2020 ANNUAL REPORT
Our Mission
S&W Seed Company is a multi-crop, middle-market agricultural company with global reach.
Our vision is to be the world’s preferred proprietary seed company which supplies a range of
forage, grain, pasture and specialty crop products that supports the growing global demand
for animal proteins and healthier consumer diets.
To Our
Shareholders
I am very pleased with the progress we made in FY 2020
in strategically transforming S&W from a single crop
company, which was alfalfa, to a multi-crop company with
alfalfa, sorghum, sunfl ower, wheat, pasture products, and
stevia with enhanced focus on the U.S. and Australia.
Core Revenue*
$ in millions
+58%
We generated Core Revenue growth of 58% in FY 2020,
or 27% when you exclude revenue from recently acquired
Pasture Genetics. These are very strong growth rates
for the agricultural industry under any cycle, especially
the cycle we are currently in, and particularly with the
impacts of COVID-19 on the world’s economies.
When I took over as CEO in June 2017, we made a
commitment to become a more customer-centric
trait
organization and enhance our proprietary
development. To do this, we made important and
purposeful investments in our sales and marketing and
research and development functions. In FY 2020, we
spent $7.8 million in sales and marketing, which is
nearly a $6 million increase from what the Company was
spending prior to when I joined. Specifi cally, we have
invested in a farmer-dealer network in the U.S. that is
unique for a company our size. We also invested in our
direct selling efforts in the U.S. and Australia, including
our recent acquisition of Pasture Genetics which
signifi cantly expanded our reach in Australia. These
investments have allowed us to dramatically diversify
and expand our customer base.
A few years ago, we were heavily dependent on a few
distributors in Saudi Arabia for the vast majority of our
export sales. Today, Saudi Arabia represents just 12% of
our sales as we have diversifi ed our product offerings
and sales channels. And fi nally, we have embarked on
a major product rebranding effort in the U.S. to ensure
that our products are well-known in the industry through
Alfalfa Partners®, Sorghum Partners®, and Sunfl ower
Partners™. Although the investments we are making in
sales and marketing are expected to have an impact on
our near-term bottom line, we believe these investments
have the potential to generate signifi cant returns in the
years to come.
At the same time, we have made purposeful R&D
investments as we transform into a proprietary trait
technology company that we believe will be a meaningful
contributor to sales growth and margin expansion in
the near future. Historically, S&W had largely been a
commodity-based company. As we look to the future, we
expect to become a high margin, trait-based technology
company that will be a leader in our respective crops.
The fi rst advanced traited products that we expect to
come to market are our herbicide tolerant sorghum
products. We believe this trait has the potential to
revolutionize the sorghum market in the same way other
weed control technologies have enhanced yields for
crops such as corn, soybeans and cotton. To advance
the herbicide tolerant sorghum products, we have
entered into a collaboration with ADAMA, one of the
world’s leading crop protection companies. S&W agreed
to provide the high-performance grain sorghum hybrids
carrying our new herbicide tolerance trait technology,
*Core Revenue is defi ned as total revenue excluding revenue attributable to Pioneer.
Growing
Forward
Mark Harvey, Chairman of the Board
while ADAMA agreed to provide its best-in-class herbicides and novel
formulations to deliver effective, broad-spectrum grass weed control.
We plan to license this herbicide tolerance technology to other key
sorghum seed companies in the future.
Additionally, we have advanced collaborations progressing in alfalfa and
further trait development of a dhurrin-free sorghum for use in S&W’s
grain, sweet, forage sorghum and other sorghum species through
a collaboration with Ag Alumni. We recognize that there is a cost to
this R&D. As the statement of operations highlights, we have made
considerable investments in R&D. However, as noted earlier, we believe
these investments have the potential to generate signifi cant returns as
well as drive revenue growth and gross margin expansion in the future.
It is important to understand that what we are creating here at S&W is
unique in the industry for a company our size. We have created a powerful
and diversifi ed agricultural platform, with some of the industry’s best
operators at the helm. We have a broad portfolio, but equally important
is our expansive operational base, from our production capabilities, to
our R&D capabilities and our sales and marketing infrastructure in the
U.S., Australia, and around the world. For a company our size, we believe
what we have here is not being replicated with any other agricultural
company in the world, which we believe creates a signifi cant opportunity
for us going forward.
While FY 2020 was an encouraging year for S&W, we believe FY 2021 is
setting up to be better. We thank our shareholders for their continued
commitment to S&W. We are dedicated to driving value in the years to
come.
Mark Wong, Chief Executive Offi cer
Mark Harvey
Chairman of the Board
Mark Wong
Chief Executive Offi cer
Weed Control and Grower
Profi tability in Sorghum
In June 2020, we partnered with ADAMA, one of the world’s leading crop protection companies,
Australia produces around 24.3 million tons of wheat on approximately
to bring to market a new weed management system for sorghum growers. This novel solution,
marketed as DoubleTeam™, consists of S&W’s non-GMO, herbicide-tolerant sorghum hybrids and
30 million acres of production annually. Wheat is Australia’s largest
ADAMA’s best-in-class herbicides. The system is designed to signifi cantly improve weed control
grain crop with a gross value reported at over US $4 billion.
and grower profi tability in sorghum.
Sorghum Grazing and Harvest
Management
In July 2020, we entered into an exclusive agreement with Ag Alumni Seed, to collaborate on the
joint development of dhurrin-free sorghum for use in S&W’s grain, sweet, forage sorghum and
other sorghum species. Dhurrin is a precursor to prussic acid, which is highly toxic to ruminant
animals that feed on fresh sorghum forage. This collaboration is expected to bring innovations
to sorghum production designed to expand crop management options, including optimization of
livestock grazing, harvest timing and forage quality.
Alfalfa / Lucerne
Sorghum
Sunfl ower
is dedicated
S&W
to helping
customers optimize their production
systems to obtain maximum yields
and financial success.
in
Our Alfalfa Breeding Station
Nampa, Idaho
includes 80 acres
of research field trials, a modern
greenhouse facilities, a full on-site
supporting pathology
laboratory
screening
InfraRed
and Near
spectroscopy (NIR) for forage quality
determination. Our Alfalfa Breeding
in Keith, South Australia
Station
selects for new high seed yield
varieties with abiotic stress tolerance
for local conditions.
Our Molecular Lab in Lubbock, Texas
supports S&W breeding
teams
around the globe using state-of-
the-art technology to make genetic
advancements at the DNA level.
is committed
S&W
to providing
customers with the latest sorghum
seed
industry-leading
expertise and advanced agronomic
support.
innovations,
includes
Toowoomba,
Our global Sorghum Breeding
Program
fully-equipped
research stations in Lubbock, Texas
Queensland
and
Australia and provides products for
multiple proprietary brands on five
continents. These stations host
hybrid trials across many diverse
geographies, along with field and
greenhouse resources supporting
breeding and selection nurseries
for both grain and forage species.
Additional winter nurseries in both
northern and southern hemispheres
provide counter-season sites for
breeding and selection nurseries
fast-tracking hybrid
facilitate
to
commercialization.
S&W develops elite, proprietary,
disease resistant sunflower hybrids
and also partners with other top
breeding companies to incorporate
herbicide resistant characteristics,
specific oil profiles for both poly-
unsaturated and linoleic types and
maximum yield potential for different
growing conditions around the world.
Our Sunflower Breeding Station in
Szeged, Hungary forms the footprint
for our breeding
research and
development operations. The station
focuses on delivering robust and
competitive sunflower hybrids for the
broad range of European sunflower
markets.
Wheat
Pasture Products
Stevia
We signifi cantly expanded our
presence in the Australian market
with a goal to become a one-stop
supplier of elite seed genetics to
Australian farmers.
We believe the addition of a wheat
program along with our pasture
products
in Australia, enhances
our crop portfolio with excellent
synergies to our existing business.
Under an exclusive, prepaid license
we are able to offer a number of
commercialized wheat varieties to
the Australian market.
sales
The acquisition of Pasture Genetics
broadens S&W’s product portfolio
and
capabilities within
Australia, a market where we have
built out a signifi cant presence as a
provider of elite seed genetics.
Our stevia plant R&D program is
focused on breeding varieties that
we believe can add value at the front
end of the supply chain, including
mechanized harvest and balanced
steviol glycoside profi le.
Pasture Genetics’ seed product
portfolio
includes alfalfa, medic,
clovers, vetch, forage cereals, as
well as pasture and other grasses.
Its proprietary Goldstrike® seed
technology, which can
coating
inoculation and
address rhizobia
extend shelf life, is believed to be a
key market advantage for S&W.
We believe that the development of
varieties that can balance the taste
requirements of consumers, with the
yield requirements of farmers where
they can profi tably grow stevia in
North and South America, provides
S&W with the opportunity to be a
leader in stevia for many years to
come.
Expanding Our Australian
Market Presence
In February 2020, we acquired Pasture Genetics Pty Ltd., the third largest pasture seed
Australia produces around 24.3 million tons of wheat on approximately
company in Australia. The acquisition expands and diversifi es our product offerings in Australia
and follows our other recent initiatives in the country to become one of the leading suppliers of
30 million acres of production annually. Wheat is Australia’s largest
elite seed genetics to Australian farmers.
grain crop with a gross value reported at over US $4 billion.
Company Financials
S&W SEED COMPANY: CONSOLIDATED STATEMENT OF OPERATIONS
Years ended June 30
Revenue
Cost of Revenue
Gross Profi t
Operating Expenses
Selling, general and administrative expenses
Research and development expenses
Depreciation and amortization
Gain on disposal of property, plant and equipment
Goodwill impairment charges
Intangible asset impairment charges
Total Operating Expenses
Loss From Operations
Other (Income) Expenses
Foreign currency (gain) loss
Reduction of anticipated loss on sub-lease land
Change in estimated value of assets held for sale
Change in contingent consideration
Government grant income
Loss on extinguishment of debt
Interest expense - amortization of debt discount
Interest expense
Loss Before Income Taxes
Provision for income tax
Net Loss
Net loss attributed to noncontrolling interests
Net Loss Attributable to S&W Seed Company
Net Loss Per Common Share:
Basic and Diluted
Weighted Average Number of Common Shares Outstanding:
Basic and Diluted
ITEMIZED RECONCILIATION BETWEEN NET INCOME (LOSS)
AND NON-GAAP ADJUSTED EBITDA
Years ended June 30
Net loss attributable to S&W Seed Company
Non-recurring transaction costs
Restructuring charges
Non-cash stock based compensation
Depreciation and amortization
Goodwill impairment charges
Intangible asset impairment charges
Foreign currency loss (gain)
Change in estimated value of assets held for sale
Change in contingent consideration
Loss on extinguishment of debt
Reduction of anticipated loss on sub-lease land
Interest expense - amortization of debt discount
Interest expense
Provision for income taxes
Non-GAAP Adjusted EBITDA
2019
$ 109,722,511
69,014,490
40,708,021
17,486,071
6,272,758
4,128,546
(86,222)
11,865,811
6,034,792
45,701,756
(4,993,735)
(99,467)
(141,373)
1,521,855
-
-
-
340,847
2,886,077
(9,501,674)
(148,747)
$ (9,352,927)
(47,685)
$ (9,305,242)
(0.31)
30,102,158
2019
$ (9,305,242)
1,196,476
202,243
694,610
4,128,546
11,865,811
6,034,792
(99,467)
1,521,855
-
-
(141,373)
340,847
2,886,077
(148,747)
$ 19,176,428
2020
$ 79,582,198
64,647,936
14,934,262
21,348,092
7,336,754
5,036,464
(23,299)
-
-
33,698,011
(18,763,749)
98,620
-
92,931
(302,139)
(1,958,600)
140,638
555,049
1,970,882
(19,361,130)
385,968
$ (19,747,098)
(72,774)
$ (19,674,324)
(0.59)
33,348,263
2020
$ (19,674,324)
792,993
-
1,167,951
5,036,464
-
-
98,620
92,931
(302,139)
140,638
-
555,049
1,970,882
385,968
$ (9,734,967)
Non-GAAP Measurements: This document includes certain fi nancial information that constitutes “non-GAAP fi nancial measures” as defi ned by the SEC. A full
reconciliation of the non-GAAP measures to GAAP can be found in the tables above. EBITDA and Adjusted EBITDA are supplemental to results presented under
accounting principles generally accepted in the United States of America (“GAAP”) and may not be comparable to similarly titled measures presented by other
companies. These non-GAAP measures are used by management to facilitate period-to-period comparisons and analysis of S&W’s operating performance and
liquidity. Management believes these non-GAAP measures are useful to investors in trending, analyzing and benchmarking the performance and value of S&W’s
business. These non-GAAP measures should be considered in addition to, but not as a substitute for, other similar measures reported in accordance with GAAP.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:1409)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2020
or
(cid:1407)
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 001-34719
S&W SEED COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of
Incorporation or Organization)
2101 Ken Pratt Blvd., Suite 201, Longmont, CO
(Address of Principal Executive Offices)
27-1275784
(I.R.S. Employer
Identification No.)
80501
(Zip Code)
(720) 506-9191
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Trading Symbol(s)
SANW
Name of Each Exchange on Which Registered
The Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities Registered Pursuant to Section 12(g) of the Act:
None
(cid:1407) Yes (cid:1409) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
(cid:1407) Yes (cid:1409) No
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 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.
(cid:1409) Yes (cid:1407) No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and
posted 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).
(cid:1409) Yes (cid:1407) 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
Non-accelerated filer
Emerging growth company
(cid:1407)
(cid:1409)
(cid:1407)
Accelerated filer
Smaller reporting company
(cid:1407)
(cid:1409)
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. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. (cid:1407)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). (cid:1407) Yes (cid:1409) No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter was $26,541,012.
The number of shares outstanding of common stock of the registrant as of September 23, 2020 was 33,450,569.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its next Annual Meeting of Stockholders are incorporated herein by reference in Part III
of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement is to be filed with the Securities and Exchange
Commission within 120 days of the registrant's fiscal year ended June 30, 2020.
S&W SEED COMPANY
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2020
TABLE OF CONTENTS
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48
49
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98
FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financing Condition and Results of Operations
Qualitative and Quantitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
i
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934,
as amended, or the Exchange Act. All statements other than statements of historical fact could be deemed forward-
looking statements, including, but not limited to: statements concerning the potential effects of the COVID-19
pandemic on our business; any projections of revenue, margins, expenses, tax provisions, earnings, cash flows and
other financial items; any statements of the plans, strategies and objectives of management for future operations; any
statements regarding our ability to raise capital in the future; any statements concerning expected development,
performance or market acceptance relating to our products or services or our ability to expand our grower or
customer bases or to diversify our product offerings; any statements regarding future economic conditions or
performance; any statements of expectation or belief; any statements regarding our ability to retain key employees;
and any statements of assumptions underlying any of the foregoing. These forward-looking statements are often
identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” and
similar expressions or variations intended to identify forward-looking statements. We have based these forward-
looking statements on our current expectations about future events. Such forward-looking statements are subject to
risks, uncertainties and other important factors, including certain assumptions, that, if they never materialize or
prove incorrect, could cause our actual results and the timing of certain events to differ materially from those
expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions include the
following:
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The duration of the COVID-19 pandemic and the extent to which it continues 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 and stevia development program;
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; and
other risks that are described herein including but not limited to the items discussed in Part I, Item 1A. “Risk
Factors” of this Annual Report on Form 10-K, and that are otherwise described or updated from time to time
in our filings with the SEC.
You are urged to carefully review the disclosures made concerning risks and uncertainties that may affect our
business or operating results, which include, among others, those listed in “Risk Factors” below.
1
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot
guarantee future results, level of activity, performance or achievements. Many factors discussed in this Annual
Report on Form 10-K, some of which are beyond our control, will be important in determining our future
performance. Consequently, these statements are inherently uncertain and actual results may differ materially from
those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you
should not regard the inclusion of a forward-looking statement in this Annual Report on Form 10-K as a
representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such
forward-looking statements. All forward-looking statements included herein are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. Furthermore, such forward-looking statements
represent our views as of, and speak only as of, the date of this Annual Report on Form 10-K, and such statements
should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially
available relevant information. We undertake no obligation to publicly update any forward-looking statements, or to
update the reasons why actual results could differ materially from those anticipated in any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law.
When used in this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “the 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 2020,” “fiscal 2019” and “fiscal 2018” in this
Annual Report on Form 10-K refer to the respective fiscal year ended June 30, 2020, 2019 and 2018, 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.
2
Item 1.
Business
Overview
PART I
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 growing commercial market presence in sunflower, wheat
and pasture seed and maintain an active stevia development program.
Our seed platform develops and supplies high quality germplasm designed to produce higher yields for farmers
worldwide. We sell over 500 seed products in more than 40 countries. We maintain an active product pipeline and
expect to introduce more than 25 new products during the 2021-2022 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:
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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 Pty 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-
3
free trait in sorghum species, which essentially eliminates potential livestock death from hydrogen cyanide
poisoning when grazing sorghum.
Our Strategy
The global agriculture market is experiencing rapid change driven by population growth, increasing consumer
demand and emerging markets, environmental challenges, limited availability of arable land and diverse regulatory
requirements. As a result, farmers and other industry participants are facing continuous pressure to cost-effectively
increase productivity and output. These and certain other factors have led to strategic realignments and significant
consolidation in the seed industry, leaving a small number of large players.
We believe this environment presents an opportunity to build a global agricultural company focused on crop and
market opportunities that large seed companies may overlook, underserve or ineffectively address.
We believe our core strengths listed below position us to capitalize on this market opportunity:
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Strong Germplasm Asset Base and Development Capabilities. We believe we have the largest and most
diversified alfalfa and sorghum germplasm pool in the world. Our germplasm pool offers traits sought by
farmers who grow forage hay, forage sorghum and grain sorghum, including high yield, drought tolerance and
disease tolerance. We continue to invest in research and development programs in the United States, Australia,
Europe and South America with an emphasis on driving trait improvement across all of our crop categories.
Cost-Efficient Global Supply Chain. We produce seed in the Western United States, Canada, Australia,
Europe and South Africa under contract with select third-party growers. We currently maintain approximately
200 grower relationships, many of which are longstanding. Our global, but localized, production capabilities
allow us to produce seed close to the customer to ensure the seed product is developed specifically for the
conditions and requirements of that customer’s region and produced at low cost. We condition and package
seed primarily in our own facilities located in California, Idaho, Texas and Australia. We believe that direct
ownership of our production facility assets gives us more flexibility to react to demand changes unique to each
geography, greater control over product quality and a lower cost structure.
Global Distribution Capabilities and Relationships. We sell our seed through one of the industry’s largest
networks of distributors and dealers, reaching more than 40 countries. In the United States, we believe that
our farmer-dealer network, unique among middle-market seed companies, provides a platform to support sales
growth across crop categories. In Australia, we recently enhanced our sales and distribution capabilities
through our recent acquisition of Pasture Genetics.
Deep Industry Expertise. We believe that our management team has deep industry experience and a
demonstrated record of success that is unmatched for a seed industry company of our size. Our leadership
team includes both proven industry executives recruited to our company and top talent acquired through our
various acquisitions. Mark Wong, our Chief Executive Officer, has over 40 years of senior executive
experience in the agriculture industry and has successfully built, operated, and sold multiple seed companies
to industry leaders across multiple crops, including sorghum, corn, soybeans, and vegetables.
Our goal is to be a leading multi-crop, middle-market agricultural company; delivering value to our customers and
strong financial returns to our shareholders. To reach our goal, we have prioritized the following strategic
initiatives:
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Develop and Launch New Products that Address Unmet Market Needs. We expect to introduce more than 25
new products during the 2021-2022 fiscal years across our current crop offerings. We also plan to continue
development activities aimed to generate high-value, improved traits in our crops and to begin
commercialization of seed products carrying those traits. We anticipate (pending receipt of regulatory
approvals) a Spring 2021 launch of sorghum hybrids incorporating our proprietary, patent-pending herbicide
tolerant trait as part of our DoubleTeam™ collaboration with ADAMA. We are also evaluating
commercialization options for alfalfa seed products developed through our collaboration with Calyxt, Inc.,
which applied apply next generation gene-editing technology to our elite alfalfa seed genetics.
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Build Our Multi-Channel Distribution Network and Execute on International Cross-Selling Opportunities.
Our organization is aligned across geographic lines, as opposed to product lines. We believe that this structure
allows us to make the best use of distribution assets like our United States farmer-dealer network and our
Australian sales force (recently expanded by our acquisition of Pasture Genetics) and to unlock potential sales
synergies through international cross-selling of products (particularly in Europe and Australia). We believe
that a robust, diverse distribution network will allow us to continue to evolve beyond our historical
dependence on certain geographical markets which carry higher political, regulatory and economic risks.
Exploit International Production Capability for Best-In Class Cost Structure. Our streamlined international
supply chain provides us with flexibility in sourcing product to meet customer needs. We are focused on
exploiting this ability to shift production to low-cost areas to both support our competitive position and
improve our margins.
Commercialize Stevia. 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.
Expand Crop Offerings and Market Share of Existing Offerings Through Strategic Acquisitions. We expect
that ongoing consolidation and realignment in the seed industry will present opportunities for us to acquire
assets that are no longer a strategic fit in the product portfolios of larger industry players or that smaller
industry players are unable to effectively exploit. We believe that our production and distribution platforms
position us to more fully realize the potential of these types of assets. Moreover, we have a proven track
record of successfully acquiring and integrating diverse operations into our seed platform and rebalancing our
product portfolio. We intend to emphasize disciplined capital and resource allocation, with a strong focus on
return on invested capital and evaluating opportunities to expand our crop offerings or increase our share of
existing crop markets.
Our Current Crops
Alfalfa
The Alfalfa Market. Alfalfa seed is primarily used for growing alfalfa hay, which is grown throughout the world as
“forage” for livestock, including dairy and beef cattle, horses and sheep. The alfalfa industry (and therefore the
alfalfa seed industry) is highly dependent on the dairy industry, which is the largest consumer of alfalfa hay. As the
global middle class expands and emerging markets adopt a diet with higher protein consumption, we expect the
demand for alfalfa production around the world to increase.
We estimate that current global alfalfa hay crop production is 200 million metric tons per year and that global annual
alfalfa seed sales are approximately $500 million.
S&W’s Alfalfa Seed Portfolio. Our current portfolio of over 210 commercialized alfalfa seed products spans both
non-dormant varieties, which grow year-round, and dormant varieties, which have adapted to cold climates by going
dormant during periods when frost or snow conditions would otherwise kill them. Our specialty is high-yield alfalfa
varieties with a wide range of adaptation across many growing environments. Our alfalfa seed products include
varieties that, depending upon the particular variety, exhibit the traits that forage hay farmers most value, such as
high yield, root rot resistance, lodging resistance, salt tolerance, drought tolerance, leafhopper resistance and stem
nematode resistance.
We historically have not used genetic engineering in our alfalfa breeding program, so that our products can be sold
in Europe, the Middle East, Australia and other parts of the world that currently prohibit the sale of genetically
modified organism (GMO) alfalfa. More recently, we have expanded our research and development efforts beyond
our classically-bred proprietary alfalfa seed breeding program. One result of these efforts was our commercial
release of a Roundup Ready® alfalfa variety incorporating a herbicide resistance trait (under license from Forage
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Genetics International) into our proprietary germplasm. We also are evaluating commercialization options for alfalfa
seed products developed through our collaboration with Calyxt. These potential commercial products consist of our
seed varieties carrying a novel trait that is currently classified as non-GMO. While we believe these products have
commercial potential, we do not anticipate a commercial launch or a meaningful contribution to our revenue before
fiscal year 2023, if at all.
Sorghum
The Sorghum Market. Sorghum comes in two types, forage and grain. While it has been traditionally used for
livestock feed and in ethanol production, sorghum is gaining popularity as a substitute for wheat and other grains in
food products due to its gluten-free characteristics, as well as its antioxidant, high protein, low fat, high fiber and
non-GMO properties. Additionally, the pet food industry has been increasing its use of grain sorghum due to its
nutritional benefits and enhanced digestibility. Sorghum requires less water to grow than many other crops and is
generally used as a replacement for corn and other grains in areas where water is scarce. In Africa, sorghum is a
common food staple for human consumption. The majority of the world’s sorghum is grown in developing
countries, primarily in Africa and Asia.
We estimate global sorghum crop production to be 60 million metric tons per year. We estimate that global annual
sorghum seed sales are approximately $500 million.
S&W’s Sorghum Portfolio. Our current portfolio of approximately 40 commercialized sorghum seed products
includes both forage and grain sorghum. We believe that many of our sorghum hybrids are unmatched and
consistently out-yield competitor products in select markets.
We plan to commercially launch approximately twenty new sorghum products during the fiscal years 2021-2022,
including new Sugarcane Aphid tolerant hybrids to address a significant market need. We anticipate (pending
receipt of regulatory approvals) a Spring 2021 launch of sorghum hybrids incorporating our proprietary, patent-
pending herbicide tolerant trait as part of our DoubleTeam™ collaboration with ADAMA.
Sunflower
The Sunflower Market. Sunflowers have multiple uses including oil, birdseed and human consumption. Our current
sunflower seed focus is on hybrids best suited for the oil market. Sunflower oil is light in taste and appearance and
supplies more Vitamin E than any other vegetable oil. It is a combination of monounsaturated and polyunsaturated
fats with low saturated fat levels. The versatility of this healthy oil is recognized by cooks internationally, valued for
its frying performance and health benefits. With multiple types of sunflower oils available, it meets the needs of
consumer and food manufacturers alike for a healthy and high performance non-transgenic vegetable oil.
Additionally, sunflower is being sought after as a source of non-GMO oils.
The USDA projects global sunflower seed production for 2020/2021 at 55 million metric tons per year. We estimate
that global annual sunflower seed sales are approximately $750 million to $1 billion.
S&W’s Sunflower Portfolio. We currently have six high-yield sunflower hybrids in the market. Our research and
development programs in Australia and Europe focus on developing new elite sunflower seed hybrids that are
disease resistant, have herbicide resistant characteristics, meet specific oil profiles, both polyunsaturated and
linoleic, and maximize yield potential for different growing conditions around the world
Australian Wheat
The Wheat Market in Australia. Wheat is Australia's largest grain crop. Australia produces around 24.3 million tons
of wheat annually, with approximately 70% exported to Southeast Asian countries.
The wheat market in Australia operates under an end point royalty, or EPR, system in which the wheat variety
owner earns a fixed royalty on every ton of grain produced. The applicable EPR varies by variety, but typically
ranges from $2 to $4 per metric ton. Under EPR systems, variety owners such as us do not produce or hold
commercial seed inventories or sell seed. Industry partners increase commercial quantities of planting seed and
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distribute to growers. Varieties are tracked along the supply chain and, when grain is ultimately delivered to the
grain buyer or end user, the EPR is collected and delivered to the variety owner.
We estimate that total end point royalties paid to wheat variety owners in Australia are approximately $70 million
per year.
S&W’s Wheat Portfolio. In 2019, under an exclusive, prepaid license from Corteva Agriscience, S&W acquired
rights to a group of commercialized and development wheat varieties which are the result of an estimated $17
million development program investment. We currently have six wheat varieties commercially available in the
Australian market. Our breeding program is focused on new varieties which we believe have the potential to offer a
number of benefits to Australian wheat growers as compared to existing commercial varieties, including superior
disease resistance, superior yields and grain quality to suit the diverse Australian conditions.
Pasture Seeds
The Pasture Seed Market in Australia. In addition to alfalfa, the pasture seed market in Australia includes medic,
clovers, vetch, forage cereals, and certain grasses. Key customers include beef cattle, sheep and dairy farmers, and
silage, hay and chaff producers. We estimate that annual pasture seed sales in Australia are approximately $100
million.
S&W’s Pasture Seed Portfolio. After our February 2020 acquisition of Pasture Genetics, we currently offer over 300
pasture seed products in the Australian market.
Stevia
Stevia and the Sweetener Industry. Stevia leaf and its refined products are a natural, non-caloric high intensity
sweetener. The incorporation of stevia-derived extracts into foods and beverages in the U.S. has seen a rapid
increase since the beginning of 2009, when stevia was first introduced as a sweetener alternative to sugar and
approved by the FDA as generally recognized as safe. In the U.S., approximately 70% of all new products
formulated with stevia are beverages, with the remainder split between diverse categories, including dairy products
and baked goods. Currently, the majority of global commercial stevia production occurs in Asia (particularly, in
China), as current varieties lack adaptive characteristics that would permit farmers to profitably grow them in other
global agricultural regions.
We estimate the annual market value of stevia as an additive to foods and beverages to be $565 million.
S&W’s Stevia Program. Since 2009, our stevia research and development program has focused on developing
stevia into a U.S.-grown crop. Our program has generated four patented varieties, and we are working closely with
potential supply chain collaborators and customers to develop more advanced varieties that can both meet taste
requirements of consumers and have field performance that would enable farmers to profitably grow stevia in the
United States. In early 2019, we opened a dedicated stevia field breeding station in Tifton, GA to further support the
breeding effort and select new varieties adapted to the Southeast growing regions targeted for initial cultivation of
stevia in the United States.
Product Development
We conduct our breeding and development programs in the United States, Australia, Europe and South America.
Our breeding programs are designed to make steady genetic improvements in our germplasm base, which we use to
create better-performing varieties and hybrids for our customers. Development of a typical new variety or hybrid can
take as little as five years or as long as 18 years, depending on methodology and the desired agronomic traits.
Because of the many years required to develop a new variety or hybrid, we believe our successful breeding program
allows us to offer seed varieties or hybrids incorporating a combination of characteristics desired by farmers that are
not available from any other source, thereby providing us with a competitive advantage.
We also plan to continue development activities aimed at generating high-value improved traits in our crops. With
this objective in mind, we are collaborating, and continue to look for opportunities to collaborate, with other
companies that have technologies that we believe complement our proprietary products and/or our research and
development breeding expertise to develop currently unavailable specialized seed products.
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Sales, Marketing and Distribution
We currently sell over 500 seed products in more than 40 countries. Our principal markets for alfalfa sales are the
United States, Canada, Mexico, South America, the Middle East, North Africa, and Australia. Our sorghum sales are
focused in the United States, Mexico, Australia, Europe and South Africa. Our sunflower sales are primarily in
Europe, Asia and Australia. Our wheat and pasture seed sales are focused in Australia.
Our organization is structured across geographic lines, as opposed to product lines, which we believe allows us to
make the best use of distribution assets (like our U.S. farmer-dealer network and our Australian sales force) and
unlock potential sales synergies through international cross-selling of products (particularly in Europe and
Australia).
We primarily sell our seed products under the S&W brand or other brands we own, such as Alfalfa Partners ™ and
Sorghum Partners®. To a limited extent, we also sell some seed under private-label arrangements with distributors.
Our customers are primarily distributors and dealers. Our distributors and dealers, in turn, sell to farmers. We
believe that selling through dealers and distributors enables our products to reach growers in areas where there are
geographic or other constraints on direct sales efforts. We select dealers and distributors based on shared vision,
technical expertise, local market knowledge and financial stability. Over the years, we have built dealer/distributor
loyalty through an emphasis on service, access to breeders, ongoing training and promotional material support. We
limit the number of dealers and distributors with whom we have relationships in any particular area in order to
provide adequate support and opportunity to those with whom we choose to do business.
Both farmers and dealers use pest-control advisors who recommend the varieties or hybrids that will produce the
best results in a particular location. Therefore, a key part of our marketing strategy is to educate the consultants, as
well as the farmers, as to benefits of our seed varieties and hybrids.
We believe that our best marketing tool is the dissemination of information regarding the quality and characteristics
of our propriety seed products to those persons who make the growing decisions. We continue to place
advertisements in trade journals, agriculture publications, social media and participate in seed industry conferences
and trade shows and engage in various other educational and outreach programs as we deem appropriate.
Our sales efforts have historically involved significant in-person interaction with potential customers and
distributors. In March 2020, at the beginning of what is typically our most active selling period, many national, state
and local governments in our target markets implemented various stay-at-home, shelter-in-place and other
quarantine measures in response to the COVID-19 pandemic. As a result, we immediately attempted to
shift our sales activities to video conferencing and similar customer interaction models but have found these
alternative approaches to generally be less effective than in-person sales efforts, and this could result in decreased
sales revenue and a negative impact on our business and financial results.
Seed Production
We produce seed in the United States, Canada, Australia, Europe and South Africa under contract with select third-
party contract growers. We currently maintain over 100 grower relationships. Our network of growers has the
expertise needed to successfully grow high quality seed products. We have worked with many of the same growers
on a long-term basis, and we believe that we have strong relationships with them. We allocate our seed production
among our growers so that we can purchase the proper mix of seed each year. Our contracts with growers have
terms ranging from one to seven years, depending on the crop and the production area. Our global, but localized,
production capabilities allow us to produce close to the customer to ensure the seed product is developed specifically
for the conditions and requirements of that region and is produced at the lowest cost.
We condition and package seed primarily in our own facilities located in California, Idaho, Texas and Australia;
although in some markets (for example, Australia) we use third-party processing services. We believe that direct
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ownership of production facility assets gives us more flexibility to respond to demand changes unique to each
geography, greater control over product quality and a lower cost structure.
Seasonality
We contract with growers based upon our anticipated market demand. We mill, clean and stock the seed during the
harvest season and ship from inventory throughout the year. However, our seed business is seasonal. In the
Northern hemisphere, production and harvest occurs from March through September and processing and shipping
finished goods primarily occurs from October through May. In the Southern hemisphere, production and harvest
occurs from October through March and processing and shipping primarily occurs from March through August.
Proprietary Rights
Ownership of and access to intellectual property rights are important to us. We sell proprietary seed varieties and
hybrids that have been specially selected to manifest the traits we deem best suited to particular regions in which our
seed is planted. Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings,
processes, technologies and materials owned by or used by us or our growers. Our competitive position would be
adversely affected if any competitors independently were to develop any technologies that substantially equal or
surpass our own.
In some cases, we obtain patent protection or plant breeder rights registrations for certain of our seed products.
However, our principal method of guarding our proprietary varieties and hybrids is exercising a high degree of
control over the supply chain. As part of this control process, we require our growers to deliver back to us all seed
derived from our proprietary varieties and, in the case, of hybrids, limit supply of parent seed that enables hybrid
production. Historically, we have found that these control mechanisms have been an effective means to protect our
proprietary seed. However, because we often do not have more formal proprietary rights protections, it would be
possible for persons with access to our seed or plants grown from our seed to reproduce proprietary seed, which
could significantly harm our business and our reputation.
Competition
Competition in the seed industry both domestically and internationally is intense, and we believe it is intensifying
with industry consolidation. We believe that the key competitive drivers in the industry are proven performance,
customer support in the field and value, which takes into account not simply the price of the seed but also yield in
the field.
We face direct competition by other seed companies, including multinational agriculture companies, regional seed
companies and small family-owned businesses, as well as subsidiaries or other affiliates of chemical, pharmaceutical
and biotechnology companies. Our principal competitors include:
(cid:120) Alfalfa. In the U.S. market, our principal competitors in our alfalfa seed business are Forage Genetics
International (a subsidiary of Land O’ Lakes, Inc.), Pioneer and Alforex Seeds (subsidiaries of Corteva),
and Pacific International Seed Company, Inc. In the Australian market, competitors in the proprietary
alfalfa seed market include the Barunbrug Group, PGG Wrightson Seeds Ltd, and Naracoorte Seeds Pty.
Ltd. In Australia, we also face competition from smaller companies offering non-proprietary seed and
lower value seed from the European Union and Argentina.
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Sorghum. Our principal competitors in sorghum are Pioneer, DeKalb (a subsidiary of Bayer), Advanta,
and Nuseed.
Sunflower. Our principal competitors in sunflower are Pioneer, Nuseed, Dyna-Gro Seed (a subsidiary of
Nutrien Ag Solutions), Syngenta AG, Advanta, Limagrain, and KWS SAAT SE & Co.
(cid:120) Australian Wheat. Our principal competitors in the Australian wheat market are AGT, LongReach Plant
Breeders Pty Ltd., and InterGrain.
(cid:120) Pasture Seed. Our principal competitors in the Australian pasture seed market are the Barunburg Group,
and PGG Wrightson Seeds Ltd.
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Many of our existing and potential competitors have substantially greater research and product development
capabilities and financial, marketing and human resources than we do. As a result, these competitors may:
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succeed in developing products that are equal to or superior to our products or potential products or that
achieve greater market acceptance than our products or potential products;
devote greater resources to developing, marketing or selling their products;
respond more quickly to new or emerging technologies or scientific advances and changes in customer
requirements, which could render our products or potential products obsolete or less preferable;
obtain patents that block or otherwise inhibit our ability to develop and commercialize potential products
we might otherwise develop;
(cid:120) withstand price competition more successfully than we can;
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establish cooperative relationships among themselves or with third parties that enhance their ability to
address the needs of our customers or prospective customers; and
take advantage of acquisition or other opportunities more readily than we can.
Environmental and Regulatory Matters
Our agricultural operations are subject to a broad range of evolving environmental laws and regulations applicable
to the markets in which we operate. These environmental laws and regulations are intended to address concerns
related to air quality, storm water discharge and management and disposal of agricultural chemicals relating to seed
treatment.
Compliance with these laws and related regulations is an ongoing process that does not, and is not expected to, have
a material effect on our capital expenditures, earnings or competitive position. Environmental concerns are,
however, inherent in most major agricultural operations, including those conducted by us, and there can be no
assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is
possible that future developments, such as increasingly strict environmental laws and enforcement policies
thereunder, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.
We also are subject to various laws and regulations relating to the transport, export/import and sale of seed
applicable in the markets in which operate.
Internationally, we are subject to various government laws and regulations (including the U.S. Foreign Corrupt
Practices Act and similar non-U.S. laws and regulations) and local government regulations. To help ensure
compliance with these laws and regulations, we have adopted specific risk management and compliance practices
and policies, including a specific policy addressing the U.S. Foreign Corrupt Practices Act.
Research and Development
Research & Development expenses for the year ended June 30, 2020 totaled $7.3 million compared to $6.3 million
in the year ended June 30, 2019.
Employees
As of September 22, 2020, we had 186 total employees, of which 168 were full-time employees. We also retain
consultants for specific purposes when the need arises. None of our employees are represented by a labor union.
Corporate History
From 1980 until 2009, our business was operated as a general partnership. In October 2009 we incorporated in
Delaware, and in December 2011 we reincorporated in Nevada.
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Contact Information
Our principal business office is located at 2101 Ken Pratt Blvd., Suite 201, Longmont, CO 80501, and our telephone
number is (720) 506-9191. Our website address is www.swseedco.com. Information contained on our website or any
other website does not constitute part of this Annual Report on Form 10-K, and the inclusion of our website address
in this report is an inactive textual reference only.
Item 1A. Risk Factors
Risks Relating to Our Business and Industry
The effects of health crises, including the recent COVID-19 pandemic, have had an adverse impact on our
business, operations and the markets and communities in which we, our partners and customers operate.
As a result of the COVID-19 outbreak, or similar pandemics, and government responses to such pandemics, we have
and may in the future experience disruptions that could adversely impact our business, including:
(cid:120) We rely on third-party dealers, distributors and sales agents as our primary customers and distribution
channels. These dealers, distributors and sales agents are often small businesses or sole proprietorships.
Any restriction of, or disruption in, their ability to operate would adversely impact our business.
(cid:120) Approximately 35% of our sales revenue depends on cross-border export of seed products from our
primary production areas in the United States and Australia. Any disruption in cross-border shipments
resulting, for example, from reduced capacity of the global shipping network or quarantine measures would
adversely impact our business.
(cid:120) Approximately 65% of our sales revenue is from dealers and distributors in the United States and Australia.
Any disruption in shipments resulting, for example, from reduced capacity of the trucking and logistics
network or quarantine measures would adversely impact our business.
(cid:120) 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. Any
actual or perceived disruption in the distribution channel could alter customer buying decisions, prompting
customers to delay or decrease their orders, which would negatively impact our sales revenue and could
harm our reputation.
(cid:120) A significant portion of our sales are made in markets in which sales are otherwise sensitive to changes in
local currency to US Dollar exchange rates. During the COVID-19 pandemic, we have experienced
increased foreign exchange rate volatility and currency devaluation in some of our markets outside the
United States. Such volatility and disruption have impacted our customers and their ability to make timely
payment on previously fulfilled orders. Any such effects on our customers’ ability to pay would negatively
impact our business and financial results.
(cid:120) Our sales cycle is highly seasonal, and the majority of our sales season activities for the United States and
Australia are typically concentrated between March and June of each calendar year. Our sales efforts have
historically involved significant in-person interaction with potential customers and distributors. In March
2020, at the beginning of what is typically our most active selling period, many national, state and local
governments in our target markets implemented various stay-at-home, shelter-in-place and other quarantine
measures in response to the COVID-19 pandemic. As a result, we immediately attempted to shift our sales
activities to video conferencing and similar customer interaction models but have found these alternative
approaches to generally be less effective than in-person sales efforts, and this could result in decreased
sales revenue and a negative impact on our business and financial results.
(cid:120) We clean, process and package our seed products in multiple facilities in the United States and Australia.
Any outbreak of COVID-19 at one of our facilities could require us to close the facility until the outbreak is
resolved. Any such closure could have a negative impact on our ability to meet customer orders.
(cid:120) We offer our customers payment terms generally less than one year from invoicing in alignment with the
growing season. As a result of the current economic downturn associated with the COVID-19 pandemic,
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our customers may be unable to repay their obligations to us when due, which could adversely affect our
results and financial condition.
(cid:120) We have historically relied upon occasional sales of our debt and equity securities and borrowing under
credit facilities from financial institutions, both in the United States and South Australia, to fund our
operations. The COVID-19 pandemic has resulted in, and may continue to result in, significant disruption
and volatility in equity and credit markets which could negatively impact our financing terms or impair our
ability to access capital markets altogether, and could therefore negatively affect our liquidity.
(cid:120) We are subject to various affirmative and negative covenants in our loan agreements with our lenders. If
the effects of COVID-19 cause us to fall out of compliance with one or more of such covenants and we are
unable to secure a waiver or negotiate an amendment to such loan agreements on reasonable terms, or at
all, an event of default could occur, which would allow our lenders to 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. If we are unable to access funds to repay our lenders, our lenders could take control of our pledged
assets. Any of the foregoing events would negatively impact our financial condition and liquidity. For
example, we were not in compliance with our fixed charge coverage ratio covenant under our CIBC facility
as of June 30, 2020. On September 22, 2020, the CIBC loan agreement was amended and, among other
things, CIBC waived the fixed charge coverage ratio covenant as of June 30, 2020 and suspended its
applicability prospectively until the quarter ending March 31, 2021. We cannot guarantee that we will be
able to comply with all of the covenants contained in the CIBC loan agreement in the future, or secure
additional waivers if or when required.
(cid:120) Since early March 2020, we have taken temporary precautionary measures intended to help minimize the
risk of COVID-19 to our employees and their families, including temporarily allowing office and sales
employees to work remotely. We have suspended non-essential travel worldwide for our employees and
prohibited employee attendance at in-person gatherings. Further measures may be taken as the COVID-19
outbreak continues. The measures taken now or in the future to contain the COVID-19 pandemic could
negatively affect our ability to recruit and engage new employees and contractors necessary to the
successful operation of our business.
The COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 may impact our business will
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the
ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, stay-at-home or other
similar orders and social distancing in the United States, Australia and other countries, business closures or business
disruptions and the effectiveness of actions taken in the United States, Australia and other countries to contain and
treat the virus.
Our earnings can be negatively impacted by declining demand brought on by varying factors, many of which are
out of our control.
Demand for our seed depends upon a variety of factors, including end demand for the crops grown from the seed.
For example, a severe downturn in the dairy industry could have a negative effect on sales of alfalfa hay, and as a
result, the demand for our alfalfa seed in the U.S. market. In addition, demand for our products could decline
because of other supply and quality issues or for any other reason, including products of competitors that might be
considered superior by end users. A decline in demand for our products could have a material adverse effect on our
business, results of operations and financial condition.
Our earnings may also be sensitive to fluctuations in market prices for seed.
Market prices for our seed can be impacted by factors such as the quality of the seed and the available supply,
including whether lower-quality, lower-priced seed is available. Growing conditions, particularly weather conditions
such as windstorms, floods, droughts and freezes, as well as diseases and pests and the adventitious presence of
GMO, are primary factors influencing the quality and quantity of the seed and, therefore, the market price at which
we can sell our seed to our customers. A decrease in the prices received for our products could have a material
adverse effect on our business, results of operations and financial condition.
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Our earnings are vulnerable to cost increases.
Future increase in costs, such as the costs of growing seed, could cause our margins and earnings to decline unless
we are able to pass along the increased price of production to our customers. We may not be able to increase the
price of our seed sufficiently to maintain our margins and earnings in the future.
Our inventory of seed can be adversely affected by the market price being paid for other crops.
Our seed production relies entirely on unaffiliated growers to grow our proprietary seed and to sell it to us at
negotiated prices each year. Growers have a choice of what crops to plant. If a particular crop is paying a materially
higher price than has been paid in the past, growers may decide to not grow our seed crops in favor of receiving a
higher return from an alternative crop planted on the same acreage. If our growers decline to a significant degree to
plant the acreage on which we rely, and if we cannot find other growers to plant the lost acreage, our inventory of
seed could be insufficient to satisfy the needs of our customers unless we are able to procure the necessary
additional seed in the market at prices we cannot control. If these circumstances occur, our business, results of
operations and financial condition could materially decline. In addition, our customers could look to other suppliers
for their seed if we cannot satisfy their requirements, and we may not be able to regain them as customers once our
inventory levels have returned to normal.
Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose
significant costs and losses on our business.
Our seed crops are vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature
extremes, which are common but difficult to predict. In addition, seed crops are vulnerable to crop disease and to
pests, which may vary in severity and effect, depending on the stage of production at the time of infection or
infestation, the type of treatment applied and climatic conditions. Unfavorable growing conditions can reduce both
crop size and quality. Although we no longer grow any of our seed directly, these factors can still impact us by
potentially decreasing the quality and yields of our seed and reducing our available inventory. These factors can
increase costs, decrease revenue and lead to additional charges to earnings, which may have a material adverse
effect on our business, results of operations and financial condition.
Because our seed business is highly seasonal, our revenue, cash flows from operations and operating results may
fluctuate on a seasonal and quarterly basis.
Our seed business is seasonal. The seasonal nature of our operations results in significant fluctuations in our
working capital during the growing and selling cycles. We have experienced, and expect to continue to experience,
significant variability in net sales, operating cash flows and net income (loss) on a quarterly basis.
We have had a material concentration of revenue from a small group of customers that fluctuates, and the loss of
any of these customers in any quarter could have a material adverse effect on our revenue.
On a historical basis, we have experienced a material concentration of revenue from a small group of customers.
This concentration fluctuates from quarter to quarter, depending on our customer's specific requirements, which are
themselves cyclical. However, in any particular quarter, we generally have a small group of customers that accounts
for a substantial portion of that quarter’s revenue. Most of these customers are not contractually obligated to
purchase seed from us. The loss of one or more of these customers on a quarterly basis, when taken year over year,
could have a material adverse impact on our business, financial position, results of operations and operating cash
flows. We could also suffer a material adverse effect from any losses arising from a major customer's disputes
regarding shipments, product quality or related matters, or from our inability to collect accounts receivable from any
major customer. There are no assurances that we will be able to maintain our current customer relationships or that
they will continue to purchase our seed in the current projected quantities. Any failure to do so may materially
adversely impact our business.
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Because we depend on a core group of significant customers, our sales, cash flows from operations and results of
operations may be negatively affected if our key customers reduce the amount of products they purchase from us.
Although our customer concentration should decline as our product mix becomes more diverse, there is no assurance
that we will be able to maintain the relationships with our major customers or that they will continue to purchase our
seed in the quantities that we expect and rely upon. If we cannot do so, our results of operations could suffer.
Because we do not grow the seed that we sell, we are completely dependent on our network of contract growers,
and our sales, cash flows from operations and results of operations may be negatively affected if we are unable to
maintain an adequate network of contract growers to supply our seed requirements.
We do not directly grow any of the seed that we sell, and therefore, we are entirely dependent upon our network of
growers. While we have some supply contracts with our growers of up to seven years in duration, many of our
grower contracts cover only one year, which makes us particularly vulnerable to factors beyond our control. Events
such as a shift in pricing caused by an increase in the value of commodity crops other than seed crops, increase in
land prices, unexpected competition or reduced water availability could disrupt our supply chain. Any of these
disruptions could limit the supply of seed that we obtain in any given year, adversely affecting supply and thereby
lowering revenue. Such disruption could also damage our customer relationships and loyalty to us if we cannot
supply the quantity of seed expected by them.
Our ability to contract for sufficient acreage presents challenges.
In order to increase revenue and earnings, we continue to need more production acreage. As we continue to increase
the number of acres under contract and/or to move production into new geographical locations, we face challenges
that can impede our ability to produce as much seed inventory as we have budgeted. For example, when we move
production into new geographical locations, we may find it difficult to identify growers with the expertise to grow
our seed crops, and we may not have sufficient company personnel available in such new locations to provide
production advice on a timely basis. We also face increased competition for conventional seed acreage as the need
for technology acres grows, which is further complicated by the field isolation issue relating to GMO crops that can
reduce the amount of acreage available for conventional alfalfa seed crops. If we are unable to secure the acreage we
need to meet our planned production for the crop year and are unable to purchase seed in the market, our results of
operations could suffer, as would our reputation.
A lack of availability of water in any of our production areas could impact our business.
Adequate quantities and correct timing of the application of water are vital for most agriculture to thrive. Whether
particular farms are experiencing water shortages depends, in large part, on their location. However, continuing
drought conditions can threaten all farmland other than those properties with their own water sources. Foreign or
domestic regulations regarding water usage and rights may also limit the availability of water. Although our current
seed products are not water-intensive crops, the availability or the cost of water is a factor in the planting of the
crops grown from our seed. Moreover, if the farmers and others who purchase our seed to grow crops cannot get an
adequate supply of water, or if the cost of water makes it uneconomical for the farmers to grow the crops, we may
not be able to sell our seed, which could have an adverse impact on our results of operations.
We face intense competition, and our inability to compete effectively for any reason could adversely affect our
business.
Competition in the seed industry both domestically and internationally is intense, and we believe it is intensifying
with industry consolidation. We face direct competition from other seed companies, including multinational
agriculture companies, regional seed companies and small family-owned businesses, as well as subsidiaries or other
affiliates of chemical, pharmaceutical and biotechnology companies, many of which have substantially greater
resources than we do.
These resources give our competitors greater operating flexibility that, in certain cases, may permit them to respond
better or more quickly to changes in the industry or to introduce new products more quickly and with greater
marketing support. Increased competition could result in lower profit margins, substantial pricing pressure, reduced
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market share and lower operating cash flows. Price competition, together with other forms of competition, could
have a material adverse effect on our business, financial position, results of operations and operating cash flows.
If we are unable to estimate our customers’ future needs accurately and to match our production to the demand
of our customers, our business, financial condition and results of operations may be adversely affected.
We sell our seed primarily to dealers and distributors who, in turn, sell primarily to farmers who grow crops from
the seed. Due to the nature of the seed industry, we normally produce seed according to our production plan before
we sell and deliver seed to distributors and dealers. Our dealers and distributors generally make purchasing decisions
for our products based on market prices, economic and weather conditions and other factors that we and our dealers
and distributors may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and
types of products sought by the end users and otherwise adequately manage production amounts, we may produce
more seed than our dealers and distributors want, resulting in excess inventory levels. It may be difficult for us to
dispose of all of our inventory on commercially reasonable terms, or at all, and we may need to record an
impairment charge for a portion of this inventory in subsequent fiscal periods. Any such impairment charge or any
failure to sell inventory on commercially reasonable terms could have a material adverse effect on our business,
financial position, results of operations and operating cash flows.
On the other hand, if we underestimate demand, we may not be able to satisfy our dealers and distributors' demand
for seed, and thus damage our customer relations and end-user loyalty. Our failure to estimate end users’ future
needs and to match our production to the demand of our customers may adversely affect our business, financial
condition and results of operations.
Our third-party distributors may not effectively distribute our products.
We depend in part on third-party distributors and strategic relationships for the marketing and selling of our
products. We depend on these distributors’ efforts to market our products, yet we are unable to control their efforts
completely. In addition, we are unable to ensure that our distributors comply with all applicable laws regarding the
sale of our products, including the United States Foreign Corrupt Practices Act of 1977, as amended. If our
distributors fail to effectively market and sell our products, and in full compliance with applicable laws, our
operating results and business may suffer.
We extend credit to our largest international customer and to certain of our other international customers, which
exposes us to the difficulties of collecting our receivables in foreign jurisdictions if those customers fail to pay us.
Although payment terms for our export seed sales range from prepayment to 90 to 120 days, we extend credit to our
largest international customer, Sorouh, and to other international customers up to 180 days. Sales of our seed to
Sorouh and to other international customers represented a material portion of our revenue in historical periods and
we expect that we will continue to extend credit in connection with future sales. Because these customers are located
in foreign countries, collection efforts, were they to become necessary, could be much more difficult and expensive
than pursuing similar claims in the United States. Moreover, future political and/or economic factors, as well as
future unanticipated trade regulations, could negatively impact our ability to timely collect outstanding receivables
from these important customers. The extension of credit to our international customers exposes us to the risk that our
seed will be delivered but that we may not receive all or a portion of the payment therefor. If these customers are
unable or unwilling to fully pay for the seed they purchase on credit, our results of operations and financial
condition could be materially negatively impacted. Moreover, our internal forecasts on which we make business
decisions throughout the year could be severely compromised, which could, in turn, mean that we spend capital for
operations, investment or otherwise that we would not have spent had we been aware that the customer would not
honor its credit extension obligation.
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Our current reliance on the seed development and production business does not permit us to spread our business
risks among different business segments, and thus a disruption in our seed production or the industry would
harm us more immediately and directly than if we were more diversified.
We currently operate primarily in the agricultural seed business, and we do not expect this to change materially in
the foreseeable future. Without business line diversity, we will not be able to spread the risk of our operations.
Therefore, our business opportunities, revenue and income could be more immediately and directly affected by
disruptions from such things as drought and disease or widespread problems affecting the alfalfa, sorghum,
sunflower and pasture seed markets, payment disruptions and customer rejection of our seed. If there is a disruption
as described above, our revenue and earnings could be reduced, and our business operations might have to be scaled
back.
If we fail to introduce and commercialize new seed products, we may not be able to maintain market share, and
our future sales may be harmed.
The performance of our new seed products may not meet our customers’ expectations, or we may not be able to
introduce and commercialize specific seed varieties and hybrids. Reorder rates are uncertain due to several factors,
many of which are beyond our control. These include changing customer preferences, which could be further
complicated by competitive price pressures, our failure to develop new products to meet the evolving demands of
the end users, the development of higher-demand products by our competitors and general economic conditions. The
process for new products to gain market recognition and acceptance is long and has uncertainties. If we fail to
introduce and commercialize a new seed product that meets the demand of the end user, if our competitors develop
products that are favored by the end users, or if we are unable to produce our existing products in sufficient
quantities, our growth prospects may be materially and adversely affected, and our revenue may decline. In addition,
sales of our new products could replace sales of some of our current similar products, offsetting the benefit of a
successful product introduction.
The presence of GMO alfalfa in Australia or California could impact our sales.
GMO crops currently are prohibited in most of the international markets in which our proprietary seed is currently
sold. There are regions in the United States, including the Pacific Northwest, where even small quantities of GMO
material inadvertently interspersed with conventional (non-GMO) alfalfa seed make the seed undesirable, which
causes customers to look elsewhere for their alfalfa seed requirements. The greater the use of GMO seed in
California and other alfalfa seed growing regions, the greater the risk that the adventitious presence of GMO
material in our seed production will occur due to pollination from hay fields or other seed fields. We regularly test
for the adventitious presence of GMO in our conventional alfalfa seed, and we have seen a slight increase in the
percentage of GMO presence in conventional alfalfa seed over the past several years. Our seed containing GMO
material can only be sold domestically or in other jurisdictions that permit the importation of GMO alfalfa. If we are
unable to isolate our conventional alfalfa seed from inadvertently being contaminated by GMO seed, we may find it
more difficult to sell that seed in our key markets and we may have insufficient quantities of seed to sell
internationally, either of which could materially adversely impact our revenue over time.
The stevia market may not develop as we anticipate, and therefore our continued research and development
activities with respect to stevia may never become profitable to us.
There are a number of challenges to market acceptance of stevia as a natural, non-caloric sweetener. Stevia has its
own unique flavor, which can affect the taste of some foods and beverages. A common complaint about stevia is that
some of its extracts and derivatives have a bitter aftertaste, and its taste does not uniformly correspond to all regional
taste preferences or combine well with some food flavors. Other factors that could impact market acceptance include
the price structure compared to other sugar substitutes and availability. If the high-intensity, non-caloric sweetener
market declines or if stevia fails to achieve substantially greater market acceptance than it currently enjoys, we
might never be able to profit from our continued research and development activities relating to stevia or any
commercial applications that we derive therefrom. Even if products conform to applicable safety and quality
standards, sales could be adversely affected if consumers in target markets lose confidence in the safety, efficacy
and quality of stevia. Adverse publicity about stevia or stevia-based products may discourage consumers from
buying products that contain stevia. Any of these developments could adversely impact the future amount of dry leaf
stevia, processed stevia leaves or extract we are able to sell, which could adversely impact our results of operations.
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The loss of key employees or the failure to attract qualified personnel could have a material adverse effect on our
ability to run our business.
The loss of any of our current executives, key employees or key advisors, or the failure to attract, integrate, motivate
and retain additional key employees, could have a material adverse effect on our business. Although we have
employment agreements with our executive officers, as well as certain other employees, all of our employees are
employed “at-will” and could leave our employ at any time. We do not carry “key person” insurance on the lives of
any of our management team. As we develop additional capabilities, we may require more skilled personnel who
must be highly skilled and have a sound understanding of our industry, business or processing requirements.
Recruiting skilled personnel is highly competitive. Although to date we have been successful in recruiting and
retaining qualified personnel, there can be no assurance that we will continue to attract and retain the personnel
needed for our business. The failure to attract or retain qualified personnel could have a material adverse effect on
our business.
We may not be able to manage expansion of our operations effectively.
We expect our operations to continue to grow in the future, both as we expand our historical alfalfa seed business
both domestically and internationally through internal growth and synergistic acquisitions and increase our growers’
production. These efforts will require the addition of employees, expansion of facilities and greater oversight,
perhaps in diverse locations. If we are unable to manage our growth effectively, we may not be able to take
advantage of market opportunities, execute on our business strategies or respond to competitive pressures, and we
may have difficulties maintaining and updating the internal procedures and the controls necessary to meet the
planned expansion of our overall business.
Our management will also be required to maintain and expand our relationships with customers, suppliers and other
third parties as well as attract new customers and suppliers. We expect that our sales and marketing costs will
increase as we grow our product lines and as we increase our sales efforts in new and existing markets. Our current
and planned operations, personnel, systems and internal procedures and controls may not be adequate to support our
future growth.
We may be unable to successfully integrate the businesses we have recently acquired and may acquire in the
future with our current management and structure.
As part of our growth strategy, we have acquired and may continue to acquire additional businesses, product lines or
other assets. We may not be able to locate or make suitable acquisitions on acceptable terms, and future acquisitions
may not be effectively and profitably integrated into our business. Our failure to successfully complete the
integration of the businesses we acquire could have an adverse effect on our prospects, business activities, cash
flow, financial condition, results of operations and stock price. Integration challenges may include the following:
assimilating the acquired operations, products and personnel with our existing operations, products and
personnel;
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estimating the capital, personnel and equipment required for the acquired businesses based on the historical
experience of management with the businesses with which they are familiar;
(cid:120) minimizing potential adverse effects on existing business relationships with other suppliers and customers;
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developing and marketing the new products and services;
entering markets in which we have limited or no prior experience; and
coordinating our efforts throughout various distant localities and time zones.
In connection with any such transactions, we may also issue equity securities, incur additional debt, assume
contractual obligations or liabilities or expend significant cash. Such transactions could harm our operating results
and cash position and negatively affect the price of our stock.
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For example, on February 24, 2020, we completed the acquisition of all of the issued and outstanding shares of
Pasture Genetics. We cannot guarantee that the Pasture Genetics acquisition will yield the results we have
anticipated. In addition, there can be no assurance that we will achieve the revenues, growth prospects and synergies
expected from this acquisition, our prior acquisitions or any future acquisitions, or that we will achieve such
revenue, growth prospects and synergies in a manner consistent with our expectations. Our failure to do so could
adversely affect our business, operating results and financial condition.
The diversion of management's attention and costs associated with acquisitions may have a negative impact on
our business.
If management’s attention is diverted from the management of our existing businesses as a result of its efforts in
evaluating and negotiating new acquisitions and strategic transactions, the prospects, business activities, cash flow,
financial condition and results of operations of our existing businesses may suffer. We also may incur unanticipated
costs in connection with pursuing acquisitions and strategic transactions, whether they ultimately are consummated
or not.
S&W Australia's alfalfa seed grower pool is dependent on a limited number of milling facilities to process its
seed, with particular dependence on a dominant operator whose commercial interests may be adverse to S&W
Australia.
Only five milling facilities are regularly used by S&W Australia’s grower pool to clean and process S&W Australia
alfalfa seed. Should one or more of these facilities become unusable, there could be a significant effect on S&W
Australia’s ability to get its Australian alfalfa seed to market in a timely manner or at all. S&W Australia’s growers
use Tatiara to process approximately 70% of the seed grown for S&W Australia. The owner of Tatiara has begun to
sell his own common seed and is now both a supplier and competitor of S&W Australia. This competing seed
business creates a potential conflict of interest for Tatiara in the care and handling of S&W Australia’s product and
could impact S&W Australia’s ability to have seed available to sell on the time schedule required by our customers.
S&W Australia is thinly capitalized and may become dependent upon us for financing.
Because S&W Australia has relatively little net working capital, it is substantially dependent upon its credit
arrangement with National Australia Bank Ltd, or NAB, to purchase its seed inventory. If S&W Australia breaches
its credit arrangement in the future or other reasons cause this credit arrangement to become unavailable to S&W
Australia, S&W Australia may become reliant on us to finance its operations or for financial guarantees. We
currently are a guarantor on S&W Australia's NAB credit facility. S&W Australia's financial dependency upon us
could have a negative adverse effect upon our financial condition.
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S&W Australia is dependent on a pool of seed growers and a favorable pricing model for alfalfa seed production.
S&W Australia relies on a pool of approximately 100 Australian contract growers to produce its proprietary alfalfa
seeds. In this system, growers contract with S&W Australia to grow S&W Australia’s seed for terms of seven to ten
years in the case of alfalfa and two to three years for white clover. S&W Australia uses a staggered payment system
with the growers of its alfalfa and white clover; the payment amounts are based upon an estimated budget price, or
EBP, for compliant seed. EBP is a forecast of the final price that S&W Australia believes will be achieved taking
into account prevailing and predicted market conditions at the time the estimate is made. Following the grower’s
delivery of uncleaned seed to a milling facility, S&W Australia typically pays 40% of the EBP to the grower based
on pre-cleaning weight. Following this initial payment and prior to the final payment, S&W Australia makes a series
of scheduled progress payments and, if applicable, a bonus payment for “first grade” alfalfa seed. The final price
payable to each grower (and therefore the total price) is dependent upon and subject to adjustment based upon the
clean weight of the seed grown, on the average price at which S&W Australia sells the pooled seed and other costs
incurred by S&W Australia. Accordingly, the total price paid by S&W Australia to its growers may be more or less
than the EBP. This arrangement exposes S&W Australia’s business to unique risks, including, the potential for
current growers to make collective demands that are unfavorable to S&W Australia and the potential for our
competitors to offer more favorable terms for seed production, including fixed (instead of variable) payment terms.
S&W Australia’s reliance upon an estimated purchase price to growers could result in changes in estimates in
our consolidated financial statements.
S&W Australia does not fix the final price for alfalfa and clover seed payable to its growers until the completion of a
given year’s sales cycle, pursuant to the standard contract production agreement. We record an estimated unit price,
and accordingly, inventory, cost of goods sold and gross profits are based upon management’s best estimate of the
final purchase price to our S&W Australia growers. To the extent the estimated purchase price varies from the final
purchase price for seed, the adjustment to actual could materially impact the results in the period when the
difference between estimates and actuals are identified. If the actual purchase price is in excess of our estimated
purchase price, this would negatively impact our financial results, including a reduction in gross profits and net
income.
Changes in government policies and laws could adversely affect international sales and therefore our financial
results.
Historically, sales to our distributors who sell our proprietary alfalfa seed varieties outside the United States have
constituted a meaningful portion of our annual revenue. We anticipate that sales into international markets will
continue to represent a meaningful portion of our total sales and that continued growth and profitability will require
further international expansion, particularly in the Middle East and Africa. Our financial results could be affected by
changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S.
governments, agencies and similar organizations. These conditions include but are not limited to changes in a
country’s or region’s economic or political conditions, trade regulations affecting production, pricing and marketing
of products, local labor conditions and regulations, reduced protection of intellectual property rights in some
countries, changes in the regulatory or legal environment, burdensome taxes and tariffs and other trade barriers.
International risks and uncertainties, including changing social and economic conditions as well as terrorism,
political hostilities and war, could lead to reduced distribution of our products into international markets and reduced
profitability associated with such sales.
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We are subject to risks associated with doing business globally.
Our operations, both inside and outside the United States, are subject to risks inherent in conducting business
globally and under the laws, regulations and customs of various jurisdictions and geographies. Although we sell
seed to various regions of the world, a significant percentage of our sales outside the United States in fiscal year
2020 were principally to customers in the Middle East, Australia, North Africa and Mexico. Accordingly,
developments in those parts of the world generally have a more significant effect on our operations than
developments in other places. Our operations outside the United States are subject to special risks and restrictions,
including, without limitation: fluctuations in currency values and foreign-currency exchange rates; exchange control
regulations; changes in local political or economic conditions; governmental pricing directives; import and trade
restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds;
and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies
doing business abroad, including the U.S. Foreign Corrupt Practices Act and the trade sanctions laws and regulations
administered by the U.S. Department of the Treasury's Office of Foreign Assets Control. Acts of terror or war may
impair our ability to operate in particular countries or regions, and may impede the flow of goods and services
between countries. Customers in weakened economies may be unable to purchase our products, or it could become
more expensive for them to purchase imported products in their local currency, or sell their commodity at prevailing
international prices, and we may be unable to collect receivables from such customers. Further, changes in exchange
rates may affect our net earnings, the book value of our assets outside the United States and our stockholders’
equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect
on our business, financial condition or results of operations.
Failure to comply with the United States Foreign Corrupt Practices Act or similar laws could subject us to
penalties and other adverse consequences.
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States
companies, including their suppliers, distributors and other commercial partners, from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion,
bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the countries in which we distribute
products. We have adopted formal policies and procedures designed to facilitate compliance with these laws. If our
employees or other agents, including our distributors or suppliers, are found to have engaged in such practices, we
could suffer severe penalties and other consequences that may have a material adverse effect on our business,
financial condition and results of operations.
Environmental regulation affecting our seed products could negatively impact our business.
Our agricultural operations are subject to a broad range of evolving environmental laws and regulations applicable
to the markets in which we operate. These environmental laws and regulations are intended to address concerns
related to, among other things, air quality, storm water discharge and management and disposal of agricultural
chemicals relating to seed treatment.
In the U.S., we are subject to evolving environmental laws and regulations by federal and state governments. Federal
laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Federal Insecticide, Fungicide and Rodenticide Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Seed Act, and potentially regulations of the FDA and/or other State
regulatory agencies.
Our Australian operations are also subject to a number of environmental laws, regulations and policies, including in
particular the Environment Protection Act 1993 (SA), the Agricultural and Veterinary Products (Control of Use) Act
2002 (SA), the Genetically Modified Crops Management Act 2004 (SA), the Dangerous Substances Act 1979 (SA),
the Controlled Substances Act 1984 (SA) and related regulations and policies.
Our failure to comply with these laws and related regulations could have an adverse effect on our business, financial
condition or results of operations. Moreover, it is possible that future developments, such as increasingly strict
environmental laws and enforcement policies thereunder, and further restrictions on the use of agricultural
chemicals, could result in increased compliance costs which, in turn, could have a material adverse effect on our
business, financial condition or results of operations.
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If we are unable to obtain government approvals for certain of our products, we may be unable to commercialize
those products in certain markets.
Our ability to launch and commercialize certain new products is subject to regulatory approval, which can be
lengthy, costly, complex and in some markets unpredictable. For example, the timing of our anticipated launch of
sorghum hybrids developed through our DoubleTeamTM collaboration with ADAMA will depend on our receipt of
regulatory approval. Seed products incorporating biotechnology derived traits and crop protection products must be
extensively tested for safety, efficacy and environmental impact before they can be registered for production, use,
sale or commercialization in a given market. Obtaining and maintaining regulatory approvals requires submitting a
significant amount of information and data, which may require participation from technology providers. If we are
unable to receive the necessary approvals, we will be unable to produce and sell certain of our current and future
products, which may have a material adverse effect on our business, financial condition and results of operations.
Unauthorized access to our information technology systems, infrastructure and data could have a material
adverse effect on our business, financial condition or results of operations.
We are dependent upon our own and third-party information technology systems, infrastructure and data, including
mobile technologies, to operate our business. The multitude and complexity of our computer systems may make
them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random
attacks. Likewise, data privacy or security incidents or breaches by employees or others may pose a risk that
sensitive data, including our intellectual property, trade secrets or personal information of our employees, customers
or other business partners may be exposed to unauthorized persons or to the public. Our business partners face
similar risks and any security breach of their systems could adversely affect our security posture.
In addition, cyber-attacks are increasing in their frequency, sophistication and intensity. Cyber-attacks could include
the deployment of harmful malware, denial-of-service, social engineering and other means to affect service
reliability and threaten data confidentiality, integrity and availability. Moreover, the prevalent use of mobile devices
that access confidential information increases the risk of data security breaches, which could lead to the loss of
confidential information, trade secrets or other intellectual property.
A security breach, including, for example, a misappropriation of customer, distributor or employee confidential
information, trade secrets or intellectual property, could disrupt our business and result in increased costs or loss of
revenue, which may include potential costs of investigations, legal, forensic and consulting fees and expenses, costs
and diversion of management’s attention required for investigation, remediation and litigation, substantial repair or
replacement costs. In addition, any disruption in our information technology systems, loss of data or other
disruptions could impair our ability to manage inventories, process transactions and communicate with our
customers, which could prevent us from being able to fulfill orders, result in cancelations and loss of customers,
cause us reputational harm and generally disrupt our ability to conduct our business, any of which could have a
material adverse effect on our business, financial condition or results of operations.
While we have implemented measures for the protection of our data and information technology infrastructure, there
can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could
adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could
result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient
in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
21
Insurance covering defective seed claims may become unavailable or be inadequate.
Defective seed could result in insurance claims and negative publicity. Although we carry general liability insurance
to cover defective seed claims, such coverage may become unavailable or be inadequate. Even if coverage is
offered, it may be at a price and on terms not acceptable to us. If claims exceed coverage limits, or if insurance is not
available to us, the occurrence of significant claims could have a material adverse effect on our business, results of
operations and financial condition.
We may be exposed to product quality claims, which may cause us to incur substantial legal expenses and, if
determined adversely against us, may cause us to pay significant damage awards.
We may be subject to legal proceedings and claims from time to time relating to our seed or stevia quality. The
defense of these proceedings and claims can be both costly and time consuming and may significantly divert efforts
and resources of our management personnel. An adverse determination in any such proceeding could subject us to
significant liability and damage our market reputation and prevent us from achieving increased sales and market
share. Protracted litigation could also result in our customers or potential customers deferring or limiting their
purchase of our products.
Capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt
the operations of our growers and customers.
The capital and credit markets have experienced increased volatility and disruption over the past several years,
making it more difficult for companies to access those markets. Although we believe that our operating cash flows,
historical access to the capital market and our lines of credit will permit us to meet our financing needs for the
foreseeable future, continued or increased volatility and disruption in the capital and credit markets may impair our
liquidity or increase our costs of borrowing, if we need to access the credit market. Our business could also be
negatively impacted if our growers or customers experience disruptions resulting from tighter capital and credit
markets or a slowdown in the general economy.
If we are unable to protect our intellectual property rights, our business and prospects may be harmed.
Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings, processes,
technologies and materials owned by or used by us or our growers. If any competitors independently develop new
traits, seeds, seedlings, processes or technologies that customers or end users determine are better than our existing
products, such developments could adversely affect our competitive position.
In some cases, we obtain patent protection or plant breeder rights registrations for certain of our seed products.
However, our principal method of guarding our proprietary varieties and hybrids is exercising a high degree of
control over the supply chain. We also rely on trade secret protection and confidentiality agreements to protect
proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other
elements of our discovery and development processes that involve proprietary know-how, information or technology
that is not covered by patents. Although we require our employees, consultants, advisors and any third parties who
have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we
cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that
competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent
information and techniques.
Even with these measures in place, it would be possible for persons with access to our seed or plants grown from our
seed to reproduce and market products substantially similar to our proprietary seed varieties, which could
significantly harm our business and our reputation. Third parties may challenge the validity, enforceability and
scope of our intellectual property rights. Furthermore, we sell our products in more than 30 countries and the laws
of some countries do not protect proprietary rights to the same extent or in the same manner as the laws of the
United States. As a result, we may encounter significant problems in protecting and defending our intellectual
property both in the United States and abroad. Litigation may be necessary to protect our proprietary property and
determine the validity and scope of the proprietary rights of competitors. Intellectual property litigation could result
in substantial costs and diversion of our management and other resources. If we are unable to successfully protect
our intellectual property rights, our competitors could market products that compete with our proprietary products
without obtaining a license from us.
22
Risks Related to our Financial Position and Investment in Our Securities
The terms of our loan and security agreement with CIBC place restrictions on our operating and financial
flexibility, and failure to comply with covenants or to satisfy certain conditions may result in acceleration of our
repayment obligations and foreclosure on our pledged assets, which could significantly harm our liquidity,
financial condition, operating results, business and prospects and cause the price of our securities to decline.
Our $25.0 million revolving credit facility with CIBC Bank USA, or CIBC, is secured by a first priority perfected
security interest in substantially all of our assets, subject to certain exceptions.
Our loan agreement with CIBC requires us to comply with certain financial covenants, including a specified fixed
charge ratio tested quarterly. The loan agreement also requires us to comply with a number of other covenants
(affirmative and negative), including restrictive covenants that limit our ability to, among other things, incur
additional indebtedness; merge or consolidate with or into any other organization or otherwise suffer a change in
control; acquire, own or make investments; repurchase or redeem any class of stock or other equity interest; declare
or pay any cash dividend or make a cash distribution on any class of stock or other equity interest; and transfer a
material portion of our assets, in each case subject to exceptions.
In addition to other specified events of default, and subject to limited exceptions, CIBC could declare an event of
default upon our non-compliance with certain covenants or the occurrence of certain events that it may determine, in
its sole discretion, to have a material adverse effect, including: a material adverse change in, or a material adverse
effect on our business, property, assets or operations, taken as a whole; a material impairment of our ability to
perform any of our obligations under the loan agreement; a material adverse effect upon the collateral for the loan or
its value; or a material impairment of the enforceability or priority of the liens upon the collateral for the loan or the
legality, validity, binding effect or enforceability of the loan agreement or related agreements.
If we default under the credit facility, CIBC may accelerate all of our repayment obligations, which may require us
to seek additional or alternate financing and/or modify our operational plans. For example, we were not in
compliance with our fixed charge coverage ratio covenant under our CIBC facility as of June 30, 2020. On
September 22, 2020, the CIBC loan agreement was amended and, among other things, CIBC waived the fixed
charge coverage ratio covenant as of June 30, 2020 and suspended its applicability prospectively until the quarter
ending March 31, 2021. Commencing with the quarter ending September 30, 2020, through and including
December 31, 2020, the amendment provides that we must comply with a financial covenant requiring us to
maintain year-to-date EBITDA (as calculated in the Loan Agreement) of no less than negative $6,000,000, tested
quarterly. We cannot guarantee that we will be able to comply with all of the covenants contained in the CIBC loan
agreement in the future, or secure additional waivers if or when required. If we are unable to comply with or obtain
a waiver of any noncompliance under the loan agreement, CIBC could declare an event of default or require us to
further renegotiate the loan agreement on terms that may be significantly less favorable to us, or we may be required
to seek additional or alternative financing. If we were to seek additional or alternative financing, any such financing
may not be available to us on commercially reasonable terms or at all. If we are unable to access funds to meet those
obligations or to renegotiate our agreement, CIBC could foreclose on our pledged assets and we would have to
immediately cease operations. In addition, during the continuance of an event of default, the then-applicable interest
rate on the then-outstanding principal balance is subject to increase. Upon an event of default, CIBC could also
require us to repay the loan immediately, together with a prepayment penalty, and other fees. If we were to
renegotiate the agreement under such circumstances, the terms may be significantly less favorable to us. If we were
liquidated, CIBC’s right to repayment would be senior to the rights of our stockholders to receive any proceeds from
the liquidation. Any declaration by CIBC of an event of default could significantly harm our liquidity, financial
condition, operating results, business, and prospects and cause the price of our securities to decline.
We may incur additional indebtedness in the future. The debt instruments governing such indebtedness may contain
provisions that are as, or more, restrictive than the provisions governing our existing indebtedness. If we are unable
to repay, refinance or restructure our indebtedness when payment is due, CIBC could proceed against the collateral
or force us into bankruptcy or liquidation.
23
We received a loan under the Paycheck Protection Program of the CARES Act and our receipt of this loan may
result in adverse publicity, damage to our reputation or potential penalties.
We have received loan proceeds pursuant to the Paycheck Protection Program under the CARES Act. The lack of
clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage
and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief
that we satisfied all eligible requirements for the loan, we are later determined to be in violation of any of the laws or
governmental regulations that apply to us in connection with the loan, such as the False Claims Act, or it is
otherwise determined that we were ineligible to receive the loan, we may be subject to penalties, including
significant civil, criminal and administrative penalties and could be required to repay the loan in its entirety. In
addition, we could become subject to adverse publicity, review or audit by the SBA or other government entity or
claims under the False Claims Act and could consume significant financial and management resources. Any of these
events could have a material adverse effect on our business, results of operations and financial condition.
We may need to raise additional capital in the future.
From time to time, we may find it necessary or advisable to raise additional capital in the future, whether to enhance
our working capital, to repay indebtedness, to fund acquisitions or for other reasons. This may include, for example,
the need to finance our cash needs through a combination of equity and debt financings, as well as potentially
entering into collaborations, strategic alliances and licensing arrangements. If we are required or desire to raise
additional capital in the future, such additional financing may not be available on favorable terms, or available at all.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership
interest could be diluted and the terms of these securities may include liquidation or other preferences that adversely
affect your rights as a common stockholder. Debt financing may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or
declaring dividends and may be secured by all or a portion of our assets. 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.
The value of our common stock can be volatile.
Our common stock is listed on the Nasdaq Capital Market. The overall market and the price of our common stock
can fluctuate greatly. The trading price of our common stock may be significantly affected by various factors,
including but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
economic status and trends in the dairy industry, which underlies demand for our alfalfa seed;
market conditions for alfalfa seed in the Middle East and North Africa, where a substantial amount of our seed
historically has been purchased by end users;
quarterly fluctuations in our operating results;
our ability to meet the earnings estimates and other performance expectations of investors or financial
analysts;
fluctuations in the stock prices of our peer companies or in stock markets in general; and
general economic or political conditions.
Our quarter-to-quarter performance may vary substantially, and this variance, as well as general market
conditions, may cause the price of our securities to fluctuate greatly and potentially expose us to litigation.
Our seed business is highly seasonal because it is tied to the growing and harvesting seasons. If sales in particular
quarters are lower than expected, our operating results for these quarters could cause our share price to decline.
Our future expense estimates are based, in large part, on estimates of future revenue, which is difficult to predict.
We expect to continue to make significant expenditures in order to expand production, sales, marketing and
processes. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected
24
revenue shortfall. If our increased expenses are not accompanied by increased revenue in the same quarter, our
quarterly operating results would be harmed.
In one or more future quarters, our results of operations may fall below the expectations of investors or analysts, and
the trading price of our securities may decline as a consequence. We believe that quarter-to-quarter comparisons of
our operating results will not be a good indication of our future performance and should not be relied upon to predict
the future performance of our stock price.
In the past, companies that have experienced volatility in the market price of their stock have often been subject to
securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation
against us could result in substantial costs and divert our management's attention from other business concerns,
which could seriously harm our business.
If we issue shares of preferred stock, the holdings of those owning our common stock could be diluted or
subordinated to the rights of the holders of preferred stock.
Our board of directors is authorized by our articles of incorporation to establish classes or series of preferred stock
and fix the designation, powers, preferences and rights of the shares of each such class or series without any further
vote or action by our stockholders. Any shares of preferred stock so issued could have priority over our common
stock with respect to dividend or liquidation rights.
Our actual operating results may differ significantly from our guidance.
We routinely release annual guidance in our quarterly earnings releases, our quarterly earnings conference calls and
in other forums we consider appropriate. Such guidance regarding our future performance represents our
management's estimates as of the date of release or other communication. This guidance, which includes forward-
looking statements, is based on projections prepared by our management. These projections are not prepared with a
view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and
neither our independent registered public accountants nor any other independent expert or outside party compiles or
examines the projections, and accordingly, no such person expresses any opinion or any other form of assurance
with respect thereto.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity,
are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of
which are beyond our control and are based upon specific assumptions with respect to future business decisions,
some of which will change. If we issue guidance, we will generally state possible outcomes as high and low ranges
or approximations that are intended to provide a sensitivity analysis as variables are changed but are not intended to
represent that actual results could not fall outside of the suggested ranges or approximations. The principal reason
that we would release guidance would be to provide a basis for our management to discuss our business outlook
with analysts and investors. We do not accept any responsibility for any projections or reports published by any such
persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the
guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our
guidance, when given, is only an estimate of what management believes is realizable as of the date of release or
other communication. Actual results will vary from our guidance, and the variations may be material. In light of the
foregoing, investors are urged not to rely upon, or otherwise consider, our guidance in making an investment
decision about our securities.
We do not anticipate declaring any cash dividends on our common stock.
We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in
the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of
our business. If we do not pay cash dividends, our stock may be less valuable to investors because a return on their
investment will only occur if our stock price appreciates.
25
Anti-takeover provisions and our right to issue preferred stock could make a third-party acquisition of us
difficult.
Our articles of incorporation and bylaws contain provisions that would make it more difficult for a third party to
acquire control of us, including a provision that our board of directors may issue preferred stock without stockholder
approval. In addition, certain anti-takeover provisions of Nevada law, if and when applicable, could make it more
difficult for a third party to acquire control of us, even if such change in control would be beneficial to our
stockholders.
Item 1B.
Unresolved Staff Comments
None.
26
Size
9,021 sq. ft.
Primary Use
Warehouse storage
Leased or Owned
Owned by S&W
5 acres
584 acres
8.2 acres
38 acres
8,948 sq. ft.
41,380 sq. ft.
1,972 sq. ft.
80 acres (approx.)
Milling facilities
Owned by S&W
Farmland suitable for
farming alfalfa seed and
alfalfa hay
Processing facility
Research farm
Corporate Headquarters for
S&W
Research facilities and
warehouse storage
Laboratory and general
office
Alfalfa research and
development facilities
Leased by S&W
Owned by S&W Australia
Leased by S&W Australia
Leased by S&W
Leased by S&W
Leased by S&W
Owned by S&W
16 acres
Milling facilities
Owned by S&W
Item 2.
Properties
The following is a description of our material properties:
Location
Dumas (Moore County),
Texas
Five Points (Fresno
County), California
Kern County, California
Keith, South Australia
Keith, South Australia
Longmont (Boulder
County), Colorado
Lubbock (Lubbock
County), Texas
Lubbock (Lubbock
County), Texas
Nampa (Canyon County),
Idaho
Nampa (Canyon County),
Idaho
Nampa (Canyon County),
Idaho
Nampa (Canyon County),
Idaho
New Deal (Lubbock
County), Texas
8,000 sq. ft.
7,500 sq. ft.
111,062 sq. ft.
Penfield, South Australia
43,000 sq. ft.
Stirling, South Australia
1,690 sq. ft.
Szeged, Hungary
4,191 sq. ft.
13 acres
970 sq. ft.
Szeged, Hungary
Tamworth, New South
Wales
Tifton (Tift County),
Georgia
Victoria (Victoria County),
Texas
Wingfield, South Australia 17,200 sq. ft.
2,400 sq. ft.
3,000 sq. ft.
Leased by S&W
Leased by S&W
Owned by S&W
Production warehouse
storage
Production warehouse
storage
Processing facility and
production warehouse
storage
Warehousing and
production storage and
research and development
Corporate headquarters for
S&W Australia
Corporate headquarters for
S&W Hungary
Research farm
Leased by S&W Hungary
Research and development Leased by S&W Australia
Leased by S&W Australia
Leased by S&W Hungary
Leased by S&W Australia
Research facilities
Leased by S&W
Research facilities and
warehouse storage
Warehousing and
production storage
Leased by S&W
Leased by S&W Australia
27
We believe that our current facilities are adequate for our needs for the immediate future and that, should it be
needed, suitable additional space will be available to accommodate expansion of our operations on commercially
reasonable terms.
Item 3.
Legal Proceedings
From time to time, we are involved in lawsuits, claims, investigations and proceedings, including pending
opposition proceedings involving patents that arise in the ordinary course of business. There are no matters pending
that we expect to have a material adverse impact on our business, results of operations, financial condition or cash
flows.
Item 4.
Mine Safety Disclosures
Not applicable.
28
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information Regarding Our Common Stock
Our common stock is traded on the Nasdaq Capital Market under the symbol “SANW.” The following table sets
forth the range of high and low sales prices per share of common stock as reported on Nasdaq for the periods
indicated. The closing price of our common stock on September 22, 2020 was $2.83.
Year Ended June 30, 2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended June 30, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
3.40 $
3.19
3.20
3.02
3.13 $
2.57
3.00
2.50
2.35
1.81
1.83
2.32
2.21
1.92
1.75
1.67
Holders
As of September 23, 2020, we had 33,450,569 shares of common stock outstanding held by 38 stockholders of
record. Because many of our shares of common stock are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record
holders.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to
retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of the
Board of Directors and will be dependent upon then existing conditions, including our financial condition and results
of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of
Directors considers relevant. In addition, our loan agreement with CIBC contains restrictions on our ability to pay
dividends.
Securities Authorized for Issuance Under Equity Compensation Plans
There were no unregistered sales of equity securities in 2020 fiscal year that have not been previously reported on a
Current Report on Form 8-K.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
There were no unregistered sales of equity securities in 2020 fiscal year that have not been previously reported on a
Current Report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliate Purchasers
None.
29
Item 6.
Selected Financial Data
As a smaller reporting company, we are not required to provide information typically disclosed under this item.
30
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our
consolidated financial statements and the related notes included in Part II, Item 8, “Financial Statements” of this
Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following
discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could
differ materially from those discussed in the forward-looking statements as referred to on page 2 of this Annual
Report on Form 10-K. Factors that could cause or contribute to these differences include those discussed below and
elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, “Risk Factors.”
Executive Overview
We are a global multi-crop, middle-market agricultural company. We are market leaders in the breeding, production
and sale of alfalfa seed and sorghum seed. We also have a growing commercial market presence in sunflower, wheat
and pasture seed and maintain an active stevia development program.
Our seed platform develops and supplies high quality germplasm designed to produce higher yields for farmers
worldwide. We sell over 500 seed products in more than 40 countries. We maintain an active product pipeline and
expect to introduce more than 25 new products during the 2021-2022 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:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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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;
31
(cid:120)
Our May 2019 restructuring of our relationship with Pioneer, a subsidiary of Corteva, which we jointly
refer to as Corteva, under which, among other things:
o We received $45.0 million in May 2019, $5.55 million in September 2019, $5.55 million in
January 2020, $5.55 million in February 2020, $3.75 million in September 2020 and are entitled to
receive an aggregate of $4.6 million in additional payments on the dates and in the amounts as set
forth below.
Date
January 15, 2021
February 15, 2021
Total
Payment
Amount
$ 2,500,618
$ 2,100,519
$ 4,601,137
o 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.
o We assigned to Corteva grower production contract rights, and Corteva assumed grower
production contract obligations, related to the licensed and certain other alfalfa varieties.
o 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.
(cid:120) Our 2019 license of commercialized and developmental wheat germplasm from Corteva, through
which we entered the largest grain crop market in Australia;
(cid:120) 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;
(cid:120) 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
(cid:120) 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
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 2021 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 $19.7 million and $37.6 million during the years
ended June 30, 2020 and 2019, respectively) to a more diverse product mix. We expect to generate alfalfa seed
revenue of approximately $15 million from Corteva over the fiscal 2021 period as the seed is delivered to Corteva
through February 2021. We do not expect any other significant revenue from sales to Corteva in the future.
32
COVID-19 Update
We are closely monitoring the impact of the COVID-19 global pandemic on our business and have implemented
measures designed to protect the health and safety of our workforce, including a voluntary work-from-home policy
for employees who can perform their jobs offsite. We are continuing our activities and are taking precautionary
measures to protect our employees working in our facilities.
As the COVID-19 pandemic continues to affect the areas in which we operate, we believe the outbreak 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
duration and spread of the outbreak, impact on our customers, employees and vendors, all of which are uncertain
and cannot be predicted.
In particular, our sales cycle is highly seasonal, and the majority of our sales season activities for the United States
and Australia are typically concentrated between March and June of each year. Our sales efforts also have
historically involved significant in-person interaction with potential customers and distributors. In March 2020, at
the beginning of what is typically our most active selling period, many national, state and local governments in our
target markets implemented various stay-at-home, shelter-in-place and other quarantine measures in response to the
COVID-19 pandemic. As a result, we immediately attempted to shift our sales activities to video conferencing and
similar customer interaction models, but we have found these alternative approaches to generally be less effective
than in-person sales efforts.
In addition, 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. If our customers delay or decrease their
orders due to potential disruptions in our distribution and supply channels, this would adversely affect our product
revenue.
Given these uncertainties, at this time we cannot reasonably estimate the overall impact of the COVID-19 pandemic
on our business, operating results and financial condition.
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,
sunflower and pasture seed, although we are continually assessing other possible product offerings or means to
increase revenue, including expanding into other, higher margin crops.
The mix of our product offerings will continue to change over time with the introduction of new seed varieties and
hybrids resulting from our robust research and development efforts, including our potential expansion into gene-
edited products in future periods.
Our revenue will fluctuate depending on the timing of orders from our customers and distributors. Because some of
our large customers and distributors order in bulk only one or two times per year, our product revenue may fluctuate
significantly from period to period. However, some of this fluctuation is offset by having operations in both the
northern and southern hemispheres.
33
Our stevia breeding program has yet to generate any meaningful revenue. However, management continues to
evaluate this portion of our business and assess various means to monetize the results of our effort to breed new,
better tasting stevia varieties. Such potential opportunities include possible licensing agreements and royalty-based
agreements.
Licensing Revenue
During the year ended June 30, 2019, we entered into a license with Corteva, under which Corteva received a fully
pre-paid, exclusive license to produce and distribute certain of our alfalfa seed varieties world-wide (except South
America). The licensed seed varieties include certain of the our existing commercial conventional (non-GMO)
alfalfa varieties and six pre-commercial dormant alfalfa varieties.
Cost of Revenue
Cost of revenue relates to sale of our seed products and consists of the cost of procuring seed, plant conditioning and
packaging costs, direct labor and raw materials and overhead costs.
Operating Expenses
Research and Development Expenses
Research and development expenses consist of costs incurred in the discovery, development, breeding and testing of
new products incorporating the traits we have specifically selected. These expenses consist primarily of employee
salaries and benefits, consultant services, land leased for field trials, chemicals and supplies and other external
expenses.
Overall, we have been focused on controlling research and development expenses, while balancing that objective
against the recognition that continued advancement in product development is an important part of our strategic
planning. We intend to focus our resources on high value activities. For alfalfa seed, we plan to invest in further
development of differentiating forage quality traits. For sorghum, we plan to invest in higher value grain products,
proprietary herbicide tolerance traits and improved safety and palatability in forage products. We expect our
research and development expenses will fluctuate from period to period as a result of the timing of various research
and development projects.
Our internal research and development costs are expensed as incurred, while third-party research and developments
costs are expensed when the contracted work has been performed or as milestone results have been achieved. The
costs associated with equipment or facilities acquired or construed for research and development activities that have
alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the
asset.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses consist primarily of employee costs, including salaries, employee
benefits and share-based compensation, as well as professional service fees, insurance, marketing, travel and
entertainment expense, public company expense and other overhead costs. We proactively take steps on an ongoing
basis to control selling, general and administrative expense as much as is reasonably possible.
Depreciation and Amortization
We amortize intangible assets, including those acquired from Pasture Genetics in 2020, Chromatin in 2018 and from
SV Genetics in May 2016, using the straight-line method over the estimated useful life of the asset, consisting of
periods of 10-30 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
34
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 expense consists primarily of foreign currency gains and losses, change in contingent consideration
obligation, government grant income, changes in the estimated fair value of assets held for sale and interest expense
in connection with amortization of debt discount. Interest expense primarily consists of interest costs related to
outstanding borrowings on our working capital credit facilities and our financing with Conterra Agricultural Capital,
LLC, or Conterra.
Provision (Benefit) for Income Taxes
Our effective tax rate is based on income, statutory tax rates, differences in the deductibility of certain expenses and
inclusion of certain income items between financial statement and tax return purposes, and tax planning
opportunities available to us in the various jurisdictions in which we operate. Under U.S. GAAP, if we determine
that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the
position, we recognize the benefit. Tax regulations require certain items to be included in the tax return at different
times than when those items are required to be recorded in the consolidated financial statements. As a result, our
effective tax rate reflected in our consolidated financial statements is different from that reported in our tax returns.
Some of these differences are permanent, such as meals and entertainment expenses that are not fully deductible on
our tax return, and some are temporary differences, such as depreciation expense. Temporary differences create
deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or
credit in our tax return in future years for which we have already recorded the tax benefit in our consolidated
statements of operations. In the fourth quarter of fiscal year 2017, we recorded a valuation allowance against all of
our deferred tax assets. The full valuation allowance was recorded during the fiscal year 2017 as a result of changes
to our operating results and future projections, resulting from a decline in export sales to Saudi Arabia. As a result,
we don’t believe that it is more likely than not that our deferred tax assets will be realized.
Results of Operations
Fiscal Year Ended June 30, 2020 Compared to the Fiscal Year Ended June 30, 2019
Revenue and Cost of Revenue
Revenue for the year ended June 30, 2020 was $79.6 million compared to $109.7 million for the year ended June 30,
2019. The $30.1 million decrease in revenue for the year ended June 30, 2020 was primarily due to a $52.1 million
decrease in product and license revenue received from Pioneer. In May 2019, we terminated the production and
distribution agreements with Pioneer, and entered into a new license agreement with Corteva.
As part of the termination, Corteva agreed to purchase certain quantities of seed held by us as of the date of the
termination, which Pioneer was not previously obligated to purchase. Those quantities of seed will be delivered to
Corteva periodically through February 2021. Contemporaneously with the termination, we entered into a license
with Corteva, under which Corteva received a fully pre-paid, exclusive license to produce and distribute certain of
our alfalfa seed varieties world-wide (except South America). The licensed seed varieties include certain of our
existing commercial conventional (non-GMO) alfalfa varieties and nine pre-commercial dormant alfalfa varieties.
We received a payment of $45.0 million in May 2019, $5.6 million in September 2019, $5.6 million in January
2020, $5.6 million in February 2020 and are entitled to receive an aggregate of $8.4 million in additional payments
through February 2021. During the year ended June 30, 2020 we recorded product sales of $19.7 million to Pioneer,
which was a decrease of $18.0 million from the year ended June 30, 2019 amount of $37.6 million. Additionally,
we recorded one-time license revenue of $34.2 million from Pioneer in the year ended June 30, 2019.
The $52.1 million decrease in product and license revenue to Pioneer was partially offset by an increase of $21.9
million in Core Revenue. Core Revenue (excluding product and license revenue attributable to Pioneer) for the year
ended June 30, 2020 was $59.9 million compared to Core Revenue for the year ended June 30, 2019 of $37.9
35
million, representing an increase of 58%. Included in Core Revenue for the year ended June 30, 2020 was $11.8
million of revenue pertaining to a partial period contribution from our acquisition of Pasture Genetics which
occurred on February 24, 2020. Excluding contributions from Pasture Genetics, Core Revenue growth was 27%.
Due to the revised agreements entered into with Pioneer in May 2019, we plan to provide Core Revenue as a metric
to track performance of our business.
The increase in Core Revenue for the year ended June 30, 2020 can be attributed to an increase in alfalfa in Saudi
Arabia and sorghum sales in the United States as well as growth in Pakistan, Europe and South Africa.
Sales into international markets represented 54% and 20% of our total revenue during the year ended June 30, 2020
and 2019, respectively. Domestic revenue accounted for 46% and 80% of our total revenue for the year ended June
30, 2020 and 2019, 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 and our recent Pasture
Genetics acquisition. We anticipate that international sales as a percentage of our total revenue will increase for
fiscal 2021 as a result of the acquisition of Pasture Genetics and our expanded Australian market footprint.
The following table shows revenue from external sources by destination country:
United States
Australia
Saudi Arabia
Mexico
South Africa
Pakistan
Italy
Sudan
Libya
France
Other
Total
Years Ended June 30,
2020
2019
$36,724,591 46% $ 88,176,809 80 %
2,787,128 3 %
15,079,996 19%
4,745,993 4 %
9,189,291 12%
2,264,827 2 %
3%
2,454,504
797,722 1 %
3%
2,182,553
1,009,120 1 %
3%
2,124,038
326,364 0 %
2%
1,400,641
717,317 1 %
2%
1,308,874
2,629,750 2 %
1%
1,142,920
845,172 1 %
1%
1,040,744
6,934,046
5,422,309 5 %
8%
$79,582,198 100% $109,722,511 100 %
Cost of revenue of $64.6 million for the year ended June 30, 2020 was equal to 81.2% of total revenue for the year
ended June 30, 2020, while the cost of revenue of $69.0 million for the year ended June 30, 2019 was equal to
62.9% of total revenue for the year ended June 30, 2019. Cost of revenue increased on a percentage basis primarily
due to the license revenue generated during the year ended June 30, 2019, which did not recur during the year ended
June 30, 2020.
36
Total gross profit margin for the fiscal year ended June 30, 2020 was 18.8% compared to 37.1% in the year ended
June 30, 2019. The decrease in gross profit margin was primarily due to the decrease in license revenue. Gross
profit margin for the year ended June 30, 2020 included a $2.3 million inventory write-down. Gross profit margin
for the year ended June 30, 2019 included one-time license revenue of $34.2 million and an inventory write-down of
$8.8 million.
Excluding the $2.3 million of inventory write-downs, gross margin would have been 21.7% for the year ended June
30, 2020. Excluding the $8.8 million of inventory write-downs and the $34.2 million of license revenue, gross
margin would have been 20.3% for the year ended June 30, 2019. The increase in adjusted gross margin for the year
ended June 30, 2020 is primarily driven by improved gross margins in alfalfa. We believe its useful to exclude
inventory write-downs and one-time license revenue in calculating adjusted gross margins in order to provide
investors with a method to compare our operating results to prior periods and to peer companies.
Selling, General and Administrative Expenses
Selling, General and Administrative, or SG&A expense for the year ended June 30, 2020 totaled $21.3 million
compared to $17.5 million for the year ended June 30, 2019. The $3.9 million increase in SG&A expense versus the
prior year was primarily due to $3.2 million of additional investment in sales and marketing, $1.2 million from our
newly acquired Pasture Genetics operations, $0.7 million for management personnel, $0.5 million for stock based
compensation, $0.5 million for IT and cyber security consulting, partially offset by a decrease in bad debt expense of
$1.3 million and other decreases. As a percentage of revenue, SG&A expenses were 26.8% for the year ended June
30, 2020, compared to 15.9% for the year ended June 30, 2019.
Research and Development Expenses
Research and development expenses for the year ended June 30, 2020 totaled $7.3 million compared to $6.3 million
for the year ended June 30, 2019. The $1.0 million increase in research and development expense versus the prior
year is driven by additional research and development activities incurred in connection with the Chromatin business
following our October 2018 acquisition, as well as additional investment in our hybrid sorghum and sunflower
programs and wheat program in Australia.
Depreciation and Amortization
Depreciation and amortization expense for the year ended June 30, 2020 was $5.0 million compared to $4.1 million
for the year ended June 30, 2019. Included in the amount was amortization expense for intangible assets, which
totaled $2.1 million for the year ended June 30, 2020 and $2.1 million for the year ended June 30, 2019. The $0.9
million increase in depreciation and amortization expense over the prior year is primarily driven by $0.4 million of
additional Chromatin expenses following the October 2018 acquisition, $0.2 million of expense associated with our
February 2020 acquisition of Pasture Genetics, $0.3 million of expense associated with amortization of right of use
assets and $0.2 million of additional expenses following the Dow Wheat Acquisition in August 2019, partially offset
by fully depreciated assets.
Goodwill Impairment Charges
During the year ended June 30, 2020, we did not record an impairment charge. We recorded an impairment charge
of $11.9 million during the year ended June 30, 2019. The impairment charge in fiscal 2019 related to the full
impairment of our goodwill and was a result of the termination of the distribution agreement with Pioneer/Corteva.
The termination of the production and distribution agreements with Pioneer was, in our view, a potential indicator of
impairment due to the significant reduction in future forecasted revenues. As a result, we initiated an impairment test
and concluded that the entire goodwill balance was impaired.
Intangible Asset Impairment Charges
During the year ended June 30, 2020, we did not record an impairment charge. We recorded an impairment charge
of $6.0 million during the year ended June 30, 2019. The impairment charge in fiscal 2019 was a result of the
37
termination of the distribution agreement with Pioneer. The intangible asset write-off related to the carrying value of
the distribution agreement, which previously was being amortized over the contractual life of the agreement.
Change in Estimated Value of Assets Held for Sale
The Company recorded $0.1 million and $1.5 of expenses for the years ended June 30, 2020 and June 30, 2019,
respectively. The expense related to our estimated change in value of certain properties held for sale.
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 $0.3 million benefit to non-cash change in contingent consideration obligation for the
year ended June 30, 2020 represents the decrease in the estimated fair value of the contingent consideration
obligation associated with the February 2020 Pasture Genetics acquisition.
Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the year ended June 30, 2020 was $0.6 million compared to $0.3
million for the year ended June 30, 2019. The expense in both years represents the amortization of the debt issuance
costs associated with our working capital facilities, our secured property note and our equipment finance leases.
Interest Expense
Interest expense for the year ended June 30, 2020 totaled $2.0 million compared to $2.9 million for the year ended
June 30, 2019. Interest expense for the year ended June 30, 2020 primarily consisted of interest incurred on the
working capital credit facilities with CIBC, KeyBank and NAB, the secured property loan entered into in November
2017, and equipment finance leases. Interest expense for the year ended June 30, 2019 primarily consisted of interest
incurred on the working capital credit facilities with KeyBank and NAB, the secured property loan entered into in
November 2017, and equipment finance leases. The $0.9 million decrease in interest expense for the year ended
June 30, 2020 was primarily driven by lower interest on the working capital credit facilities and decreased levels of
borrowings.
Provision for Income Taxes
Our income tax expense totaled $0.4 million for the year ended June 30, 2020 compared to an income tax benefit of
$0.1 million for the year ended June 30, 2019. Our effective tax rate was (2.0%) for the year ended June 30, 2020
compared to 1.6% for the year ended June 30, 2019. Our effective tax rate was relatively consistent year over year.
The slight decrease in our effective tax rate for the year ended June 30, 2020 was primarily attributable to an
increase in our non-US income tax expense for the year ended June 30, 2020 compared to the year ended June 30,
2019. Previously, we had certain intangible assets with indefinite lives for financial reporting purposes which
produced deferred tax liabilities that could not be offset by a valuation allowance. During fiscal year 2019, we wrote
down a majority of these assets for financial reporting purposes, generating a net deferred tax asset balance with
respect to these indefinite-lived intangible assets, which is now fully offset by our valuation allowance. The increase
to the valuation allowance in fiscal year 2019 generated a tax benefit and a positive effective tax rate, as opposed to
the previous year when the increase in our net deferred tax liability balance produced an income tax provision and a
negative effective tax rate. Due to the valuation allowance, we do not record the income tax expense or benefit
related to substantially all of our current year operating results, as such results are generally incorporated in our net
operating loss deferred tax asset position, which has a full valuation allowance against it. However, we did record
tax expense related to certain other items occurring throughout the year. For example, we recorded income tax
expense related to the current and prior year tax return filings of certain of our subsidiaries located in Australia and
South Africa and also recorded tax expense related to current year state tax return liabilities.
38
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 2020, we paid our North
American growers approximately 50% of amounts due in the fall of 2019 and the balance was paid in the spring of
2020. This payment cycle to our growers was similar in fiscal year 2019, and we expect it to be similar for fiscal
year 2021. S&W Australia and Pasture Genetics, our Australian-based subsidiaries, have production cycles that are
counter-cyclical to North America; however, this also puts a greater demand on our working capital and working
capital requirements during the second, third and fourth fiscal quarters based on timing of payments to growers in
the second through fourth quarters.
Historically, due to the concentration of sales to certain distributors, our month-to-month and quarter-to-quarter
sales and associated cash receipts are highly dependent upon the timing of deliveries to and payments from these
distributors, which varies significantly from year to year.
We continuously monitor and evaluate our credit policies with all of our customers based on historical collection
experience, current economic and market conditions and a review of the current status of the respective trade
accounts receivable balance. Our principal working capital components include cash and cash equivalents, accounts
receivable, inventory, prepaid expense and other current assets, accounts payable and our working capital lines of
credit.
On February 24, 2020, S&W Australia acquired all of the issued and outstanding shares of Pasture Genetics, the PG
Acquisition, for an initial consideration that consisted of an upfront cash payment at closing of USD $7.5 million
(AUD $11.4 million). A potential earn-out payment of up to USD $5.3 million (AUD $8.0 million), or the Earn-Out,
is payable on September 30, 2022, or the Earn-Out Date. The amount of any Earn-Out will be equal to the excess, if
any, of (a) 7.5, multiplied by the average of an agreed-upon calculation of Pasture Genetics’ earnings over fiscal
years 2021 and 2022, above (b) USD $7.5 million (AUD $11.4 million). At S&W Australia’s election, up to 50% of
the Earn-Out may be paid in shares of our common stock at a per share purchase price equal to the volume-weighted
average purchase price of our common stock during the 10-day period ending immediately prior to the Earn-Out
Date.
(cid:3)
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 Requirements
Our future liquidity and capital requirements will be influenced by numerous factors, including:
39
the extent and duration of future operating income;
the level and timing of future sales and expenditures;
(cid:120)
(cid:120)
(cid:120) working capital required to support our growth;
(cid:120)
investment capital for plant and equipment;
(cid:120)
our sales and marketing programs;
(cid:120)
investment capital for potential acquisitions;
(cid:120)
our ability to renew and/or refinance our debt on acceptable terms;
(cid:120)
competition;
(cid:120) market developments; and
(cid:120)
developments related to the COVID-19 pandemic.
As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets
have experienced extreme volatility, including diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.
It is possible that further deterioration in credit and financial markets and confidence in economic conditions will
occur. If equity and credit markets deteriorate, it may affect our ability to raise equity capital, borrow on our existing
facilities or make any additional necessary debt or equity financing more difficult to obtain, more costly and/or more
dilutive. In addition, while we are currently in compliance with our loan agreements, the COVID-19 pandemic may
compromise our ability to comply with the terms of our loan agreements 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.
In recent periods, we have consummated the following equity and debt financings:
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. As amended, the Loan Agreement provides for a $25.0 million credit facility,
or the CIBC Credit Facility. The key terms of the amended Loan Agreement include the following:
(cid:120) Advances under the CIBC Credit Facility are to be used: (i) to refinance indebtedness to KeyBank,
discussed below; (ii) to finance our ongoing working capital requirements; and (iii) for general corporate
purposes. We may also use a portion of the CIBC Credit Facility to finance permitted acquisitions and
related costs.
(cid:120) 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.
(cid:120) The 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.
(cid:120) Loans may be based on (i) a Base Rate plus 1.0% per annum or (ii) LIBOR Rate plus 3.0% per annum
(both as defined in the Loan Agreement), generally at our option. 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.
(cid:120) 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.
(cid:120) 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
40
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.
As of June 30, 2020, we were not in compliance with a financial covenant requiring that we maintain a minimum a
fixed charge coverage ratio equal to or greater than 1.10 to 1.00, tested as of June 30, 2020. Pursuant to the
September 2020 amendment to the Loan Agreement, CIBC waived the fixed charge coverage ratio covenant as of
June 30, 2020, and agreed to suspend its applicability prospectively until the quarter ending March 31, 2021.
Beginning with the fiscal quarter ending March 31, 2021, we must maintain a fixed charge coverage equal to or
greater than 1.15 to 1.00. Commencing with the quarter ending September 30, 2020, through and including
December 31, 2020, the amendment provides that we must comply with a financial covenant requiring us to
maintain year-to-date EBITDA (as calculated in the Loan Agreement) of no less than negative $6,000,000, tested
quarterly. This covenant will not apply for periods after December 31, 2020.
We cannot guarantee that we will be able to comply with our covenants in the Loan Agreement in the future, or
secure additional waivers if or when required. If we are unable to comply with or obtain a waiver of any
noncompliance under the Loan Agreement, CIBC could declare an event of default or require us to further
renegotiate the Loan Agreement on terms that may be significantly less favorable to us, or we may be required to
seek additional or alternative financing. If we were to seek additional or alternative financing, any such financing
may not be available to us on commercially reasonable terms or at all. Any declaration by CIBC of an event of
default could significantly harm our liquidity, financial condition, operating results, business, and prospects and
cause the price of our securities to decline.
Termination of KeyBank Credit Facility
In connection with the consummation of the Loan Agreement with CIBC described above, we terminated the Credit
and Security Agreement, dated September 22, 2015, as subsequently amended, with KeyBank National Association,
or KeyBank. In connection with such termination, we paid KeyBank approximately $5.9 million in aggregate
principal, interest and fees that were outstanding and payable under this agreement at the time of its termination, and
all liens on our assets and the assets of our subsidiaries guaranteeing such facility, together with such subsidiary
guarantees, were released and terminated. This agreement had provided for borrowings of up to a $45.0 million
revolving line of credit.
Conterra Transaction
In November 2017, we entered into a secured note financing transaction with Conterra for $12.5 million in gross
proceeds. In the transaction, we issued two secured promissory notes to Conterra. The first promissory note, in the
principal amount of $10.4 million, or the Secured Real Estate Note is secured by a first priority security interest in
the property, plant and fixtures located at our Five Points, California and Nampa, Idaho production facilities and our
Nampa, Idaho research facilities. The note was scheduled to mature on November 30, 2020, which was extended to
November 30, 2022 pursuant to a December 24, 2019 amendment. The note bears interest of 7.75% per annum. We
have agreed to make (i) a principal and interest payment of approximately $515,711 on January 1, 2020; (ii) five
consecutive semi-annual principal and interest payments of approximately $454,185, beginning on July 1, 2020; and
(iii) a one-time final payment of approximately $8,957,095 on November 30, 2022. The second promissory note in
the principal amount of $2.1 million, was secured by a first security interest in certain equipment not attached to the
real estate located at the facilities noted above. In August 2018 we paid off in full this note pursuant to the sale-
leaseback transaction discussed below.
We may prepay the note, in whole or in part, at any time.
41
Equipment Sale-Leaseback
In August 2018, we closed on a sale-leaseback transaction with American AgCredit involving certain equipment
located at our Five Points, California and Nampa, Idaho production facilities. Under the terms of the sale-leaseback
transaction:
(cid:120) We sold the equipment to American AgCredit for $2.1 million in proceeds. The proceeds were used to
pay off in full the Conterra promissory note mentioned above.
(cid:120) We entered into a lease agreement with American AgCredit relating to the equipment. The lease
agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an
annual interest rate of 5.6%). At the end of the lease term, we will repurchase the equipment for $1.
Australian Facilities
S&W Australia and Pasture Genetics both have debt facilities with NAB, all of which are guaranteed by us up to a
maximum of AUD $15,000,000 (USD $10,273,500 at June 30, 2020) and cross-guaranteed by S&W Australia and
Pasture Genetics.
S&W Australia. S&W Australia has a series of debt facilities with NAB providing for up to AUD $25,337,000
(USD $17,353,000) of credit, the key terms of which were amended in February 2020 (in connection with the
Pasture Genetics acquisition) and include the following:
(cid:120) 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 line having a credit limit of AUD $2,000,000
(USD $1,369,800 at June 30, 2020) and (ii) a borrowing base line having a credit limit of AUD
$16,000,000 (USD $10,958,400 at June 30, 2020). The seasonal credit facility expires on March 31, 2022.
As of June 30, 2020, the Borrowing Base Line accrued interest on Australian dollar drawings at
approximately 3.7% 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
June 30, 2020, the Overdraft Facility accrued interest at approximately 5.47% per annum calculated daily.
As of June 30, 2020, AUD $14,000,000 (USD $9,588,600) 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 was in
compliance with all debt covenants under the seasonal credit facility at June 30, 2020.
42
(cid:120) S&W Australia has a flexible rate loan, or the Term Loan, in the amount of AUD $5.0 million (USD
$3,424,500 at June 30, 2020). Required annual principal payments of AUD $500,000 on the Term Loan
will commence on November 30, 2020, with the remainder of any unpaid balance becoming due on March
31, 2025. 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.
(cid:120) 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 2023 and have interest rates ranging from
3.47% to 5.31%. The credit limit under the facility is AUD $2,000,000 (USD $1,369,800) at June 30,
2020. As of June 30, 2020, AUD $839,869 (USD $575,226) was outstanding under S&W Australia’s
master asset finance facility.
(cid:120) S&W Australia has a Keith Machinery and Equipment Facility for the machinery and equipment used in
the operations of the Keith building. The Keith Machinery and Equipment Facility bears interest, payable in
arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus
2.9%. As of June 30, 2020, AUD $137,503 (USD $94,176) was outstanding under the Keith Machinery and
Equipment Facility.
S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at June 30, 2020.
Pasture Genetics. Pasture Genetics has a working capital facility with NAB and a facility with TOYOTA Finance
to finance purchase of vehicles.
(cid:120) Pasture Genetics has a working capital facility with NAB with a credit limit of AUD $10.0 million (USD
$6,849,000 at June 30, 2020) and a borrowing base determined from qualified inventory and accounts
receivable. The facility will expire on March 31, 2022. Interest will be payable on amounts outstanding
under the facility at a floating trade refinance rate quoted by NAB plus 1.5% at the time of each
drawdown. The facility is secured by a fixed and floating lien over all the present and future rights,
property and undertakings of Pasture Genetics. As of June 30, 2020, AUD $10.0 million (USD
$6,849,000) was outstanding under Pasture Genetics’ working capital facility with NAB.
(cid:120) Pasture Genetics finances certain vehicle purchases with TOYOTA Finance. This facility has various
maturity dates through 2023 and have interest rates ranging from 4.04% to 5.83%. As of June 30, 2020,
AUD $750,839 (USD $514,249) was outstanding under TOYOTA Finance facility.
Pasture Genetics was in compliance with all debt covenants at June 30, 2020.
Paycheck Protection Program
On April 14, 2020, we received loan proceeds of $1,958,600, or the Loan, pursuant to the Paycheck Protection
Program under the recently enacted Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act,
administered by the U.S. Small Business Administration, or the SBA. If the loan proceeds are fully utilized to pay
qualified expenses, the full principal amount of the Paycheck Protection Program, or PPP, loan, along with any
accrued interest, may qualify for loan forgiveness, subject to potential reduction based on the level of full-time
employees maintained by the organization.
When we applied for the loan, we believed we would qualify to have the loan forgiven under the terms of PPP, and
therefore considered the loan to be substantively a conditional government grant. We have performed initial
calculations for PPP loan forgiveness, and expect that the PPP loan will be forgiven in full because 1) we have, prior
43
to June 30, 2020, utilized all of the proceeds for payroll and other qualified expenses and 2) we believe we will
continue to comply with other terms and conditions necessary for forgiveness.
We plan to submit the PPP loan forgiveness application in the near term. Although we believe it is probable that the
PPP loan will be forgiven, our actions and information must be evaluated by the lender and SBA before forgiveness
is formally granted.
Equity Issuances
In September 2018, we sold 1,607,717 shares of our common stock to MFP at a purchase price of $3.11 per share,
for gross proceeds of approximately $5.0 million.
In October 2018, we issued to MFP 7,235 shares of a newly designated Series A Convertible Preferred Stock at a
purchase price of $3,110 per share, for aggregate gross proceeds of approximately $22.5 million. The preferred
shares carried no voting rights and were automatically convertible into shares of our common stock at the rate of
1,000 shares of common stock per preferred share upon the approval of our stockholders for the issuance of the
requisite shares of common stock. Pursuant to the purchase agreement for the preferred shares, we agreed to use
reasonable best efforts to solicit the approval of our shareholders for the issuance of stock upon the conversion of the
preferred shares. Approval was obtained in November 2018 and the shares of Series A Convertible Preferred Stock
converted into 7,235,000 shares of our common stock.
Summary of Cash Flows
The following table shows a summary of our cash flows for the years ended June 30, 2020 and 2019:
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Years Ended June 30,
2019
2020
$ (5,763,627) $ 21,295,831
(10,286,370) (26,566,353 )
4,630,925
17,049,699
(250,073 )
(308,410)
691,292
3,431,802
(889,092 )
4,320,894
$ 4,123,094 $ 3,431,802
Operating Activities
For the year ended June 30, 2020, operating activities used $5.8 million in cash. Net loss plus and minus the
adjustments for non-cash items as detailed on the statement of cash flows used $11.0 million in cash, and changes in
operating assets and liabilities as detailed on the statement of cash flows provided $5.2 million in cash. The decrease
in cash from changes in operating assets and liabilities was primarily driven by a decrease in inventory of $11.1
million, partially offset by a decrease in accounts payable of $2.9 million, a decrease in deferred revenue of $2.9
million, and an increase in accounts receivable of $1.8 million.
For the year ended June 30, 2019, operating activities provided $21.3 million in cash. Net loss plus and minus the
adjustments for non-cash items as detailed on the statement of cash flows provided $24.5 million in cash, and
changes in operating assets and liabilities as detailed on the statement of cash flows used $3.2 million in cash. The
decrease in cash from changes in operating assets and liabilities was primarily driven by an increase in inventory of
$13.3 million, offset by increases in deferred revenue of $8.1 million related to the Corteva license agreement and
accrued expenses and other current liabilities of $3.1 million.
44
Investing Activities
Investing activities during the year ended June 30, 2020 used $10.3 million in cash. The Dow Wheat Acquisition
accounted for $2.6 million of the cash used in investing activities and the Pasture Genetics Acquisition accounted
for $7.5 million. We also had additions to property, plant and equipment of $2.0 million consisting primarily of
equipment purchases for our distribution facility in Keith, Australia, research and development facilities in
Tamworth, Australia and leasehold improvements to our new corporate headquarters in Longmont, Colorado;
partially offset by $1.8 million of net proceeds from the sale of properties in Arlington Wisconsin and Plainview
Texas.
Investing activities during the year ended June 30, 2019 used $26.6 million in cash. The Chromatin Acquisition
accounted for $26.4 million of the cash used in investing activities. We also had additions to property, plant and
equipment of $0.7 million consisting primarily of equipment purchases for our facility in Keith, Australia and
replacements of our vehicle fleet in the US.
Financing Activities
Financing activities during the year ended June 30, 2020 provided $17.0 million in cash. During the year ended June
30, 2020, we had net borrowings on the working capital lines of credit of $16.8 million, borrowings of long-term
debt of $3.9 million and repayments of long-term debt of $2.6 million and debt issuance costs of $0.9 million.
Financing activities during the year ended June 30, 2019 provided $4.6 million in cash. During the year ended June
30, 2019, we completed a private placement of common stock which raised net proceeds of $4.9 million in cash and
a private placement of preferred stock which raised net proceeds of $22.4 million. During the year ended June 30,
2019, we also had net repayments on the working capital lines of credit of $21.3 million. On August 15, 2018, we
closed on a sale and leaseback transaction involving certain equipment located at our Five Points, California and
Nampa, Idaho production facilities. Under the terms of the transaction, we sold the equipment for $2.1 million in
proceeds.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of
operations, including our revenue and income from continuing operations. However, if our costs were to become
subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price
increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during the year ended June 30, 2020.
Capital Resources and Requirements
Our future liquidity and capital requirements will be influenced by numerous factors, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the extent and duration of future operating income;
the level and timing of future sales and expenditures;
working capital required to support our growth;
investment capital for plant and equipment;
our sales and marketing programs;
investment capital for potential acquisitions;
our ability to renew and/or refinance our debt on acceptable terms;
45
(cid:120)
(cid:120)
competition; and
market developments.
Critical Accounting Policies
The accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated
financial statements.
In preparing our financial statements, we must select and apply various accounting policies. Our most significant
policies are described in Note 2 – Summary of Significant Accounting Policies of the footnotes to the consolidated
financial statements. In order to apply our accounting policies, we often need to make estimates based on judgments
about future events. In making such estimates, we rely on historical experience, market and other conditions, and on
assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that
estimates depend on events over which we may not have control. If market and other conditions change from those
that we anticipate, our results of operations, financial condition and changes in financial condition may be materially
affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective
actions, either of which may also have a material effect on our results of operations, financial condition or changes
in financial condition. Members of our senior management have discussed the development and selection of our
critical accounting estimates, and our disclosure regarding them, with the audit committee of our board of directors,
and do so on a regular basis.
We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant
judgments. In addition, had we used estimates different from any of these, our results of operations, financial
condition or changes in financial condition for the current period could have been materially different from those
presented.
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 its one reporting unit with its carrying amount and recognizes 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 June 30, 2020 relates to our February 2020 acquisition of Pasture Genetics. Upon
completing the impairment test on its one reporting unit, there was no impairment for the year ended June 30, 2020.
During the fourth quarter of the year ended June 30, 2019, we terminated our production and distribution agreements
with Pioneer, thereby triggering a potential indicator of goodwill impairment. As a result, we initiated a goodwill
impairment test for the year ended June 30, 2019.
We compared the carrying value of our invested capital to estimated fair values at June 30, 2019. We estimated the
fair value based on the income approach. The discounted cash flows served as the primary basis for the income
approach and were based on discrete financial forecasts developed by management. Cash flows beyond the discrete
forecast period of ten years were estimated using the perpetuity growth method calculation. The income approach
valuation included estimated weighted average cost of capital, which was 10.6%.
Upon completing the impairment test, we determined that the fair value of invested capital was less than the carrying
value by approximately 10%, thus indicating an impairment. We recognized a goodwill impairment charge of $11.9
million for the year ended June 30, 2019, which represented the entire goodwill balance prior to the impairment
charge.
46
Intangible Assets
All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an
assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the
review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying
amount of the intangible is compared to its fair value, with an impairment loss recognized if the fair value is below
carrying value. Fair values are typically estimated using discounted cash flow techniques. Significant changes in key
assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized
or expected to be utilized could result in an impairment charge.
In conjunction with the termination of the Pioneer production and distribution agreements, we recorded a $6.0
million impairment charge of intangible assets related to the Pioneer distribution agreements for the year ended June
30, 2019.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718
Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under
such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of
the award, and is recognized as an expense, under the straight-line method, over the employee’s requisite service
period (generally the vesting period of the equity grant).
We account for equity instruments, including stock options issued to non-employees, in accordance with
authoritative guidance for equity-based payments to non-employees (FASB ASC 505-50). Stock options issued to
non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is
re-measured as they vest.
We utilize the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under share-
based compensation plans. The Black-Scholes-Merton model requires us to estimate a variety of factors including,
but not limited to, the expected term of the award, stock price volatility, dividend rate, risk-free interest rate. The
input factors to use in the valuation model are based on subjective future expectations combined with management
judgment. The expected term used represents the weighted-average period that the stock options are expected to be
outstanding. We have used the historical volatility for our stock for the expected volatility assumption required in
the model, as it is more representative of future stock price trends. We use a risk-free interest rate that is based on
the implied yield available on U.S. Treasury issued with an equivalent remaining term at the time of grant. We have
not paid dividends in the past and currently do not plan to pay any dividends in the foreseeable future, and as such,
dividend yield is assumed to be zero for the purposes of valuing the stock options granted. We evaluate the
assumptions used to value stock awards on a quarterly basis. If factors change, and we employ different
assumptions, share-based compensation expense may differ significantly from what we have recorded in the past.
When there are any modifications or cancellations of the underlying unvested securities, we may be required to
accelerate, increase or cancel any remaining unearned share-based compensation expense. To the extent that we
grant additional equity securities to employees, our share-based compensation expense will be increased by the
additional unearned compensation resulting from those additional grants.
Income Taxes
We regularly assess the likelihood that deferred tax assets will be recovered from future taxable income. To the
extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation
allowance is established. When a valuation allowance is established or increased, an income tax charge is included
in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws,
statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred
tax assets being materially different from the amounts provided for in the consolidated financial statements. If the
actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the
47
remaining deferred tax asset and increase the tax provision, resulting in a reduction of earnings and stockholders’
equity.
Inventories
All inventories are accounted for on a lower of cost or net realizable value. Inventories consist of raw materials and
finished goods. Depending on market conditions, the actual amount received on sale could differ from our estimated
value of inventory. In order to determine the value of inventory at the balance sheet date, we evaluate a number of
factors to determine the adequacy of provisions for inventory. The factors include the age of inventory, the amount
of inventory held by type, future demand for products and the expected future selling price we expect to realize by
selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available
information, expected business plans and expected market conditions. We perform a review of our inventory by
product line on a quarterly basis.
Our subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a
given year’s sales cycle pursuant to its standard contract production agreement. We record an estimated unit price
accordingly, inventory, cost of revenue and gross profits are based upon management’s best estimate of the final
purchase price to our S&W Australia growers. To the extent the estimated purchase price varies from the final
purchase price for seed, the adjustment to actual could materially impact the results in the period when the
difference between estimates and actuals are identified. If the actual purchase price is in excess of our estimated
purchase price, this would negatively impact our financial results including a reduction in gross profits and earnings.
During the fourth quarter of the year ended June 30, 2019, we recognized a write-down of inventory in the amount
of $8.8 million, which is included in Cost of Revenue in the Consolidated Statement of Operations. $4.8 million of
this write-down related to dormant alfalfa seed products. The termination of the distribution and production
agreements with Pioneer altered our planned consumption of these varieties and as a result we determined this
particular dormant seed inventory will need to be sold to alternative sales channels at lower selling prices. The
remaining inventory write-down primarily relates to changes in our assessment of the future market prices for non-
dormant alfalfa seed varieties. The changes in our assessment occurred as we updated our business plans taking into
account activity during the fourth quarter, which is the height of the sales season for non-dormant varieties.
During the year ended June 30, 2020, we recognized a write-down of inventory in the amount of $2.3 million which
is included in Cost of Revenue in the Consolidated Statement of Operations. The write-down of inventory during the
year ended June 30, 2020 was primarily related to certain inventory lots that deteriorated in quality and germination
rates during the year.
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 7A. Qualitative and Quantitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide information typically disclosed under this item.
48
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at June 30, 2020 and 2019
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2020 and 2019
Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended June 30, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended June 30, 2020 and 2019
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2020 and 2019
Notes to Consolidated Financial Statements
Page
50
51
52
53
54
55
56
49
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors of S&W Seed Company
Longmont, Colorado
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of S&W Seed Company, (the “Company”) as of
June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2020, and the related
notes, (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its
operations and its cash flows for each of the two years in the period ended June 30, 2020, in conformity with
accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting
for lease contracts in fiscal year 2020 due to the adoption of ASC 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States), (“PCAOB”) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ Crowe LLP
We have served as the Company's auditor since 2015.
Sacramento, California
September 23, 2020
50
S&W SEED COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2020 June 30, 2019
$
$
$
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Assets held for sale
TOTAL CURRENT ASSETS
Property, plant and equipment, net
Intangibles, net
Goodwill
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Deferred revenue
Accrued expenses and other current liabilities
Lines of credit, net
Current portion of long-term debt, net
TOTAL CURRENT LIABILITIES
Long-term debt, net, less current portion
Contingent consideration obligation
Other non-current liabilities
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
no shares issued and outstanding
Common stock, $0.001 par value; 50,000,000 shares authorized;
33,457,861 issued and 33,432,861 outstanding at June 30, 2020;
33,303,218 issued and 33,278,218 outstanding at June 30, 2019;
Treasury stock, at cost, 25,000 shares
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Noncontrolling interests
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
See notes to consolidated financial statements.
4,123,094 $
19,023,098
63,882,938
1,374,677
—
88,403,807
20,494,312
38,784,058
1,508,675
6,764,781
3,431,802
13,380,464
71,295,520
1,687,490
1,850,000
91,645,276
20,634,949
32,714,484
—
1,369,560
155,955,633 $ 146,364,269
8,045,694 $
6,171,904
9,618,892
26,983,264
1,780,522
52,600,276
14,328,823
4,263,503
3,427,054
74,619,656
6,930,829
9,054,549
6,073,110
10,755,548
1,113,502
33,927,538
12,158,095
—
280,424
46,366,057
—
—
33,303
33,458
(134,196)
(134,196 )
136,751,875
137,809,540
(30,466,618)
(50,140,942 )
(6,138,467)
(6,111,424 )
(47,685)
(120,459 )
99,998,212
81,335,977
155,955,633 $ 146,364,269
51
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue
Product and other
Licensing
Total revenue
Cost of revenue
Product and other
Total cost of revenue
Gross profit
Operating expenses
Selling, general and administrative expenses
Research and development expenses
Depreciation and amortization
Gain on disposal of property, plant and equipment
Goodwill impairment charges
Intangible asset impairment charges
Total operating expenses
Loss from operations
Other (income) expense
Foreign currency loss (gain)
Reduction of anticipated loss on sub-lease land
Change in estimated value of assets held for sale
Change in contingent consideration obligation
Government grant income
Loss on extinguishment of debt
Interest expense - amortization of debt discount
Interest expense
Loss before income taxes
Provision for income taxes
Net loss
Net loss attributed to noncontrolling interests
Net loss attributable to S&W Seed Company
Net loss attributable to S&W Seed Company per common share:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
Years Ended June 30,
2019
2020
$
79,582,198 $
—
79,582,198
75,507,078
34,215,433
109,722,511
64,647,936
64,647,936
14,934,262
69,014,490
69,014,490
40,708,021
21,348,092
7,336,754
5,036,464
(23,299 )
—
—
33,698,011
(18,763,749 )
98,620
—
92,931
(302,139 )
(1,958,600 )
140,638
555,049
1,970,882
(19,361,130 )
385,968
(19,747,098 ) $
(72,774 )
(19,674,324 ) $
17,486,071
6,272,758
4,128,546
(86,222)
11,865,811
6,034,792
45,701,756
(4,993,735)
(99,467)
(141,373)
1,521,855
—
—
—
340,847
2,886,077
(9,501,674)
(148,747)
(9,352,927)
(47,685)
(9,305,242)
(0.59 ) $
(0.59 ) $
(0.31)
(0.31)
33,348,263
33,348,263
30,102,158
30,102,158
$
$
$
$
See notes to consolidated financial statements.
52
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net loss
Foreign currency translation adjustment, net of income taxes
Comprehensive loss
Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to S&W Seed Company
Years Ended June 30,
2020
(19,747,098 ) $
27,043
(19,720,055 ) $
(72,774 )
$
(19,647,281 )
2019
(9,352,927)
(347,805)
(9,700,732)
(47,685)
(9,653,047)
$
$
$
See notes to consolidated financial statements.
53
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P
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss from operating activities to net
Years Ended June 30,
2020
2019
$
(19,747,098 ) $
(9,352,927)
cash (used in) provided by operating activities
Stock-based compensation
Change in allowance for doubtful accounts
Inventory write-down
Depreciation and amortization
Gain on disposal of property, plant and equipment
Goodwill impairment charges
Intangible asset impairment charges
Change in deferred tax provision
Change in foreign exchange contracts
Change in contingent consideration obligation
Change in estimated value of assets held for sale
Amortization of debt discount
Loss on debt extinguishment
Reduction of anticipated loss on sub-lease land
Changes in:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other non-current asset
Accounts payable
Deferred revenue
Accrued expenses and other current liabilities
Other non-current liabilities
Net cash (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from sale of assets held for sale
Additions to internal use software
Acquisition of business, net of cash acquired
Acquisition of wheat assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock
Net proceeds from sale of preferred stock
Taxes paid related to net share settlements of stock-based compensation awards
Borrowings and repayments on lines of credit, net
Borrowings of long-term debt
Debt issuance costs
Repayments of long-term debt
Net cash provided by financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of the period
CASH AND CASH EQUIVALENTS, end of period
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest
Income taxes
1,167,951
(255,000 )
2,344,800
5,036,464
(23,299 )
—
—
—
(7,615 )
(302,139 )
92,931
555,049
140,638
—
(1,819,625 )
11,083,296
412,526
(96,398 )
(2,879,541 )
(2,882,359 )
2,125,503
(709,711 )
(5,763,627 )
(1,972,231 )
34,410
1,757,069
—
(7,472,618 )
(2,633,000 )
(10,286,370 )
—
—
(110,132 )
16,819,564
3,865,780
(907,392 )
(2,618,121 )
17,049,699
(308,410 )
691,292
3,431,802 $
4,123,094 $
694,610
996,461
8,822,103
4,128,546
(86,222)
11,865,811
6,034,792
(270,083)
(52,778)
—
1,521,855
340,847
—
(141,373)
307,209
(13,331,376)
(413,751)
203,132
(830,718)
8,069,734
3,114,523
(324,564)
21,295,831
(735,316)
567,492
—
(43,000)
(26,354,951)
—
(26,565,775)
4,927,682
22,373,842
(39,314)
(21,289,159)
2,359,431
(411,315)
(3,290,242)
4,630,925
(250,073)
(889,092)
4,320,894
3,431,802
1,984,703 $
272,027
2,945,034
69,713
$
$
$
See notes to consolidated financial statements.
55
S&W SEED COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND ORGANIZATION
Organization
The Company began as S&W Seed Company, a general partnership, in 1980 and was originally in the business of
breeding, growing, processing and selling alfalfa seed. We then incorporated a corporation with the same name in
Delaware in October 2009, which is the successor entity to Seed Holding, LLC, having purchased a majority interest
in the general partnership between June 2008 and December 2009. Following the Company’s initial public offering
in May 2010, the Company purchased the remaining general partnership interests and became the sole owner of the
general partnership’s original business. Seed Holding, LLC remains a consolidated subsidiary of the Company.
In December 2011, the Company reincorporated in Nevada as a result of a statutory short-form merger of the
Delaware corporation into its wholly-owned subsidiary, S&W Seed Company, a Nevada corporation.
On April 1, 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.
On September 19, 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.
On February 24, 2020, S&W Australia, acquired all of the issued and outstanding shares of 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, primarily alfalfa seed. The Company owns seed cleaning and
processing facilities, which are located in Five Points, California, Nampa, Idaho, Dumas, Texas, New Deal, Texas
and Keith, South Australia. The Company’s seed products are primarily grown under contract by farmers. The
Company began its stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties of
stevia and developing marketing and distribution programs for its stevia products.
The Company has also been actively engaged in expansion initiatives through a combination of organic growth and
strategic acquisitions, including in December 31, 2014, when the Company purchased certain alfalfa research and
production facilities and conventional (non-GMO) alfalfa germplasm assets and assumed certain related liabilities,
or the Pioneer Acquisition, of Pioneer Hi-Bred International, Inc., or Pioneer.
The Company had a long-term distribution agreement with Pioneer regarding conventional (non-GMO) varieties,
and a production agreement with Pioneer (relating to GMO-traited varieties). These agreements were terminated on
May 20, 2019. See Note 4 for further discussion.
In May 2016, the Company acquired the assets and business of SV Genetics, a private Australian company
specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower seed germplasm, which
represented the Company’s initial effort to diversify its product portfolio beyond alfalfa seed and stevia.
In October 2018, the Company acquired substantially all of the assets of Chromatin, Inc., a U.S.-based sorghum
genetics and seed company, as part of the Company's efforts to expand its penetration into the hybrid sorghum
market.
In August 2019, S&W Australia, a wholly owned subsidiary of S&W Seed Company, licensed certain wheat
germplasm varieties and acquired certain equipment from affiliates of Corteva. In the transaction, S&W Australia
56
paid 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, S&W Australia acquired Pasture Genetics, the third largest pasture seed company in Australia, as
part of the Company’s efforts to diversify its product offerings and expand its distribution channels.
The Company’s operations span the world’s alfalfa seed production regions with operations in the San Joaquin and
Imperial Valleys of California, Texas, five other U.S. states, Australia, and three provinces in Canada, and the
Company sells its seed products in more than 40 countries around the globe.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial
statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of
all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company's exercises control.
Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as
Noncontrolling interests.
The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-
10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being
funded through advances, as needed, from its investors. The Company has concluded that it is the primary
beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct
the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest
impact on the future economic performance of SeedVision.
The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC
810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions
South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is
the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on
the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are
considered to be the activities that have the greatest impact on the future economic performance of Sorghum
Solutions South Africa.
Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial
results are included in these financial statements. We have recorded a combined $1.3 million of current assets
(restricted) and $0.2 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as
of June 30, 2020. We have recorded a combined $0.6 million of current assets (restricted) and $0.2 million of
current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of June 30, 2019.
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 new strain of coronavirus
(“COVID-19”) in FY2020 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
57
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.
Certain Risks and Concentrations
The Company’s revenue is principally derived from the sale of seed, the market for which is highly competitive. The
Company depends on a core group of significant customers. One customer accounted for 26% of its revenue for the
year ended June 30, 2020. One customer accounted for 65% of its revenue for the year ended June 30, 2019.
One customer accounted for 21% of the Company’s accounts receivable at June 30, 2020. One customer accounted
for 19% of the Company’s accounts receivable at June 30, 2019.
The Company sells a substantial portion of its products to international customers. Sales to international markets
represented 54% and 20% of revenue during the years ended June 30, 2020 and 2019, respectively. The net book
value of fixed assets located outside the United States was 17% and 11% of total fixed assets at June 30, 2020 and
June 30, 2019, respectively. Cash balances located outside of the United States may not be insured and totaled
$1,690,748 and $236,822 at June 30, 2020 and June 30, 2019, respectively.
The following table shows revenue from external sources by destination country:
United States
Australia
Saudi Arabia
Mexico
South Africa
Pakistan
Italy
Sudan
Libya
France
Other
Total
Covid-19 Pandemic
2020
$36,724,591
15,079,996
9,189,291
2,454,504
2,182,553
2,124,038
1,400,641
1,308,874
1,142,920
1,040,744
6,934,046
$79,582,198
Years Ended June 30,
2019
46% $ 88,176,809
2,787,128
19%
4,745,993
12%
2,264,827
3%
797,722
3%
1,009,120
3%
326,364
2%
717,317
2%
2,629,750
1%
845,172
1%
5,422,309
8%
100% $109,722,511
80%
3%
4%
2%
1%
1%
0%
1%
2%
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100%
In addition to the foregoing, the Company is monitoring closely the impact of the COVID-19 pandemic on its
business, including its results of operations and financial condition, and has implement measures designed to protect
the health and safety of its employees while continuing its operations.
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. The Company’s sales
efforts also have historically involved significant in-person interaction with potential customers and distributors. In
March 2020, at the beginning of what is typically the Company’s most active selling period, many national, state
and local governments in its target markets implemented various stay-at-home, shelter-in-place and other quarantine
measures in response to the COVID-19 pandemic. As a result, the Company immediately attempted to shift its sales
activities to video conferencing and similar customer interaction models, but the Company has found these
alternative approaches to generally be less effective than in-person sales efforts.
58
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, this would adversely affect the Company’s product revenue.
Given the level of uncertainty regarding the duration and broader impact of the COVID-19 pandemic, the Company
is unable to fully assess the extent of its impact on the Company’s operations.
The terms of the Company’s loan and security agreement with CIBC place restrictions on its operating and financial
flexibility (See Notes 9 and 19). The COVID-19 pandemic creates risk in the Company’s ability to comply with its
CIBC covenants which could result in acceleration of its repayment obligations and foreclosure on its pledged
assets. In order for the Company to maintain compliance with its CIBC covenants, the Company may need to obtain
additional capital or alternative financing. There can be no assurance that the Company will be successful in raising
additional capital or obtaining alternative financing. If the Company is unable to raise sufficient additional capital or
obtain alternative financing, it may need to reduce the scope of its operations or sell certain assets.
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
$1,366,220 and $1,576,900 at June 30, 2020 and June 30, 2019, respectively.
59
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.
The Company’s subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the
completion of a given year’s sales cycle pursuant to its standard contract production agreement. S&W Australia
records an estimated unit price; accordingly, inventory, cost of revenue and gross profits are based upon
management’s best estimate of the final purchase price to growers.
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.
During the fourth quarter of the year ended June 30, 2019, the Company recognized a write-down of inventory in the
amount of $8.8 million, which is included in Cost of Revenue in the Consolidated Statement of Operations. $4.8
million of this write-down related to dormant alfalfa seed products. The termination of the distribution and
production agreements with Pioneer altered the Company’s planned consumption of these varieties and as a result
the Company determined this particular dormant seed inventory will need to be sold to alternative sales channels at
lower selling prices. The remaining inventory write-down primarily relates to changes in the Company’s assessment
of the future market prices for non-dormant alfalfa seed varieties. The changes in the Company’s assessment
occurred as it updated its business plans taking into account activity during the fourth quarter of fiscal year 2019,
which is the height of the sales season for non-dormant varieties.
Components of inventory are:
Raw materials and supplies
Work in progress
Finished goods
June 30, 2020 June 30, 2019
$ 1,227,185 $
664,541
4,395,503 5,664,934
58,260,250 64,966,045
$63,882,938 $71,295,520
Property, Plant and Equipment
Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset
- periods of 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 years for vehicles.
Intangible Assets
Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated
amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the
asset. Periods of 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names
60
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, 15 years for trade names and 16 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, 2020 on its one reporting
unit and determined that goodwill was not impaired. See Note 7 for further information.
The Company performed a quantitative assessment of goodwill at June 30, 2019 and recorded an impairment charge
of $11.9 million. During the year ended June 30, 2020, the Company did not record an impairment charge. The
impairment charge in fiscal year 2019 related to the full impairment of the Company’s goodwill and was a result of
the termination of the distribution agreement with Pioneer/Corteva.
Investment in Bioceres S.A.
The Company owns less than 1% of Bioceres, S.A., a provider of crop productivity solutions headquartered in
Argentina. The carrying value of the investment is $1.3 million at June 30, 2020 and 2019, 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.
Prior to July 1, 2018, the investment was accounted for under the cost method of accounting. Under this method, the
Company’s share of the earnings or losses of such investee companies is not included in the consolidated balance
sheet or statement of operations. However, impairment charges would have been recognized in the consolidated
statement of operations. If circumstances suggest that the value of the investee company has subsequently recovered,
such recovery is not recorded.
No adjustments for impairment or observable transactions were made in fiscal years 2020 or 2019.
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.
61
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis
of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax
rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance
is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.
The Company’s effective tax rate for the years ended June 30, 2020 and 2019 has been affected by the valuation
allowance on the Company’s deferred tax assets.
Net Income (Loss) Per Common Share Data
Basic net income (loss) per common share, or EPS, is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding during the period.
Diluted EPS is calculated by adjusting both the numerator (net income (loss)) and the denominator (weighted-
average number of shares outstanding) for the dilutive effects of potentially dilutive securities, including options,
restricted stock awards, convertible debt and common stock warrants.
The treasury stock method is used for common stock warrants, 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 calculation of Basic and Diluted EPS is shown in the table below.
Numerator:
Net loss attributable to S&W Seed Company
Numerator for basis EPS
Effect of dilutive securities:
Warrants
Numerator for diluted EPS
Denominator:
Denominator for basic EPS-weighted- average
shares
Effect of dilutive securities:
Employee stock options
Employee restricted stock units
Warrants
Dilutive potential common shares
Denominator for diluted EPS - adjusted weighted
average shares and assumed conversions
Basic EPS
Diluted EPS
Years Ended June 30,
2019
2020
$(19,674,324) $ (9,305,242 )
(19,674,324) (9,305,242 )
—
—
—
—
$(19,674,324) $ (9,305,242 )
33,348,263 30,102,158
—
—
—
—
—
—
—
—
33,348,263 30,102,158
(0.31 )
$
(0.31 )
$
(0.59) $
(0.59) $
The effects of employee stock options and stock units, and warrants are excluded because they would be anti-
dilutive due to the Company’s net loss.
62
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances
warrant. Events relating to recoverability may include significant unfavorable changes in business conditions,
recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should
impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of the asset. Refer to Note 4 and Note 7
for impairment discussion.
Derivative Financial Instruments
Foreign Exchange Contracts
The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal
course of its business, which the Company at times manages through the use of foreign currency forward contracts.
The Company has entered into certain derivative financial instruments (specifically foreign currency forward
contracts), and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”,
which establishes accounting and reporting standards requiring that derivative instruments be recorded on the
balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not
designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current
period earnings.
Fair Value of Financial Instruments
The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier
fair value hierarchy, as follows:
(cid:120)
(cid:120)
(cid:120)
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 assets acquired and liabilities assumed in the Chromatin acquisition were valued at fair value on a non-recurring
basis as of October 25, 2018.
The assets acquired and liabilities assumed in the Dow Wheat acquisition (see Note 7) were valued at fair value on a
non-recurring basis as of August 15, 2019.
The assets acquired and liabilities assumed in the Pasture Genetics acquisitions (see Note 6) were valued at fair
value on a non-recurring basis as of February 24, 2020.
The carrying value of cash and cash equivalents, accounts payable, short-term and all long-term borrowings, as
reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these
instruments or interest rates commensurate with market rates. There have been no changes in operations and/or
credit characteristics since the date of issuance that could impact the relationship between interest rate and market
rates.
63
Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:
Foreign exchange contract liability
Contingent consideration obligations
Total
Foreign exchange contract liability
Total
$
$
$
$
$
Fair Value Measurements as of
June 30, 2020 Using:
Level 2
Level 3
Level 1
— $
— $
— $
35,218 $
—
— $ 4,263,503
35,218 $ 4,263,503
Fair Value Measurements as of
June 30, 2019 Using:
Level 2
Level 1
Level 3
— $
— $
42,255 $
42,255 $
—
—
Recently Adopted Accounting Pronouncements
The Company 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,
an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting
unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount
exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The
new guidance was applied during the goodwill impairment test in the fourth quarter of 2019. See Note 7.
The Company adopted Accounting Standards Update No. 2016-02: Leases, or ASU 2016-02, effective July 1, 2019.
ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be
recognized in the statement of financial position.
The adoption of ASC 842 resulted in the recognition of $2.6 million of right-of-use assets, or ROU assets, and $4.3
million related lease liabilities as of July 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842
had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows.
The Company adopted ASC 842 on a modified retrospective approach at the effective date and, therefore, did not
revise comparative period information or disclosure. In addition, the Company elected the package of practical
expedients permitted under ASC 842.
See “Note 3—Leases” for additional information on the adoption of ASC 842.
64
Recently Issued, but Not Yet Adopted, Accounting Pronouncements
In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for
implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The
guidance also requires presentation of the capitalized implementation costs in the statement of financial position and
in the statement of cash flows in the same line items that a prepayment for the fees of the association hosting
arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in
the same line item in the statement of operations as the fees associated with the hosting element (service) of the
arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim
periods within those annual periods, with early adoption permitted. The Company’s adoption of ASU 2018-15 on
July 1, 2020 is not expected to impact its consolidated financial statements and related disclosures.
NOTE 3 - LEASES
S&W leases office and laboratory space, field research plots and equipment used in connection with its operations
under various operating and finance leases.
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 ("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 year ended June 30, 2020. The Company’s lease
agreements do not contain material restrictive covenants.
65
The components of lease assets and liabilities are as follows:
Leases
Assets:
Right of use assets - operating leases
Other assets
Balance Sheet Classification
Right of use assets - finance leases
Accumulated amortization - finance
leases
Right of use assets - finance leases, net Other assets
Total lease assets
Other assets
Other assets
Liabilities:
Current portion of long-term debt, net Current portion of long-term debt, net
Current lease liabilities
Long-term debt, net
Long-term lease liabilities
Total lease liabilities
Accrued expenses and other current liabilities
Long-term debt, net
Other non-current liabilities
The components of lease cost are as follows:
June 30, 2020
$
$
$
$
$
4,137,255
1,504,109
(340,100)
1,164,009
5,301,264
809,632
1,197,874
1,642,975
3,242,548
6,893,029
Lease cost:
Operating lease cost
Operating lease cost
Operating lease cost
Finance lease cost
Total lease costs
Income Statement Classification:
Cost of revenue
Selling, general and administrative expenses
Research and development expenses
Depreciation and amortization and Interest expense
$
$
Year Ended
June 30, 2020
299,126
647,587
209,140
482,390
1,638,243
Maturities of lease liabilities as of June 30, 2020 are as follows:
2021
2022
2023
2024
2025
After 2025
Total lease payments
Less: Interest
Present value of lease liabilities
Operating
Leases
1,328,827 $
1,130,311
831,743
762,849
377,901 $
483,792 $
Finance
Leases
947,499
863,678
744,059
139,808
—
—
4,915,423 2,695,044
(475,001 ) $
(242,437)
4,440,422 $ 2,452,607
$
$
$
Future minimum lease payments for operating leases accounted for under ASC 840, “Leases” in excess of one year
at June 30, 2019 were as follows:
2020
2021
2022
2023
2024
After 2024
Total
June 30, 2019
640,135
634,422
352,730
201,800
235,776
366,581
2,431,444
$
$
66
The following are the weighted average assumptions used for lease term and discount rate and supplemental cash
flow information related to leases as of June 30, 2020:
Operating lease remaining lease term
Operating lease discount rate
Finance lease remaining lease term
Finance lease discount rate
Cash paid for operating leases
Cash paid for finance leases
3.8 years
4.53%
3.0 years
5.90%
875,317
858,365
$
$
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
will be delivered to Corteva periodically through February 2021.
The Company does not expect to sell any other products to Pioneer or Corteva beyond those quantities of seed.
In conjunction with the termination of the Pioneer production and distribution agreements, the Company recorded a
$6.0 million impairment charge on its intangible assets related to the Pioneer distribution agreements for the year
ended June 30, 2019. In addition, the termination of this relationship was a significant factor leading to the $11.9
million impairment of goodwill.
License Agreement with Corteva
Contemporaneously with the termination, the Company entered into a license with Corteva, under which Corteva
received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed varieties
world-wide (except South America). The licensed seed varieties include certain of the Company's existing
commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. 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 a payment of $45.0 million in May 2019, $5.55 million in September 2019, $5.55 million in
January 2020, and $5.55 million in February 2020 from Pioneer/Corteva, and will receive quarterly payments
through February 2021, which total approximately $8.4 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 is reported
as licensing revenue in the consolidated statement of operations for the year ended June 30, 2019.
The remaining amounts will be recognized as revenue as the seed is delivered to Corteva through February 2021.
The amount allocated to the seed represents 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
67
recognition at contract termination and the remainder of the payments was allocated to the license using a residual
method approach.
NOTE 5 - REVENUE RECOGNITION
The Company derives its revenue from 1) the sale of seed, 2) milling and packaging services 3) research and
development services and 4) product licensing agreements.
The following table disaggregates the Company's revenue by type of contract1:
Pioneer product sales
Other product sales
Licensing
Services
Years Ended June 30,
2020
19,681,450
57,896,346
-
2,004,402
79,582,198
$
$
2019
37,605,215
37,647,297
34,215,433
254,566
109,722,511
$
$
For the year ended June 30, 2020, Pioneer product sales consisted of product shipments to Pioneer under the
termination agreement discussed in Note 4.
For the year ended June 30, 2019, Pioneer product sales consisted of revenue under the Distribution and Production
Agreements.
Under the production and distribution agreements with Pioneer, the Company grew, processed, and delivered alfalfa
seed for and to Pioneer. The Company concluded that none of the individual activities performed under these
contracts were distinct, as the customer was contracting for processed and packaged product.
Until those contracts were terminated in May 2019 (see Note 4), Pioneer submitted a demand plan to the Company
in advance of the growing season specifying the amount of seed that it intends to order for the upcoming sales year.
The Company was required to use commercially reasonable efforts to arrange for the requisite amount of seed to be
grown, processed and packaged. Once the demand plan was submitted, Pioneer was committed to at least that
amount of seed. In addition, the Company was not permitted to sell products produced for Pioneer under the
agreements to other customers. Therefore, as provided in Topic 606, the Company recognized revenue from these
agreements over time in 2019, as it incurred costs to fulfill its obligations.
To the extent the Company produced more product than Pioneer specified in its demand plan, the Company was
required to first offer such product to Pioneer. If Pioneer did not purchase such excess product, the Company was
permitted to sell the excess product to other customers subject to certain limitations.
The agreements specified prices per finished unit which were adjusted each year, up or down, based on current
market conditions, by a maximum of 4% per year. The prices for a given crop year were determined one year in
advance of the beginning of the sales season.
The Company concluded that cost was the best measure of progress under these contracts because no other measure
adequately reflected the value added to the product by each of the Company's major tasks - having the crop grown,
processing, and packaging. As the Company typically contracted out the growing of seed to third parties, the vast
majority of the Company's costs under these agreements were incurred, and therefore the vast majority of the
revenue from such agreements was recognized, when the raw seed was purchased from the third-party contract
growers. The rest of the costs were incurred, and therefore the rest of the revenue was recognized, as the Company
processed and packaged the product. As of the date of the termination of the production and distribution agreements
with Pioneer (see Note 4), all seed covered by the active demand plan had been grown, processed and packaged.
68
Licensing
Contemporaneously with the termination in Note 4, the Company entered into a license with Corteva, under which
Corteva received a fully pre-paid, exclusive license to produce and distribute certain of the Company's alfalfa seed
varieties world-wide (except South America). The licensed seed varieties include certain of the Company's existing
commercial conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties.
Other Product Sales
Revenue from other product sales is recognized at the point in time at which control of the product is transferred to
the customer. Generally, this occurs upon shipment of the product. Pricing for such transactions is negotiated and
determined at the time the contracts are signed. We have elected the practical expedient that allows us to account for
shipping and handling activities as a fulfillment cost, and we accrue those costs when the related revenue is
recognized.
The Company has certain contracts with customers that offer a limited right of return on certain branded products.
The products must be in an unopened and undamaged state and must be resalable in the sole opinion of the
Company to qualify for refund. Returns are only accepted on product received by August 31st of the current sales
year. The Company uses a historical returns percentage to estimate the refund liability and records a reduction of
revenue in the period in which revenue is recognized.
Services
Revenue from milling 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 conditioning, treating, and packaging services is recognized over time as the services are performed.
Revenue from research and development services is recognized over time as the services are performed. R&D
services are generally paid for in advance. In fiscal 2019, R&D revenue relates to a single contract in which the
customer may decide annually whether to continue the arrangement. Revenue is recognized straight-line over time,
as services are expected to be provided roughly evenly throughout the year.
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 120 days for export customers and end of sales season
(September 30th) for branded products sold within the United States. As the period between the transfer of goods
and/or services to the customer and receipt of payment is less than one year, the Company does not separately
account for a financing component in its contracts with customers.
Unbilled receivables represent contract assets that arise when the Company has partially performed under a contract
but is not yet able to invoice the customer until the Company has made additional progress. Unbilled receivables
arose from the distribution and production agreements with Pioneer for which the Company recognized revenue
over time, as the Company bills for these arrangements upon product delivery, while revenue was recognized, as
described above, as costs were incurred. Unbilled receivables may arise as much as three months before billing is
expected to occur. Unbilled receivables are generally expected to be generated in the first and second fiscal quarters,
and to be billed in the second, third and fourth fiscal quarters.
Losses on accounts receivable and unbilled receivables are recognized if and when it becomes probable that
amounts will not be paid. These losses are reversed in subsequent periods if these amounts are paid. During the year
ended June 30, 2020, the Company recognized a net gain from collections on amounts previously written off to bad
debt expense of $255,000. During the period ended June 30, 2019, the Company recognized bad debt expense of
$996,461 associated with impaired accounts receivable.
69
Deferred revenue represents payments received from customers in advance of completion of the Company's
performance obligation. During the year ended June 30, 2020, the Company recognized $9.1 million of revenue that
was included in the deferred balance as of June 30, 2019. During the year ended June 30, 2019, the Company
recognized $0.2 million of revenue that was included in the deferred balance as of June 30, 2018.
NOTE 6 - BUSINESS COMBINATIONS
Chromatin Acquisition
On October 25, 2018, the Company completed the acquisition of substantially all of the assets of Chromatin, Inc., or
together with certain of its subsidiaries and affiliates in receivership, Chromatin, as well as the assumption of certain
contracts and limited specified liabilities of Chromatin, for an aggregate cash purchase price of approximately $26.5
million, or the Acquisition, pursuant to the terms of its Asset Purchase Agreement, dated September 14, 2018, with
Novo Advisors, solely in its capacity as the receiver for, and on behalf of, Chromatin, or Novo.
The acquisition expanded the Company's sorghum production capabilities, diversified its product offerings and
provided access to new distribution channels.
The Acquisition has been accounted for as a business combination, and the Company valued and recorded all assets
acquired and liabilities assumed at their estimated fair values on the date of the Acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the
acquisition date of October 25, 2018:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Assets held for sale
In-process research and development
Technology/IP - germplasm
Trade names
Goodwill
Current liabilities
Noncurrent liabilities
Total acquisition cost allocated
October 25, 2018
95,049
$
947,015
6,959,936
16,501
10,193,620
1,930,400
380,000
7,200,000
150,000
1,573,546
(2,881,198 )
(114,869 )
26,450,000
$
Management determined that one of the facilities acquired as part of the Chromatin acquisition would not be
operated and is being held for sale. The components of that facility are:
Land and improvements
Buildings and improvements
Machinery and equipment
Less: Costs to sell
Less: Fair value adjustment subsequently recorded
Assets recorded as held for sale that have been subsequently sold
$
$
320,000
1,380,000
332,000
(101,600)
(1,316,093)
614,307
Management expected the sale to be completed within 12 months and planned to pay down a portion of the
Company's short-term debt with the proceeds, accordingly, these held for sale assets are presented as current assets.
In November 2019, the Company completed the sale of land and buildings of this facility and received net proceeds
of $614,307.
70
The estimated fair value of accounts receivable acquired is $947,015, with the gross contractual amount totaling
$2,164,476, less $1,217,461 expected to be uncollectible. The current liabilities assumed relate to inventory acquired
in the acquisition as well as customer deposits. The excess of the purchase price over the fair value of the net assets
acquired, amounting to $1,573,546, was recorded as goodwill on the consolidated balance sheet. The primary item
that generated goodwill was the premium paid by the Company for the ability to control the acquired business,
technology, and the distribution channels. Goodwill is not amortized for financial reporting purposes but is
amortized for tax purposes.
Management assigned fair values to the identifiable intangible assets through a combination of the relief from
royalty method, the multi-period excess earnings method, and the replacement cost method. In-process research and
development costs are being accounted for as an indefinite lived intangible asset subject to impairment testing until
completion or abandonment of research and development efforts associated with the in-process projects. Upon
successful completion of each project, the Company will make a determination about the then remaining useful life
of the intangible asset and begin amortization.
The values and useful lives of the acquired intangibles are as follows:
In-process research and development
Technology/IP - germplasm
Trade names
Total identifiable intangible assets
Estimated Useful Life (Years)
n/a
30
5
$
$
Estimated Fair Value
380,000
7,200,000
150,000
7,730,000
The Company incurred acquisitions costs of $1,196,476 during the year ended June 30, 2019 that have been
recorded in selling, general and administrative expenses on the consolidated statement of operations. The results of
the Chromatin acquisition are included in our consolidated financial statements from the date of acquisition through
June 30, 2019. The revenue and net loss (including transaction costs) of Chromatin operations included in our
consolidated statements of operations were $12.4 million and $1.7 million, for the period from October 25, 2018
through June 30, 2019.
The following unaudited pro forma financial information presents results as if the Acquisition occurred on July 1,
2018.
Revenue
Net loss
Year Ended June 30,
2019
$
$
111,359,688
(11,179,299)
For purposes of the pro forma disclosures above, the primary adjustments for the year ended June 30, 2019 includes
(i) the elimination of acquisition charges of $1,196,476; (ii) amortization of acquired intangibles of $132,222; and
(iii) depreciation of acquired property, plant and equipment of $358,273.
Pasture Genetics Acquisition
On February 24, 2020, S&W Australia acquired all of the issued and outstanding shares of Pasture Genetics, the PG
Acquisition, for an initial consideration that consisted of an upfront cash payment at closing of USD $7.5 million
(AUD $11.4 million). A potential earn-out payment of up to USD $5.3 million (AUD $8.0 million), or the Earn-Out,
is payable on September 30, 2022, or the Earn-Out Date. The amount of any Earn-Out will be equal to the excess, if
any, of (a) 7.5 multiplied by the average of an agreed-upon calculation of Pasture Genetics’ earnings over fiscal
years 2021 and 2022, above (b) USD $7.5 million (AUD $11.4 million). At S&W Australia’s election, up to 50% of
the Earn-Out may be paid in shares of our common stock at a per share purchase price equal to the volume-weighted
average purchase price of the Company’s common stock during the 10-day period ending immediately prior to the
Earn-Out Date.(cid:3)
71
The PG acquisition expanded and diversified the Company's product offerings and provided access to new
distribution channels within Australia.
The PG Acquisition has been accounted for as a business combination, and the Company valued and recorded all
assets acquired and liabilities assumed at their estimated fair values on the date of the Acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the
acquisition date of February 24, 2020:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Right of use assets
Trade names
Customer relationships
Goodwill
Accounts payable
Current liabilities
Vehicle loans
Finance leases assumed
Other noncurrent liabilities
Total acquisition cost allocated
February 24, 2020
(as reported)
Measurement
Period
Adjustments
February 24, 2020
(as adjusted)
$
$
25,027 $
3,406,169
6,145,876
191,536
993,525
—
428,590
4,351,840
2,555,175
(4,254,043)
(1,452,984)
(544,608)
-
(16,399)
11,829,704 $
—
94,749
(74,473 )
13,625
—
365,033
(26,375 )
791,244
(1,102,739 )
219,932
159,865
-
(365,033 )
-
75,828
$
$
25,027
3,500,918
6,071,403
205,161
993,525
365,033
402,215
5,143,084
1,452,436
(4,034,111)
(1,293,119)
(544,608)
(365,033)
(16,399)
11,905,532
The acquisition-date fair value of the consideration transferred consisted of the following:
Cash paid at closing
Contingent earn-out
Total purchase price
February 24, 2020
(as reported)
Measurement
Period
Adjustments
February 24, 2020
(as adjusted)
$
$
7,497,645 $
4,332,059
11,829,704
$
- $
75,828
75,828 $
7,497,645
4,407,887
11,905,532
The estimated fair value of accounts receivable acquired was $3,500,918, with the gross contractual amount totaling
$3,610,566, less $109,648 expected to be uncollectible. The current liabilities assumed primarily relate to grower
payables as well as employee-related obligations. The excess of the purchase price over the fair value of the net
assets acquired, amounting to $1,452,436, was recorded as goodwill on the consolidated balance sheet. The primary
item that generated goodwill was the premium paid by the Company for the ability to manage the acquired business,
the trained workforce and access to new the distribution channels. Goodwill is not amortized for financial reporting
purposes but is amortized for tax purposes.
Management assigned fair values to the identifiable intangible assets through a combination of the relief from
royalty method and the multi-period excess earnings method. The contingent consideration requires the Company to
pay up to an additional USD $5.3 million (AUD $8.0 million). The amount of any Earn-Out will be equal to the
excess, if any, of (a) 7.5 multiplied by the average of an agreed-upon calculation of Pasture Genetics’ earnings over
fiscal years 2021 and 2022, above (b) USD $7.5 million (AUD $12.0 million). The fair value of the contingent
consideration arrangement at the acquisition date was $4,407,887. The fair value of the contingent consideration was
estimated using a Monte Carlo simulation model. The fair value measurement is based on significant inputs not
observable in the market and thus represents a Level 3 measurement. The key assumptions in applying the Monte
72
Carlo simulation were as follows: 8% present value discount factor and an underlying net income volatility of 35%.
As of June 30, 2020, the estimated fair value of the contingent consideration is $4,095,702. The values and useful
lives of the acquired intangibles are as follows:
Trade names
Customer Relationships
Total identifiable intangible assets
Estimated Useful
Life (Years)
5
20
Estimated Fair Value
$
$
402,215
5,143,084
5,545,299
The Company incurred acquisitions costs of $476,454 during the year ended June 30, 2020 that have been recorded
in selling, general and administrative expenses on the consolidated statement of operations. The results of the
Pasture Genetics acquisition are included in our consolidated financial statements from the date of acquisition
through June 30, 2020.
The following unaudited pro forma financial information presents results as if the Acquisition occurred on July 1,
2018.
Revenue
Net loss
Years Ended June 30,
2020
88,664,131
(20,299,845 )
$
$
2019
133,007,762
(9,623,060)
$
$
For purposes of the pro forma disclosures above, the primary adjustments for the year ended June 30, 2020 include
the elimination of acquisition charges of $476,454 and amortization of acquired intangibles of $327,707.
For purposes of the pro forma disclosures above, the primary adjustments for the year ended June 30, 2019 include
the amortization of acquired intangibles of $327,707.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
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, 2020 on its one reporting
unit and determined that goodwill was not impaired.
During the fourth quarter of the year ended June 30, 2019, the Company terminated its production and distribution
agreements with Pioneer, thereby triggering a potential indicator of goodwill impairment. As a result, the Company
initiated a goodwill impairment test for the year ended June 30, 2019.
The Company compared the carrying value of its invested capital to its estimated fair values at June 30, 2019. The
Company estimated the fair value based on the income approach. The discounted cash flows served as the primary
basis for the income approach and were based on discrete financial forecasts developed by management. Cash flows
beyond the discrete forecast period of ten years were estimated using the perpetuity growth method calculation. The
income approach valuation included estimated weighted average cost of capital, which was 10.6%.
Upon completing the impairment test, the Company determined that the fair value of invested capital was less than
the carrying value by approximately 10%, thus indicating an impairment. The Company recognized a goodwill
impairment charge of $11.9 million for the year ended June 30, 2019, which represented the entire goodwill balance
prior to the impairment charge.
The following table summarizes the activity of goodwill for the years ended June 30, 2020 and 2019, respectively.
Balance at
July 1, 2019 Additions
Impairment
Goodwill
$
— $ 1,452,436 $
— $
73
Currency
Translation
Adjustment
Balance at
June 30, 2020
56,239 $ 1,508,675
Balance at
July 1, 2018 Additions
Impairment
Currency
Translation
Adjustment
Goodwill
$ 10,292,265 $ 1,573,546 $(11,865,811) $
— $
Balance at
June 30, 2019
—
For the year ended June 30, 2020, the Company determined there was no impairment on its intangible assets. For the
year ended June 30, 2019, the Company recorded an impairment charge on its intangible assets of $6.0 million.
Refer to Note 4 for further information.
Intangible assets consist of the following:
Balance at
July 1, 2019
Additions
Impairment Amortization
Trade name
Customer relationships
Non-compete
GI customer list
Supply agreement
Grower relationships
Intellectual property
In process research and
development
License agreement
Internal use software
Trade name
Customer relationships
Non-compete
GI customer list
Supply agreement
Distribution agreement
Grower relationships
Intellectual property
In process research and
development
Internal use software
$ 1,205,346 $ 402,215 $
1,055,747 5,143,084
—
—
—
—
—
30,267
64,475
1,002,154
1,647,800
26,786,468
380,000
—
— 2,400,863
—
$ 32,714,484 $7,946,162 $
542,227
Currency
Translation
Adjustment
Balance at
June 30, 2020
— $ (139,999) $ 11,716 $ 1,479,278
(202,197) 190,452 6,187,086
—
(8,955)
21,312
—
—
(7,165)
57,310
—
—
—
(75,647)
—
926,507
— 1,542,393
(105,407)
—
— 25,415,665
— (1,370,803)
—
—
(135,295)
(67,779)
380,000
—
34,491 2,300,059
—
—
474,448
— $(2,113,247) $ 236,659 $ 38,784,058
—
Currency
Translation
Adjustment
Balance at
July 1, 2018
Additions
Impairment Amortization
— $ (104,480) $
$ 1,159,826 $ 150,000 $
(101,208)
—
—
1,156,955
(32,453)
—
—
62,720
(7,164)
—
—
71,639
(75,629)
—
1,077,783
—
(352,461)
— (5,991,792)
6,344,253
(105,408)
—
—
1,753,208
— (1,286,925)
20,873,393 7,200,000
Balance at
June 30, 2019
— $ 1,205,346
— 1,055,747
30,267
—
—
64,475
— 1,002,154
—
—
— 1,647,800
— 26,786,468
—
610,003
—
(67,776)
$ 33,109,780 $7,773,000 $(6,034,792) $(2,133,504) $
—
(43,000)
380,000
43,000
380,000
—
542,227
—
— $ 32,714,484
Amortization expense totaled $2,113,247 and $2,133,504 for the years ended June 30, 2020 and 2019, respectively.
Estimated aggregate remaining amortization is as follows:
Amortization expense
$ 2,281,149 $2,228,367 $2,149,189 $2,128,729 $ 2,083,188 $ 27,712,247
2021
2022
2023
2024
2025
Thereafter
Acquisition of Wheat Assets
74
On August 15, 2019, the Company entered into several agreements to effectuate the purchase of a wheat breeding
program in Australia, or the Wheat Acquisition from Dow AgroScience, or Dow. In the transaction, the Company
acquired:
(cid:120) A 15-year prepaid license of germplasm. The license includes commercial, pre-commercial and
experimental proprietary wheat populations.
(cid:120) The right, during the term of the license, to develop future varieties. The license does not transfer
ownership of the existing varieties licensed, but the Company will own any future varieties developed.
(cid:120) An option to renew the license for five additional years.
(cid:120) Tangible fixed assets used in the wheat breeding program.
(cid:120) A contract with a service provider to promote existing commercialized wheat varieties covered by the
license.
The wheat market in Australia operates under an End Point Royalty, or EPR, System in which the wheat variety
owner earns a fixed royalty on every metric ton of grain produced. With the Wheat Acquisition, the Company has
the right to collect EPR on commercialized wheat varieties included in its license.
The purchase price was approximately $2.6 million, which was paid in cash. The purchase price was allocated to
the assets acquired based on the relative fair value of the license and fixed assets. $2.4 million was allocated to the
license, which will be amortized over 15 years in accordance with the term of the agreement. The fair value of the
license was determined using a discounted cash flow analysis. $0.2 million was allocated to the fixed assets, which
have useful lives of 3-5 years.
The acquired assets did not meet the definition of a business in the Accounting Standards Codification.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment were as follows:
Land and improvements
Buildings and improvements
Machinery and equipment
Vehicles
Leasehold Improvements
Construction in progress
Total property, plant and equipment
Less: accumulated depreciation
Property, plant and equipment, net
June 30, 2020 June 30, 2019
$ 2,157,663 $ 2,150,085
10,014,879 10,018,108
13,550,413 12,579,698
2,087,634 2,099,814
—
66,921
28,434,715 26,914,626
(7,940,403) (6,279,677 )
$20,494,312 $20,634,949
552,810
71,316
Depreciation expense totaled $2,580,234 and $1,995,042 for the years ended June 30, 2020 and 2019, respectively.
75
NOTE 9 - DEBT
Total debt outstanding is presented on the consolidated balance sheet as follows:
Working capital lines of credit
KeyBank
CIBC
National Australia Bank Limited
National Australia Bank Limited Overdraft
Facility
Debt issuance costs
Total working capital lines of credit, net
Current portion of long-term debt
Finance leases
Debt issuance costs
Term Loan - National Australia
Bank Limited
Machinery & equipment loans -
National Australia Bank Limited
Vehicle loans - Toyota Finance
Unsecured subordinate promissory note
Secured real estate note - Conterra
Debt issuance costs
Total current portion, net
Long-term debt, less current portion
Finance leases
Debt issuance costs
Term loan - National Australia
Bank Limited
Machinery & equipment loans -
National Australia Bank Limited
Vehicle loans - Toyota Finance
Secured real estate note - Conterra
Debt issuance costs
Total long-term portion, net
Total debt, net
June 30, 2020 June 30, 2019
— $ 2,350,000
$
—
11,205,664
16,437,600 8,426,400
—
(660,000)
351,544
(372,396 )
$26,983,264 $10,755,548
$
809,632 $
(8,154) $
563,087
(11,070 )
342,450
73,731
272,997
200,779
—
202,374
(39,556)
215,519
—
100,000
247,942
(75,707 )
1,780,522 1,113,502
1,642,975 1,709,481
(15,078 )
(6,923)
3,082,050
256,303
396,404
313,470
309,988
—
8,956,885 9,922,269
(24,869 )
14,328,823 12,158,095
$16,109,345 $13,271,596
(56,038)
In September 2015, the Company entered into a credit and security agreement, or the KeyBank Credit Facility, with
KeyBank. Key provisions of the KeyBank Credit Facility, as amended, included:
(cid:120)
(cid:120)
An aggregate principal amount that the Company was able to borrow, repay and reborrow, of up to $45.0
million in the aggregate.
All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest, were
payable in full on December 31, 2020.
76
A borrowing base of up to the total of the following: (a) 85% of eligible domestic accounts receivable, plus (b)
and 90% of eligible foreign accounts receivable, plus (c) the lesser of (i) 75% of the cost eligible inventory or
(ii) 90% of the net orderly liquidation value of the inventory, plus (d) the amount of any unencumbered cash
the Company holds at KeyBank, minus (e) $16.0 million subject to lender reserves.
Loans were based on a Base Rate or Eurodollar Rate (which is increased by an applicable margin of 2.9% per
annum for Eurodollar Loans and 1.0% for Base Rate Loans) (both as defined in the KeyBank Credit Facility),
generally at the Company’s option. In the event of a default, at the option of KeyBank, the interest rate on all
obligations would have increased by 3% per annum over the rate otherwise applicable.
Subject to certain exceptions, the KeyBank Credit Facility was secured by a first priority perfected security
interest in all of the Company’s assets and its domestic subsidiaries, which guaranteed the Company’s
obligations under the KeyBank Credit Facility. The KeyBank Credit Facility was further secured by a lien on,
and a pledge of, 65% of the stock of its wholly-owned subsidiary, S&W Holdings Australia Pty Ltd.
(cid:120)
(cid:120)
In connection with the consummation of the Loan Agreement with CIBC described below, the Company terminated
the KeyBank Credit Facility on December 26, 2019. In connection with such termination, the Company paid
KeyBank approximately $5.9 million in aggregate principal, interest and fees that were outstanding and payable
under the KeyBank Credit Facility at the time of its termination, and all liens on the assets of the Company and its
subsidiaries guaranteeing such facility, together with such subsidiary guarantees, were released and terminated.
On December 26, 2019, the Company entered into a Loan and Security Agreement, or the Loan Agreement, with
CIBC, which originally provided for a $35.0 million credit facility, or the CIBC Credit Facility. The Loan
Agreement was subsequently amended on September 22, 2020. As amended, the Loan Agreement provides for a
$25.0 million credit facility. The following is a summary of certain terms of the CIBC Credit Facility:
(cid:120) Advances under the CIBC Credit Facility are to be used: (i) to refinance indebtedness to KeyBank; (ii) to
finance the Company’s ongoing working capital requirements; and (iii) for general corporate purposes.
(cid:120) 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.
(cid:120) The 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.
(cid:120) Loans may be based on (i) a Base Rate plus 0.5% per annum or (ii) LIBOR Rate plus 2.5% per annum
(both as defined in the Loan Agreement), generally at the Company’s option. 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.
(cid:120) 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.
(cid:120) 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 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.
At June 30, 2020, the Company was not in compliance with all CIBC debt covenants. On September 22, 2020, the
Company amended the Loan Agreement. Among other things, the amendment provided for a waiver of the
Company’s non-compliance with a certain financial covenant. See Note 19 for further discussion on this
amendment.
In November 2017, the Company entered into a secured note financing transaction, or the Loan Transaction, with
Conterra Agricultural Capital, LLC, or Conterra, for $12.5 million in gross proceeds. Pursuant to the Loan
Transaction, the Company issued two secured promissory notes, or the Notes, to Conterra as follows:
(cid:120)
Secured Real Estate Note. The Company issued one Note in the principal amount of $10.4 million, or the
Secured Real Estate Note, that is secured by a first priority security interest in the property, plant and fixtures,
77
or the Real Estate Collateral, located at the Company's Five Points, California and Nampa, Idaho production
facilities and its Nampa, Idaho research facilities, or the Facilities. On December 24, 2019, the Company
entered into an amendment to extend the maturity date to November 30, 2022, as well as revised the Note’s
payments starting July 1, 2020. The Secured Real Estate Note bears interest of 7.75% per annum. The
Company has agreed to make semi-annual payments of interest and amortized principal on a 20-year
amortization schedule, for a combined payment of $515,711, starting July 1, 2018, in addition to a one-time
interest only payment on January 1, 2018. In November 2019, the Company paid down $753,120 of principal.
Pursuant to the December 2019 amendment, the Company agreed to make (i) a principal and interest payment
of approximately $515,711 on January 1, 2020; (ii) five consecutive semi-annual principal and interest
payments of approximately $454,185, beginning on July 1, 2020; and (iii) a one-time final payment of
approximately $8,957,095 on November 30, 2022. The Company may prepay the Secured Real Estate Note, in
whole or in part, at any time.
Secured Equipment Note. The Company issued a second Note in the principal amount of $2.1 million, or the
Secured Equipment Note, that was secured by a first priority security interest in certain equipment not
attached to real estate located at the Facilities. The Secured Equipment Note was also secured by the Real
Estate Collateral. The Secured Equipment Note was scheduled to mature on November 30, 2019. The Secured
Equipment Note bore an interest at a rate of 9.5% per annum. The Company agreed to make semi-annual
payments of interest and amortized principal on a 20-year amortization schedule, for a combined payment of
$118,223, starting July 1, 2018, in addition to a one-time interest only payment on January 1, 2018. The
Secured Equipment Note was repaid in full in August 2018.
On August 15, 2018, the Company completed a sale and leaseback transaction with American AgCredit involving
certain equipment located at the Company's Five 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:
(cid:120)
(cid:120)
The Company sold the equipment to American AgCredit for $2,106,395 million in proceeds. The proceeds
were used to pay off in full a note (in the principal amount of $2,081,527, plus accrued interest of $24,868)
held by Conterra, which had an interest rate of 9.5% per annum and was secured by, among other things, the
equipment.
The Company entered into a lease agreement with American AgCredit relating to the equipment. The lease
agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an annual
interest rate of 5.6%). At the end of the lease term, the Company will repurchase the equipment for $1.
Australian Facilities
S&W Australia and Pasture Genetics both have debt facilities with NAB, all of which are guaranteed by us up to a
maximum of AUD $15,000,000 (USD $10,273,500 at June 30, 2020) and cross-guaranteed by S&W Australia and
Pasture Genetics.
S&W Australia. S&W Australia has a series of debt facilities with NAB providing for up to AUD $25,337,000
(USD $17,353,000) of credit, the key terms of which were amended in February 2020 (in connection with the
Pasture Genetics acquisition) and include the following:
(cid:120) 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 $1,369,800 at June 30, 2020) and (ii) a Borrowing Base Line having a credit limit of
AUD $16,000,000 (USD $10,958,400 at June 30, 2020). The seasonal credit facility expires on March 31,
2022. As of June 30, 2020, the Borrowing Base Line accrued interest on Australian dollar drawings at
approximately 3.7% 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
78
June 30, 2020, the Overdraft Facility accrued interest at approximately 5.47% per annum calculated daily.
As of June 30, 2020, AUD $14,000,000 (USD $9,588,600) 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.
(cid:120) S&W Australia has a flexible rate loan, or the Term Loan, in the amount of AUD $5.0 million (USD
$3,424,500 at June 30, 2020). Required annual principal payments of AUD $500,000 on the Term Loan
will commence on November 30, 2020, with the remainder of any unpaid balance becoming due on March
31, 2025. 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.
(cid:120) 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 2023 and have interest rates ranging from
3.47% to 5.31%. The credit limit under the facility is AUD $2,000,000 (USD $1,369,800) at June 30,
2020. As of June 30, 2020, AUD $839,869 (USD $575,226) was outstanding under S&W Australia’s
master asset finance facility.
(cid:120) S&W Australia has a Keith Machinery and Equipment Facility for the machinery and equipment used in
the operations of the Keith building. The Keith Machinery and Equipment Facility bears interest, payable in
arrears, based on the Australian Trade Refinance Rate quoted by NAB at the time of the drawdown, plus
2.9%. As of June 30, 2020, AUD $137,503 (USD $94,176) was outstanding under the Keith Machinery and
Equipment Facility.
S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at June 30, 2020.
Pasture Genetics. Pasture Genetics has a working capital facility with NAB and a facility with TOYOTA Finance
to finance purchase of vehicles.
(cid:120) Pasture Genetics has a working capital facility with NAB with a credit limit of AUD $10.0 million (USD
$6,849,000 at June 30, 2020) and a borrowing base determined from qualified inventory and accounts
receivable. The facility will expire on March 31, 2022. Interest will be payable on amounts outstanding
under the facility at a floating trade refinance rate quoted by NAB plus 1.5% at the time of each
drawdown. The facility is secured by a fixed and floating lien over all the present and future rights,
property and undertakings of Pasture Genetics. As of June 30, 2020, AUD $10.0 million (USD
$6,849,000) was outstanding under Pasture Genetics’ working capital facility with NAB.
(cid:120) Pasture Genetics finances certain vehicle purchases with TOYOTA Finance. This facility has various
maturity dates through 2023 and have interest rates ranging from 4.04% to 5.83%. As of June 30, 2020,
AUD $750,839 (USD $514,249) was outstanding under TOYOTA Finance facility.
Pasture Genetics was in compliance with all debt covenants at June 30, 2020.
79
The annual maturities of short-term and long-term debt are as follows:
Fiscal Year
2021
2022
2023
2024
2025
Thereafter
Total
Amount
$ 1,828,232
1,768,958
9,985,645
555,441
369,491
1,712,250
$16,220,017
NOTE 10 - INCOME TAXES
Loss before income taxes consists of the following:
United States
Foreign
Loss before income taxes
Years Ended June 30,
2019
2020
$(18,778,030) $(9,336,700 )
(164,974 )
$(19,361,130) $(9,501,674 )
(583,100)
Significant components of the provision for income taxes from continuing operations are as follows:
Current:
Federal
State
Foreign
Total current provision
Deferred:
Federal
State
Foreign
Total deferred provision (benefit)
Provision (Benefit) for income taxes
Years Ended June 30,
2019
2020
$
— $
15,972
369,996
385,968
—
28,591
92,744
121,335
(227,142 )
—
(42,940 )
—
—
—
—
(270,082 )
$ 385,968 $ (148,747 )
80
The differences between the total calculated income tax provision and the expected income tax computed using the
U.S. federal income tax rate are as follows:
Years Ended June 30,
2019
2020
Tax benefit at statutory tax rate
State benefit, net of federal benefit
Other permanent differences
Federal and state research credits - current year
Foreign rate differential
Shortfall on restricted stock vest
Change in unrecognized tax benefit
Valuation allowance
Other
(387,398)
134,141
(239,373)
170,693
10,526
11,778
$(4,065,839) $(1,995,352 )
(304,015 )
23,786
(228,039 )
10,819
49,118
49,939
4,540,563 2,265,361
210,877
(20,364 )
385,968 $ (148,747 )
$
Significant components of the Company's deferred tax assets are shown below.
June 30,
2020
2019
Deferred tax assets:
Net operating loss carry forwards
Compensation accruals
Allowance for bad debts
Stock compensation
Tax credit carry forwards
Intangible assets
Lease liability
Deferred rent
Assets held for sale
163(j) limitation interest
Other, net
Total deferred tax assets
Valuation allowance for deferred tax assets
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
ROU lease asset
Fixed assets
Total deferred tax liabilities
Net deferred tax asset / (liability)
478,696
444,725
901,656
$ 10,681,884 $ 5,817,688
261,365
1,338,083 1,376,388
288,648
662,283
1,628,858 2,226,539
—
1,126,905
47,226
—
367,387
—
—
349,003
476,411
693,637
17,643,447 11,523,935
(14,656,843) (9,774,130 )
2,986,604 1,749,805
(1,253,577)
—
(1,733,027) (1,749,805 )
(2,986,604) (1,749,805 )
—
— $
$
The Company recognizes federal and state current tax liabilities or assets based on its estimate of taxes payable to or
refundable from tax authorities in the current fiscal year. The Company also recognizes federal and state deferred
tax liabilities or assets based on the Company’s estimate of future tax effects attributable to temporary differences
and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of
any tax benefits that, based on available evidence and judgment, are not expected to be realized.
The Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during periods in which those temporary differences become deductible. The Company considers projected future
81
taxable income and planning strategies in making this assessment. Based on projections of taxable income, the
Company had previously determined that it is more likely than not that the deferred tax assets will not be realized.
Accordingly, a full valuation allowance was recorded as of June 30, 2017. The Company’s valuation allowance
position has not changed for the years ended June 30, 2020 and June 30, 2019, respectively, as the Company does
not believe that it is more likely than not that it will realize its deferred tax assets. The valuation allowance
increased by approximately $4.9 million for the year ended June 30, 2020, related primarily to net operating losses
generated in the current year.
The U.S. Internal Revenue Code of 1986, as amended, generally imposes an annual limitation on a corporation's
ability to utilize net operating loss carryovers ("NOLs") if it experiences an ownership change as defined in Section
382. In general terms, an ownership change may result from transactions increasing the ownership of certain
stockholders in the stock of a corporation by more than 50% over a three-year period. In the event that an
ownership change has occurred, or were to occur, utilization of the Company’s NOLs would be subject to an annual
limitation under Section 382 as determined by multiplying the value of the Company’s stock at the time of the
ownership change by the applicable long-term tax-exempt rate as defined in the Internal Revenue Code. Any
unused annual limitation may be carried over to later years. The Company could experience an ownership change
under Section 382 as a result of events in the past in combination with events in the future. If so, the use of the
Company’s NOLs, or a portion thereof, against future taxable income may be subject to an annual limitation under
Section 382, which may result in expiration of a portion of the NOLs before utilization. To the extent our use of net
operating loss carryforwards is significantly limited under the rules of Section 382, our income could be subject to
U.S. corporate income tax earlier than it would if we were able to use net operating loss carryforwards, which could
result in lower profits. Any carryforwards that expire prior to utilization as a result of such limitations will be
removed, if applicable, from deferred tax assets with a corresponding reduction of the valuation allowance. As of
June 30, 2020, the Company is not aware of any applicable Section 382 limitations that may exist on its net
operating losses.
As of June 30, 2020, the Company had federal and state net operating loss carryovers of approximately $44.1
million and $15.7 million, respectively, which will begin to expire June 30, 2030, unless previously utilized. A
portion of the federal net operating losses generated after June 30, 2018 can be carried forward indefinitely as a
result of the Tax Cuts and Jobs Act. Therefore, approximately $24.5 million of net operating loss carryovers are not
subject to expiration. The Company has federal research credits of $881,836 which will expire June 30, 2031, unless
previously utilized. The Company also has foreign tax credits of $157,859 which will begin to expire June 30, 2023,
unless previously utilized. The Company has state research credits of $25,089 that do not expire. The Company also
has Australian net operating loss carryover of approximately $0.9 million as of the year ended June 30, 2020 that do
not expire. In addition, the Company has $1.6 million of Section 163(j) interest limitation carryovers as of June 30,
2020 which do not expire.
As of June 30, 2020, the Company has not provided for foreign withholding taxes on approximately $2.9 million of
undistributed earnings of its foreign subsidiaries, as these earnings are considered indefinitely reinvested outside of
the United States. The Company does not plan to repatriate any earnings that are currently located in its foreign
subsidiaries as of June 30, 2020. However, to the extent that the foreign subsidiaries accrue earnings and profits in
the future years, the Company does plan to repatriate a portion of those funds to the U. S. and will record
withholding taxes as those earnings and profits are incurred.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to
evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more
likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon settlement. The Company regularly assesses the potential outcome of examinations by tax
authorities in determining the adequacy of its provision for income taxes.
The Company has approximately $79,341 of unrecognized tax benefits related to current year tax positions as of
June 30, 2020. Included in the unrecognized tax benefits was approximately $62,679 of tax benefits that, if
recognized, would reduce our annual effective tax rate, if the Company were not in a valuation allowance position.
82
However, as the Company is in a full valuation allowance position, there would be no impact to the annual effective
tax rate if the tax benefits were recognized.
The Company's policy is to recognize interest expense and penalties related to income tax matters as a component of
income tax expense. The Company has not accrued interest and penalties associated with uncertain tax positions as
of June 30, 2020 and 2019. The Company does not expect its unrecognized tax benefits to change significantly over
the next 12 months.
CARES Act
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act, or the
CARES Act. The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to
strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. Some of the
more significant changes include the ability to carryback net operating losses, the acceleration of AMT credit
receivables, and the ability to take 100% bonus on qualified improvement property ("QIP"). Of these highlighted
provisions, the Company has only recognized the provisional impact of the 100% bonus on QIP. With respect to the
163(j) limitation implemented as part of the Tax Cuts and Jobs Act, companies were previously limited to deducting
interest to thirty percent of adjusted taxable income per year. However, with the passage of the CARES Act,
companies may elect to use fifty percent of adjusted taxable income in order to calculate the allowable interest
deduction for years 2019 and 2020. These CARES Act provisions did not impact the Company’s tax expense
calculations or related income tax account balances.
NOTE 11 - WARRANTS
The following table summarizes the total warrants outstanding at June 30, 2020:
Warrants
Issue Date
Dec 2014 $
Exercise Price
Per Share
Expiration
Date
Outstanding
as of
June 30, 2019
4.32 June 2020 2,699,999
2,699,999
New
Issuances Expired
— (2,699,999 )
— (2,699,999 )
Outstanding
as of
June 30, 2020
—
—
The following table summarizes the total warrants outstanding at June 30, 2019:
Issue Date
Dec 2014 $
Exercise Price
Per Share
Expiration
Date
Outstanding
as of
June 30, 2018
4.32 June 2020 2,699,999
2,699,999
Warrants
NOTE 12 - EQUITY
New
Issuances Expired
—
—
Outstanding
as of
June 30, 2019
— 2,699,999
— 2,699,999
On September 5, 2018, the Company entered into a Securities Purchase Agreement, or the Securities Purchase
Agreement, with MFP Partners, L.P., or MFP, pursuant to which the Company sold to MFP 1,607,717 shares of
common stock of the Company, or the Common Shares, at a purchase price of $3.11 per share at an initial closing,
and agreed to sell, subject to the satisfaction of certain conditions, 7,235 shares of newly designated Series A
Convertible Preferred Stock of the Company, or the Preferred Shares, to MFP at a purchase price of $3,110 per
share at a second closing, or the Second Closing.
The Second Closing was completed on October 23, 2018, for aggregate gross proceeds of approximately $22.5
million, which was used primarily to fund the Chromatin Acquisition. The Preferred Shares carried no voting rights
and were automatically convertible into shares of common stock at the rate of 1,000 shares of common stock per
Preferred Share upon the approval of the Company's stockholders for the issuance of the requisite shares of common
stock. Pursuant to the Securities Purchase Agreement, the Company agreed to use its reasonable best efforts to
solicit the approval of its shareholders for the issuance of stock upon the conversion of the Preferred Shares at a
special meeting of shareholders, and at each annual meeting of shareholders thereafter, if necessary. Approval was
83
obtained at a Special Meeting of Stockholders held on November 20, 2018, and the Preferred Shares automatically
converted into 7,235,000 shares of common stock on that same day.
NOTE 13 - FOREIGN CURRENCY CONTRACTS
The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal
course of its business, which the Company manages through the use of foreign currency forward contracts. These
foreign currency contracts are not designated as hedging instruments; accordingly, changes in the fair value are
recorded in current period earnings. These foreign currency contracts had a notional value of $7,047,514 at June 30,
2020 and their maturities range from July to November 2020.
The Company records an asset or liability on the consolidated balance sheet for the fair value of the foreign currency
forward contracts. The foreign currency contract liabilities totaled $35,218 at June 30, 2020 and foreign currency
contract liabilities totaled $42,255 at June 30, 2019. The Company recorded a gain on foreign exchange contracts of
$7,615 and $52,788, which is reflected in cost of revenue for the years ended June 30, 2020 and 2019, respectively.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Contingencies
Based on information currently available, management is not aware of any other matters that would have a material
adverse effect on the Company's financial condition, results of operations or cash flows.
Legal Matters
The Company may be subject to various legal proceedings from time to time. The results of any future litigation
cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the
Company because of defense and settlement costs, diversion of management resources, and other factors. Any
current litigation is considered immaterial and counter claims have been assessed as remote.
NOTE 15 - RELATED PARTY TRANSACTIONS
On September 5, 2018, the Company entered into the Securities Purchase Agreement with MFP, pursuant to which
the Company sold the Common Shares at the Initial Closing and the Preferred Shares at the Second Closing. The
Initial Closing was completed on September 5, 2018 and the Second Closing was completed on October 23, 2018.
See Note 12 for further discussion on the Second Closing.
On December 18, 2018, the Company entered into a Loan and Security Agreement, or the MFP Loan Agreement,
with MFP, pursuant to which the Company was able to borrow up to $5,000,000, in minimum increments of
$1,000,000, from MFP during the period beginning on December 18, 2018 and ending on the earlier to occur of (i)
March 18, 2019 and (ii) certain specified events of default. Pursuant to the MFP Loan Agreement, interest accrued
on outstanding principal at a fixed per annum rate of 6.0%. In addition, the Company was obligated to pay to MFP a
fee equal to 2.0% of each advance under the MFP Loan Agreement. Concurrently with the execution of the MFP
Loan Agreement, the Company drew down $1,000,000 under the MFP Loan Agreement, which was disbursed to the
Company on December 21, 2018. On December 31, 2018, the Company repaid in full the $1,000,000 disbursed to
the Company. As of June 30, 2019, no amounts remained outstanding under the MFP Loan Agreement.
NOTE 16 - EQUITY-BASED COMPENSATION
Equity Incentive Plans
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
84
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 January 2019, the Company's Board of Directors and stockholders approved the 2019 Equity Incentive Plan, or
2019 Plan, as a successor to and continuation of the 2009 Plan. 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 will not exceed 4,243,790 shares, which is the sum of (i) 2,750,000 new shares, plus (ii) 350,343
shares that remained available for grant under the 2009 Plan as of January 16, 2019, plus (iii) 1,143,447 shares
subject to outstanding stock awards granted under the 2009 Plan.
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:
Risk free rate
Dividend yield
Volatility
Average forfeiture assumptions
June 30,
2020
0.3%-1.66%
0%
2019
1.9% - 3.0%
0 %
39.4%-48.9% 34.5% - 41.5%
1.1%
1.1 %
During the year ended June 30, 2020, the Company granted 1,899,934 options to its directors, certain members of
the executive management team and other employees at exercise prices ranging from $2.26 - $2.37. These options
vest in either quarterly or annual periods over one to three years, and expire ten years from the date of grant.
85
A summary of stock option activity for the years ended June 30, 2020 and 2019 is presented below:
Outstanding at June 30, 2018
Granted
Exercised
Canceled/forfeited/expired
Outstanding at June 30, 2019
Granted
Exercised
Canceled/forfeited/expired
Outstanding at June 30, 2020
Options vested and exercisable at June 30, 2020
Options vested and expected to vest as of
June 30, 2020
Weighted -
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Number
Outstanding
792,074 $
497,178
—
(166,500)
1,122,752
1,899,934
—
(146,792)
2,875,894
1,079,783
Per Share
4.55
2.85
—
6.17
3.55
2.36
—
4.12
2.74
3.21
6.3 $ 10,413
—
—
—
—
—
—
34,135
8.0
—
—
—
—
—
—
22,409
8.6
—
7.6
2,866,236 $
2.72
8.6 $ 22,311
The weighted average grant date fair value of options granted and outstanding at June 30, 2020 was $0.78. At June
30, 2020, the Company had $1,291,135 of unrecognized stock compensation expense, net of estimated forfeitures,
related to the options under the 2009 Plan, which will be recognized over the weighted average remaining service
period of 2.13 years. The Company settles employee stock option exercises with newly issued shares of common
stock.
During the years ended June 30, 2020 and 2019, the Company issued 417,933 and 175,758 restricted stock units to
its directors, certain members of the executive management team, and other employees. The restricted stock units
have varying vesting periods ranging from immediate vesting to quarterly or annual installments over one to three-
years. The fair value of the awards during the years ended June 30, 2020 and 2019 totaled $940,700 and $472,171,
respectively, and was based on the closing stock price on the date of grants.
The Company recorded $700,724 and $379,212 of stock-based compensation expense associated with grants of
restricted stock units during the years ended June 30, 2020 and 2019, respectively. A summary of activity related to
non-vested restricted stock units is presented below:
Nonvested restricted units outstanding at June 30, 2018
Granted
Vested
Forfeited
Nonvested restricted units outstanding at June 30, 2019
Granted
Vested
Forfeited
Nonvested restricted units outstanding at June 30, 2020
Number of Nonvested
Restricted Stock Units
Weighted-Average
Remaining Contractual
Life (Years)
Weighted-Average
Grant Date Fair Value
3.98
2.69
3.75
—
2.69
2.25
2.45
2.83
2.33
89,193 $
175,758
(107,747)
—
157,204
417,933
(177,010)
(1,324)
396,803 $
1.1
2.8
—
—
1.4
2.8
—
—
1.6
At June 30, 2020, the Company had $705,197 of unrecognized stock compensation expense related to the restricted
stock units, which will be recognized over the weighted average remaining service period of 1.55 years.
At June 30, 2020, there were 824,840 shares available under the 2019 Plan for future grants and awards.
86
Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units for
the years ended June 30, 2020 and 2019, totaled $1,167,951 and $694,610, respectively.
NOTE 17 - NON-CASH ACTIVITIES FOR STATEMENTS OF CASH FLOWS
The below table represents supplemental information to the Company's consolidated statements of cash flows for
non-cash activities during the years ended June 30, 2020 and 2019, respectively.
Purchases of equipment classified as finance lease
Contingent consideration issued
Years Ended June 30,
2020
2019
(468,390) (574,018 )
—
(4,407,887)
NOTE 18 – PAYCHECK PROTECTION PROGRAM
In response to the COVID-19 pandemic, the PPP was established under the CARES Act and administered by the
SBA. Companies who met the eligibility requirements set forth by the PPP could qualify for PPP loans. If the loan
proceeds are fully utilized to pay qualified expenses, the full principal amount of the PPP loan, along with any
accrued interest, may qualify for loan forgiveness, subject to potential reduction based on the level of full-time
employees maintained by the organization.
In April 2020, the Company received a loan of $1,958,600 under the PPP provided by CIBC. The loan bears interest
at 1.0%, with principal and interest payments deferred for the first six months of the loan. After that, the loan and
interest would be paid back over a period of 18 months, if the loan is not forgiven under the terms of the PPP.
When it applied for the loan, the Company believed it would qualify to have the loan forgiven under the terms of
PPP, and therefore considered the loan to be substantively a conditional government grant. The Company has
performed initial calculations for PPP loan forgiveness, and expects that the PPP loan will be forgiven in full
because 1) the Company has, prior to June 30, 2020, utilized all of the proceeds for payroll and other qualified
expenses and 2) the Company believes it will continue to comply with other terms and conditions necessary for
forgiveness.
As such, the Company has decided that the PPP loan should be accounted for as a government grant. As US GAAP
does not contain guidance on the accounting for government grants, the Company is following the guidance in
International Accounting Standards, or IAS, 20, Accounting for Government Grants and Disclosure of Government
Assistance. Under the provisions of IAS 20, “a forgivable loan from government is treated as a government grant
when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” As discussed
above, the Company believes there is reasonable assurance it will meet the terms of forgiveness. Under IAS 20,
government grants are recognized in income as required activities are undertaken. As the Company believes that it
completed the required activities by utilizing PPP proceeds for payroll and other qualified expenditures prior to June
30, 2020, it has recognized PPP grant income for the full amount of the PPP loan, $1,958,600, and no liability for
the PPP loan is reflected in the consolidated balance sheet as of June 30, 2020.
The Company plans to submit the PPP loan forgiveness application in the near term. Although the Company
believes it is probable that the PPP loan will be forgiven, the Company’s actions and information must be evaluated
by the lender and SBA before forgiveness is formally granted.
NOTE 19 - SUBSEQUENT EVENTS
On September 22, 2020, the Company entered into a First Amendment to Loan and Security Agreement with CIBC,
which amended the Loan Agreement. Pursuant to this amendment, the Company and CIBC agreed to:
(cid:3)
(cid:120)
decrease the amount of the revolving credit facility from $35.0 million to $25.0 million;
87
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
decrease the amount of the inventory sublimit under the revolving credit facility from $25.0 million to
$12.5 million;
increase the interest rate by 0.5% (from prime plus .50% to prime plus 1.00% and from LIBOR plus 2.50%
to LIBOR plus 3.00%), and introduce a 1.0% LIBOR floor;
suspend the Company’s financial covenant to maintain a fixed charge coverage ratio equal to or greater
than 1.10 to 1.00 until the quarter ending March 31, 2021, and waive the Company’s noncompliance with
this covenant for the quarter ending June 30, 2020;
provide that, following the fiscal quarter ending March 31, 2021, the Company must maintain a fixed
charge coverage equal to or greater than 1.15 to 1.00;
include a financial covenant requiring the Company to maintain year-to-date EBITDA of no less than
negative $6,000,000, tested quarterly, commencing with the quarter ending September 30, 2020 through
and including December 31, 2020 (this covenant will not apply for periods after December 31, 2020); and
increase the availability reserve from $5.0 million to $7.5 million upon closing, which will further increase
by $500 thousand on the last day of each month commencing November 1, 2020 until the total availability
reserve reaches $10 million.
Except as modified by the foregoing amendment, all terms and conditions of the Loan Agreement remain in full
force and effect.
88
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 June 30, 2020, or the Evaluation Date.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, means controls and other procedures of a company that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the company’s management, including its principal executive and principal financial officers, as
appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2020, 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.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Principal Executive Officer and our Principal Financial
Officer, an assessment, including testing of the effectiveness, of our internal control over financial reporting as of
the Evaluation Date. Management’s assessment of internal control over financial reporting was conducted using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal
Control—Integrated Framework, or 2013 Framework. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In
connection with our management’s assessment of our internal control over financial reporting as required under
Section 404 of the Sarbanes-Oxley Act of 2002, we have not identified any material weaknesses in our internal
control over financial reporting as of the Evaluation Date. We have thus concluded that our internal control over
financial reporting was effective as of the Evaluation Date.
This annual report does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by our registered public
accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation that have
significantly affected, or are reasonably likely to significantly affect, our internal control over financial reporting.
89
Item 9B. Other Information
On September 22, 2020, we entered into a First Amendment to Loan and Security Agreement with CIBC Bank
USA, or CIBC, which amended our Loan and Security Agreement, dated December 26, 2019, among us, Seed
Holding, LLC, Stevia California, LLC and CIBC. Pursuant to this amendment, the parties agreed to:
(cid:3)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
decrease the amount of the revolving credit facility from $35.0 million to $25.0 million;
decrease the amount of the inventory sublimit under the revolving credit facility from $25.0 million to
$12.5 million;
increase the interest rate by 0.5% (from prime plus .50% to prime plus 1.00% and from LIBOR plus 2.50%
to LIBOR plus 3.00%), and introduce a 1.0% LIBOR floor;
suspend our financial covenant to maintain a fixed charge coverage ratio equal to or greater than 1.10 to
1.00 until the quarter ending March 31, 2021, and waive our noncompliance with this covenant for the
quarter ending June 30, 2020;
provide that, following the fiscal quarter ending March 31, 2021, we must maintain a fixed charge coverage
equal to or greater than 1.15 to 1.00;
include a financial covenant requiring us to maintain year-to-date EBITDA of no less than negative
$6,000,000, tested quarterly, commencing with the quarter ending September 30, 2020 through and
including December 31, 2020 (this covenant will not apply for periods after December 31, 2020); and
increase the availability reserve from $5.0 million to $7.5 million upon closing, which will further increase
by $500 thousand on the last day of each month commencing November 1, 2020 until the total availability
reserve reaches $10 million.
Except as modified by the foregoing amendment, all terms and conditions of the loan agreement with CIBC remain
in full force and effect.
90
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by Item 10 regarding directors, executive officers, promoters and control persons is
incorporated by reference to the information appearing under the caption "Directors and Executive Officers" in our
definitive Proxy Statement relating to our next Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days after the close of our fiscal year.
Our written Code of Ethics applies to all of our directors and employees, including our executive officers, including
without limitation our principal executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions. The Code of Ethics is available on our website at
http://www.swseedco.com in the Investors section under "Corporate Governance." Changes to or waivers of the
Code of Ethics will be disclosed on the same website. We intend to satisfy the disclosure requirement under
Item 5.05 of Form 8-K regarding any amendment to, or waiver of, any provision of the Code of Ethics by disclosing
such information on the same website.
Item 11.
Executive Compensation
The information required by Item 11 is incorporated by reference to the information appearing under the caption
"Executive Compensation" in our definitive Proxy Statement relating to our next Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by Item 12 is incorporated by reference to the information appearing under the caption
"Security Ownership" in our definitive Proxy Statement relating to our next Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is incorporated by reference to the information appearing under the caption
"Certain Relationships and Related Transactions" in our definitive Proxy Statement relating to our next Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of
our fiscal year.
Item 14.
Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference to the information appearing under the caption
"Principal Accounting Fees and Services" in our definitive Proxy Statement relating to our next Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal
year.
91
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements:
Reference is made to the Index to Consolidated Financial Statements of S&W Seed Company under Item 8 in Part II
of this Form 10-K.
(2) Financial Statement Schedules:
As a smaller reporting company, no financial statement schedules are required.
(3) Exhibits:
The information required by this Section (a)(3) of Item 15 is incorporated by reference or filed with this report as set
forth on the exhibit index that follows below.
92
(b) Exhibits
INDEX TO EXHIBITS
Exhibit
Number
2.1
2.2†
2.3†
2.4
2.5
2.6
2.7
2.8
2.9
Exhibit Description
Asset Acquisition Agreement among the
Registrant, Imperial Valley Seeds, Inc.
(“IVS”), Glen D. Bornt, Fred Fabre and the
Bornt Family Trust, dated September 28, 2012
Asset Purchase and Sale Agreement between
the Registrant and Pioneer Hi-Bred
International, Inc. (“Pioneer”), dated
December 19, 2014
First Amendment to Asset Purchase and Sale
Agreement between the Registrant and
Pioneer, dated December 31, 2014
Second Amendment to the Asset Purchase and
Sale Agreement between the Registrant and
Pioneer, dated April 23, 2015
Third Amendment to Asset Purchase and Sale
Agreement between the Registrant and
Pioneer, dated July 23, 2015
Fourth Amendment to Asset Purchase and Sale
Agreement between the Registrant and
Pioneer, dated December 4, 2017
Asset Acquisition Agreement between the
Registrant, SV Genetics Pty Ltd, Seed
Genetics International Pty Ltd, David John
Holman, Alan Irvine Scott, Trevor Bailie,
Bottrell Precision Ventures, LLC and James R.
Bennett, dated May 27, 2016
Asset Purchase Agreement by and between
Novo Advisors, solely in its capacity as the
receiver for, and on behalf of, Chromatin, Inc.,
dated September 5, 2018
Asset Purchase Agreement by and between
Novo Advisors, solely in its capacity as the
receiver for, and on behalf of, Chromatin, Inc.,
dated September 14, 2018
2.10
Share Sale Agreement by and among S&W
Seed Company Australia Pty Ltd, a wholly
owned subsidiary of the Registrant, Ann
Elizabeth Damin and Robert Damin, dated
February 18, 2020
Incorporated by Reference
SEC File
Number
Exhibit
Number
Filing
Date
Filed
Herewith
001-34719
2.1
10/2/12
Form
8-K
8-K
001-34719
2.1
12/29/14
8-K
001-34719
2.1
1/7/15
10-K
001-34719
2.6
9/28/15
10-K
001-34719
2.7
9/28/15
10-Q
001-34719
2.1
2/8/18
8-K
001-34719
2.1
5/31/16
10-K
001-34719
2.8
9/20/18
10-K
001-34719
2.9
9/20/18
10-Q
001-34719 10.1
5/14/20
3.1
Registrant’s Articles of Incorporation
8-K
001-34719
3.1
12/19/11
93
3.2
3.3
4.1
4.2
4.3
10.1†
10.2†
10.3
10.4
10.5
10.6
10.7
10.8
Certificate of Designation of Preferences,
Rights and Limitations of Series A Convertible
Preferred Stock
Registrant’s Second Amended and Restated
Bylaws, together with Amendment One thereto
Reference is made to Exhibits 3.1, 3.2 and 3.3
8-K
001-34719
3.1
10/25/18
10-Q
001-34719
3.3
5/14/20
Form of Common Stock Certificate
S-3
333-219726
4.3
8/4/17
Description of Common Stock
Non-Exclusive Alfalfa Licensing and
Assignment Agreement between the Registrant
and Pioneer, dated December 31, 2014
Information Technology Transition Services
Agreement between the Registrant and
Pioneer, dated December 31, 2014
Patent License Agreement between the
Registrant and Pioneer, dated December 31,
2014
Patent Assignment Agreement between the
Registrant and Pioneer, dated December 31,
2014
Know-How Transfer Agreement between the
Registrant and Pioneer, dated December 31,
2014
Data Transfer Agreement between the
Registrant and Pioneer, dated December 31,
2014
Assignment Agreement of Plant Variety
Certificates, Plant Breeders’ Rights,
Maintenance Rights and Registration Rights
between the Registrant, Pioneer Overseas
Corporation and Pioneer, dated December 31,
2014
First Amendment to the Assignment
Agreement of Plant Variety Certificates, Plant
Breeders’ Rights, Maintenance Rights and
Registration Rights between the Registrant,
Pioneer Overseas Corporation and Pioneer,
dated April 23, 2015
8-K
001-34719 10.4
1/7/15
X
8-K
001-34719 10.6
1/7/15
8-K
001-34719 10.11 1/7/15
8-K
001-34719 10.12 1/7/15
8-K
001-34719
10.13
1/7/15
8-K
001-34719
10.14
1/7/15
8-K
001-34719
10.15
1/7/15
10-K
001-34719
10.25
9/28/15
94
10.9
Assignment and Assumption Agreement
between the Registrant and Pioneer, dated
December 31, 2014
10.10
Form of Indemnification Agreement with
Officers, Directors and Employees of the
Registrant and Subsidiaries
10.11*
Amended and Restated 2009 Equity Incentive
Plan as amended through Amendment No. 2,
forms of Stock Option Grant and Agreement,
Restricted Stock Unit Grant and Restricted
Stock Award
8-K
001-34719
10.16
1/7/15
8-K
001-34719
10.1
7/24/14
10-K
001-34719
10.34
9/28/15
10.12*
S&W Seed Company 2019 Equity Incentive
Plan (the “Plan”)
S-8
333-229625
99.1
2/12/19
10.13*
Form of Stock Option Grant Notice, Option
Agreement and Notice of Exercise under the
Plan.
10.14*
Form of Restricted Stock Unit Grant Notice
and Restricted Stock Unit Agreement under
the Plan.
10.15*
Employment Agreement between the
Registrant and Matthew K. Szot, dated April
24, 2019
10.16*
Employment Agreement between the
Registrant and Mark W. Wong, dated June 19,
2017
S-8
333-229625
99.2
2/12/19
S-8
333-229625
99.3
2/12/19
10-Q
001-34719
10.4
5/9/19
10-K
001-34719
10.35
9/20/17
10.17*
Offer Letter between the Company and Donald
Panter, dated October 22, 2018
10-K/A
001-34719 10.83 10/28/19
10.18*
Offer Letter between the Company and David
Callachor, dated October 22, 2018
10-K/A
001-34719 10.84 10/28/19
10.19†
Collaboration Agreement between the
Registrant and Calyxt, Inc., dated May 28,
2015 and entered into by the Registrant on
June 3, 2015
10.20
10.21
10.22
Registration Rights Agreement between the
Registrant and the investors named therein,
dated July 19, 2017
Registration Rights Agreement by and between
the Registrant and Mark W. Wong, dated
October 11, 2017
Secured Promissory Notes issued by the
Registrant in favor of Conterra Agricultural
Capital, LLC, dated November 30, 2017 and
10-K
001-34719
10.39
9/28/15
8-K
001-34719
99.2
7/20/17
8-K
001-34719
99.2
10/12/17
10-Q
001-34719
10.5
2/8/18
95
10.23
10.24
10.25
related documents
Registration Rights Agreement by and between
the Registrant and MFP Partners, L.P., dated
December 22, 2017
Sale and Lease Agreement by and between the
Registrant and American AgCredit, dated
August 9, 2018
Registration Rights Agreement dated
September 5, 2018, by and among the
Registrant and MFP Partners, L.P.
10.26††
Loan and Security Agreement by and among
the Registrant, Seed Holding, LLC, Stevia
California, LLC, and CIBC Bank USA, dated
December 26, 2019
10.27
10.28
10.29
First Amendment to Loan and Security
Agreement by and among the Registrant, Seed
Holding, LLC, Stevia California, LLC, and
CIBC Bank USA, dated September 22, 2020
Amendment to Note between the Registrant
and Rooster Capital LLC, dated December 24,
2019
Business Letter of Offer between National
Australia Bank Limited and S&W Seed
Company Australia Pty Ltd, dated February
17, 2020
10.30
Business Letter of Offer between National
Australia Bank Limited and Pasture Genetics
Ptd Ltd, dated February 17, 2020
10.31††
Termination Agreement by and between the
Registrant and Pioneer Hi-Bred International,
Inc., effective as of May 20, 2019
10.32††
Alfalfa License Agreement by and between the
Registrant and Pioneer Hi-Bred International,
Inc., effective as of May 20, 2019
21.1
Subsidiaries of the Registrant
23.1
Consent of Independent Registered Public
Accounting Firm
24.1
Power of Attorney (see signature page)
31.1
Chief Executive Officer Certification pursuant
to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended
96
S-3
333-222916
4.17
2/7/18
10-K
001-34719
10.73
9/20/18
8-K
001-34719
10.3
9/6/18
10-Q
001-34719 10.1
2/12/20
10-Q
001-34719 10.2
2/12/20
X
X
X
X
X
X
X
X
X
X
X
X
X
31.2
Chief Financial Officer Certification pursuant
to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended
32.1**
Chief Executive Officer Certification pursuant
to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
Chief Financial Officer Certification pursuant
to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from the Company's
Annual Report on Form 10-K for the fiscal
year ended June 30, 2020, formatted in XBRL
(eXtensible Business Reporting Language): (i)
the Consolidated Balance Sheets at June 30,
2020 and June 30, 2019; (ii) the Consolidated
Statements of Operations for the Fiscal Years
Ended June 30, 2020 and 2019; (iii) the
Consolidated Statements of Comprehensive
(Loss) Income for the Fiscal Years Ended June
30, 2020 and 2019; (iv) the Consolidated
Statement of Stockholders' Equity; (v) the
Consolidated Statement of Cash Flows for the
Fiscal Years Ended June 30, 2020 and 2019;
and (vi) the Notes to Consolidated Financial
Statements
†
Portions of this exhibit have been omitted pursuant to an Order Granting Confidential Treatment under the
Securities Exchange Act of 1934, as amended.
†† Certain portions of this exhibit (indicated by “[***]”) have been omitted as the Registrant as determined (i)
the omitted information is not material and (ii) the omitted information would likely cause harm to the
Registrant if publicly disclosed
* Management contract or compensatory plan or arrangement.
** This certification accompanies the Form 10-K 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-K), irrespective of any general incorporation language contained in
such filing.
Item 16.
Form 10-K Summary
None.
97
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 23, 2020
S&W SEED COMPANY
By: /s/ Mark W. Wong
Mark W. Wong
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Mark W. Wong and Matthew K. Szot, or any of them, his attorneys-in-fact, for such person in any and all
capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either
of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Mark W. Wong
Mark W. Wong
/s/ Matthew K. Szot
Matthew K. Szot
/s/ Mark J. Harvey
Mark J. Harvey
/s/ David A. Fischhoff
David A. Fischhoff
/s/ Consuelo E. Madere
Consuelo E. Madere
/s/ Alexander C. Matina
Alexander C. Matina
/s/ Charles B. Seidler
Charles B. Seidler
/s/ Robert D. Straus
Robert D. Straus
/s/ Alan D. Willits
Alan Willits
Title
President, Chief Executive Officer and
Director (Principal Executive Officer)
Executive Vice President, Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
September 23, 2020
September 23, 2020
Chairman of the Board
September 23, 2020
September 23, 2020
September 23, 2020
September 23, 2020
September 23, 2020
September 23, 2020
September 23, 2020
Director
Director
Director
Director
Director
Director
98
Offi cers & Directors
OFFICERS & EXECUTIVE MANAGEMENT
Mark M. Wong
Chief Executive Offi cer
BOARD MEMBERS
Mark J. Harvey, Chairman
Chairman of the Board, S&W Seed Company
Matthew K. Szot
Chief Financial Offi cer, Executive Vice President of Finance & Administration
Mark M. Wong
Chief Executive Offi cer, S&W Seed Company
David Callachor
Executive Vice President, International
Don Panter
Executive Vice President, Americas
MANAGEMENT
Dennis Jury
SVP, International Production & Supply Chain
Kirk Rolfs
SVP, Production and Supply Chain for the Americas
Steve Calhoun
Vice President of Research & Development
Mike Eade
Vice President of Sales & Marketing, Americas
Andrea McFarlane
Director Human Resources
Cameron Henley
Commercial Lead MENA
Ernst Topitschnig
Commercial Lead Europe
David A. Fischhoff
Monsanto Company, retired
Consuelo Madere
Monsanto Company, retired
Alexander C. Matina
Vice President, Investments at MFP Investors LLC
Charles B. Seidler
Portfolio Manager, City Financial Hedge Fund Group
Robert D. Straus
Portfolio Manager, Wynnefi eld Capital
Alan Willits
Chairman of Cargill Asia Pacifi c and leads Cargill’s
Agriculture Supply Chain, retired
CORPORATE HEADQUARTERS
S&W Seed Company
2101 Ken Pratt Blvd., Suite 201
Longmont, CO 80501 United States
www.swseedco.com
INDEPENDENT REGISTERED PUBLIC AC-
COUNTING FIRM
Crowe LLP
San Francisco, CA
STOCK EXCHANGE LISTING
S&W Seed Company’s common stock is traded on
the NASDAQ Capital Market under the symbol SANW.
TRANSFER AGENT & REGISTRAR
Transfer Online, Inc.
512 SE Salmon Street
Portland, OR 97214
www.transferonline.com
FORM 10-K
The Company’s complete fi lings with the Securities and Exchange Commission, including the Form 10-K included in the report and all
exhibits, are available without charge through the Company’s website at www.swseedco.com under “Investor Relations” as well as on
the SEC’s website at www.sec.gov.
FORWARD-LOOKING STATEMENTS
This report contains statements that discuss our future expectations, contains projections of our results of operations and fi nancial
condition and includes other forward-looking statements within the meaning of Section 27A of the Securities and Exchange Act of 1933,
as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Our actual results may differ signifi cantly and
materially from those expressed in these forward-looking statements as a result of risks and uncertainties, including those detailed in
our Annual Report on Form 10-K. We disclaim any intent or obligation to update these forward-looking statements, and you should not
unduly rely on them.
NASDAQ: SANW
S&W Seed Company
Corporate Headquarters
2101 Ken Pratt Blvd., Suite 201
Longmont, CO 80501-6085
United States
+1(720) 506-9191
www.swseedco.com
www.alfalfapartners.com
www.sorghampartners.com
S&W Seed Company
Australia Headquarters
Offi ce 2, 7 Pomona Road
Stirling SA 5152
Australia
+61 88271 6000
www.swseedco.com.au