foreign accounts receivable) plus up to the lesser of (i) 65% of eligible inventory, (ii) 85% of the appraised net orderly liquidation value of eligible inventory, and (iii) a borrowing base eligible inventory sublimit of $12,000,000, as more fully set forth in the CIBC |
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Pursuant to the May 13, 2022 amendment, among other things, (i) the total revolving commitment provided under the Loan Agreement has been reduced to $20,000,000 from $25,000,000; (ii) CIBC waived noncompliance with the Company’s fixed charge coverage ratio financial covenant as of March 31, 2022; (iii) the fixed charge coverage ratio financial covenant has been eliminated for periods after March 31, 2022; (iv) the minimum liquidity financial covenant has been adjusted to require maintenance of no less than $1,000,000 of Liquidity (as defined in the Loan Agreement) (reduced from $3,000,000) through June 29, 2022 and, thereafter, no less than $2,500,000 for the remainder of the Loan Agreement, in each case, tested weekly. Wesubject to lender reserves.
The October 28, 2022 amendment to the CIBC Loan Agreement, among other things, increased (i) the total revolving loan commitment to $21,000,000 from $18,000,000 and (ii) the borrowing base eligible inventory sublimit to $12.0 million from $9.0 million. As of September 30, 2022, we were not in compliance with all covenants contained in the fixed charge coverage ratio financial covenant as of March 31, 2022; however, pursuant to the May 2022 amendment, we obtained a waiver from CIBC to continue to be in compliance with the financial covenants under the Loan Agreement.Agreement.
We cannot guarantee that we will be able to comply with our covenants in the CIBC 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 CIBC Loan Agreement, CIBC could declare an event of default or require us to further renegotiate the CIBC Loan Agreement on terms that may be significantly less favorable to us, or we may be required to seek additional or alternative financing.
We are actively engaging with potential lenders to refinance the CIBC 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 CIBC Loan Agreement.Agreement. In addition, we cannot assure you that we will not experience an event of default or be required to further renegotiate with, or seek additional waivers from, CIBC, including on terms that may be significantly less favorable to us, before we are able to refinance the CIBC Loan Agreement, if ever. 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.
Debt Facilities with National Australia Bank
At March 31, 2022, S&W Australia has debt facilities with National Australia Bank,NAB, pursuant to an amended and restated finance agreement, entered into on October 24, 2022, as amended on October 25, 2022, or the NAB Finance Agreement, all of which are guaranteed by S&W Seed Company up to a maximum of AUD $15,000,000 (USD $11,230,500) and cross-guaranteed by$9,736,500 as of September 30, 2022). As of September 30, 2022, approximately AUD $1.4 million (USD $0.9 million) remained available for use under the NAB Finance Agreement.
Pursuant to the amendments contained in the NAB Finance Agreement, among other things:
37 S&W Australia was in compliance with all debt covenants under its 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 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 a face amount of $9,000,000, 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 matures on January 23, 2023, one month after the maturity date of the CIBC Loan Agreement. On October 28, 2022, MFP amended the MFP Letter of Credit to increase the face amount from $9,000,000 to $12,000,000, in order to provide collateral to support our obligations under the 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 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. On October 28, 2022, the MFP Loan Agreement was amended to increase the maximum amount of term loan advances available to us under the MFP Loan Agreement from $9,000,000 to $12,000,000. As of September 30, 2022, no amounts were outstanding under the MFP Loan Agreement. 38 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 Loan Agreement with CIBC. 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. Equity Issuances On September 23, 2020 For the 3,655,136 shares of our common stock pursuant to 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, The Purchasers included MFP, On February 18, 2022, we entered into a Securities Purchase Agreement with MFP, pursuant to which we sold and issued to MFP, in a private placement, 1,695 shares of our Series B Redeemable Convertible Non-Voting Preferred Stock, par value $0.001 per share, an accompanying warrant to purchase up to 559,350 shares of our common stock, at a combined unit price of $2,950 per share, for aggregate gross proceeds of approximately $5.0 million. Summary of Cash Flows The following table shows a summary of our cash flows for the Three Months Ended September 30, 2022 2021 Cash flows from operating activities $ (7,319,995 ) $ (5,484,482 ) Cash flows from investing activities (147,716 ) (452,647 ) Cash flows from financing activities 6,421,764 4,831,688 Effect of exchange rate changes on cash 213,839 (527,769 ) Net decrease in cash and cash equivalents (832,108 ) (1,633,210 ) Cash and cash equivalents, beginning of period 2,056,508 3,527,937 Cash and cash equivalents, end of period $ 1,224,400 $ 1,894,727 Nine Months Ended March 31, 2022 2021 Cash flows from operating activities $ (18,006,419 ) $ (9,849,361 ) Cash flows from investing activities (569,181 ) 2,091,516 Cash flows from financing activities 17,899,513 6,664,784 Effect of exchange rate changes on cash 290,069 334,478 Net increase (decrease) in cash and cash equivalents (386,018 ) (758,583 ) Cash and cash equivalents, beginning of period 3,527,937 4,123,094 Cash and cash equivalents, end of period $ 3,141,919 $ 3,364,511 Operating Activities For the increase in accounts payable and accruals of For the 39 Investing Activities Investing activities during the Investing activities during the three months ended September 30, 2021 used $0.5 million in cash, which resulted from additions to property, plant and equipment consisting primarily of Financing Activities Financing activities during the Financing activities during the Inflation Risk Inflationary pressures on labor and commodity price increases directly impacted our consolidated results of operations during the three months ended Critical Accounting In preparing our financial statements, we must select and apply various accounting 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. 40 We compared the carrying value of our invested capital to estimated fair values at June 30, 2022. We estimated the fair value using the market approach and a control premium (based on management’s best estimate) was added. Upon completing the impairment test, we determined that the estimated fair value of invested capital was less than the carrying value by approximately 11%, thus indicating an impairment. We recognized a goodwill impairment charge of $1.5 million for the year ended June 30, 2022, which represented the entire goodwill balance prior to the impairment charge. Our impairment assessment is sensitive to changes in control premium. For the June 30, 2022 assessment of our one reporting unit, if we assumed our selected control premium of 20% was increased to 24%, our goodwill impairment would have been approximately $1.4 million less. Intangible Assets All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is 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, based 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. 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 41 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 During the 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. We are a smaller reporting company and, therefore, we are not required to provide information Item 4. Controls and Procedures. Disclosure Controls and Procedures Our management, with the participation of our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of Changes in Internal Control over Financial Reporting There have been no significant 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. 42 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. Item 1A. Risk Factors. We are a smaller reporting company, and, as such, we are not required to provide the information under this Item of Form 10-Q. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Not applicable. 43 Item 6. Exhibits. Exhibit No. Description 3.1(2) 3.2 3.3 Registrant's Second Amended and Restated Bylaws, together with Amendment One thereto. 4.1 4.2 4.3 10.1 10.2 10.3 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 Cover Page Interactive Data File (embedded within the Inline XBRL document) 44 * 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. 45 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: By: /s/ Elizabeth Horton Elizabeth Horton Chief Financial Officer (On behalf of the registrant in her capacity as Principal Financial and Accounting Officer) On November 11, 2021,Australia amended its debtAustralia’s seasonal credit facility was increased from AUD $1,000,000 (USD $649,100 as of September 30, 2022) to AUD $2,000,000 (USD $1,298,200 as of September 30, 2022), with NAB pursuanta one-year maturity date extension to which:
September 29, 2023; and•the borrowing base line credit limit under the seasonal credit facility increased from AUD $26,000,000 (USD $18,722,600 at September 30, 2021), to AUD $32,000,000 (USD $23,958,400 at March 31, 2022);
••the overdraft credit limit under the seasonal credit facility decreased from AUD $3,000,000 (USD $2,160,300 at September 30, 2021) to AUD $2,000,000 (USD $1,497,400 at March 31, 2022). It then further decreased to AUD $1,000,000 (USD $748,700) on April 1, 2022 and will decrease to zero on June 30, 2022;•the credit limit under the master asset finance facility increased from AUD $2,000,000 (USD $1,440,200 at September 30, 2021) to AUD $3,000,000 (USD $2,246,100 at March 31, 2022); and•the month in which annual principal repayments are required on the flexible rate loan was adjusted from November to May of each fiscal year.After the amendment, theThe consolidated debt facilities withunder the NAB Finance Agreement provide for up to an aggregate of AUD $41,500,000$49,000,000 (USD $31,071,050) of credit$31,805,900 as of March 31, 2021,September 30, 2022) of credit, and include the followingfollowing::••S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal credit facility comprised of two facility lines: (i) an Overdraft Facility having a credit limit of AUD $2,000,000 (USD $1,497,400 at March 31, 2022) and (ii) a Borrowing Base Line having a credit limit of AUD $32,000,000 (USD $23,958,400 at March 31, 2022). The seasonal credit facility expires on March 31, 2022. As of March 31, 2022, the Borrowing Base Line accrued interest on Australian dollar drawings at approximately 3.61% per annum calculated daily. The Overdraft Facility permits S&W Australia to borrow funds on a revolving line of credit up to the credit limit. Interest accrues daily and is calculated by applying the daily interest rate to the balance owing at the end of the day and is payable monthly in arrears. As of March 31, 2022, the Overdraft Facility accrued interest at approximately 5.47% per annum calculated daily. As of March 31, 2022, AUD $32,816,100 (USD $24,569,414) was outstanding under S&W Australia’s seasonal credit facility with NAB. The seasonal credit facility is secured by a fixed and floating lien over all the present and future rights, property, and undertakings of S&W Australia. •S&W Australia has a flexible rate loan, or the Term Loan, in the amount of AUD $4,500,000 (USD $3,369,150 at March 31, 2022). Required annual principal payments of AUD $500,000 (USD $374,350 at March 31, 2022) on the Term Loan commenced on November 30, 2020, with the remainder of any unpaid balance becoming due on March 31, 2025. As part of the amendment, the November 2021 repayment was deferred to May 2022, with the remaining repayments due in May of each year. Monthly interest amounts outstanding under the Term Loan will be payable in arrears at a floating rate quoted by NAB for the applicable pricing period, plus 2.6%. The Term Loan is secured by a lien on all the present and future rights, property, and undertakings of S&W Australia.•S&W Australia finances certain equipment purchases under a master asset finance facility with NAB. The master asset finance facility has various maturity dates through 2029 and have interest rates ranging from 2.86% to 4.29%. The credit limit under the facility is AUD $3,000,000 (USD $2,246,100 at March 31, 2022). As of March 31, 2022, AUD $1,826,855 (USD $1,367,766) was outstanding under S&W Australia’s master asset finance facility.debt facilitiesloan agreement with NAB at March 31,in effect as of September 30, 2022. Pursuant to the NAB Finance Agreement, inclusive of the October 25, 2022 amendment, we must comply with an undertaking that requires us to maintain a net related entity position of not more than AUD $25,000,000. Accordingly, our ability to comply with this undertaking is subject to fluctuations in foreign currency conversion rates, which are outside of our control. Due to recent fluctuations in foreign currency conversion rates, we are currently not in compliance with this undertaking. Although we are currently in discussions with NAB to revise how compliance with this undertaking is measured, there can be no assurances that we will be able to secure an amendment to the NAB Finance Agreement or regain compliance with this undertaking.SecuredRooster Note with Conterrafacilities.facilities, and was subsequently endorsed to Rooster Capital LLC, or Rooster. We may prepay the secured note,Rooster Note, in whole or in part, at any time. In January 2021, the Companywe completed the sale of itsour Five Points facility which resulted in the Companyus making a one-time principal pay-down of $1,706,845 on the secured real estate note. We are required to make our lastRooster Note. The final semi-annual principal and interest payment of approximately $388,045,$454,185 was made on July 1, 2022. On September 22, 2022, andwe entered into an amendment to extend the Rooster Note’s maturity date to December 23, 2022. We are required to make a one-time final payment of approximately $7,184,109$6,969,668 on November 30,December 23, 2022. We were not in compliance with allour total debt covenantscoverage ratio as of March 31, 2022.June 30, 2022, but received a waiver from Rooster. We are actively engaging with ConterraRooster and potential lenders to refinance the Conterra noteRooster Note prior to the final payment under the Conterra note coming due.maturity date. 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.Rooster Note. In addition, we cannot assure you that we will not experience an event of default or be required to further renegotiate with, or seeseek additional waivers from, Conterra,Rooster, including on terms that may be significantly less favorable to us, before we are able to refinance the Conterra note,Rooster Note, if ever. and as amended on September 27, 2021, we entered into an At Market Issuance Sales Agreement, oras amended on September 27, 2021, the ATM Agreement, with B. Riley Securities, Inc., or BB. 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. We have agreed to pay B. Riley a commission of 3.5% of the gross proceeds of the sales price per share of any common stock sold through B. Riley under the ATM Agreement.nine monthsyear ended March 31,June 30, 2022, we received gross proceeds of approximately $6.2$7.4 million from the sale of 2,633,900ForNo sales were made during the yearthree months ended JuneSeptember 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.2022. As of March 31,September 30, 2022, we had no$6.3 million of availability remaining under the ATM Agreement. or the Shares, at a purchase price of $2.73 per share, for aggregate gross proceeds of approximately $5.0 million. 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, a member of our board of directors, and Charles B. Seidler and Robert Straus, each then a member of our board of directors. Alexander C. Matina, a member of our board of directors, is Vice President and Portfolio Manager of MFP Investments ofLLC, the general partner of MFP.MFP.ninethree months ended March 31,September 30, 2022 and 2021:ninethree months ended March 31,September 30, 2022, operating activities used $18.0$7.3 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $15.5$1.6 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows used $2.5$4.5 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by $1.3 million in unrealized foreign currency gains, an increase in inventory of $10.2 million and accounts receivable of $4.3$9.0 million and increased pre-paid expenses of $0.2 million offset by a decrease in inventory of $3.1 million, an$8.9$1.2 million and an increase of $0.4 million in deferred revenue from prepayment on end of season revenue of $2.7 million.prepayments for our fiscal 2023 United States domestic business.ninethree months ended March 31,September 30, 2021, operating activities used $9.8$5.5 million in cash. Net loss plus and minus the adjustments for non-cash items as detailed on the statement of cash flows used $12.2$3.9 million in cash, and changes in operating assets and liabilities as detailed on the statement of cash flows provided $2.3used $1.5 million in cash. The increasedecrease in cash from changes in operating assets and liabilities was primarily driven by an increaseincreases in inventory of $1.0 million and accounts receivable of $3.2 million, partially offset by increases in accounts payable of $13.6$1.9 million partially offset by a increase in accounts receivable of $3.9 million, an increase in inventory of $1.4 million, a decrease in deferred revenue of $4.4 million and a decrease in accrued expenses and other current liabilities of $2.0$0.5 million.ninethree months ended March 31,September 30, 2022 used $0.6$0.1 million in cash. Additions to property, plant and equipment accounted for $1.6 million of the cash, used offset by an increase in net proceedswhich resulted from the sale of marketable securities of $1.0 million in investing activities.Investing activities during the nine months ended March 31, 2021 provided $2.1 million in cash. Proceeds from the sale of our Five Points processing facility and the disposal of other property, plant and equipment accounted for $2.9 million of the cash provided in investing activities. We also had additions to property, plant and equipment for our United States and Australian facilities.$0.8 million.machinery and equipment purchases for our Penfield and Keith facilities in Australia.ninethree months ended March 31,September 30, 2022 provided $17.9$6.4 million in cash. During the nine months ended March 31, 2022, we had net proceeds from the salecash, consisting of common stock of $10.7 million, net proceeds from the sale of preferred stock of $5.0 million, and net borrowings on the working capital lines of credit and borrowings of long-term debt of $3.6$7.0 million, partially offset by net repayments of long-term debt of $1.0$0.5 million.ninethree months ended March 31,September 30, 2021 provided $6.7$4.8 million in cash. During the nine months ended March 31, 2021, we had net proceeds from the salecash, consisting of common stock of $5.1 million, net borrowings on the working capital lines of credit and borrowings of long-term debt of $5.9$5.4 million, partially offset by net repayments of long-term debt of $4.2$0.5 million.March 31,September 30, 2022, and we expect this to continue throughout the remainder of 2022.fiscal year 2023. We attempt to manage any inflationary costs through selective price increases and changes in product mix, but rapidly changing inflationary pressures from global commodity prices and logistics could impact our costs of goods before pricing adjustments can be implemented. Delays in implementing such price increases, competitive pressures, and other factors may limit our ability to recover such cost increases in the future. Inherent volatility experienced in certain commodity markets could have a significant effect on our results of operations and may have an adverse effect on us in the future. The extent of any impact will depend on our ability to manage such volatility through the product mix that we sell and selective price increases.Off Balance Sheet ArrangementsWe did not have any off-balance sheet arrangements during the three and nine months ended March 31, 2022.PoliciesEstimatesThe accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated financial statements.policies.policies in accordance with GAAP. Our most significant policies are describeddiscussed in Note 2 – Summary of Significant Accounting Policies ofin the footnotesNotes to the consolidated financial statements.Consolidated Financial Statements. In order to apply our accounting policies, we often need to make estimates, judgments and assumptions that we believe are reasonable, based on judgments about future events.upon the information available to us. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition and changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection of our critical accounting estimates, and our disclosure regarding them, with the audit committee of our board of directors, and do so on a regular basis.GoodwillWe adopted Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment,These events could include a significant change in business climate, legal factors, a decline in operating performance or ASU 2017-04, effective July 1, 2018. This standard eliminates Step 2 from the goodwill impairment test. Instead, wemarket capitalization or our common stock, competition, sale or disposition of a significant portion of a business, or other factors. We perform our annual or interim goodwill impairment test by comparing the estimated fair value of our one reporting unit with its carrying amount. If the estimated fair value of our reporting unit is less than the carrying amount, and recognize an impairment is indicated, requiring recognition of a goodwill impairment charge for the amount by which the carrying amount exceeds the fair value,differential, not to exceed the total amount of goodwill allocated to the reporting unit.The goodwill balance at March 31, 2022 andWe had a sustained decline in the market capitalization of our common stock during the fourth quarter of the fiscal year ended June 30, 2021 relates to our February 2020 acquisition2022, thereby triggering a potential indicator of Pasture Genetics. Upon completing thegoodwill impairment. As a result, we initiated a goodwill impairment test on our one reporting unit, there was no impairment for the year ended June 30, 2021.2022.Inventoriesninethree months ended March 31,September 30, 2022, we recognized a write-down of inventory in the amount of $1.9$0.5 million which is included in Cost of Revenue in the Consolidated Statement of Operations. The write-down of inventory during the ninethree months ended March 31,September 30, 2022 was primarily related to certain sorghum, alfalfa, sunflower and other inventory lots that deteriorated in quality /and germination rates during the period or has been reserved for as an estimated amount that is expected to deteriorate in quality and germination before being saleablesaleable..ninethree months ended March 31,September 30, 2021, we recognized a write-down of inventory in the amount of $1.3$0.3 million which is included in Cost of Revenue in the Consolidated Statement of Operations. The write-down of inventory during the ninethree months ended March 31,September 30, 2021 was primarily related to certain sorghum and alfalfa inventory lots that deteriorated in quality /and germination rates during the period.quarter.Item 3.Quantitative and Qualitative Disclosures About Market Risk.required bytypically disclosed under this item of Form 10-Q.item.Item 4.Controls and Procedures.March 31,September 30, 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, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31,September 30, 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.Legal Proceedings.None.Item 1A.Risk Factors.Unregistered Sales of Equity Securities and Use of Proceeds.None.Defaults Upon Senior Securities.None.Item 4.Mine Safety Disclosures.Item 5.Other Information.On May 13, 2022, we entered into a Fifth Amendment to Loan and Security Agreement with CIBC, which amended the Loan Agreement. Pursuant to the amendment, among other things (i) the total revolving commitment provided under the Loan Agreement has been reduced to $20,000,000 from $25,000,000; (ii) CIBC waived noncompliance with our fixed charge coverage ratio financial covenant as of March 31, 2022; (iii) the fixed charge coverage ratio financial covenant has been eliminated for future periods after March 31, 2022; and (iv) the minimum liquidity financial covenant has been adjusted to require maintenance of no less than $1,000,000 in Liquidity (as defined in the Loan Agreement) through June 29, 2022 and, thereafter, no less than $2,500,000 for the remainder of the Loan Agreement, in each case tested weekly. Except as modified by the foregoing amendment, all terms and condition of the Loan Agreement remain in full force and effect.Item 5. Other Information.Exhibits. 3.1(1) 1.1(1)(2)(3)(3)(4)(4)(5)(5)(6)10.1(6) 4.4SecuritiesCommon Stock Purchase Warrant issued to MFP Partners, L.P. on September 22, 2022.10.2(7)Registration Rights Agreement, dated February 18, 2022, by and among the Registrant and MFP.31.1 10.4101.LAB101.DEF101.DEF104Inline XBRL Taxonomy Extension Definition Linkbase Document104(1)Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on February 11, 2021 (File No. 001-34719).(2)Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on February 23, 2022 (File No. 001-34719).
(2)(3)Incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Statement on Form 10-Q, filed on May 14, 2020 (File No. 001-34719).
(3)(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).
(4)(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).(5) Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on February 23, 2022 (File No. 001-34719).(7)Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on February 23, 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.May 16,November 14, 20224846