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

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

For the quarterly period year ended MarchDecember 31, 2022

or

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

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

For the transition period from _____________ to _____________

Commission File Number: 001-34719

S&W SEED COMPANYCOMPANY

(Exact Name of Registrant as Specified in Its Charter)

Nevada

27-1275784

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

2101 Ken Pratt Blvd, Suite 201, Longmont, CO

80501

(Address of Principal Executive Offices)

(Zip Code)

(720) (720) 506-9191

(RegistrantsRegistrant's Telephone Number, Including Area Code)

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

SANW

The Nasdaq Capital Market

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

Yes No

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

Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of shares outstanding of common stock of the registrant as of May 16, 2022February 7, 2023 was 41,559,732.42,785,565.


S&W SEED COMPANY

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

Page No.

Item 1.

Financial Statements (Unaudited):

4

Condensed Consolidated Balance Sheets at MarchDecember 31, 2022 and June 30, 20212022

4

Condensed Consolidated Statements of Operations for the Three Months and NineSix Months Ended MarchDecember 31, 2022 and 2021

5

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and NineSix Months Ended MarchDecember 31, 2022 and 2021

6

Condensed Consolidated Statements of Mezzanine Equity and Stockholders’ Equity for the Three Months and NineSix Months Ended MarchDecember 31, 2022 and 2021

7

Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended MarchDecember 31, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

2922

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4434

Item 4.

Controls and Procedures

4434

PART II.

OTHER INFORMATION

4536

Item 1.

Legal Proceedings

4536

Item 1A.

Risk Factors

4536

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4536

Item 3.

Defaults Upon Senior Securities

4536

Item 4.

Mine Safety Disclosures

4536

Item 5.

Other Information

4536

Item 6.

Exhibits

4637


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; our implementation of our recently implemented strategic review (which includes our plans to reduce annual operating expenses) our recent partnerships with Trigall Genetics and Shell and their role in enabling us to reduce our operating expenses and sharpen our focus on key growth priorities; our ability to raise capital in the future; 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, partnerships, joint ventures and other strategic transactions) and our ability to successfully integrate acquisitions into our operations;
whether we continue to invest in research and development and whether such investment results in trait improvement across our crop categories;
the continued ability of our distributors and suppliers to have access to sufficient liquidity to fund their operations;
market trends and other factors affecting our financial condition or results of operations from period to period;
the impact of crop disease, severe weather conditions, such as flooding, or natural disasters, such as earthquakes, on crop quality and yields and on our ability to grow, procure or export our products;
the impact of pricing of other crops that may influence what crops our growers elect to plant;
whether we are successful in aligning expense levels to revenue changes;
whether we are successful in monetizing camelina and stevia;
the cost and other implications of pending or future legislation or court decisions and pending or future accounting pronouncements;
our recent partnerships with Trigall Genetics and Shell may not provide the anticipated benefits; and
other risks that are described herein and in the section titled “Risk Factors” contained in Part I, Item 1A. of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, or the Annual Report, and that are otherwise described or updated from time to time in our filings with the Securities Exchange Commission.

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;

the COVID-19 pandemic, global inflation and the ongoing military conflict between Russia and Ukraine 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 DoubleTeamTM, 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 DoubleTeamTM;

our plans for expansion of our business (including by expanding crop offerings and market share of existing offerings through acquisitions) and our ability to successfully integrate acquisitions into our operations;

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

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

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

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

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

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

whether we are successful in monetizing our stevia business;

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 A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, or the Annual Report, and that are otherwise described or updated from time to time in our filings with the Securities Exchange Commission.

You are urged to carefully review the disclosures made concerning risks and uncertainties that may affect our business or operating results, which include, among others, those described above.

2


Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this Quarterly Report on Form 10-Q, some of which are beyond our control, will be important in determining our future performance. Consequently, these statements are inherently

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

Item 1.

Financial Statements

S&W SEED COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS

 

March 31,

2022

 

 

June 30,

2021

 

 

December 31,
2022

 

 

June 30,
2022

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

Cash and cash equivalents

 

$

3,141,919

 

 

$

3,527,937

 

 

$

1,328,172

 

 

$

2,056,508

 

Accounts receivable, net

 

 

23,559,952

 

 

 

19,389,213

 

 

 

24,099,180

 

 

 

19,051,236

 

Inventories, net

 

 

71,917,710

 

 

 

63,395,256

 

 

 

52,952,095

 

 

 

54,515,894

 

Prepaid expenses and other current assets

 

 

1,181,307

 

 

 

1,555,530

 

 

 

3,282,244

 

 

 

1,605,987

 

TOTAL CURRENT ASSETS

 

 

99,800,888

 

 

 

87,867,936

 

 

 

81,661,691

 

 

 

77,229,625

 

Property, plant and equipment, net

 

 

17,466,927

 

 

 

17,740,974

 

 

 

15,706,571

 

 

 

16,871,669

 

Intangibles, net

 

 

35,303,431

 

 

 

37,130,942

 

 

 

30,951,270

 

 

 

34,095,827

 

Goodwill

 

 

1,649,211

 

 

 

1,651,634

 

Right of use assets - operating leases

 

 

4,234,241

 

 

 

4,094,253

 

Other assets

 

 

5,936,816

 

 

 

7,079,490

 

 

 

1,667,034

 

 

 

1,496,477

 

TOTAL ASSETS

 

$

160,157,273

 

 

$

151,470,976

 

 

$

134,220,807

 

 

$

133,787,851

 

LIABILITIES, SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

25,004,563

 

 

$

15,947,918

 

 

$

15,275,082

 

 

$

15,901,116

 

Deferred revenue

 

 

3,056,588

 

 

 

385,328

 

 

 

6,184,025

 

 

 

605,960

 

Accrued expenses and other current liabilities

 

 

9,497,053

 

 

 

9,134,869

 

 

 

9,452,112

 

 

 

10,788,740

 

Current portion of working capital lines of credit, net

 

 

13,678,143

 

 

 

33,946,565

 

 

 

41,410,217

 

 

 

12,678,897

 

Current portion of long-term debt, net

 

 

8,424,681

 

 

 

1,681,166

 

 

 

7,743,900

 

 

 

8,316,783

 

TOTAL CURRENT LIABILITIES

 

 

59,661,028

 

 

 

61,095,846

 

 

 

80,065,336

 

 

 

48,291,496

 

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

 

 

23,590,666

 

 

 

0

 

 

 

 

 

 

21,703,286

 

Long-term debt, net, less current portion

 

 

4,966,090

 

 

 

11,590,500

 

 

 

3,731,856

 

 

 

3,992,540

 

Contingent consideration obligation

 

 

0

 

 

 

741,552

 

Other non-current liabilities

 

 

3,430,750

 

 

 

3,649,885

 

 

 

3,338,740

 

 

 

3,587,041

 

TOTAL LIABILITIES

 

 

91,648,534

 

 

 

77,077,783

 

 

 

87,135,932

 

 

 

77,574,363

 

SERIES B CONVERTIBLE PREFERRED STOCK

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 3,323 shares authorized; 1,695 shares

issued and outstanding

 

 

4,691,716

 

 

 

0

 

TOTAL SERIES B CONVERTIBLE PREFERRED STOCK

 

 

4,691,716

 

 

 

0

 

MEZZANINE EQUITY

 

 

 

 

 

 

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

 

 

5,032,942

 

 

 

4,804,819

 

TOTAL MEZZANINE EQUITY

 

 

5,032,942

 

 

 

4,804,819

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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;

 

 

41,566

 

 

 

36,773

 

Common stock, $0.001 par value; 75,000,000 shares authorized; 42,788,423 issued and 42,763,423 outstanding at December 31, 2022; 42,608,758 issued and 42,583,758 outstanding at June 30, 2022

 

 

42,788

 

 

 

42,609

 

Treasury stock, at cost, 25,000 shares

 

 

(134,196

)

 

 

(134,196

)

 

 

(134,196

)

 

 

(134,196

)

Additional paid-in capital

 

 

162,342,148

 

 

 

149,684,357

 

 

 

165,444,354

 

 

 

163,892,575

 

Accumulated deficit

 

 

(92,865,104

)

 

 

(69,311,909

)

 

 

(116,596,626

)

 

 

(105,873,557

)

Accumulated other comprehensive loss

 

 

(5,578,324

)

 

 

(5,850,826

)

 

 

(6,735,375

)

 

 

(6,560,600

)

Noncontrolling interests

 

 

10,933

 

 

 

(31,006

)

 

 

30,988

 

 

 

41,838

 

TOTAL STOCKHOLDERS' EQUITY

 

 

63,817,023

 

 

 

74,393,193

 

 

 

42,051,933

 

 

 

51,408,669

 

TOTAL LIABILITIES, SERIES B CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

 

$

160,157,273

 

 

$

151,470,976

 

TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

$

134,220,807

 

 

$

133,787,851

 

See notes to condensed consolidated financial statements.

4



S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

23,186,877

 

 

$

32,376,697

 

 

$

51,349,967

 

 

$

61,283,414

 

 

$

12,937,802

 

 

$

12,631,409

 

 

$

32,803,667

 

 

$

28,163,090

 

Cost of revenue

 

 

20,481,463

 

 

 

26,206,066

 

 

 

43,857,520

 

 

 

51,293,692

 

 

 

10,188,511

 

 

 

10,971,045

 

 

 

25,549,865

 

 

 

23,376,057

 

Gross profit

 

 

2,705,414

 

 

 

6,170,631

 

 

 

7,492,447

 

 

 

9,989,722

 

 

 

2,749,291

 

 

 

1,660,364

 

 

 

7,253,802

 

 

 

4,787,033

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

5,582,060

 

 

 

5,797,322

 

 

 

18,260,785

 

 

 

16,402,352

 

 

 

6,241,461

 

 

 

7,073,320

 

 

 

11,294,058

 

 

 

12,642,887

 

Research and development expenses

 

 

1,904,631

 

 

 

2,357,905

 

 

 

6,010,172

 

 

 

6,483,894

 

 

 

1,503,473

 

 

 

2,110,413

 

 

 

3,018,853

 

 

 

4,105,541

 

Depreciation and amortization

 

 

1,379,856

 

 

 

1,336,798

 

 

 

4,084,554

 

 

 

4,126,776

 

 

 

1,253,904

 

 

 

1,373,653

 

 

 

2,590,338

 

 

 

2,704,698

 

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

 

 

49,796

 

 

 

(1,311,346

)

 

 

13,957

 

 

 

(1,353,415

)

Total operating expenses

 

 

8,916,343

 

 

 

8,180,679

 

 

 

28,369,468

 

 

 

25,659,607

 

 

 

8,998,838

 

 

 

10,557,386

 

 

 

16,903,249

 

 

 

19,453,126

 

Loss from operations

 

 

(6,210,929

)

 

 

(2,010,048

)

 

 

(20,877,021

)

 

 

(15,669,885

)

 

 

(6,249,547

)

 

 

(8,897,022

)

 

 

(9,649,447

)

 

 

(14,666,093

)

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss (gain)

 

 

146,935

 

 

 

87,849

 

 

 

567,963

 

 

 

(16,704

)

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

176,624

 

 

 

258,482

 

 

 

367,539

 

 

 

421,028

 

Gain on disposal of intangible assets

 

 

(1,796,252

)

 

 

 

 

 

(1,796,252

)

 

 

 

Change in contingent consideration obligation

 

 

(185,800

)

 

 

(683,611

)

 

 

(714,429

)

 

 

(248,092

)

 

 

 

 

 

(466,376

)

 

 

 

 

 

(528,630

)

Interest expense - amortization of debt discount

 

 

246,801

 

 

 

133,941

 

 

 

660,191

 

 

 

501,601

 

 

 

578,112

 

 

 

221,196

 

 

 

861,755

 

 

 

413,391

 

Interest expense

 

 

589,696

 

 

 

558,494

 

 

 

1,721,646

 

 

 

1,736,836

 

Gain on sale of marketable security

 

 

(68,967

)

 

 

 

 

 

(68,967

)

 

 

 

Interest expense, net

 

 

1,092,327

 

 

 

589,694

 

 

 

1,879,006

 

 

 

1,142,539

 

Gain on sale of equity investment

 

 

(32,030

)

 

 

 

 

 

(32,030

)

 

 

 

Other income (expense)

 

 

4,561

 

 

 

23,771

 

 

 

(39,709

)

 

 

(10,589

)

Loss before income taxes

 

 

(6,939,594

)

 

 

(2,106,721

)

 

 

(23,043,425

)

 

 

(17,643,526

)

 

 

(6,272,889

)

 

 

(9,523,789

)

 

 

(10,889,756

)

 

 

(16,103,832

)

Provision (benefit) for income taxes

 

 

322,661

 

 

 

(257,633

)

 

 

414,636

 

 

 

(213,320

)

(Benefit from) provision for income taxes

 

 

(282,296

)

 

 

257,776

 

 

 

(383,960

)

 

 

91,974

 

Net loss

 

$

(7,262,255

)

 

$

(1,849,088

)

 

$

(23,458,061

)

 

$

(17,430,206

)

 

$

(5,990,593

)

 

$

(9,781,565

)

 

$

(10,505,796

)

 

$

(16,195,806

)

Net income (loss) attributed to noncontrolling interests

 

 

42,668

 

 

 

(1,796

)

 

 

41,939

 

 

 

56,298

 

(Loss) income attributable to noncontrolling interests

 

 

(4,588

)

 

 

13,537

 

 

 

(10,850

)

 

 

(729

)

Net loss attributable to S&W Seed Company

 

$

(7,304,923

)

 

$

(1,847,292

)

 

$

(23,500,000

)

 

$

(17,486,504

)

 

$

(5,986,005

)

 

$

(9,795,102

)

 

$

(10,494,946

)

 

$

(16,195,077

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of net loss for earning (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calculation of net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to S&W Seed Company

 

$

(7,304,923

)

 

$

 

 

$

(23,500,000

)

 

$

 

 

$

(5,986,005

)

 

$

(9,795,102

)

 

$

(10,494,946

)

 

$

(16,195,077

)

Dividends accrued for participating securities and accretion

 

$

(53,195

)

 

$

 

 

$

(53,195

)

 

$

 

 

 

(114,062

)

 

 

 

 

 

(228,123

)

 

 

 

Net loss attributed to common shareholders

 

$

(7,358,118

)

 

$

 

 

$

(23,553,195

)

 

$

 

Net loss attributable to common shareholders

 

$

(6,100,067

)

 

$

(9,795,102

)

 

$

(10,723,069

)

 

$

(16,195,077

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.19

)

 

$

(0.05

)

 

$

(0.62

)

 

$

(0.51

)

Diluted

 

$

(0.19

)

 

$

(0.05

)

 

$

(0.62

)

 

$

(0.51

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,515,547

 

 

 

34,945,476

 

 

 

38,240,917

 

 

 

33,976,517

 

Diluted

 

 

39,515,547

 

 

 

34,945,476

 

 

 

38,240,917

 

 

 

33,976,517

 

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

 

$

(0.14

)

 

$

(0.25

)

 

$

(0.25

)

 

$

(0.43

)

Weighted average number of common shares outstanding,
basic and diluted

 

 

42,651,270

 

 

 

38,461,049

 

 

 

42,627,645

 

 

 

37,617,457

 

See notes to condensed consolidated financial statements.

5



S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(7,262,255

)

 

$

(1,849,088

)

 

$

(23,458,061

)

 

$

(17,430,206

)

 

$

(5,990,593

)

 

$

(9,781,565

)

 

$

(10,505,796

)

 

$

(16,195,806

)

Foreign currency translation adjustment, net of income taxes

 

 

480,280

 

 

 

36,875

 

 

 

272,502

 

 

 

570,841

 

 

 

539,520

 

 

 

253,349

 

 

 

(174,775

)

 

 

(207,778

)

Comprehensive loss

 

$

(6,781,975

)

 

$

(1,812,213

)

 

$

(23,185,559

)

 

$

(16,859,365

)

 

 

(5,451,073

)

 

 

(9,528,216

)

 

 

(10,680,571

)

 

 

(16,403,584

)

Comprehensive income (loss) attributable to noncontrolling interests

 

 

42,668

 

 

 

(1,796

)

 

 

41,939

 

 

 

56,298

 

Comprehensive (loss) income attributable to noncontrolling interests

 

 

(4,588

)

 

 

13,537

 

 

 

(10,850

)

 

 

(729

)

Comprehensive loss attributable to S&W Seed Company

 

$

(6,824,643

)

 

$

(1,810,417

)

 

$

(23,227,498

)

 

$

(16,915,663

)

 

$

(5,446,485

)

 

$

(9,541,753

)

 

$

(10,669,721

)

 

$

(16,402,855

)

See notes to condensed consolidated financial statements.

6



S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Noncontrolling

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interests

 

 

Loss

 

 

Equity

 

Balance, 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

 

 

 

Mezzanine Equity

 

 

Shareholders' Equity

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Non-
controlling

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interests

 

 

Loss

 

 

Equity

 

Balance, September 30, 2021

 

 

 

 

$

 

 

 

36,802,094

 

 

$

36,802

 

 

 

(25,000

)

 

$

(134,196

)

 

$

150,040,406

 

 

$

(75,711,884

)

 

$

(45,272

)

 

$

(6,311,953

)

 

$

67,873,903

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,014,203

 

 

 

 

 

 

 

 

 

 

 

 

1,014,203

 

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

265,223

 

 

 

265

 

 

 

 

 

 

 

 

 

(117,838

)

 

 

 

 

 

 

 

 

 

 

 

(117,573

)

Proceeds from sale of common stock, net expenses

 

 

 

 

 

 

 

 

1,847,343

 

 

 

1,848

 

 

 

 

 

 

 

 

 

4,916,364

 

 

 

 

 

 

 

 

 

 

 

 

4,918,212

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

253,349

 

 

 

253,349

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,795,102

)

 

 

13,537

 

 

 

 

 

 

(9,781,565

)

Balance, December 31, 2021

 

 

 

 

$

 

 

 

38,914,660

 

 

$

38,915

 

 

 

(25,000

)

 

$

(134,196

)

 

$

155,853,135

 

 

$

(85,506,986

)

 

$

(31,735

)

 

$

(6,058,604

)

 

$

64,160,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

1,695

 

 

$

4,918,880

 

 

 

42,632,585

 

 

$

42,633

 

 

 

(25,000

)

 

$

(134,196

)

 

$

164,486,927

 

 

$

(110,496,559

)

 

$

35,576

 

 

$

(7,274,895

)

 

$

46,659,486

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

305,894

 

 

 

 

 

 

 

 

 

 

 

 

305,894

 

Series B detachable warrant

 

 

 

 

 

25,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,838

)

 

 

 

 

 

 

 

 

(25,838

)

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

88,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(88,224

)

 

 

 

 

 

 

 

 

(88,224

)

Subordinated loan & security agreement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

656,427

 

 

 

 

 

 

 

 

 

 

 

 

656,427

 

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

155,838

 

 

 

155

 

 

 

 

 

 

 

 

 

(4,894

)

 

 

 

 

 

 

 

 

 

 

 

(4,739

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

539,520

 

 

 

539,520

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,986,005

)

 

 

(4,588

)

 

 

 

 

 

(5,990,593

)

Balance, December 31, 2022

 

 

1,695

 

 

$

5,032,942

 

 

 

42,788,423

 

 

$

42,788

 

 

 

(25,000

)

 

$

(134,196

)

 

$

165,444,354

 

 

$

(116,596,626

)

 

$

30,988

 

 

$

(6,735,375

)

 

$

42,051,933

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine Equity

 

 

Shareholders' Equity

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Non-
controlling

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interests

 

 

Loss

 

 

Equity

 

Balance, June 30, 2021

 

 

 

 

$

 

 

 

36,772,983

 

 

$

36,773

 

 

 

(25,000

)

 

$

(134,196

)

 

$

149,684,357

 

 

$

(69,311,909

)

 

$

(31,006

)

 

$

(5,850,826

)

 

$

74,393,193

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,408,515

 

 

 

 

 

 

 

 

 

 

 

 

1,408,515

 

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

293,486

 

 

 

293

 

 

 

 

 

 

 

 

 

(158,581

)

 

 

 

 

 

 

 

 

 

 

 

(158,288

)

Proceeds from sale of common stock, net of expenses

 

 

 

 

 

 

 

 

1,848,191

 

 

 

1,849

 

 

 

 

 

 

 

 

 

4,918,844

 

 

 

 

 

 

 

 

 

 

 

 

4,920,693

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(207,778

)

 

 

(207,778

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,195,077

)

 

 

(729

)

 

 

 

 

 

(16,195,806

)

Balance, December 31, 2021

 

 

 

 

$

 

 

 

38,914,660

 

 

$

38,915

 

 

 

(25,000

)

 

$

(134,196

)

 

$

155,853,135

 

 

$

(85,506,986

)

 

$

(31,735

)

 

$

(6,058,604

)

 

$

64,160,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022

 

 

1,695

 

 

$

4,804,819

 

 

 

42,608,758

 

 

$

42,609

 

 

 

(25,000

)

 

$

(134,196

)

 

$

163,892,575

 

 

$

(105,873,557

)

 

$

41,838

 

 

$

(6,560,600

)

 

$

51,408,669

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

762,006

 

 

 

 

 

 

 

 

 

 

 

 

762,006

 

Series B detachable warrant

 

 

 

 

 

51,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(51,676

)

 

 

 

 

 

 

 

 

(51,676

)

Accrued dividends on Series B convertible preferred stock

 

 

 

 

 

176,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(176,447

)

 

 

 

 

 

 

 

 

(176,447

)

Subordinated loan & security agreement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

802,901

 

 

 

 

 

 

 

 

 

 

 

 

802,901

 

Net issuance to settle RSUs

 

 

 

 

 

 

 

 

179,665

 

 

 

179

 

 

 

 

 

 

 

 

 

(13,128

)

 

 

 

 

 

 

 

 

 

 

 

(12,949

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(174,775

)

 

 

(174,775

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,494,946

)

 

 

(10,850

)

 

 

 

 

 

(10,505,796

)

Balance, December 31, 2022

 

 

1,695

 

 

$

5,032,942

 

 

 

42,788,423

 

 

$

42,788

 

 

 

(25,000

)

 

$

(134,196

)

 

$

165,444,354

 

 

$

(116,596,626

)

 

$

30,988

 

 

$

(6,735,375

)

 

$

42,051,933

 

See notes to condensed consolidated financial statements.

7



S&W SEED COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

Nine Months Ended March 31,

 

 

Six Months Ended December 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(23,458,061

)

 

$

(17,430,206

)

 

$

(10,505,796

)

 

$

(16,195,806

)

Adjustments to reconcile net loss from operating activities to net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

cash used in operating activities

 

 

 

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

1,821,808

 

 

 

1,303,439

 

 

 

762,006

 

 

 

1,408,515

 

Change in allowance for doubtful accounts

 

 

200,458

 

 

 

(234,270

)

Allowance for doubtful accounts

 

 

(125,209

)

 

 

221,163

 

Inventory write-down

 

 

1,877,229

 

 

 

1,253,073

 

 

 

685,200

 

 

 

742,035

 

Depreciation and amortization

 

 

4,084,554

 

 

 

4,126,776

 

 

 

2,590,338

 

 

 

2,704,698

 

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

 

 

13,957

 

 

 

(1,353,415

)

Gain on disposal of property, plant and equipment

 

 

(4,411

)

 

 

(35,840

)

Gain on sale of equity investment

 

 

(32,030

)

 

 

 

Gain on disposal of intangible assets

 

 

(1,796,252

)

 

 

 

Change in deferred tax provision

 

 

(259,747

)

 

 

 

Change in foreign exchange contracts

 

 

46,157

 

 

 

(94,123

)

 

 

19,466

 

 

 

239,713

 

Foreign currency transactions

 

 

(200,666

)

 

 

 

Change in contingent consideration obligation

 

 

(714,429

)

 

 

(248,092

)

 

 

 

 

 

(528,630

)

Amortization of debt discount

 

 

660,191

 

 

 

501,601

 

 

 

861,755

 

 

 

413,391

 

Changes in:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,272,470

)

 

 

(3,934,992

)

 

 

(3,968,108

)

 

 

2,513,639

 

Inventories

 

 

(10,256,441

)

 

 

(1,410,638

)

 

 

557,442

 

 

 

(5,741,778

)

Prepaid expenses and other current assets

 

 

363,963

 

 

 

475,607

 

 

 

20,736

 

 

 

170,844

 

Other non-current asset

 

 

(152,621

)

 

 

53,924

 

Other non-current assets

 

 

(733,165

)

 

 

(95,186

)

Accounts payable

 

 

8,866,376

 

 

 

13,560,980

 

 

 

(385,529

)

 

 

1,131,032

 

Deferred revenue

 

 

2,670,287

 

 

 

(4,425,381

)

 

 

5,578,365

 

 

 

5,504,147

 

Accrued expenses and other current liabilities

 

 

360,147

 

 

 

(1,951,704

)

 

 

(1,256,423

)

 

 

(505,240

)

Other non-current liabilities

 

 

(117,524

)

 

 

(41,940

)

 

 

(207,625

)

 

 

(12,521

)

Net cash used in operating activities

 

 

(18,006,419

)

 

 

(9,849,361

)

 

 

(8,399,653

)

 

 

(8,065,824

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(1,637,547

)

 

 

(772,531

)

 

 

(154,997

)

 

 

(1,227,368

)

Proceeds from disposal of property, plant and equipment

 

 

79,862

 

 

 

643,194

 

 

 

3,660

 

 

 

21,113

 

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 proceeds from sale of equity investment

 

 

400,000

 

 

 

 

Proceeds from partnership transaction

 

 

2,000,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

2,248,663

 

 

 

(1,206,255

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from sale of common stock

 

 

10,657,775

 

 

 

5,127,917

 

 

 

 

 

 

4,920,693

 

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

)

 

 

(12,949

)

 

 

(158,288

)

Borrowings and repayments on lines of credit, net

 

 

2,757,274

 

 

 

5,744,377

 

 

 

6,598,076

 

 

 

3,911,452

 

Borrowings of long-term debt

 

 

860,801

 

 

 

152,200

 

 

 

285,005

 

 

 

875,683

 

Debt issuance costs

 

 

(169,901

)

 

 

(93,670

)

 

 

(359,527

)

 

 

(112,084

)

Repayments of long-term debt

 

 

(1,027,959

)

 

 

(4,189,648

)

 

 

(1,063,661

)

 

 

(737,843

)

Net cash provided by financing activities

 

 

17,899,513

 

 

 

6,664,784

 

 

 

5,446,944

 

 

 

8,699,613

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

290,069

 

 

 

334,478

 

 

 

(24,290

)

 

 

(233,405

)

NET DECREASE IN CASH & CASH EQUIVALENTS

 

 

(386,018

)

 

 

(758,583

)

 

 

(728,336

)

 

 

(805,871

)

CASH AND CASH EQUIVALENTS, beginning of the period

 

$

3,527,937

 

 

$

4,123,094

 

 

 

2,056,508

 

 

 

3,527,937

 

CASH AND CASH EQUIVALENTS, end of period

 

$

3,141,919

 

 

$

3,364,511

 

 

$

1,328,172

 

 

$

2,722,066

 

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 condensed consolidated financial statements.

8



S&W SEED COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BACKGROUND AND ORGANIZATIONGENERAL

Organization

The Company began as S&W Seed Company,is a general partnership, in 1980 and was originally in the business of breeding, growing, processing and selling alfalfa seed. The Company incorporated a corporation with the same name in Delaware in October 2009, whichglobal multi-crop, middle-market agricultural company that is the successor entity to Seed Holding, LLC, having purchased a majority interest in the general partnership between June 2008 and December 2009. Following the Company’s initial public offering in May 2010, the Company purchased the remaining general partnership interests and became the sole owner of the general partnership’s original business. Seed Holding, LLC remains a consolidated subsidiary of the Company.

In December 2011, the Company reincorporated in Nevada as a result of a statutory short-form merger of the Delaware corporation into its wholly-owned subsidiary, S&W Seed Company, a Nevada corporation.

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

In September 2018, the Company and AGT Foods Africa Proprietary Limited, or AGT, formed a venture based in South Africa named SeedVision Proprietary Limited, or SeedVision. SeedVision will leverage AGT's African-based production and processing facilities to produce S&W's hybrid sunflower, grain sorghum, and forage sorghum to be sold by SeedVision in the African continent, Middle East countries, and Europe.

As part of the Company’s 2018 acquisition of all the assets of Chromatin, Inc., the Company acquired 51.0% of Sorghum Solutions South Africa.

In February 2020, S&W Australia acquired all of the issued and outstanding shares of Pasture Genetics Ltd., or Pasture Genetics, from Pasture Genetics’ sole shareholder.

Business Overview

Since its establishment, the Company, including its predecessor entities, has been principally engaged in breeding, growing, processing and selling agricultural seeds. The Company ownsoperates seed cleaning and processing facilities, which are located in Nampa, Idaho, Dumas, Texas, New Deal, Texas, Keith, South AustraliaWales and Penfield, South Australia. The Company’s seed products are primarily grown under contract by farmers. The Company began its stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties ofcommercializing stevia products, entering the camelina market and developing marketingproducts to address unmet market needs through high-value improved traits in its crops.

Investments and distribution programsPartnership Activity

Bioceres Investment

As of June 30, 2021, the Company held an investment in Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina. During the third quarter of fiscal year 2022, the Company sold 71.4% of the investment in Bioceres, S.A. for net proceeds of $988,504, which included a gain on the sale of marketable securities of $68,967. The carrying value of the remainder of the investment was $367,980 at June 30, 2022, which was reported in Other assets on the Company's consolidated balance sheet. During the six months ended December 31, 2022, the Company sold off the remainder of its stevia products.investment in Bioceres, S.A. for net proceeds of $400,000, which included a gain on the sale of equity investment of $32,030.

TheTrigall Australia Partnership

Effective December 23, 2022, the Company’s wholly owned subsidiary, S&W Seed Company has also been actively engaged in expansion initiatives throughAustralia Pty Ltd, or S&W Australia, entered into a combination of organic growth and strategic acquisitions.

The Company had a long-term distribution agreementpartnership with Pioneer Hi-Bred International, Inc.Trigall Genetics S.A., or Pioneer, now a subsidiaryTrigall, for the development and marketing of Corteva Agriscience, Inc., which is jointly referred to as Corteva, regarding conventional (non-GMO)wheat varieties and a production agreement with Pioneer (relating to GMO-traited varieties). These agreements were terminated on May 20, 2019. See Note 4 for further discussion.

In May 2016,in Australia. Under the Company acquired the assets and business of SV Genetics, a private Australian company specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower seed germplasm, which represented the Company’s initial effort to diversify its product portfolio beyond alfalfa seed and stevia.

In October 2018, the Company acquired substantially allterms of the assets of Chromatin, Inc., a U.S.-based sorghum genetics and seed company, as part of the Company's efforts to expand its penetration into the hybrid sorghum market.

In August 2019,partnership agreement, S&W Australia transferred certain intellectual property license rights and equipment into a wholly owned subsidiary of S&W Seed Company, licensed certain wheat germplasm varieties and acquired certain equipment from affiliates of Corteva.subsequently sold an 80% interest in the subsidiary to Trigall. The subsidiary was renamed Trigall Australia Pty Ltd, or Trigall Australia. In the transaction,return, S&W Australia received $2.0 million in cash, a $1.0 million promissory note to be paid in December 2023, and a one-time license fee of $2.3 million and an equipment purchase price of $0.3 million. The license has an initial term of 15 years.

In February 2020,20% ownership interest in Trigall Australia. S&W Australia acquired Pasture Genetics,realized a $1.8 million gain on the third largest pasture seed companysale. The ownership interest in Trigall Australia as partwas recorded using the equity method and, along with the $1.0 million promissory note, is reported within the “Other assets” caption on the condensed consolidated balance sheet.

S&W Australia is obligated to make an aggregate of $560,000 in capital contributions to Trigall Australia through June 2025, and has agreed to provide certain marketing, collection and other operational services in support of the partnership.

Shell Partnership

On February 6, 2023, S&W and Equilon Enterprises LLC (dba Shell Oil Products US, or Shell), entered into a partnership for the development and production of sustainable biofuel feedstocks through Vision Bioenergy Oilseeds LLC, or Vision Bioenergy (see Note 13).

Basis of Presentation

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

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful

9


trade receivables, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingent consideration obligations, contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows.

The Company believes the estimates and assumptions underlying the accompanying condensed consolidated financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared. However, certain adverse geopolitical and macroeconomic events, such as the continued impact of COVID-19, the ongoing conflict between Ukraine and Russia and related sanctions, and uncertain market conditions, including higher inflation and supply chain disruptions, have, among other things, negatively impacted the global economy, created significant volatility and disruption of financial markets, and significantly increased economic and demand uncertainty. These factors make many of the estimates and assumptions reflected in these condensed consolidated financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of PresentationLiquidity and Principles of Consolidation

The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests.

The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being funded through advances, as needed, from its investorsThe Company has concluded that it is the primary beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest impact on the future economic performance of SeedVision.

The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are considered to be the activities that have the greatest impact on the future economic performance of Sorghum Solutions South Africa.

Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial results are included in these financial statements.  The Company recorded a combined $0.5 million of current assets (restricted) and $0.1 million of current liabilities (nonrecourse) for these entities in its consolidated balance sheet as of March 31, 2022. The Company recorded a combined $0.6 million of current assets (restricted) and $0.1 million of current liabilities (nonrecourse) for these entities in its consolidated balance sheet as of June 30, 2021.  

Unaudited Interim Financial Information

The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending June 30, 2022. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Annual Report, as filed with the SEC.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingent consideration obligations, contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets, goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows.

The COVID-19 pandemic and the efforts to contain it have, among other things, negatively impacted the global economy and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic has significantly increased economic and demand uncertainty. The Company believes the estimates and assumptions underlying the accompanying consolidated financial statements are reasonable and supportable based on the information available at the time the financial statements were prepared.


However, uncertainty over the impact COVID-19 will have on the global economy and the Company’s business in particular makes many of the estimates and assumptions reflected in these consolidated financial statements inherently less certain. Therefore, actual results may ultimately differ from those estimates to a greater degree than historically.Going Concern

Certain Risks and Concentrations

The Company’s revenue is principally derived fromFor the sale of seed, the market for which is highly competitive. NaN customer accounted for 15% of its revenue for the threesix months ended March 31, 2022 and 1 customer accounted for 28% of its revenue for the three months ended March 31, 2021. NaN customers accounted for 14% of its revenue for the nine months ended March 31, 2022 and 1 customer accounted for 25% of its revenue for the nine months ended March 31, 2021.

NaN customers accounted for 13% of the Company’s accounts receivable at March 31, 2022. NaN customer accounted for 11% of the Company’s accounts receivable at June 30, 2021.

The Company sells a substantial portion of its products to international customers. Sales to international markets represented 60% and 52% of revenue during the three months ended March 31, 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% and 19% of total fixed assets at March 31, 2022 and June 30, 2021, respectively. Cash balances located outside of the United States may not be insured and totaled $363,694 and $204,813 at March 31, 2022 and June 30, 2021, respectively.

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

 

 

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 andCapital Resources

The Company is monitoring the impact of the COVID-19 pandemic and the ongoing military conflict between Russia and Ukraine on its business, including its results of operations and financial condition, and has implemented measures designed to protect the health and safety of its employees while continuing its operations.  

The Company’s sales efforts historically involved significant in-person interaction with potential 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, the Company’s sales cycle is highly seasonal, and the majority of its sales season activities for the United States and Australia are typically concentrated between March and June of each year. If ongoing measures to protect against COVID-19 remain in effect throughout the 2022 sales season, the Company may experience similar negative impacts that it experienced during the 2020 and 2021 sales seasons.

In addition, the Company’s product revenue is predicated on its ability to timely fulfill customer orders, which depends in large part upon the consistent availability and operation of shipping and distribution networks operated by third parties. Farmers typically have a limited window during which they can plant seed, and their buying decisions can be shaped by actual or perceived disruptions in the Company’s distribution and supply channels. If the Company’s customers delay or decrease their orders due to potential disruptions in


its distribution and supply channels, or if the Company is unable to timely fulfill their orders, this would adversely affect the Company’s product revenue.

During the year ended June 30, 2021 and the three and 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 increases in shipping and transportation costs.  The Company expects these logistical challenges to persist throughout fiscal 2022, which may, among other things, delay or reduce its ability to recognize revenue within a particular fiscal period and harm its results of operations.

Given the level of uncertainty regarding the duration and broader impact of the COVID-19 pandemic, the Company is unable to fully assess the extent of its impact on the Company’s operations.

For the nine months ended MarchDecember 31, 2022, we reported a net loss of $23.5$10.5 million and net cash used in operations of $18.0$8.4 million. At MarchDecember 31, 2022, we had cash on hand of $3.1$1.3 million.

The Company’s loanLoan and security agreementSecurity Agreement, dated December 26, 2019, or the CIBC Loan Agreement, with CIBC Bank USA, or CIBC, which matures on March 23, 2023 ($16.2 million outstanding as of December 31, 2022),and the Company’s secured promissory noteits debt facilities with Conterra Agriculture Capital, LLC,National Australia Bank, or Conterra, which mature on December 23, 2022 and November 30, 2022, respectively,NAB, contain various operating and financial covenants (See(see Note 8)7). The COVID-19 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 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. The CIBC and Conterra. 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$1.0 million, and including June 29, 2022 and $2,500,000 thereafter. Thethe NAB Finance Agreement (as defined below) includes an undertaking that requires the Company does not currently expect it will be able to generate sufficient cash flow from operations 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.a net related entity position of not more than USD $18.5 million. The Company is actively pursuing refinancing of the CIBC debt facility.Loan Agreement. There can be no assurance the Company will be successful in raising additional capital, securing future waivers and/or amendments from its lenders, 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. 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.

Cost of Revenue

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

Cash and Cash Equivalents

For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. At times, cash and cash equivalents balances exceed amounts insured by the Federal Deposit Insurance Corporation.

Accounts Receivable

The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $264,892$180,334 and $57,582$233,927 at MarchDecember 31, 2022 and June 30, 2021,2022, respectively.

Inventories


Inventories

Inventories consist of seed and packaging materials.

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

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

Components of inventory are:

 

 

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 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 years for vehicles. 

Intangible Assets

Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the asset. Periods of 3-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average estimated useful lives are 26 years for technology/IP/germplasm, 20 years for customer relationships, 16 years for trade names, 18 years for license agreements and 18 years for other intangible assets.

Goodwill

Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value is less than its carrying amount, management conducts a quantitative goodwill impairment test. The goodwill impairment test is used to identify potential impairment by comparing the fair value with its carrying amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to estimate the fair value. If the fair value exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill.

The Company acquired Pasture Genetics in February 2020, and recorded goodwill of $1,452,436 as part of this transaction. The Company performed a quantitative assessment of goodwill at June 30, 2021 on its 1 reporting unit and determined that goodwill was not impaired. See Note 6 for further information.follows:

 

 

As of

 

 

As of

 

 

 

December 31, 2022

 

 

June 30, 2022

 

Raw materials and supplies

 

$

3,808,923

 

 

$

2,645,764

 

Work in progress

 

 

11,035,458

 

 

 

6,677,980

 

Finished goods

 

 

38,107,714

 

 

 

45,192,150

 

Inventories, net

 

$

52,952,095

 

 

$

54,515,894

 


Investment in Bioceres S.A.

The Company owns less than 1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in Argentina.  The carrying value of the investment is $0.4 million at March 31, 2022 and $1.3 million at June 30, 2021, and the investment is included in Other Assets on the Consolidated Balance Sheet.

The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities beginning July 1, 2018.  As such, this investment is accounted for in accordance with ASC 321, Investments – Equity Securities. As the stock is not publicly traded, the Company has elected to account for its investment at cost, with adjustments to fair value when there are observable transactions that provide an indicator of fair value.  In addition, if qualitative factors indicate a potential impairment, fair value must be estimated, and the investment written down to that fair value if it is lower than the carrying value.  

During the three months ended March 31, 2022, the Company sold 71.4% of the investment in Bioceres, S.A. for net proceeds of $988,504, which included a gain on the sale of marketable securities of $68,967.  NaN adjustments for impairment were made for the three months or nine months ended March 31, 2022 or March 31, 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

10


assets to the amount that is more likely than not to be realized. The Company’s effective tax rate for the three and ninesix months ended MarchDecember 31, 2022 and MarchDecember 31, 2021 has been affected by the valuation allowance on the Company’s deferred tax assets. as well as the gain related to the formation of our wheat partnership with Trigall.

Net Income (Loss)Loss Per Common Share Data

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 and related warrant, or Series B Warrant (see Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the SEC) are participating securities because holders of such shares have non-forfeitable dividend rights and participate in any undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net loss attributable to common shareholders. During the threeThere were $88,224 and nine months ended March 31, 2022, there were $40,276$176,447 in accrued dividends subtracted from net income attributable to common shareholders;shareholders during the three and six months ended December 31, 2022, respectively; there were 0no undistributed earnings to allocate to the participating securities. Additionally, any accretion to the redemption value for the Series B Preferred Stock is treated as a deemed dividend in the two-class earnings per share, or EPS, calculation. During the three and ninesix months ended MarchDecember 31, 2022, $12,919$25,838 and $51,676, respectively, was accreted to the redemption value of the Series B Preferred Stock and subtracted from net income attributable to common shareholders. During the three and six months ended December 31, 2022, there were no undistributed earnings to allocate to the participating securities.


The calculation of Basic and Diluted EPSnet loss per common share is shown in the table below.

 

 

Three Months Ended March 31,

 

 

Nine Months Ended March 31,

 

 

 

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

)

Dividends accrued for participating securities and accretion

 

 

(53,195

)

 

 

0

 

 

 

(53,195

)

 

 

0

 

Numerator for basic and diluted EPS

 

 

(7,358,118

)

 

 

(1,847,292

)

 

 

(23,553,195

)

 

 

(17,486,504

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic EPS-weighted- average

   shares

 

 

39,515,547

 

 

 

34,945,476

 

 

 

38,240,917

 

 

 

33,976,517

 

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

 

Basic EPS

 

$

(0.19

)

 

$

(0.05

)

 

$

(0.62

)

 

$

(0.51

)

Diluted EPS

 

$

(0.19

)

 

$

(0.05

)

 

$

(0.62

)

 

$

(0.51

)

 

 

Three Months Ended
December 31,

 

 

Six Months Ended
December 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to S&W Seed Company

 

$

(5,986,005

)

 

$

(9,795,102

)

 

$

(10,494,946

)

 

$

(16,195,077

)

Dividends accrued for participating securities

 

 

(88,224

)

 

 

 

 

 

(176,447

)

 

 

 

Accretion of Series B Preferred Stock redemption value

 

 

(25,838

)

 

 

 

 

 

(51,676

)

 

 

 

Numerator for net loss per common share - basic and diluted

 

$

(6,100,067

)

 

$

(9,795,102

)

 

$

(10,723,069

)

 

$

(16,195,077

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

42,651,270

 

 

 

38,461,049

 

 

 

42,627,645

 

 

 

37,617,457

 

Net loss per common share - basic and diluted

 

$

(0.14

)

 

$

(0.25

)

 

$

(0.25

)

 

$

(0.43

)

The effectsAnti-dilutive shares, which have been excluded from the computation of diluted loss per share, included 4,580,057 employee stock options, and497,921 restricted stock units, are excluded because they would be anti-dilutive dueor RSUs, and warrants to purchase 1,333,400 shares of common stock related to the Company’sMFP Loan Agreement (as defined below), and 559,350 Warrants issued with the Company's Series B Convertible Preferred Stock. The terms and conditions of these securities are more fully described in Note 9 and Note 10 in these condensed consolidated financial statements and in Note 13 and Note 14 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 2021, as filed with the SEC. For the periods ending December 31, 2022 and 2021, all potentially dilutive shares were anti-dilutive and excluded from the calculation of diluted loss per share because net losslosses were recognized.

Concentrations

One customer accounted for 8% and 11% of the Company's revenue for the three and ninesix months ended MarchDecember 31, 2022, respectively, and no single customer accounted for more than 10% of the Company's revenue for the three and six months ended December 31, 2021.

One customer accounted for approximately 15% of the Company’s accounts receivable as of December 31, 2022. No customer accounted for more than 10% of the Company’s accounts receivable as of June 30, 2022.

The Company sells a substantial portion of its products to international customers (see Note 4). Sales to international markets represented 86% and 81% of revenue during the three months ended December 31, 2022 and 2021, respectively. Sales to international markets represented .  81

Impairment% and 78% of Long-Lived Assets

revenue during the six months ended December 31, 2022 and 2021, respectively. 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 carryingnet book value of long-livedfixed assets will be adjusted, based on estimateslocated outside the United States was 21% and 22% of future discounted cash flows resulting from the usetotal fixed assets at December 31, 2022 and ultimate dispositionJune 30, 2022, respectively. Cash balances located outside of the asset. Refer to Note 6 for impairment discussion.United States may not be insured and totaled $420,595 and $811,551 at December 31, 2022 and June 30, 2022, respectively.

11


Derivative Financial Instruments

Foreign Exchange Contracts

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

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

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

Fair Value of Financial Instruments

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

Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Level 1. Observable inputs such as quoted prices in active markets;

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

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

The carrying value of cash and cash equivalents, financial commitment assets (see Note 9), the promissory note issued from Trigall (see Note 1), accounts payable, short-term and all long-term borrowings, as reflected in the condensed consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments or interest rates


commensurate with market rates. There have been no changes in operations and/or credit characteristics since the date of issuance that could impact the relationship between interest rate and market rates.rates.

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

 

 

Fair Value Measurements as of December 31, 2022 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Foreign exchange contract liability

 

$

 

 

$

1,009,469

 

 

$

 

Total

 

$

 

 

$

1,009,469

 

 

$

 

 

 

Fair Value Measurements as of June 30, 2022 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Foreign exchange contract liability

 

$

 

 

$

996,106

 

 

$

 

Total

 

$

 

 

$

996,106

 

 

$

 

 

 

Fair Value Measurements as of

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 AdoptedRecent Accounting Pronouncements Not Yet Adopted

The Company adopted ASU 2020-06,We have evaluated all issued and unadopted Accounting for Convertible InstrumentsStandards Updates and Contracts in an Entity’s Own Equity effective July 1, 2021. This ASU simplifiesbelieve the accounting for convertible instruments by removing certain separation models in ASC 470-20, Debt—Debt with Conversion and Other Options, for convertible instruments. The ASU updates 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 made amendments to the EPS guidance in Topic 260 for convertible debt instruments, the most significant impact 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 that are recognized as assets or liabilities. The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for periods beginning after December 15, 2020. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. At the time of adoption, we had no outstanding convertible instruments and no adjustments were recognized to our July 1, 2021 accumulated deficit. The adoption of this ASU had nothese standards will not have a material impact on the Company’sour condensed consolidated financial statements and related disclosures. of operations, comprehensive income, balance sheets, or cash flows.

12


NOTE 3 - LEASES

S&WThe Company leases office and laboratory space, research plots and equipment used in connection with its operations under various operating and finance leases.

Right-of-use, or ROU, assets represent the Company’s right to use the underlying assets for the lease term and lease liabilities represent the net present value of the Company’s obligation to make payments arising from these leases. The lease liabilities are based on the present value of fixed lease payments over the lease term using the implicit lease interest rate or, when unknown, the Company's incremental borrowing rate on the lease commencement date or July 1, 2019 for leases that commenced prior to that date. If the lease includes one or more options to extend the term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will exercise the option(s). Operating lease expense is recognized on a straight-line basis over the term of the lease. As permitted by ASC 842, leases with an initial term of twelve months or less, or short-term leases, are not recorded on the accompanying consolidated balance sheet.

The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component under the practical expedient provisions of the standard. The Company has lease agreements with terms less than one year. For the qualifying short-term leases, the Company elected the short-term lease recognition exemption in which the Company will not recognize ROU assets or lease liabilities, including the ROU assets or lease liabilities for existing short-term leases of those assets in upon adoption.

Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included in the recognition of ROU assets and related lease liabilities.  Variable lease payments and short-term lease expenses were immaterial to the Company’s


financial statements for the three and nine months ended March 31, 2022. The Company’s lease agreements do not contain material restrictive covenants.

The components of lease assets and liabilities as of December 31, 2022 are as follows:

Leases

 

Balance Sheet Classification

 

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

 

Leases

Balance Sheet Classification:

December 31, 2022

Assets:

Right of use assets - operating leases

Right of use assets - operating leases

4,234,241

Right of use assets - finance leases

2,011,082

Accumulated amortization - finance leases

(1,361,998

)

Right of use assets - finance leases, net

Other assets

649,084

Total lease assets

4,883,325

Liabilities:

Current lease liabilities - finance leases

Current portion of long-term debt, net

608,663

Current lease liabilities - operating leases

Accrued expenses and other current liabilities

1,429,482

Long-term portion of lease liabilities - finance leases

Long-term debt, net, less current portion

239,238

Long-term portion of lease liabilities - operating leases

Other non-current liabilities

3,078,345

Total lease liabilities

5,355,728

The components of lease cost are as follows:

Lease cost:

Income Statement Classification:

 

Three Months Ended December 31, 2022

 

 

Six Months Ended December 31, 2022

 

Operating lease cost

Cost of revenue

 

$

163,389

 

 

$

347,249

 

Operating lease cost

Selling, general and administrative expenses

 

 

54,914

 

 

 

110,248

 

Operating lease cost

Research and development expenses

 

 

88,620

 

 

 

224,817

 

Finance lease cost

Depreciation and amortization

 

 

125,949

 

 

 

265,639

 

Finance lease cost

Interest expense, net

 

 

12,841

 

 

 

28,791

 

Total lease costs

 

 

$

445,713

 

 

$

976,744

 

Leases

 

Income Statement Classification

 

Three Months

Ended

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 MarchDecember 31, 2022 are as follows:

 

 

Operating Leases

 

 

Finance Leases

 

2023

 

$

907,671

 

 

$

440,777

 

2024

 

 

1,527,845

 

 

 

321,631

 

2025

 

 

1,024,653

 

 

 

98,337

 

2026

 

 

791,258

 

 

 

23,091

 

2027

 

 

509,239

 

 

 

 

Thereafter

 

 

102,165

 

 

 

 

Total lease payments

 

 

4,862,831

 

 

 

883,836

 

Less: Interest

 

 

(355,004

)

 

 

(35,935

)

Present value of lease liabilities

 

$

4,507,827

 

 

$

847,901

 

 

 

 

 

Operating Leases

 

Finance Leases

 

Remainder of 2022

 

 

 

$

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 MarchDecember 31, 2022:

Operating lease remaining lease term

 

4.3 years

 

 

3.5

 

Operating lease discount rate

 

 

4.09

%

 

 

4.14

%

Finance lease remaining lease term

 

1.8 years

 

 

1.2 years

 

Finance lease discount rate

 

 

5.09

%

 

 

5.49

%

Cash paid for operating leases

 

$

859,713

 

 

$

603,304

 

Cash paid for finance leases

 

$

1,244,746

 

 

 

527,384

 


NOTE 4 – PIONEER RELATIONSHIP

Distribution and Production Agreements with Pioneer

In 2014, the Company purchased from Pioneer certain assets related to alfalfa and entered into a long-term contract to sell alfalfa seed to Pioneer under a production agreement (GMO varieties) and a distribution agreement (conventional varieties). Under the production and distribution agreements with Pioneer, the Company grew, processed, and delivered alfalfa seed for and to Pioneer.  See Note 5 for a discussion of the recognition of revenue under these agreements.  

On May 22, 2019, the Company and Pioneer terminated the production and distribution agreements.  As part of the termination, Pioneer’s parent company, Corteva, agreed to purchase from the Company certain quantities of seed held by the Company as of that date that Pioneer was not previously obligated to purchase.  Those quantities of seed were delivered to Corteva periodically through March 2021.  

The Company does not expect to sell any other products to Pioneer or Corteva beyond those quantities of seed.

License Agreement with Corteva

Contemporaneously with the terminations discussed above, the Company entered into a license agreement with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. The Company also assigned to Corteva grower production contract rights, and Corteva assumed grower production contract obligations, related to the licensed and certain other alfalfa varieties.  Corteva received no license to the Company's other commercial alfalfa varieties or pre-commercial alfalfa pipeline products and no rights to any future products developed by the Company.

Payments Due from Corteva and Pioneer

The Company received payments of $45.0 million in fiscal 2019, $16.7 million in fiscal 2020, and $8.3 million in fiscal 2021, which totaled $70.0 million. Approximately $34.2 million of these amounts referenced above has been allocated to the license to the Company’s alfalfa varieties. The $34.2 million was reported as licensing revenue in the consolidated statement of operations for the fiscal year ended June 30, 2019.  13


The remaining amounts were recognized as revenue as the seed was delivered to Corteva through March 2021.  The amount allocated to the seed represented the estimated standalone selling price of those quantities of seed, determined based on the Company’s normal profit margin on the quantities and varieties of seed that Corteva agreed to purchase.  The Company allocated approximately $1.8 million to an unbilled receivable related to revenue recognition at contract termination and the remainder of the payments was allocated to the license using a residual method approach. The unbilled receivable is $0 as of March 31, 2022 and June 30, 2021.

NOTE 54 - REVENUE RECOGNITION

The Company derives its revenue primarily from 1) the sale of seed 2) millingproducts to seed distributors. From time to time, the Company utilizes excess capacity to provide conditioning, treating and packaging services 3) research and development services and 4) product licensing agreements.

The following table disaggregates the Company’s revenue by type of contract:

 

 

Three Months Ended 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 Salesto other seed producers.

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.

Other Product Sales

Revenue from otherseed product sales is recognized at the point in time at which control of the product is transferred to the customer. Generally, this occurs upon shipment of the product. Pricing for such transactions is negotiated and determined at the time the


contracts are signed. We have elected the practical expedient that allows us to account for shipping and handling activities as a fulfillment cost, and we accrue those costs when the related revenue is recognized.

The Company has certain contracts with customers that offer a limited right of return on certain branded products.products through the end of the current sales year (September through August). The products must be in an unopened and undamaged state and must be resalable in the sole opinion of the Company to qualify for refund. Returns are only accepted on product received by August 31st of the current sales year.  The Company uses a historical returns percentage to estimate the refund liability and records a reduction of revenue in the period in which revenue is recognized.

ServicesContract Assets and Liabilities

Revenue from milling, conditioning, and treating and packaging services, which are performed on the customer's product, is recognized as services are completed and the milled product is delivered to the customer.

Revenue from research and development services is recognized over time as the services are performed.

Payment Terms and Related Balance Sheet Accounts

Accounts receivable represent amounts that are payable to the Company by its customers subject only to the passage of time. Payment terms on invoices are generally 30 to 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.

UnbilledThe Company provides an allowance for doubtful trade receivables represent contract assets that arise whenequal to the Company has partially performed under a contract but is not yet able to invoice the customer until the Company has made additional progress. Unbilled receivables arose from the distribution and production agreements for which the Company recognized revenue over time, as the Company bills for these arrangements upon product delivery, while revenue was recognized, as described above, as costs were incurred. Unbilled receivables may arise as much as three months before billing is expected to occur. Unbilled receivables are generally expected to be generated in the first and second fiscal quarters, and to be billed in the second, third and fourth fiscal quarters.

Losses on accounts receivable and unbilled receivables are recognized if and whenestimated uncollectible amounts (see Note 2). When it becomes probable that amountsa trade receivable will not be paid. These losses arecollected, it is written off against the allowance for doubtful accounts. If an account that has been written off is subsequently corrected, the provision for doubtful receivables is reversed, which can result in subsequent periods if these amounts are paid.a net negative provision in a period. During the three and six months ended MarchDecember 31, 2022, the Company recognized a gain on amounts previously written off to bad debt expense of $(20,705).  During the nine months ended March 31, 2022, the Company recognizedrecorded a net loss on amounts written off to bad debt expenseprovision for doubtful receivables of $200,458.$30,212 and a net reversal of the provision for doubtful receivables of $(125,209), respectively.

Deferred revenue represents payments received from customers in advance of completion of the Company's performance obligation. During the ninesix months ended MarchDecember 31, 2022, the Company recognized $0.4$0.6 million of revenue that was included in the deferred balance as of June 30, 2021.2022. During the ninesix months ended MarchDecember 31, 2021, the Company recognized $6.2$0.4 million of revenue that was included in the deferred balance as of June 30, 2020.2021.

Disaggregation of Revenue

NOTE 6 – GOODWILL AND INTANGIBLE ASSETS

The Company acquired Pasture Genetics in February 2020,disaggregates revenue by type of contract and recorded goodwill of $1,452,436, as part of this transaction. The Company performed a quantitative assessment of goodwill at June 30, 2021 on its 1 reporting unit and determined that goodwill was not impaired.

by destination country. The following table summarizes the activityshows revenue from external sources by type of goodwill for the nine months ended March 31, 2022contract:

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Seed sales

 

$

12,834,831

 

 

$

11,818,392

 

 

$

32,672,618

 

 

$

26,723,793

 

Services

 

 

102,971

 

 

 

813,017

 

 

 

131,049

 

 

 

1,439,297

 

Total revenue

 

$

12,937,802

 

 

$

12,631,409

 

 

$

32,803,667

 

 

$

28,163,090

 

The following tables show revenue and the year ended June 30, 2021, respectively.percentage of revenue from external sources by destination country:

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Saudi Arabia

 

$

2,165,680

 

 

 

17

%

 

$

1,680,546

 

 

 

13

%

 

$

7,337,966

 

 

 

22

%

 

$

5,147,756

 

 

 

18

%

United States

 

 

1,843,826

 

 

 

14

%

 

$

2,404,078

 

 

 

19

%

 

 

6,104,580

 

 

 

19

%

 

 

6,069,406

 

 

 

22

%

Australia

 

 

2,501,634

 

 

 

19

%

 

$

2,245,847

 

 

 

18

%

 

 

5,059,366

 

 

 

15

%

 

 

5,679,852

 

 

 

20

%

Libya

 

 

1,162

 

 

 

0

%

 

$

44,000

 

 

 

0

%

 

 

2,999,209

 

 

 

9

%

 

 

1,088,000

 

 

 

4

%

Mexico

 

 

1,799,590

 

 

 

14

%

 

$

94,000

 

 

 

1

%

 

 

2,530,690

 

 

 

8

%

 

 

322,420

 

 

 

1

%

Sudan

 

 

1,508,599

 

 

 

12

%

 

$

 

 

 

0

%

 

 

2,310,643

 

 

 

7

%

 

 

819,618

 

 

 

3

%

Pakistan

 

 

531,471

 

 

 

4

%

 

$

2,067,506

 

 

 

16

%

 

 

1,353,091

 

 

 

4

%

 

 

2,231,561

 

 

 

8

%

South Africa

 

 

933,927

 

 

 

7

%

 

$

1,378,781

 

 

 

11

%

 

 

933,927

 

 

 

3

%

 

 

1,378,781

 

 

 

5

%

Argentina

 

 

443,474

 

 

 

3

%

 

$

1,058,308

 

 

 

8

%

 

 

806,452

 

 

 

2

%

 

 

1,409,147

 

 

 

5

%

Algeria

 

 

 

 

 

0

%

 

$

186,000

 

 

 

1

%

 

 

754,680

 

 

 

2

%

 

 

186,000

 

 

 

1

%

Other

 

 

1,208,439

 

 

 

9

%

 

$

1,472,343

 

 

 

12

%

 

 

2,613,063

 

 

 

8

%

 

 

3,830,549

 

 

 

14

%

Total revenue

 

$

12,937,802

 

 

 

100

%

 

$

12,631,409

 

 

 

100

%

 

$

32,803,667

 

 

 

100

%

 

$

28,163,090

 

 

 

100

%

14


 

 

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

 

NOTE 5 – INTANGIBLE ASSETS

 

 

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
June 30, 2022

 

 

Transfer to Trigall Australia

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at December 31, 2022

 

Trade name

 

$

1,084,791

 

 

$

 

 

$

(98,148

)

 

$

(3,290

)

 

$

983,353

 

Customer relationships

 

 

5,499,815

 

 

 

 

 

 

(176,526

)

 

 

(59,071

)

 

 

5,264,218

 

GI customer list

 

 

42,983

 

 

 

 

 

 

(3,582

)

 

 

 

 

 

39,401

 

Supply agreement

 

 

775,241

 

 

 

 

 

 

(37,817

)

 

 

 

 

 

737,424

 

Grower relationships

 

 

1,331,581

 

 

 

 

 

 

(52,703

)

 

 

 

 

 

1,278,878

 

Intellectual property

 

 

23,035,925

 

 

 

 

 

 

(692,933

)

 

 

 

 

 

22,342,992

 

License agreement

 

 

1,986,598

 

 

 

(1,885,907

)

 

 

(75,610

)

 

 

(25,081

)

 

 

 

Internal use software

 

 

338,893

 

 

 

 

 

 

(33,889

)

 

 

 

 

 

305,004

 

 

 

$

34,095,827

 

 

$

(1,885,907

)

 

$

(1,171,208

)

 

$

(87,442

)

 

$

30,951,270

 

 

Balance at

July 1, 2021

 

 

Additions

 

 

Impairment

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at

March 31, 2022

 

 

Balance at
June 30, 2021

 

 

Other Additions and Disposals

 

 

Amortization

 

 

Currency Translation Adjustment

 

 

Balance at
June 30, 2022

 

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

 

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

 

On December 23, 2022, the Company transferred certain intellectual property rights under a license agreement to Trigall Australia as part of its equity investment in the partnership (see Note 1). Amortization expense totaled $598,399$581,212 and $604,439$601,649 for the three months ended MarchDecember 31, 2022 and 2021, respectively. Amortization expense totaled $1,804,538$1,171,208 and $1,798,227$1,206,138 for the ninesix months ended MarchDecember 31, 2022 and 2021, respectively.

Estimated aggregate remaining amortization is as follows:

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

2027

 

 

Thereafter

 

Amortization expense

 

$

1,080,323

 

 

$

2,160,322

 

 

$

2,119,891

 

 

$

1,979,781

 

 

$

1,928,897

 

 

$

21,682,056

 

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

Thereafter

 

Amortization expense

 

$

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:

 

 

As of

 

 

As of

 

 

 

December 31, 2022

 

 

June 30, 2022

 

Land and improvements

 

$

2,260,672

 

 

$

2,265,087

 

Buildings and improvements

 

 

8,130,736

 

 

 

8,119,960

 

Machinery and equipment

 

 

14,839,714

 

 

 

14,972,462

 

Vehicles

 

 

1,082,908

 

 

 

1,085,342

 

Leasehold improvements

 

 

552,811

 

 

 

552,810

 

Construction in progress

 

 

24,585

 

 

 

110,107

 

Total property, plant and equipment

 

 

26,891,426

 

 

 

27,105,768

 

Less: accumulated depreciation

 

 

(11,184,855

)

 

 

(10,234,099

)

Property, plant and equipment, net

 

$

15,706,571

 

 

$

16,871,669

 

15

 

 

March 31,

2022

 

 

June 30,

2021

 

Land and improvements

 

$

2,296,944

 

 

$

2,297,529

 

Buildings and improvements

 

 

8,201,738

 

 

 

8,196,593

 

Machinery and equipment

 

 

14,975,940

 

 

 

13,935,053

 

Vehicles

 

 

1,191,797

 

 

 

1,046,937

 

Leasehold improvements

 

 

552,810

 

 

 

552,810

 

Construction in progress

 

 

141,093

 

 

 

48,480

 

Total property, plant and equipment

 

 

27,360,322

 

 

 

26,077,402

 

Less: accumulated depreciation

 

 

(9,893,395

)

 

 

(8,336,428

)

Property, plant and equipment, net

 

$

17,466,927

 

 

$

17,740,974

 


Depreciation expense totaled $625,327$546,743 and $604,080$614,078 for the three months ended MarchDecember 31, 2022 and 2021, respectively.

Depreciation expense totaled $1,809,915$1,153,491 and $1,941,750$1,184,588 for the ninesix months ended MarchDecember 31, 2022 and 2021, respectively.


NOTE 87 - DEBT

Total debt outstanding is presented on the consolidated balance sheet as follows:

 

December 31, 2022

 

 

June 30, 2022

 

 

March 31,

2022

 

 

June 30,

2021

 

 

 

 

 

 

 

Current portion of working capital lines of credit

 

 

 

 

 

 

 

 

 

 

 

 

 

CIBC

 

$

13,000,000

 

 

$

14,500,000

 

 

$

16,207,360

 

 

$

12,804,611

 

National Australia Bank Limited

 

 

367,734

 

 

 

19,494,800

 

 

 

24,473,556

 

 

 

338,314

 

National Australia Bank Limited Overdraft Facility

 

 

611,014

 

 

 

617,471

 

 

 

1,160,587

 

 

 

 

Debt issuance costs

 

 

(300,605

)

 

 

(665,706

)

 

 

(431,286

)

 

 

(464,028

)

Total current portion of working capital lines of credit, net

 

 

13,678,143

 

 

 

33,946,565

 

 

 

41,410,217

 

 

 

12,678,897

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Australia Bank Limited

 

 

23,590,666

 

 

 

 

 

 

 

 

 

21,703,286

 

Total long-term portion of working capital lines of credit

 

 

23,590,666

 

 

 

 

 

 

 

 

 

21,703,286

 

Total working capital lines of credit, net

 

$

37,268,809

 

 

$

33,946,565

 

 

$

41,410,217

 

 

$

34,382,183

 

Current portion of long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease

 

$

883,251

 

 

$

909,413

 

Finance leases

 

$

608,663

 

 

$

804,309

 

Term Loan - National Australia Bank Limited

 

 

340,250

 

 

 

344,400

 

Machinery & equipment loans - National Australia Bank Limited

 

 

254,414

 

 

 

246,547

 

Machinery & equipment loans - Hyster

 

 

11,957

 

 

 

11,834

 

Vehicle loans - Ford Credit

 

 

40,341

 

 

 

40,341

 

Secured real estate note - Rooster

 

 

6,527,849

 

 

 

6,905,995

 

Debt issuance costs

 

 

(2,656

)

 

$

(5,077

)

 

 

(39,574

)

 

 

(36,643

)

Total current portion, net

 

 

7,743,900

 

 

 

8,316,783

 

Long-term debt, less current portion

 

 

 

 

 

Finance leases

 

 

239,238

 

 

 

500,723

 

Term loan - National Australia

Bank Limited

 

 

374,350

 

 

 

374,900

 

 

 

2,381,750

 

 

 

2,410,800

 

Machinery & equipment loans -

National Australia Bank Limited

 

 

266,385

 

 

 

160,632

 

 

 

1,022,603

 

 

 

963,733

 

Machinery & equipment loans - Hyster

 

 

12,720

 

 

 

5,170

 

 

 

22,331

 

 

 

28,722

 

Vehicle loans - Ford Credit

 

 

40,341

 

 

 

 

 

 

65,934

 

 

 

88,583

 

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

)

 

 

 

 

 

(21

)

Total long-term portion, net

 

 

4,966,090

 

 

 

11,590,500

 

 

 

3,731,856

 

 

 

3,992,540

 

Total debt, net

 

$

13,390,771

 

 

$

13,271,666

 

 

$

11,475,756

 

 

$

12,309,323

 

CIBC Loan Agreement

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

on September 22, 2020, December 30, 2020, May 13, 2021, September 27, 2021 and May 13, 2022. As amended,2022, the CIBC Loan Agreement provides for a $20.0 million revolving credit facility.

The following is a summary of certain terms of thewas amended loan agreement:

Advances under the CIBC Credit Facility are to, be used: (i) to finance the Company’s ongoing working capital requirements; and (ii) for general corporate purposes.

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) an eligible inventory sublimit as more fully set forth in the Loan Agreement, in each case, subject to lender reserves.


Loans are based on a Base Rate plus 2.0% per annum. In the event of a default, at the option of CIBC, the interest rate on all obligations owing will increase by 2% per annum over the rate otherwise applicable.

The CIBC Credit Facility is secured by a first priority perfected security interest in substantially all of the Borrowers’ assets (subject to certain exceptions), including intellectual property.

The Loan Agreement contains customary representations and warranties, affirmative and negative covenants and customary events of default that permit CIBC to accelerate the Company’s outstanding obligations under the CIBC Credit Facility, all as set forth in the Loan Agreement and related documents. The CIBC Credit Facility also contains customary and usual financial covenants imposed by CIBC.

Pursuant to the May 13, 2022 amendment, among other things, (i) specify that the total revolving commitment providedborrowing base eligible inventory sublimit cannot be reduced below the proceeds available to be drawn under the MFP Letter of Credit (as defined below), (ii) waive the Company's non-compliance with certain financial covenants under the CIBC Loan Agreement 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;and (iii) the fixed charge coverage ratio financial covenant has been eliminated for periods after March 31, 2022; (iv) theestablish a minimum liquidity financial covenant has been adjusted to require maintenance of no less than $1,000,000$1.0 million tested weekly as of Liquidity (as defined in the Loan Agreement) (reduced from $3,000,000) through June 29, 2022 and , thereafter, no less than $2,500,000last day of each week for the remainder of the term of the CIBC Loan Agreement;

on October 28, 2022, the CIBC Loan Agreement in each case tested weekly. Thewas amended to, among other things, increase (i) the total revolving loan commitment to $21.0 million from $18.0 million and (ii) the borrowing base eligible inventory sublimit to $12.0 million from $9.0 million; and
on December 23, 2022, the CIBC Loan Agreement was amended to, among other things, extend the maturity date of all revolving loans, advances and other obligations outstanding under the CIBC Loan Agreement from December 23, 2022 to March 23, 2023.

16


As of December 31, 2022, 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 MarchDecember 31, 2022, there was approximately $2.3$4.8 million of unused availability on the CIBC Credit Facility.

Rooster Note

In November 2017,During the Company entered into a secured note financing transaction, orsix months ended December 31, 2022, the Loan Transaction, with Conterra Agricultural Capital, LLC, or Conterra, for $12.5 millionRooster Note (as defined in gross proceeds. PursuantNote 8 to the Loan Transaction, the Company issued a secured real estate note to ConterraConsolidated Financial Statements in the principal amount of $10.4 million, which bears interest of 7.75% per annum and is secured by a first priority security interest inCompany’s Annual Report on Form 10-K for the property, plant and fixtures located at the Company's Nampa, Idaho production facilities and its Nampa, Idaho research facilities. On December 24, 2019,year ended June 30, 2022) was amended as follows:

on September 22, 2022, the Company entered into an amendment to extend the note’sRooster Note’s maturity date to December 23, 2022; and
November 30,
on December 23, 2022, and revise the amounts payable under the note. PursuantCompany entered into an amendment to the Rooster Note that (i) increased the interest rate on the Rooster Note from 7.75% to 9.25% per annum and (ii) extended the maturity date of the Rooster Note from December 2019 amendment,23, 2022 to March 1, 2023.

On February 6, 2023, Shell paid off the Company agreed to make (i) aapproximately $7.0 million of outstanding principal and accrued interest payment of approximately $515,711 on January 1, 2020; (ii) five consecutive semi-annual principal and interest payments of approximately $454,185, beginning on July 1, 2020; and (iii) a one-time final payment of approximately $8,957,095 on November 30, 2022. The Company may prepay the Secured Real EstateRooster Note in whole or in part, at any time. In January 2021,connection with the Company completed the sale of its NaN Points facility which resulted in the Company making a one-time principal pay-down of $1,706,845 on the secured real estate note. The Company will also make three consecutive semi-annual principal and interest payments of approximately $388,045, beginning on July 1, 2021; and a one-time final payment of approximately $7,184,109 on November 30, 2022. The Company was in compliance with all debt covenants as of March 31, 2022.Vision Bioenergy partnership (see Note 13).

On August 15, 2018, the Company completed a sale and leaseback transaction with American AgCredit involving certain equipment located at the Company's NaN Points, California and Nampa, Idaho production facilities. Due to its terms, the sale and leaseback transaction was required to be accounted for as a financing arrangement. Accordingly, the proceeds received from American AgCredit were accounted for as proceeds from a debt financing. Under the terms of the transaction:

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 Agricultural Capital, LLC, 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 NaN 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 hasAustralia’s debt facilities with National Australia Bank, or NAB, allas amended to date, or the NAB Finance Agreement, were amended and restated effective October 24, 2022, and further amended on October 25, 2022. Pursuant to the amendments contained in the NAB Finance Agreement, among other things:

the borrowing base line credit limit under S&W Australia’s seasonal credit facility was increased from AUD $32.0 million (USD $21.8 million as of which areDecember 31, 2022) to AUD $40.0 million (USD $27.2 million as of December 31, 2022), with a one-year maturity date extension to September 30, 2024;
the overdraft credit limit under S&W Australia’s seasonal credit facility was increased from AUD $1.0 million (USD $0.7 million as of December 31, 2022) to AUD $2.0 million (USD $1.4 million as of December 31, 2022), with a one-year maturity date extension to September 29, 2023; and
the maturity date of S&W Australia’s master asset finance facility was extended by one year to September 29, 2023.

After the amendments, the consolidated debt facilities under the NAB Finance Agreement provide for up to an aggregate of AUD $49.0 (USD $33.3 million as of December 31, 2022) of credit. The NAB Finance Agreement is guaranteed by S&W Seed Company up to a maximum of AUD $15,000,000$15.0 million (USD $11,230,500)$10.2 million as of December 31, 2022).

Following the October 2022 amendments, the NAB Finance Agreement contained an undertaking requiring the Company to maintain a net related entity position of not more than AUD $25.0 million, and the Company's ability to comply with this undertaking was subject to fluctuations in foreign currency conversion rates outside of the Company's control. Due to fluctuations in foreign currency conversion rates, the Company was not in compliance with this undertaking as of December 31, 2022, and the Company subsequently obtained a waiver from NAB with respect to such non-compliance as of December 31, 2022. On November 11, 2021,February 8, 2023, the Company further amended the NAB Finance Agreement to change the required net related entity position from AUD $25.0 S&W Australia amended its debt facilitiesmillion to USD $18.5 million. The Company believes that this amendment will provide the Company with greater control over compliance with this undertaking. As of December 31, 2022, approximately AUD $4.3 million (USD $2.9 million) remained available for use under the NAB Finance Agreement.

MFP Loan Agreement

On September 22, 2022, the Company’s largest stockholder, MFP Partners, L.P., or MFP, provided a letter of credit issued by JPMorgan Chase Bank, N.A. for the account of MFP, with an initial face amount of $9.0 million, or the MFP Letter of Credit, for the benefit of CIBC, as additional collateral to support the Company’s obligations under the CIBC Loan Agreement. The MFP Letter of Credit initially matured on January 23, 2023, one month after the maturity date of the existing CIBC Loan Agreement. Concurrently, on September 22, 2022, the Company entered into a Subordinate Loan and Security Agreement, or the MFP Loan Agreement, with MFP, pursuant to which: 

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 $748,700which any draw CIBC may make on April 1, 2022) and will decrease to 0 on July 1, 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,MFP Letter of Credit will be deemed to be a term loan advance made by MFP to the consolidated debt facilities with NAB provideCompany. The MFP Loan Agreement initially provided for up to an aggregate$9.0 million of AUD $41,500,000 (USD $31,071,050)term loan advances.

Concurrent with the October 28, 2022 amendment to the CIBC Loan Agreement (as described above), MFP amended the MFP Letter of credit asCredit to increase the face amount from $9.0 million to $12.0 million, and the MFP Loan Agreement was amended to increase the maximum amount of March 31,term loan advances available to the Company from $9.0 million to $12.0 million. In connection with the December 23, 2022 and includeamendment to the followingCIBC Loan Agreement, MFP amended the MFP Letter of Credit, extending the maturity date from January 23, 2023 to April 30, 2023.

:17


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).  As of March 31, 2022, the Borrowing Base Line accrued interest

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 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 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.   

S&W Australia was in compliance with all debt covenantsamounts remaining undrawn under the debt facilitiesMFP 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%, 50% of which will be payable in cash on the last day of each fiscal quarter and 50% of which will accrue as payment in kind interest payable on the maturity date, unless, with NAB at March 31, 2022.respect to any quarterly payment date, the Company elects to pay such interest in cash.

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

Maturities of Long-Term Debt

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

Fiscal Year

 

Amount

 

2023

 

$

6,699,960

 

2024

 

 

675,326

 

2025

 

 

585,624

 

2026

 

 

2,351,682

 

2027

 

 

164,072

 

Thereafter

 

 

190,765

 

Total

 

$

10,667,429

 

Fiscal Year

 

Amount

 

Remaining in 2022

 

$

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 FORWARD CONTRACTS AND OPTIONS

The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company manages through the use ofheld foreign currency forward contracts. These foreign currency contracts are not designated as hedging instruments; accordingly, changes in the fair value are recorded in current period earnings. These foreign currency contracts hadwith a notional value of $14,423,111$18,760,948 at MarchDecember 31, 2022, with maturities ranging from January 2023to October 2022.June 2023.

The Company records an asset or liability on the condensed consolidated balance sheet for the fair value of the foreign currency forward contracts. The foreign currency contract liabilities totaled $143,195$1,009,469 and $996,106 at MarchDecember 31, 2022 and foreign currency contract liabilities totaled $96,466 at June 30, 2021.2022, respectively. The Company recorded a gain of $484,518 and loss of $13,256 on foreign exchangecurrency forward 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 MarchDecember 31, 2022 and 2021, respectively, and losses of $19,466 and $252,059 for the six months ended December 31, 2022 and 2021, respectively. The Company recorded a lossGains and losses on foreign exchange contracts of $46,157 and a gain on foreign exchange contracts of $(94,123), which isare reflected in cost of revenuerevenue.

In December 2022, the Company acquired foreign currency options with a total notional amount of AUD $8,451,123. The strike prices on the transaction dates and as of December 31, 2022, were above the market price, so the options had no intrinsic value. Option premiums of AUD $42,080 are reflected in the caption "Prepaid expenses and other current assets" on the condensed consolidated balance sheet as of December 31, 2022.

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

NOTE 9 – EQUITY

On September 22, 2022, the Company entered into a Subordinate Loan and Security Agreement, or the MFP Loan Agreement, with MFP, pursuant to which any draw CIBC may make on the MFP Letter of Credit will be deemed to be a term loan advance made by MFP to the Company (see Note 7). Pursuant to the terms and conditions of the MFP Loan agreement, on September 22, 2022, the Company issued to MFP a warrant, or Initial Warrant, to purchase up to 500,000 shares of the Company’s common stock, or Initial Warrant Shares, at $1.60 per share (subject to adjustment in connection with any stock dividends and splits, distributions with respect to the Company's common stock and certain fundamental transactions as described in the Initial Warrant). The Initial Warrant expires 5 years from its issue date, or September 22, 2027.

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

18


In total, warrants to purchase 1,333,400 shares of the Company’s common stock were issued to MFP in connection with the MFP Loan Agreement, or MFP Warrants, during the six months ended MarchDecember 31, 2022. The MFP Warrants were valued using the Black-Scholes-Merton model as of the respective issue dates and recorded as a financial commitment asset within the caption "Prepaid expenses and other current assets" on the condensed consolidated balance sheet. The MFP Warrant current assets are amortized on a straight-line basis over the period from their initial issue dates through the end of the related MFP Letter of Credit commitment periods. During the six months ended December 31, 2022, and 2021, respectively.


NOTE 10 - COMMITMENTS AND CONTINGENCIESan aggregate value of $802,901 related to the MFP Warrants was capitalized, of which $291,487 was amortized as interest expense.

Contingencies

Based on information currently available, managementMFP 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 regardlessCompany’s largest shareholder. One of the outcome, litigation can have an adverse impact onCompany’s directors, Alexander C. Matina, is Vice President and Portfolio Manager of MFP Investors LLC, the Company becausegeneral partner 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.MFP.

NOTE 1110 - EQUITY-BASED COMPENSATION

Equity Incentive PlansStock Options

In October 2009 and January 2010, the Company's Board of Directors and stockholders, respectively, approved the 2009 Equity Incentive Plan, or as amended and/or restated from time to time, the 2009 Plan. The plan authorized the grant and issuance of options, restricted shares and other equity compensation to the Company's directors, employees, officers and consultants, and those of the Company's subsidiaries and parent, if any. In October 2012 and December 2012, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,250,000 shares. In September 2013 and December 2013, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 1,700,000 shares. In September 2015 and December 2015, the Company's Board of Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and awards under the Plan to 2,450,000 shares.

In December 2018 and January 2019, the Company's Board of Directors and stockholders, respectively, approved the 2019 Equity Incentive Plan, or the 2019 Plan, as a successor to and continuation of the 2009 Plan. In October 2020 and December 2020, the Company’s Board of Directors and stockholders approved, respectively, the amendment to the 2019 Plan to increase the number of shares available for issues as grants and awards by 4,000,000 shares. Subject to adjustment for certain changes in the Company's capitalization, the aggregate number of shares of the Company's common stock that may be issued under the 2019 Plan, as amended, will not exceed 8,243,790 shares, which is the sum of (i) 4,000,000 new shares, (ii) 2,750,000 additional shares that were reserved as of the effective date of the 2019 Plan, (iii) 350,343 shares (the number of unallocated shares that were available for grant under the 2009 Plan as of January 16, 2019, the effective date of the 2019 Plan), and (iv) 1,143,447 shares, which is the number of shares subject to outstanding stock awards granted under the 2009 Plan that on or after the effective date of the 2019 Plan may expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to us, or are reacquired, withheld or not issued to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award.    

The term of incentive stock options granted under the Company’s equity incentive plans may not exceed ten years, or five years for incentive stock options granted to an optionee owning more than 10% of the Company's voting stock. The exercise price of options granted under the Company’s equity incentive plans must be equal to or greater than the fair market value of the shares of the common stock on the date the option is granted. An incentive stock option granted to an optionee owning more than 10% of voting stock must have an exercise price equal to or greater than 110% of the fair market value of the common stock on the date the option is granted.

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest. The Company amortizes stock-based compensation expense on a straight-line basis over the requisite service period.

The Company utilizes a Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of the Company's common stock to estimate the fair value of employee options grants.


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

 

 

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 ninesix months ended MarchDecember 31, 2022, the Company granted options to purchase 944,725787,502 shares of its common stock to certain of its Directors,directors, members of the executive management team and other employees at exercise prices ranging from $2.64$0.81 - $3.39$1.04 per share. These options vest in either quarterly or annual periods over one to three years,years and expire ten years from the date of grant.

A summary of stock option activity for the ninesix months ended MarchDecember 31, 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 of
Options

 

 

Weighted -
Average
Exercise
Price
Per Share

 

 

Weighted-
Average
Remaining
Contractual
Life (Years)

 

 

Aggregate
Intrinsic
Value

 

Outstanding at June 30, 2021

 

 

3,776,568

 

 

 

2.65

 

 

 

8.0

 

 

 

3,962,766

 

 

 

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

 

 

787,502

 

 

 

0.87

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Canceled/forfeited/expired

 

 

(844,545

)

 

 

2.79

 

 

 

 

 

 

 

Outstanding at December 31, 2022

 

 

4,580,057

 

 

 

2.31

 

 

 

7.2

 

 

 

491,508

 

 

 

 

 

 

 

 

 

 

 

 

 

Options vested and exercisable at December 31, 2022

 

 

3,048,678

 

 

$

2.63

 

 

 

6.2

 

 

$

1,875.00

 

Options vested and expected to vest as of December 31, 2022

 

 

4,568,721

 

 

 

2.31

 

 

 

7.2

 

 

 

486,844

 

The weighted average grant date per share fair value of options granted during the three and outstanding at Marchsix months ended December 31, 2022 was $1.13.$0.47. At MarchDecember 31, 2022, the Company had $1,414,086$1,019,195 of unrecognized stock compensation expense, net of estimated forfeitures, related to the options under the S&W Seed Company 2009 Equity Incentive Plan and the S&W Seed Company 2019 Plans,Equity Incentive Plan, or 2019 Plan, which will be recognized over the weighted average remaining service period of 1.9 1.93 years. The Company settles employee stock option exercises with newly issued shares of common stock.

Restricted Stock Units

During the ninesix months ended MarchDecember 31, 2022, the Company issued 294,421431,704 restricted stock units to its directors, certain members of the executive management team, and other employees. The restricted stock units have varying vesting periods ranging from immediate vesting to quarterly or annual installments over one to three-years.three-years. The fair value of the awards granted during the ninesix months ended MarchDecember 31, 2022 and 2021 totaled $829,780$443,375 and $714,368,$829,780, respectively, and was based on the closing stock price on the date of grants.

19



The Company recorded $807,587 and $640,350 of stock-based compensation expense associated with grants of restricted stock units during the nine months ended March 31, 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
Restricted Stock
Units

 

 

Weighted-Average
Grant Date Fair
Value

 

 

Weighted-Average
Remaining
Contractual Life
(Years)

 

Nonvested restricted units outstanding at June 30, 2021

 

 

361,570

 

 

 

2.51

 

 

 

1.3

 

 

 

361,570

 

 

$

2.51

 

 

 

1.3

 

Granted

 

 

294,421

 

 

 

2.82

 

 

 

2.9

 

 

 

304,421

 

 

 

2.78

 

 

 

 

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

 

 

431,704

 

 

 

1.03

 

 

 

 

Vested

 

 

(192,952

)

 

 

2.72

 

 

 

 

Forfeited

 

 

(8,750

)

 

 

2.50

 

 

 

 

Nonvested restricted units outstanding at December 31, 2022

 

 

497,921

 

 

 

1.22

 

 

 

1.7

 

At MarchDecember 31, 2022, the Company had $595,014$546,369 of unrecognized stock compensation expense related to the restricted stock units, which will be recognized over the weighted average remaining service period of 1.31.72 years.

Stock-based Compensation Expense

Stock-based compensation expense recorded for grants of stock options, restricted stock and restricted stock units for the three months ended December 31, 2022 and 2021 totaled $305,894 and $1,014,203, respectively. Stock-based compensation expense recorded for grants of stock options, restricted stock and restricted stock units for the six months ended December 31, 2022 and 2021 totaled $762,006 and $1,418,515, respectively.

At MarchDecember 31, 2022, there were 2,575,8802,198,793 shares available under the 2019 Plan for future grants and awards.

Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock unitsWeighted-average assumptions used in the Black-Scholes-Merton model are set forth below for the three months ended March 31, 2022 and 2021, totaled $413,293 and $421,814, 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.periods indicated:

 

 

Six Months Ended December 31, 2022

 

 

Year Ended
June 30, 2022

Risk free rate

 

2.87% - 4.41%

 

 

0.8% - 1.1%

Dividend yield

 

0

 

 

0%

Volatility

 

64.7% - 66.1%

 

 

61.8% - 62.4%

Average forfeiture assumptions

 

 

8.7

%

 

2.8%

NOTE 1211 – SERIES B CONVERTIBLE PREFERRED STOCK

On February 18, 2022,The terms and conditions of 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 itsCompany’s Series B Redeemable Convertible Non-Voting Preferred Stock, par value $0.001 per share, or the Series B Preferred Stock and an accompanying warrant, orWarrant are presented in Note 14 to the Warrant, to purchase up to 559,350 shares ofConsolidated Financial Statements in the Company’s common stock,Annual Report on Form 10-K for the year ended June 30, 2022. No issuances or the Common Stock, par value $0.001 per share, at a combined unit price of $2,950 per share, or the Stated Value, for aggregate gross proceeds of approximately $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 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 shareconversions of Series B Convertible Preferred Stock at any time atoccurred during the optionsix months ended December 31, 2022. Activity in the period consisted of accrual of dividends and accretion 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% 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%) 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% 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% per annum, payable semi-annually in arrearsdiscount 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% 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 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.Warrants.

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 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 recorded in the Statement of Equity, on the Consolidated Balance Sheet as of March 31, 2022. Over the initial 42-month term the $4,638,521 relative fair value of the Series B Preferred Stock will be accreted to its redemption value of $5,000,250. Dividends will be accrued and recognized through retained earnings.

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

Balance at June 30, 2021

 

$

-

 

Issuance of preferred stock

 

 

4,638,521

 

Dividends accrued

 

 

127,541

 

Accretion of discount for warrants

 

 

38,757

 

Balance at June 30, 2022

 

$

4,804,819

 

Dividends accrued

 

 

176,447

 

Accretion of discount for warrants

 

 

51,676

 

Balance at December 31, 2022

 

$

5,032,942

 

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.

20


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 1412 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS

The below table represents supplemental information to the Company’s condensed consolidated statements of cash flows for non-cash activities during the ninesix months ended MarchDecember 31, 2022 and 2021, respectively.

 

 

Six Months Ended December 31,

 

 

 

2022

 

 

2021

 

Non-cash investing activities:

 

 

 

 

 

 

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

 

$

1,750,000

 

 

$

 

ROU assets financed by lease liabilities

 

 

 

 

 

(122,863

)

Non-cash financing activities:

 

 

 

 

 

 

Warrants issued for financial commitment asset

 

 

802,901

 

 

 

 

Accretion of discount for Series B preferred stock warrants

 

 

51,676

 

 

 

 

Dividends accrued for participating securities

 

 

176,447

 

 

 

 

 

 

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

Shell Partnership

On May 13, 2022, the CompanyFebruary 6, 2023, S&W and Shell entered into a Fifth AmendmentContribution and Membership Interest Purchase Agreement, relating to Loana joint venture for the development and Security Agreementproduction of sustainable biofuel feedstocks, pursuant to which:

S&W (i) contributed its Nampa, Idaho production and research facilities, or the Nampa Facilities, to Vision Bioenergy, along with CIBC, which amended the Loan Agreement.  Pursuantcertain personal property, including vehicles, fixed assets and other similar equipment; (ii) caused Vision Bioenergy to make offers of employment to certain key personnel; (iii) assigned to Vision Bioenergy certain contracts and permits; and (iv) agreed to a two-year non-solicitation covenant with respect to the amendment, among other thingspersonnel transferred to Vision Bioenergy; and
Shell (i) made a $13.0 million cash contribution to Vision Bioenergy; (ii) paid $7.0 million to S&W; and (iii) paid off in full the total revolving commitment provided underRooster Note, which was secured by a priority security interest in the Loan Agreement has been reducedproperty, plant and fixtures located at the Nampa Facilities.

In February 2024, Shell will be required to $20,000,000, from $25,000,000; (ii) CIBC waived noncompliance withpay an additional $6.0 million, and make an additional $12.0 million cash contribution to Vision Bioenergy.

Shell received a 66% interest in Vision Bioenergy and S&W retained a 34% interest. Additionally, upon the Company’s fixed charge coverage ratio financial covenantachievement of certain specified milestones, measured as of March 31, 2022; (iii) the fixed charge coverage ratio financial covenant has been eliminated for future periods after March 31, 2022;fourth 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 remainderseventh anniversaries of the Loan Agreement, in each case tested weekly. Except as modified by the foregoing amendment, all terms and conditionclosing of the Loanjoint venture transaction, S&W is eligible to receive up to an additional aggregate 10% interest in Vision Bioenergy. In addition, S&W has a one-time option, exercisable at any time on or before the fourth anniversary of the closing of the joint venture transaction, to purchase a 6% membership interest from Shell for a purchase price ranging between approximately $7.1 and $12.0 million, depending on the date on which such purchase is completed.

Amendment of NAB Finance Agreement remain in full force and effect.

On February 8, 2023, the NAB Finance Agreement was amended to change the maximum permissible net related entity position from AUD $25.0 million to USD $18.5 million.

21



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

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements as referred to on page 2 ofunder the heading “Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Factors that could cause or contribute to these differences include those discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021,2022, particularly in Part I, Item 1A,1A., “Risk Factors”.Factors.”

Executive OverviewStrategic Review

We 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.

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 DoubleTeam™ grassy weed management system, consisting of ADAMA’s proprietary herbicides and our non-GMO, herbicide tolerant sorghum hybrids; and

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.

In 2019, we restructured our relationship with Corteva, under which, among other things:


We received $45.0 million in fiscal 2019, $16.7 million in fiscal 2020, and approximately $8.3 million in fiscal 2021.

Corteva received a fully pre-paid, exclusive license to produce and distribute certain of our alfalfa 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.

We assigned to Corteva grower production contract rights, and Corteva assumed grower production contract obligations, related to the licensed and certain other alfalfa varieties.

Our prior Distribution Agreement, related to conventional (non-GMO) alfalfa varieties, and Contract Alfalfa Production Services Agreement, related to GMO-traited alfalfa varieties, with Corteva both terminated.  Under the Distribution Agreement, Corteva was obligated to make minimum annual purchases from us.

As a result of the 2018 Chromatin acquisition, the 2019 restructuring of our relationship with Corteva, and our February 2020 acquisition of Pasture Genetics, we expect that our results of operations for fiscal 2022 and future periods will differ significantly from prior periods as the mix of our product portfolio rebalances away from a reliance on alfalfa sales (sales of alfalfa seed to Corteva totaled $14.2 million and $19.7 million during the year ended June 30, 2021 and 2020) to a more diverse product mix. We do not expect any other significant revenue from sales to Corteva in the future.

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

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

S&W (i) contributed its Nampa, Idaho production and research facilities, or the Nampa Facilities, to Vision Bioenergy Oilseeds LLC, an entity formed by S&W for purposes of the partnership, or Vision Bioenergy, along with certain personal property, including vehicles, fixed assets and other similar equipment; (ii) caused Vision Bioenergy to make offers of employment to certain key personnel; (iii) assigned to Vision Bioenergy certain contracts and permits; and (iv) agreed to a two-year non-solicitation covenant with respect to the personnel transferred to Vision Bioenergy; and
Shell (i) made a $13.0 million cash contribution to Vision Bioenergy; (ii) paid $7.0 million to S&W; and (iii) paid off S&W’s outstanding approximately $7.0 million Rooster Note (as defined below), which was secured by a priority security interest in the property, plant and fixtures located at the Nampa Facilities.

In addition, under the terms and conditions of the Shell Partnership Agreement, on the one-year anniversary of the Shell Partnership Closing, Shell is required to pay an additional $6.0 million to S&W and make an additional $12.0 million cash contribution to Vision Bioenergy.

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

22


We believe these partnerships will, among other things, enable us to reduce our operating expenses, provide immediate liquidity to fund our ongoing operations and sharpen our focus on key growth priorities. Overall, we have entered into preliminary, nonbinding discussion to potentially combinebegun implementing 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 intendplan to reduce annual operating expenses by approximately $5.0 million, including through efforts$4.0 to streamline5.0 million.

In addition to the above partnerships, we have:

streamlined our European sunflower operations by closing our facilities in Hungary, which we estimate could result inexpect to decrease operating expense reductions ofby approximately $700,000.

$700,000 in fiscal 2023, and
reduced headcount and simplified our organization structure through a reduction in force.

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 andmay 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. Beginningresults in 2021 and continuing into 2022, ongoing strong demand for consumer goods and the effects of COVID-19 mitigation strategies have leddue to broad-based supply chain disruptions across the U.S. and globally, including inflation on many consumer products, labor shortagesglobally. These supply chain issues negatively impacted our ability to book containers for ocean freight, which delayed customer shipments, which in certain cases extended our regular sales and demand outpacing supply.collection cycle. In 2023 we experienced a lessoning of the severity of these supply chain issues, though continue to experience effects in certain jurisdictions that continue to have various restrictions, which have impacted certain of our customers. We continue to work closely with our customers, 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 tofuture outbreaks could have a negative impact on our sales, operating results and financial condition. The extent of the impact of the COVID-19 pandemic on our sales, operating results and financial condition will depend on certain developments, including the location, duration and spread of future outbreaks, and the outbreak, impact onresulting specific impacts felt by our customers, employees and vendors, all of which are uncertain and cannot be predicted.

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

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 ninesix months ended MarchDecember 31, 2022, we experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at the ports, and overall rising costsvolatility of shipping and transportation costs. We expect these logistical challenges to persist throughout fiscal 2022,2023, which may, among other things, delay or reduce our ability to recognize revenues within a particular fiscal period and harm our results of operations.

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.

23


Components of Our Statements of Operations Data

Revenue and Cost of Revenue

Product and Other Revenue

We derive most of our revenue from the sale of our proprietary seed varieties and hybrids. We expect that over the next several years, a substantial majority of our revenue will be generated from the sale of alfalfa, sorghum, and pasture seed, although we are continually assessing other possible product offerings or means to increase revenue, including expanding into 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 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 our research and development efforts. Such potential opportunities include possible collaborations and/or joint ventures, licensing agreements and royalty-based agreements. For example, we recently entered into our Vision Bioenergy partnership with Shell in order to develop commercially viable camelina sativa and other oilseeds varieties that produce grain from which oil and meal can be extracted for future processing into biofuels, feed and other potential bioproducts. Although we have received upfront payments from Shell pursuant to the partnership and will be entitled to receive additional payments from Shell upon the one-year anniversary of our entry into partnership, there can be no assurance that this will generate any meaningful revenue.

Cost of Revenue and Gross Margin

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

Operating Expenses

Selling, General and Administrative Expenses

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

Research and Development Expenses


Research and development expenses consist of costs incurred in the discovery, development, breeding and testing of new products incorporating the traits we have specifically selected. These expenses consist primarily of employee salaries and benefits, consultant services, land leased for field trials, chemicals and supplies and other external expenses.

Overall, we have been focused on controlling research and development expenses, while balancing that objective against the recognition that continued advancement in product development is an important part of our strategic planning. We intend to focus our resources on high value activities. For alfalfa seed, we plan to invest in further development of differentiating forage quality traits. For sorghum, we plan to invest in higher value grain products, proprietary herbicide tolerance traits and improved safety and palatability in forage products. We expect our research and development expenses will fluctuate from period to period as a result of the timing of various research and development projects.

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

Selling, General and Administrative Expenses24


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

Depreciation and Amortization

We amortize intangible assets, including those acquired from Pasture Genetics Ltd., or Pasture Genetics, in 2020, Chromatin Inc., or Chromatin, in 2018 and from SV Genetics Pty Ltd in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of periods of 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 (Income) Expense

Other (income) expense consists primarily of foreign currency gains and losses, changegains on disposal of intangible assets and equity investments, changes in contingent consideration obligation, interest expense and interest expense in connection withresulting from the amortization of debt discount. Interest expense and Interest expense - amortization of debt discount primarily consists of interest costs related to outstanding borrowings on our working capital credit facilities and our financing with Conterra AgriculturalRooster Capital, LLC, or Conterra.Rooster. Amortization of the MFP Letter of Credit (as defined below) asset is also recorded under the caption Interest expense - amortization of debt discount.

Provision (Benefit) for Income Taxes

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

Results of Operations

Three Months Ended MarchDecember 31, 2022 Compared to the Three Months Ended MarchDecember 31, 2021

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

 

 

Three Months Ended December 31,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

$

 

 

% of
Revenue
(1)

 

 

$

 

 

% of
Revenue
(1)

 

 

$

 

 

% Change

 

Revenue

 

$

12,937,802

 

 

 

100.0

%

 

$

12,631,409

 

 

 

100.0

%

 

$

306,393

 

 

 

2.4

%

Cost of revenue

 

 

10,188,511

 

 

 

78.7

%

 

 

10,971,045

 

 

 

86.9

%

 

 

(782,534

)

 

 

(7.1

)%

Gross profit

 

 

2,749,291

 

 

 

21.3

%

 

 

1,660,364

 

 

 

13.1

%

 

 

1,088,927

 

 

 

65.6

%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

6,241,461

 

 

 

48.2

%

 

 

7,073,320

 

 

 

56.0

%

 

 

(831,859

)

 

 

(11.8

)%

Research and development expenses

 

 

1,503,473

 

 

 

11.6

%

 

 

2,110,413

 

 

 

16.7

%

 

 

(606,940

)

 

 

(28.8

)%

Depreciation and amortization

 

 

1,253,904

 

 

 

9.7

%

 

 

1,373,653

 

 

 

10.9

%

 

 

(119,749

)

 

 

(8.7

)%

Total operating expenses

 

 

8,998,838

 

 

 

69.6

%

 

 

10,557,386

 

 

 

83.6

%

 

 

(1,558,548

)

 

 

(14.8

)%

Loss from operations

 

 

(6,249,547

)

 

 

(48.3

)%

 

 

(8,897,022

)

 

 

(70.4

)%

 

 

2,647,475

 

 

 

(29.8

)%

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

176,624

 

 

 

1.4

%

 

 

258,482

 

 

 

2.0

%

 

 

(81,858

)

 

 

(31.7

)%

Gain on disposal of intangible assets

 

 

(1,796,252

)

 

 

(13.9

)%

 

 

 

 

 

 

 

 

(1,796,252

)

 

-

 

Change in contingent consideration obligation

 

 

 

 

 

 

 

 

(466,376

)

 

 

(3.7

)%

 

 

466,376

 

 

 

(100.0

)%

Interest expense - amortization of debt discount

 

 

578,112

 

 

 

4.5

%

 

 

221,196

 

 

 

1.8

%

 

 

356,916

 

 

 

161.4

%

Interest expense, net

 

 

1,092,327

 

 

 

8.4

%

 

 

589,694

 

 

 

4.7

%

 

 

502,633

 

 

 

85.2

%

Gain on sale of equity investment

 

 

(32,030

)

 

 

(0.2

)%

 

 

 

 

 

 

 

 

(32,030

)

 

-

 

Other expense

 

 

4,561

 

 

 

0.0

%

 

 

23,771

 

 

 

0.2

%

 

 

(19,210

)

 

 

(80.8

)%

Loss before income taxes

 

 

(6,272,889

)

 

 

(48.5

)%

 

 

(9,523,789

)

 

 

(75.4

)%

 

 

3,250,900

 

 

 

(34.1

)%

(Benefit from) provision for income taxes

 

 

(282,296

)

 

 

(2.2

)%

 

 

257,776

 

 

 

2.0

%

 

 

(540,072

)

 

 

(209.5

)%

Net loss

 

$

(5,990,593

)

 

 

(46.3

)%

 

$

(9,781,565

)

 

 

(77.4

)%

 

$

3,790,972

 

 

 

(38.8

)%

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

The discussion and Costanalysis presented below is concerned with material changes in our results of Revenue


Revenue foroperations between the three months ended MarchDecember 31, 2022 was $23.2 million compared to $32.4 million forand the three months ended MarchDecember 31, 2021. All comparisons presented are with respect to the prior-year

25


period, unless stated otherwise. This discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the SEC on September 28, 2022.

Revenue

The $9.2 million decreaseyear-over-year increase in revenue for the three monthssecond quarter ended MarchDecember 31, 2022 was primarily due to an increase of $1.9 million in alfalfa sales to the Middle East North Africa, or MENA, region, a $1.0 million increase in North America sorghum sales, and a $0.2 million increase in pastures sales in Australia. This was offset by a decrease in product revenue from Pioneersales of $8.5sorghum to the MENA region of $1.4 million, a $0.7 million decrease in alfalfa sales to North America, and a $0.7 million decrease in product revenue from a decrease in alfalfa revenue in the Middle East, ArgentinaNorth America service revenue.

Cost of Revenue and 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.  Gross Margin

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 byDespite an increase in sorghum product revenue in the United States by $2.1 million.

Sales into international markets represented 60% and 52% of our total revenue during the three months ended March 31, 2022 and 2021, respectively. Domestic revenue accounted for 40% and 48% of our total revenue for the three months ended March 31, 2022 and 2021, respectively. The decrease in domestic revenue as a percentage of total revenue is primarily attributable to the termination of the Pioneer and Corteva agreement mentioned above.

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

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

United States

 

$

9,270,851

 

 

 

40

%

 

$

15,672,861

 

 

 

48

%

Australia

 

 

8,846,660

 

 

 

38

%

 

 

11,426,369

 

 

 

35

%

Saudi Arabia

 

 

1,168,502

 

 

 

5

%

 

 

324,000

 

 

 

1

%

Pakistan

 

 

602,060

 

 

 

3

%

 

 

444,353

 

 

 

1

%

China

 

 

929,335

 

 

 

4

%

 

 

1,366,381

 

 

 

4

%

South Africa

 

 

265,292

 

 

 

1

%

 

 

946,631

 

 

 

3

%

Argentina

 

 

 

 

 

0

%

 

 

 

 

 

0

%

Libya

 

 

 

 

 

0

%

 

 

306,000

 

 

 

1

%

Egypt

 

 

557,510

 

 

 

2

%

 

 

79,890

 

 

 

0

%

Sudan

 

 

 

 

 

0

%

 

 

 

 

 

0

%

Other

 

 

1,546,667

 

 

 

7

%

 

 

1,810,212

 

 

 

7

%

Total

 

$

23,186,877

 

 

 

100

%

 

$

32,376,697

 

 

 

100

%

Cost of revenue of $20.5 million for the three months ended March 31, 2022 was equal to 88.3% of total revenue for the three months ended March 31, 2022, whilesales, the cost of revenue of $26.2 million for the three monthssecond quarter ended March 31, 2021 was equal to 80.9% of total revenue for the three months ended March 31, 2021. Cost of revenue for the three months ended MarchDecember 31, 2022 decreased compared to the prior year period, primarily driven by increased sales of higher margin alfalfa in the MENA region and 2021 included inventory write-downsgrain sorghum in North America, along with decreased sales of $1.1 millionlower margin sorghum products in the MENA region and $0.3 million, respectively. The write-downdormant alfalfa in North America. Write-downs of inventory during the three months ended March 31, 2022 and 2021 related to certain inventory lots that had deteriorated in quality and germination rates duringwere reduced from $0.4 million in the second quarter has been 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, 2022 was 11.7% compared to 19.1% for the three months ended March 31, 2021. The decrease in gross margin for the three months ended March 31, 2022 is primarily driven by the increase in inventory reserves, coupled with higher production costs, offset by pasture product sales and higher margins on DoubleTeam™ 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, and overall rising costs increases of shipping and transportation costs. The Company expects these logistical challenges to persist throughout the remainder of fiscal 2022.2022 to $0.1 million in the second quarter of fiscal 2023.

Selling, General and Administrative Expenses

Selling, GeneralThe decrease in selling, general and Administrative, or SG&A, expense for the three months ended March 31, 2022 totaled $5.6 million compared to $5.8 million for the three months ended March 31, 2021. As a percentage of revenue, SG&A expenses were 24.1% for the three months ended March 31, 2022, compared to 17.9% for the three months ended March 31, 2021.

Research and Development Expenses


Research and developmentadministrative expenses for the three months ended MarchDecember 2022 compared to the three months ended December 31, 2021 is attributable to a $0.7 million decrease in stock-based compensation expense as a result of the accelerated vesting of equity awards of a former executive officer during the three months ended December 2021, $0.3 million in reduced payroll and related expenses as a result of management’s cost reduction efforts, offset by a $0.1 million increase in consulting and professional fees.

Research and Development Expenses

The year-over-year decrease in research and development expenses for the second quarter ended December 31, 2022 totaled $1.9is attributable to a $0.3 million compared to $2.4reduction in field trial related expenses, a $0.2 million reduction in payroll and related expenses as a result of management’s cost reduction efforts, and a $0.1 million reduction in consulting and professional fees.

Depreciation and Amortization

The decrease in depreciation and amortization expenses for the three months ended MarchDecember 31, 2021. We expect that research and development costs will total approximately $8.0 million for2022 compared to the yearthree months ended June 30, 2022.December 31, 2021 was attributable to decreased depreciation expense on assets held by S&W Australia, our wholly owned Australian subsidiary.

Depreciation and AmortizationForeign Currency Loss

Depreciation and amortization expenseThe decrease in foreign currency loss for the three months ended MarchDecember 31, 2022 was $1.4 million compared to $1.3 million for the three months ended MarchDecember 31, 2021. Included2021 was attributable to fluctuations in these amounts was amortization expense forforeign currency exchange rates between the Australian dollar and U.S. dollar.

Gain on Disposal of Intangible Assets

The $1.8 million gain on disposal of intangible assets which totaled $0.6 million forin the three months ended March 31, 2022 and $0.5 million for the three months ended March 31, 2021.

Foreign Currency Gain

We recorded a foreign currency losssecond quarter 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 currency gains and losses are primarily associated withfiscal 2023 was recognized by S&W Australia as a result of the contribution of its Australia-based wheat breeding program and S&W Hungary, our wholly-owned subsidiaries.related assets to Trigall Australia in furtherance of the partnership with Trigall Australia, as discussed under the caption “Strategic Review,” above.

Change in Contingent Consideration Obligation

The contingent consideration obligation is considered a level 3 fair value financial instrument and will be measured at each reporting period. The $0.2 million gaindecrease in benefit to non-cash change in contingent consideration obligation forcompared to the quarter ended March 31,prior year period is due to the February 2022 represents the decrease in the estimated fair valuefinal valuation of the contingent consideration obligation associated withfrom the February 2020 acquisition of Pasture Genetics acquisition.Pty Ltd. The valuation resulted in no contingent consideration due, and a reversal of the remaining $0.5 million accrual.

Interest Expense - Amortization of Debt Discount

Non-cashThe increased debt amortization expense in the second quarter of debt discount expense for the three months ended March 31, 2022 was $0.2 millionfiscal 2023 compared to $0.1 million for the three months ended March 31, 2021. The expense in both periods representsprior year period was due to the amortization of the debt issuance costs associatedfinancial commitment asset established in conjunction with our working capital facilities, our secured property note,the MFP Loan Agreement beginning in September 2022 (see “Capital Resources and our equipment capital leases.Requirements—MFP Loan Agreement,” below).

26


Interest Expense, Net

Interest expense for the three months ended March 31, 2022 totaled $0.6 million compared to $0.6 million for the three months ended March 31, 2021. Interest expense for the three months ended MarchDecember 31, 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 $0.5 million increase in interest expense for the three months ended December 31, 2022, was primarily driven by increases in average borrowings on the working capital credit facilities and increased interest rates on both our United States and Australian wholly owned subsidiaries.

Gain on Sale of Equity Investment

The gain on sale of equity investment was a result of the sale of the remainder of our investment in Bioceres.

(Benefit from) Provision for Income TaxesTax Benefit

Income tax expense(benefit) totaled $0.3($0.3) million for the three months ended MarchDecember 31, 2022 compared to income tax benefitexpense of $0.3 million for the three months ended MarchDecember 31, 2021. Our effective tax rate was (4.65)%4.5% for the three months ended MarchDecember 31, 2022 compared to an effective tax rate of 11.8%(2.7)% for the three months ended MarchDecember 31, 2021. Our effective tax rate for the three months ended MarchDecember 31, 2022 was (4.65)%4.5% due primarily to the valuation allowance recorded against substantially all of our deferred tax assets.assets, and the tax effects of the partnership with Trigall Genetics entered into during the quarter. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operatingoperation results, with the exception of our operations in Australia. Our effective tax rate for the current quarter is primarily due to income tax expense related to our foreign operations and minor state taxes.

Nine months27


Six Months ended MarchDecember 31, 2022 Compared to the NineSix Months Ended MarchDecember 31, 2021

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

 

 

Six Months Ended December 31,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

$

 

 

% of
Revenue
(1)

 

 

$

 

 

% of
Revenue
(1)

 

 

$

 

 

% Change

 

Revenue

 

$

32,803,667

 

 

 

100.0

%

 

$

28,163,090

 

 

 

100.0

%

 

$

4,640,577

 

 

 

16.5

%

Cost of revenue

 

 

25,549,865

 

 

 

77.9

%

 

 

23,376,057

 

 

 

83.0

%

 

 

2,173,808

 

 

 

9.3

%

Gross profit

 

 

7,253,802

 

 

 

22.1

%

 

 

4,787,033

 

 

 

17.0

%

 

 

2,466,769

 

 

 

51.5

%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

11,294,058

 

 

 

34.4

%

 

 

12,642,887

 

 

 

44.9

%

 

 

(1,348,829

)

 

 

(10.7

)%

Research and development expenses

 

 

3,018,853

 

 

 

9.2

%

 

 

4,105,541

 

 

 

14.6

%

 

 

(1,086,688

)

 

 

(26.5

)%

Depreciation and amortization

 

 

2,590,338

 

 

 

7.9

%

 

 

2,704,698

 

 

 

9.6

%

 

 

(114,360

)

 

 

(4.2

)%

Total operating expenses

 

 

16,903,249

 

 

 

51.5

%

 

 

19,453,126

 

 

 

69.1

%

 

 

(2,549,877

)

 

 

(13.1

)%

Loss from operations

 

 

(9,649,447

)

 

 

(29.4

)%

 

 

(14,666,093

)

 

 

(52.1

)%

 

 

5,016,646

 

 

 

(34.2

)%

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency loss

 

 

367,539

 

 

 

1.1

%

 

 

421,028

 

 

 

1.5

%

 

 

(53,489

)

 

 

(12.7

)%

Gain on disposal of intangible assets

 

 

(1,796,252

)

 

 

(5.5

)%

 

 

 

 

 

 

 

 

(1,796,252

)

 

--

 

Change in contingent consideration obligation

 

 

 

 

 

 

 

 

(528,630

)

 

 

(1.9

)%

 

 

528,630

 

 

 

(100.0

)%

Interest expense - amortization of debt discount

 

 

861,755

 

 

 

2.6

%

 

 

413,391

 

 

 

1.5

%

 

 

448,364

 

 

 

108.5

%

Interest expense, net

 

 

1,879,006

 

 

 

5.7

%

 

 

1,142,539

 

 

 

4.1

%

 

 

736,467

 

 

 

64.5

%

Gain on sale of equity investment

 

 

(32,030

)

 

 

(0.1

)%

 

 

 

 

 

 

 

 

(32,030

)

 

--

 

Other income

 

 

(39,709

)

 

 

(0.1

)%

 

 

(10,589

)

 

 

(0.0

)%

 

 

(29,120

)

 

 

275.0

%

Loss before income taxes

 

 

(10,889,756

)

 

 

(33.2

)%

 

 

(16,103,832

)

 

 

(57.2

)%

 

 

5,214,076

 

 

 

(32.4

)%

(Benefit from) provision for income taxes

 

 

(383,960

)

 

 

(1.2

)%

 

 

91,974

 

 

 

0.3

%

 

 

(475,934

)

 

 

(517.5

)%

Net loss

 

 

(10,505,796

)

 

 

(32.0

)%

 

 

(16,195,806

)

 

 

(57.5

)%

 

 

5,690,010

 

 

 

(35.1

)%

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

RevenueThe discussion and Costanalysis presented below is concerned with material changes in our results of operations between the six months ended December 31, 2022 and the six months ended December 31, 2021. All comparisons presented are with respect to the prior-year period, unless stated otherwise. This discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the SEC on September 28, 2022.

Revenue


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 decreaseyear-over-year increase in revenue for the ninesix months ended MarchDecember 31, 2022 was primarily due to the $14.2 million decreaseincrease in product revenue received from Pioneer (subsidiaryalfalfa sales to the MENA region of Corteva),$6.6 million and increased alfalfa and sorghum sales to North America of $2.0 million. These revenue increases were partially offset by a $4.2decrease in sorghum sales to the MENA region of $1.7 million, increasea decrease in core productservice revenue in the United States of $1.3 million, a decrease in pasture product sales to Australia of $0.5 million, a decrease in sorghum sales to Asia of $0.3 million, and a decrease in alfalfa sales to South America of $0.3 million.

Cost of Revenue and pasture products. DuringGross Margin

Cost of revenue increased year-over-year due to increased sales in the ninesix months ended MarchDecember 31, 2022, we recorded no sales to Pioneer,but gross margin improved compared to $14.2 million for the nine months ended March 31, 2021.  

Core Revenue (which we defineprior year period, primarily driven by increased sales of higher margin alfalfa seed in the MENA region and grain sorghum seed in North America, 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, 2021well as decreased sales 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 inlower margin 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.MENA region.

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:

 

 

Nine Months Ended March 31,

 

 

 

2022

 

 

2021

 

United States

 

$

15,340,257

 

 

 

30

%

 

$

27,773,152

 

 

 

45

%

Australia

 

 

14,526,512

 

 

 

28

%

 

 

16,268,261

 

 

 

27

%

Saudi Arabia

 

 

6,316,258

 

 

 

12

%

 

 

2,383,192

 

 

 

4

%

Pakistan

 

 

2,833,622

 

 

 

6

%

 

 

2,041,548

 

 

 

3

%

China

 

 

1,668,044

 

 

 

3

%

 

 

1,847,007

 

 

 

3

%

South Africa

 

 

1,644,073

 

 

 

3

%

 

 

1,923,525

 

 

 

3

%

Argentina

 

 

1,409,147

 

 

 

3

%

 

 

1,183,667

 

 

 

2

%

Libya

 

 

1,088,000

 

 

 

2

%

 

 

718,960

 

 

 

1

%

Egypt

 

 

959,810

 

 

 

2

%

 

 

472,970

 

 

 

1

%

Sudan

 

 

819,618

 

 

 

2

%

 

 

484,645

 

 

 

1

%

Other

 

 

4,744,626

 

 

 

9

%

 

 

6,186,487

 

 

 

10

%

Total

 

$

51,349,967

 

 

 

100

%

 

$

61,283,414

 

 

 

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 ninesix months ended MarchDecember 31, 2022 and 2021 included inventory write-downs of $1.9$0.7 million and $1.3$0.7 million, respectively. The write-down of inventory during the nine months ended March 31, 2022 and 2021, respectively, related to certain inventory lots that had 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.rates.

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 expenseThe decrease in selling, general and administrative expenses for the ninesix months ended March 31,December 2022 totaled $18.3 million compared to $16.4the prior year period is attributable to a $0.7 million fordecrease in stock-based compensation expense as a result of the nineaccelerated vesting of equity awards of a former executive officer during the six months ended MarchDecember 31, 2021. The $1.92021, $0.6 million in reduced payroll and related expenses as a result of management’s cost reduction efforts, and $0.2 million decrease in advertising and marketing, offset by a $0.1 million increase in SG&A expense versus the comparable period of the prior year was primarily due to a $0.6 million change in our incentive compensation accruals, $0.7 million incurred for the change in CFO during November 2021, $0.5 million increase in our stock-based compensationconsulting and a $0.3 million increase in other expenses including professional fees, travel, rent and salaries and wages. As a percentage of revenue, SG&A expenses were 35.6% for the nine months ended March 31, 2022, compared to 26.8% for the nine months ended March 31, 2021.fees.

28


Research and Development Expenses

ResearchThe year-over-year decrease in research and development expenses for the ninesix months ended MarchDecember 31, 2022 totaled $6.0is attributable to a $0.4 million reduction in United States field trial related expenses, $0.4 million in reduced salaries, wages and related employment expenses as a result of management’s cost reduction efforts,$0.2 million reduction of investment in our sunflower programs in Hungary and $0.1 million reduction in consulting and professional fees.

Depreciation and Amortization

The decrease in depreciation and amortization expenses for the six months ended December 2022 compared to $6.5 million for the ninesix 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 amortization2021 was attributable to decreased depreciation 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 intangibleon 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.held by S&W Australia.


Foreign Currency Loss

We recorded aThe decrease in foreign currency loss of $0.6 million for the ninesix months ended MarchDecember 31, 2022 compared to no gain or loss for the ninesix months ended MarchDecember 31, 2021. The2021 was attributable to fluctuations in foreign currency gainsexchange rates between the Australian dollar and losses are primarily associated withU.S. dollar.

Gain on Disposal of Intangible Assets

The $1.8 million gain on disposal of intangible assets in the second quarter of fiscal 2023 was recognized by S&W Australia as a result of its contribution of its Australia-based wheat breeding program and S&W Hungary, our wholly-owned subsidiaries.related assets to Trigall Australia in furtherance of the partnership with Trigall Australia, as discussed under the caption “Strategic Review,” above.

Change in Contingent Consideration Obligation

The contingent consideration obligation is considered a level 3 fair value financial instrument and will be measured at each reporting period. The $0.7 milliondecrease in benefit to non-cash change in contingent consideration obligation forcompared to the nine months ended March 31,prior year period is due to the February 2022 represents the decrease in the estimated fair valuefinal valuation of the contingent consideration obligation associated withfrom the February 2020 acquisition of Pasture Genetics acquisition.Pty Ltd. The valuation resulted in no contingent consideration due, and a reversal of the remaining $0.5 million accrual.

Interest Expense - Amortization of Debt Discount

Non-cashThe increased debt amortization of debt discount expense forin the ninesix months ended MarchDecember 31, 2022 was $0.7 million compared to $0.5 million for the nine months ended March 31, 2021. The expense in both periods representsprior year period was due to the amortization of the debt issuance costs associatedfinancial commitment asset established in conjunction with our working capital facilities, our secured property note,the MFP Loan Agreement beginning in September 2022 (see “Capital Resources and our equipment capital leases.Requirements—MFP Loan Agreement,” below).

Interest Expense, Net

Interest expense for the ninesix 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 MarchDecember 31, 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 $0.7 million increase in interest expense for the six months ended December 31, 2022 was primarily driven by increases in average borrowings on the working capital credit facilities and increased interest rates on both our United States and Australian wholly owned subsidiaries.

Gain on Sale of Equity Investment

The gain on sale of equity investment was a result of the sale of the remainder of our investment in Bioceres.

(Benefit from) Provision for Income TaxesTax Benefit

IncomeThe income tax expense(benefit) totaled $0.4$(0.4) million for the ninesix months ended MarchDecember 31, 2022 compared to a $0.1 million income tax benefit of $0.2 millionprovision for the ninesix months ended MarchDecember 31, 2021. Our effective tax rate was (1.8)% for3.5% during the ninesix months ended MarchDecember 31, 2022 compared to 1.2%-0.6% for the ninesix months ended MarchDecember 31, 2021. Our effective tax rate for the ninesix months ended MarchDecember 31, 2022 was (1.8)%3.5% due primarily to the valuation allowance recorded against substantially all of our deferred tax assets.assets, and the tax effects of the partnership with Trigall Genetics entered into during the second quarter. Due to the valuation allowance, we do not record the income tax expense or benefit related to substantially all of our current year operatingoperation results, with the exception of our operations in Australia. Our effective tax rate for the current quarter is primarily due to 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

29


counter-cyclical to North America; however, thisthe timing of payments to Australian growers, which occurs in the second through fourth quarters, also puts a greater demand on our working capital and working capital requirements during the second, third and fourth fiscal quarters based on timing of payments to growers in the second through fourth quarters.these periods.

Historically, due to the concentration of sales to certain distributors, our month-to-month and quarter-to-quarter sales and associated cash receipts are highly dependent upon the timing of deliveries to and payments from these distributors, which varies significantly from year to year.


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

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

Capital Resources and Material Cash Requirements

We are not profitable and have had negative cash flow from operations for the last several years. To help fund our operations, we have relied on equity and debt financings, and we will need to obtain additional funding to finance our operations in the future. Accordingly, we are actively evaluating financing and strategic alternatives, including debt and equity financings and potential sales of assets or certain lines of business.

We believe that cash flow from operations, cash payments from Shell pursuant to the Shell Partnership Agreement and undrawn availability under our existing debt facilities will be sufficient to meet our cash requirements over the next 12 months. We expect to meet our longer-term expected future cash requirements and obligations beyond the next 12 months through a combination of existing cash and cash equivalents, cash flow from operations, the undrawn availability under our debt facilities and issuances of equity securities or debt offerings, among other sources of capital. Our ability to fund longer-term operating needs will depend on our ability to generate sufficient cash flows through sales of our products, our ability to maintain compliance with, and secure additional from, our existing debt facilities, and our ability to access the capital markets, the impacts of adverse geopolitical and macroeconomic events, and other factors, including those discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2022, as filed with the SEC on September 28, 2022.

Below is a summary of material changes to our sources of capital during the six months ended December 31, 2022:

Trigall Australia Partnership

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

CIBC Loan Agreement

Our loanLoan and security agreementSecurity Agreement with CIBC Bank USA, or CIBC, as amended to date, or the CIBC Loan Agreement, provides for a $21.0 million credit facility. The following amendments to the CIBC Loan Agreement occurred during the six months ended December 31, 2022:

on September 22, 2022, the CIBC Loan Agreement was amended to, among other things: (i) specify that the borrowing base eligible inventory sublimit cannot be reduced below the proceeds available to be drawn under the MFP Letter of Credit (as defined below), (ii) waive our non-compliance with certain financial covenants under the CIBC Loan Agreement and our secured promissory note with Conterra, which mature (iii) establish a minimum liquidity of no less than $1.0 million, tested weekly as of the last day of each week for the remainder of the term of the CIBC Loan Agreement;
on October 28, 2022, the CIBC Loan Agreement was amended to, among other things, increase (i) the total revolving loan commitment to $21.0 million from $18.0 million and (ii) the borrowing base eligible inventory sublimit to $12.0 million from $9.0 million; and
on December 23, 2022, the CIBC Loan Agreement was further amended to extend the maturity date of all revolving loans, advances and other obligations outstanding under the CIBC Loan Agreement from December 23, 2022 to March 23, 2023. As of December 31, 2022, we were in compliance with all covenants contained in the CIBC Loan Agreement, and approximately $4.8 million remained available for use under this credit facility.

30


NAB Finance Agreement

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

the borrowing base line credit limit under S&W Australia’s seasonal credit facility was increased from AUD $32.0 million (USD $21.8 million as of December 31, 2022) to AUD $40.0 million (USD $27.2 million as of December 31, 2022), with a one-year maturity date extension to September 30, 2024;
the overdraft credit limit under S&W Australia’s seasonal credit facility was increased from AUD $1.0 million (USD $0.7 million as of December 31, 2022) to AUD $2.0 million (USD $1.4 million as of December 31, 2022), with a one-year maturity date extension to September 29, 2023; and
the maturity date of S&W Australia’s master asset finance facility was extended by one year to September 29, 2023.

After the amendments, the consolidated debt facilities under the NAB Finance Agreement provide for up to an aggregate of AUD $49.0 (USD $33.3 million as of December 31, 2022) of credit. The NAB finance agreement is guaranteed by S&W Seed Company up to a maximum of AUD $15.0 million (USD $10.2 million as of December 31, 2022).

Following the October 2022 amendments, the NAB Finance Agreement contained an undertaking requiring us to maintain a net related entity position of not more than AUD $25.0 million, and our ability to comply with this undertaking was subject to fluctuations in foreign currency conversion rates outside of our control. Due to recent fluctuations in foreign currency conversion rates, we were not in compliance with this undertaking as of December 31, 2022, and we subsequently obtained a waiver from NAB with respect to such non-compliance as of December 31, 2022. On February 8, 2023, we further amended the NAB Finance Agreement to change the required net related entity position from AUD $25.0 million to USD $18.5 million (see "Amendment of NAB Finance Agreement," below). As of December 31, 2022, approximately AUD $4.3 million (USD $2.9 million) remained available for use under the NAB Finance Agreement.

Rooster Note

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

MFP Loan Agreement

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

Concurrent with the October 28, 2022 amendment to the CIBC Loan Agreement (as described above), MFP amended the MFP Letter of Credit to increase the face amount from $9.0 million to $12.0 million, and the MFP Loan Agreement was amended to increase the maximum amount of term loan advances available to us from $9.0 million to $12.0 million. In connection with the December 23, 2022 amendment to the CIBC Loan Agreement, MFP amended the MFP Letter of Credit, extending the maturity date from January 23, 2023 to April 30, 2023

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.

31


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

Below is a summary of material changes to our sources of capital during subsequent to the six months ended December 31, 2022:

Shell Partnership

On February 6, 2023, S&W and Shell entered into a joint venture for the development and production of sustainable biofuel feedstocks through Vision Bioenergy (see “—Strategic Review” above), and we received $7.0 million at the Shell JV Closing and will be eligible to receive an additional $6.0 million in February 2024.

Payoff of Rooster Note

On February 6, 2023, the principal and accrued interest on the Rooster Note was paid off in its entirety in connection with the Vision Bioenergy partnership.

Amendment of NAB Finance Agreement

On February 8, 2023, we further amended the NAB Finance Agreement to change the maximum permissble net related entity position from AUD $25.0 million to USD $18.5 million. We believe that this amendment to the NAB Finance Agreement will provide us with greater control over our compliance with this undertaking.

Summary

The CIBC Loan Agreement and our debt facilities with NAB contain various operating and financial covenants. The COVID-19 pandemicAdverse geopolitical and other factors affecting our results of operationsmacroeconomic events and uncertain market conditions have increased the risk of our inability to comply with these covenants, which could result in acceleration of our repayment obligations and foreclosure on our pledged assets. In addition, these loan agreements contain cross-default provisions, such that certain defaults or breaches under any of our loan agreements may entitle CIBC or Conterra to invoke default remedies. We were not in compliance with certain of these covenants in the CIBC Loan Agreement 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.CIBC. 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$1.0 million and $2,500,000 thereafter, in each case tested weekly. We do not currently expect we will be able to generate sufficient cash flow from operations 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 itemsthe NAB Finance Agreement, as amended, includes an undertaking that requires us to maintain sufficient liquidity.a net related entity position of not more than USD $18.5 million. We are actively pursuing refinancing of the CIBC loan facility.Loan Agreement.

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

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

32


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;

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 the COVID-19 pandemic.

We cannot assure you that we will be successful in renewing or refinancing our existing debt, raising additional capital, securing future waivers and/or amendments from CIBC, ConterraNAB or our other lenders, 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.

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 Loan Agreement, which we amended on September 22, 2020, December 30, 2020, May 12, 2021, September 27, 2021 and May 13, 2022. As amended, the Loan Agreement provides for a $20.0 million credit facility, or the CIBC Credit Facility. As of March 31, 2022, there was approximately $2.3 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 availability under the CIBC Credit Facility.

The key terms of the amended 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 the CIBC Credit Facility to finance permitted acquisitions and related costs.

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) an eligible inventory sublimit as more fully set forth in the Loan Agreement, in each case, subject to lender reserves.

Loans are based on a Base Rate plus 2.0% per annum. In the event of a default, at the option of CIBC, the interest rate on all obligations owing will increase by 2% per annum over the rate otherwise applicable.

The CIBC Credit Facility is secured by a first priority perfected security interest in substantially all of our assets (subject to certain exceptions), including intellectual property.

The Loan Agreement contains customary representations and warranties, affirmative and negative covenants and customary events of default that permit CIBC to accelerate our outstanding obligations under the Credit Facility, all as set forth in the Loan Agreement and related documents. The CIBC Credit Facility also contains customary and usual financial covenants imposed by CIBC.

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. We were not in compliance with 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.

We cannot guarantee that we will be able to comply with our covenants in the Loan Agreement in the future, or secure additional waivers if or when required. If we are unable to comply with or obtain a waiver of any noncompliance under the Loan Agreement, CIBC could declare an event of default or require us to further renegotiate the Loan Agreement on terms that may be significantly less favorable to us, or we may be required to seek additional or alternative financing.

We are actively engaging with potential lenders to refinance the Loan Agreement prior to its maturity on December 23, 2022. However, we cannot assure you that we will succeed in securing such refinancing on commercially reasonable terms, if at all, and


whether such terms may be more restrictive than the provisions governing the Loan Agreement. In addition, we cannot assure you that we will not experience an event of default or be required to further renegotiate with, or seek additional waivers from, CIBC, including on terms that may be significantly less favorable to us, before we are able to refinance the Loan Agreement, if ever. 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, or NAB, 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 S&W Australia.

On November 11, 2021, S&W Australia amended its debt facility with NAB pursuant to which: 

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, the consolidated debt facilities with NAB provide for up to an aggregate of AUD $41,500,000 (USD $31,071,050) of credit as of March 31, 2021, and include the 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 $1,497,400 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.

S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at March 31, 2022.

Secured Note with Conterra

In November 2017, we entered into a secured note financing transaction with Conterra for $12.5 million in gross proceeds. Pursuant to this transaction, we issued a secured real estate note to Conterra in the principal amount of $10.4 million, which bears interest of


7.75% per annum and is secured by a first priority security interest in the property, plant and fixtures located at our Nampa, Idaho production facilities and our Nampa, Idaho research facilities. We may prepay the secured note, in whole or in part, at any time. In January 2021, the Company completed the sale of its Five Points facility which resulted in the Company making a one-time principal pay-down of $1,706,845 on the secured real estate note. We are required to make our last semi-annual principal and interest payment of approximately $388,045, on July 1, 2022 and a one-time final payment of approximately $7,184,109 on November 30, 2022. We were in compliance with all debt covenants as of March 31, 2022. We are actively engaging with Conterra and potential lenders to refinance the Conterra note prior to the final payment under the Conterra note coming due. However, we cannot assure you that we will succeed in securing such refinancing on commercially reasonable terms, if at all, and whether such terms may be more restrictive than the provisions governing the Conterra note. In addition, we cannot assure you that we will not experience an event of default or be required to further renegotiate with, or see additional waivers from, Conterra, including on terms that may be significantly less favorable to us, before we are able to refinance the Conterra note, if ever.

Equity Issuances

On September 23, 2020 and as amended on September 27, 2021, we entered into an At Market Issuance Sales Agreement, or the ATM Agreement, with B. Riley Securities, Inc., or B Riley, under which we may offer and sell from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $17.1 million through B. Riley as our sales agent.  

For the nine months ended March 31, 2022, we received gross proceeds of approximately $6.2 million from the sale of 2,633,900

shares of our common stock pursuant to the ATM Agreement. For the year ended June 30, 2021, we received gross proceeds of approximately $10.9 million from the sale of 3,008,015 shares of our common stock pursuant to the ATM Agreement. As of March 31, 2022, we had no availability remaining under the ATM Agreement.

On October 14, 2021, we entered into a Securities Purchase Agreement, or the Purchase Agreement, with the purchasers named therein, or the Purchasers, pursuant to which we agreed to sell and issue to the Purchasers an aggregate of1,847,343 shares of our common stock, or the Shares, at a purchase price of $2.73 per share, for aggregate gross proceeds of approximately $5.0 million.  

The Purchasers included MFP Partners, L.P., our largest stockholder, Starlight 4, LLLP, an entity affiliated with Mark W. Wong, our Chief Executive Officer and a member of our board of directors, and Alan D. Willits, Charles B. Seidler and Robert Straus, each a member of our board of directors. Alexander C. Matina, a member of our board of directors, is Vice President of Investments of the general partner of MFP.

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 ninesix months ended MarchDecember 31, 2022 and 2021:

 

 

Six Months Ended December 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

$

(8,399,653

)

 

$

(8,065,824

)

Cash flows from investing activities

 

 

2,248,663

 

 

 

(1,206,255

)

Cash flows from financing activities

 

 

5,446,944

 

 

 

8,699,613

 

Effect of exchange rate changes on cash

 

 

(24,290

)

 

 

(233,405

)

Net decrease in cash and cash equivalents

 

 

(728,336

)

 

 

(805,871

)

Cash and cash equivalents, beginning of period

 

 

2,056,508

 

 

 

3,527,937

 

Cash and cash equivalents, end of period

 

$

1,328,172

 

 

$

2,722,066

 

 

 

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 ninesix months ended MarchDecember 31, 2022, operating activities used $18.0$8.4 million in cash. NetOf this, the net loss plus and minus the adjustments forexcluding non-cash items as detailed on the statement of cash flows used $15.5$8.0 million in cash and changes in operating assets and liabilities as detailed on the statement of cash flows used $2.5$0.4 million in cash. The decrease in cash from changes in operating assets and liabilities was primarily driven by an increase in inventory of $10.2a $5.6 million and accounts receivable of $4.3 million, offset by an


increase in accounts payable of $8.9 million and an increase in deferred revenue from prepayment on endprepayments for our fiscal 2023 United States domestic business and decreased inventories of season revenue$0.6 million, offset by a $4.0 million increase in accounts receivable, a decrease in accounts payable and accruals of $2.7 million.$1.6 million, and a $0.7 million increase in other non-current assets.

For the ninesix months ended MarchDecember 31, 2021, operating activities used $9.8$8.1 million in cash. NetOf this, the net loss plus and minus the adjustments forexcluding non-cash items as detailed on the statement of cash flows used $12.2$11.0 million in cash, andwhile changes in operating assets and liabilities as detailed on the statement of cash flows provided $2.3$3.0 million in cash. The increase in cash from changes in operating assets and liabilities was primarily driven by an increase in deferred revenue from prepayment on end of season revenue of $5.5 million, a decrease in accounts receivable of $2.5 million, and an increase in accounts payable of $13.6$1.1 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$5.7 million.

Investing Activities

Investing activities during the ninesix months ended MarchDecember 31, 2022 used $0.6provided $2.2 million in cash. Additions to property, plantcash, which resulted from $2.0 million in proceeds from the partnership transaction between Trigall Genetics and equipment accounted for $1.6S&W Australia, $0.4 million of the cash used offset by an increase in net proceeds from the sale of marketable securitiesour

33


remaining shares of $1.0Bioceres stock, offset by $0.2 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.

Investing activities during the six months ended December 31, 2021 used $1.2 million of $0.8 million.cash, consisting of additions to property, plant and equipment.

Financing Activities

Financing activities during the ninesix months ended MarchDecember 31, 2022 provided $17.9$5.4 million in cash, consisting of $6.6 million in net borrowings on the working capital lines of credit and $0.3 million of borrowings of long-term debt, partially offset by repayments of long-term debt of $1.1 million and debt issuance costs of $0.4 million.

Financing activities during the six months ended December 31, 2021 provided $8.7 million in cash. During the ninesix months ended MarchDecember 31, 2022,2021, we had net proceeds from the sale 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$4.8 million, net proceeds from sale of common stock of $4.9 million, partially offset by net repayments of long-term debt of $1.0$0.7 million.

Financing activities during the nine months ended March 31, 2021 provided $6.7 million in cash. During the nine months ended March 31, 2021, we had net proceeds from the sale 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 million, partially offset by net repayments of long-term debt of $4.2 million.

Inflation Risk

Inflationary pressures on labor and commodity price increases directly impacted our condensed consolidated results of operations during the threesix months ended MarchDecember 31, 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 Arrangements

We did not have any off-balance sheet arrangements during the three and nine months ended March 31, 2022.

Critical Accounting PoliciesEstimates

The accounting policiesThis discussion of our financial condition and the useresults of accounting estimates are set forth in the footnotes tooperations is based upon our unaudited condensed consolidated financial statements.

In preparing ourstatements, which are prepared in accordance with GAAP. The preparation of these financial statements we must select and apply various accounting policies. Our most significant policies are described in Note 2 – Summary of Significant Accounting Policies of the footnotes to the consolidated financial statements. In order to apply our accounting policies, we often needrequires us to make estimates, based on judgments about future events. In making suchand assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, we relyjudgments and assumptions. We base our estimates of the carrying value of certain assets and liabilities on historical experience market and other conditions, and on various other assumptions that we believe to be reasonable. However, theOur actual results may differ from these estimates under different assumptions or conditions.

A critical accounting estimate is one that involves a significant level of estimation processuncertainty and has had or is by its nature uncertain given that estimates dependreasonably likely to have a material impact on events over which we may not have control. If market and other conditions change from those that we anticipate, our financial condition or results of operations,operations. Accordingly, we believe that our estimates for revenue recognition, internal-use software, and business combinations are the most critical to fully understand and evaluate our financial condition and results of operations.

During the six months ended December 31, 2022, there were no changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection ofcritical accounting estimates. For additional information regarding our critical accounting estimates, see the discussion under "Critical Accounting Policies" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our disclosure regarding them, with the audit committee of our board of directors, and do soAnnual Report on a regular basis.


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

Goodwill

Goodwill is assessed annually for impairment or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit.  We adopted Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment, or ASU 2017-04, effective July 1, 2018. This standard eliminates Step 2 from the goodwill impairment test. Instead, we perform our annual or interim goodwill impairment test by comparing the fair value of our one reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The goodwill balance at March 31, 2022 and June 30, 2021 relates to our February 2020 acquisition of Pasture Genetics. Upon completing the impairment test on our one reporting unit, there was no impairmentForm 10-K for the year ended June 30, 2021.

Intangible Assets

All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over2022, as filed with the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is compared to its fair value, with an impairment loss recognized if the fair value is below carrying value. Fair values are typically estimated using discounted cash flow techniques. Significant changes in key assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized or expected to be utilized could result in an impairment charge.

Stock-Based Compensation

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

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

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

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.September 28, 2022.

Inventories

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

During the nine months ended March 31, 2022, we recognized a write-down of inventory in the amount of $1.9 million which is included in Cost of Revenue in the Consolidated Statement of Operations.  The write-down of inventory during the nine months ended March 31, 2022 was primarily related to certain inventory lots that deteriorated in quality / 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.

During the nine months ended March 31, 2021, we recognized a write-down of inventory in the amount of $1.3 million which is included in Cost of Revenue in the Consolidated Statement of Operations.  The write-down of inventory during the nine months ended March 31, 2021 was primarily related to certain inventory lots that deteriorated in quality / germination rates during the period.

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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company and, therefore, we are not required to provide information required bytypically disclosed under this item of Form 10-Q.item.

Item 4. Controls and Procedures.

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 MarchDecember 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a‑15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,

34


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 MarchDecember 31, 2022, our Principal Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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


35


Part II

OTHER INFORMATION

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

None.

Item 1A. Risk Factors.

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.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Item 5.

Other Information.

On May 13, 2022, weFebruary 8, 2023, S&W Australia, our wholly owned Australian subsidiary, entered into a Fifth Amendment to Loan and Security Agreement with CIBC, which amended the Loan Agreement.  Pursuantan amendment to the amendment, among other things (i)NAB Finance Agreement to revise the total revolving commitment provided under the Loan Agreement has been reducedmaximum permissible net related entity position from AUD $25.0 million 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.USD $18.5 million.


36


Item 6. Exhibits.

Exhibits.

Exhibit No.

Description

3.1(1)(1)

Registrant's Articles of Incorporation, as amended.

3.2(2)(2)

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

3.3(3)(3)

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

4.1

Reference is made to Exhibits 3.1, 3.2 and 3.3.

4.2(4)(4)

Form of Common Stock Certificate.

4.3(5)(5)

Form of Warrant issued on February 18, 2022.

10.1(6)4.4(6)

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

4.5

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

4.6

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

10.1

Amendment and Restatement Deed, dated FebruaryOctober 18, 2022, by and among the Registrantbetween National Australia Bank Limited and MFP Partners, L.P. (“MFP”)S&W Seed Company Australia Pty Ltd.

10.2(7)

Registration Rights Agreement,Amendment Deed, dated February 18,October 21, 2022, by and among the Registrantbetween National Australia Bank Limited and MFP.S&W Seed Company Australia Pty Ltd.

10.3

FifthSeventh Amendment to Loan and Security Agreement, dated May 13,October 28, 2022, by and among the Registrant,S&W Seed Company, Seed Holding, LLC, Stevia California, LLC and CIBC Bank USA.

31.110.4

First Amendment to Subordinate Loan and Security Agreement, dated October 28, 2022, by and between S&W Seed Company and MFP Partners, L.P.

10.5

Eighth Amendment to Loan and Security Agreement, dated December 23, 2022, by and among S&W Seed Company, Seed Holding, LLC, Stevia California, LLC and CIBC Bank USA.

10.6

Second Amendment to Subordinate Loan and Security Agreement, dated December 22, 2022, by and between S&W Seed Company and MFP Partners, L.P.

10.7

Third Amendment to Note, dated December 23, 2022, by and between S&W Seed Company and Rooster Capital LLC.

10.8+

S&W Seed Company Non-Employee Director Compensation Policy

31.1

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

31.2

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

32.1*

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

32.2*

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

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

37


101.DEF104

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

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

(1)

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

(2)

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

(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).
(3)
Incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 14, 2020 (File No. 001-34719).
(4)
Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3, filed on August 4, 2017 (File No. 333-219726).
(5)
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on February 23, 2022 (File No. 001-34719).
(6)
Incorporated by reference to Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q, filed on November 14, 2022 (File No. 001-34719).

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

+ Indicates management contract or compensatory plan.

38


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).

(4)

Incorporated by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3, filed on August 4, 2017 (File No. 333-219726).

(5)

Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on February 23, 2022 (File No. 001-34719).

(6)

Incorporated by reference to Exhibit 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.


SIGNATURES

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

S&W SEED COMPANY

Date: May 16, 2022February 13, 2023

By:

/s/ Elizabeth Horton

Elizabeth Horton

Chief Financial Officer

(On behalf of the registrant in her capacity as

Principal Financial and Accounting Officer)

4839