ANNUAL
REPORT
2021
NASDAQ: SANW
OUR EVOLUTION TO A SEED
TRAIT TECHNOLOGY COMPANY
|S&W Seed Company|
Founded in 1980, S&W Seed Company is a global leader in proprietary alfalfa and
sorghum seeds, with signifi cant research and development, production and distribution
capabilities. S&W’s product portfolio also includes hybrid sunfl ower, wheat, and pasture
seeds and we are utilizing our research and breeding expertise to develop and produce
stevia, an all-natural, zero calorie sweetener for the food and beverage industry.
Our vision is to be the world’s preferred proprietary seed company which supplies a range
of forage, grain and specialty crop products that supports the growing global demand for
animal proteins and healthier consumer diets.
|Core Crop Portfolio|
A DIVERSIFIED MIDDLE MARKET AGRICULTURAL PLATFORM
Alfalfa / Lucerne
Sorghum
Sunflower
Pasture
Wheat
Stevia
We were extremely pleased by the positive response to
Double TeamTM by the growers across the Great Plains
that were part of the 2021 limited launch. Their real-world
validation of the benefi ts of Double TeamTM to minimize
grassy weeds reconfi rms our convictions in the long-term
benefi ts to sorghum farmers.
-Mark Wong, S&W Seed Company CEO
|Dear Shareholders|
OUR EVOLUTION TO A SEED TRAIT TECHNOLOGY COMPANY
We took a number of important steps forward in the execution of our strategic plan to evolve S&W into an integrated
agricultural seed technology company during the past year.
Key to that progress was the commercial launch of our fi rst ever company-developed trait technology product, a non-GMO
herbicide tolerant sorghum solution we call Double TeamTM. Double TeamTM is a collaboration between S&W Seed Company
and ADAMA Ltd. allowing growers' over-the-top use of ADAMA's FirstActTM herbicide. Historically, sorghum growers have
been unable to control grassy weeds which rob water and nutrients from the crop. As a result, we believe Double TeamTM has
the potential to revolutionize the sorghum market in the same way other weed control technologies have enhanced yields
for other crops such as corn, soybeans, and cotton. Further, we believe the introduction of the Double TeamTM sorghum
system has the potential to signifi cantly expand the size of the overall sorghum market. We have a lot of work to do, but
the real-world validation of the benefi ts of Double TeamTM to minimize grassy weeds during the 2021 pilot launch with key
growers reconfi rms our convictions of the long-term benefi ts of using our Double TeamTM sorghum solution.
Untreated Sorghum
Treated with Double TeamTM
Another key development this past year was our entry into an exclusive U.S. stevia pilot production supply agreement
with Ingredion, the world’s largest stevia producer. Currently, the vast majority of stevia is grown in Asia. In order to move
production to the United States, we needed to demonstrate the ability to effectively produce large quantities of stevia in the
United States at comparable prices. We believe we recently made a signifi cant leap forward by validating effi cacy of stevia
production in the southeastern United States by leveraging our stevia germplasm as well as a unique seed-to-plant process
and mechanical harvesting system which we expect to dramatically reduce overall production costs. We are excited to work
with Ingredion under this pilot production supply agreement to further validate and expand upon our capabilities to date. If
we are successful in the pilot production agreement, this could potentially provide us with a signifi cant opportunity going
forward.
Further, we made advancements in our Improved Quality Alfalfa (IQATM) program, a gene-edited product to down regulate
lignin synthesis and improve forage digestibility in ruminants, as well as our Dhurrin Free Sorghum (DFTM) program, which
removes naturally toxic metabolite from stressed forage sorghum resulting in safer grazing and hay. Both programs allow
us to bring proprietary traits to the market, helping to transition our operations from lower, commodity type margins, to high-
value proprietary technology margins.
As with any agricultural company, we refrain from managing operations with a view on only a quarterly, or even annual
basis. We look well into the future, as product development timelines are lengthy and sales seasons are typically just once
a year in each hemisphere. However, we see an opportunity where there are signifi cant barriers to entry, as high value
proprietary products have long commercial lifespans and customers typically remain loyal. For this reason, we released a
Technology Deck this fi scal year which included our 3-, 5-, and 10-year fi nancial visions. We have included key aspects of
that presentation in this annual report for your review. At the core of our vision is the transition of a company with minimal
trait technology integration and low gross margins, to one with non-GMO seed traits integrated throughout our portfolio that
can generate gross margins in line with other seed trait technology companies. This expansion into high margin technology
products, coupled with growth in our core crops, has the ability to transform S&W in the coming years with signifi cant
earnings capabilities.
That said, we still need to operate the business on a day-to-day basis and 2021 presented numerous challenges to us as the
COVID-19 pandemic had a signifi cant negative impact on logistics and supply chain, as experienced in several industries
across the globe. These challenges contributed to delayed shipments to our customers and increased our costs of goods
sold. Fortunately, we were able to meet customer planting windows, but did have revenue that was originally expected to be
recognized in fi scal 2021 transition into fi scal 2022. We have taken a number of steps to mitigate some of these logistical
challenges, but generally expect these challenges to persist throughout fi scal 2022 as well. We have also undertaken
We believe Double TeamTM 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.
-Mark Wong, S&W Seed Company CEO
several strategic initiatives designed to drive improved operating results going forward, including the implementation of
price increases on the majority of our products to address overall rising costs and to more properly refl ect the value of our
proprietary products. Fortunately, the demand for our products is strong and we expect the macro agricultural tailwinds
should remain in our favor as agricultural commodity prices remain near multi-year highs.
We believe we have the right products, for the right markets and the right team in place to generate shareholder value.
The launch of our trait technology products has the potential to transform S&W into a high growth, high margin business
with multiple licensing and technology trait capabilities. Our initial customer and market surveys indicate grower demand/
adoption is expected to be strong for our lead products and we believe we have one of the industry’s most accomplished
management teams and board of directors in bringing to market high value trait technologies.
We thank you all for your continued support of S&W and are dedicated to the realization of our vision in the years to come.
Mark Harvey
Chairman of the Board
Mark Wong
Chief Executive Offi cer
|Our Vision|
THE LAUNCH OF OUR PROPRIETARY NON-GMO TRAIT
technology in FY21 is expected to transform the operating profi le
of S&W into a high growth, high margin business.
MORE THAN HALF OF OUR GROSS PROFIT CONTRIBUTION
over next decade is expected to come from new technology
products.
THE DEVELOPMENT OF THREE NEW TECHNOLOGIES,
Double Team™, Improved Quality Alfalfa, and Dhurrin-Free
Sorghum, should provide crop and geographic diversifi cation.
OUR 40 YEAR OPERATING HISTORY CREATES A UNIQUE
opportunity to leverage our large and existing customer base and
business operations where we have long standing relationships
across many product lines in which we can introduce new trait
technology products.
WE BELIEVE OUR FOCUS ON CROPS IN WHICH THE INDUSTRY
has had minimal technological investment over the years
provides us with the opportunity to become a market-share
leader with new product introductions and innovations.
WE BELIEVE MIDDLE MARKET CROPS WILL BE KEY GROWTH
driver in years to come.
WE BELIEVE OUR STEVIA PILOT PRODUCTION PROGRAM
with Ingredion (Nasdaq: INGR) should help to drive revenue
growth in the future.
Novel Trait Product
Development Timeline
CREATING INNOVATION IN CROPS THAT HAVE HISTORICALLY BEEN UNDER INVESTED
At S&W, we are utilizing our R&D engine to create new value through advanced technology and partnerships with leading
biotech companies and universities with the goal of helping customers deploy new technology in crop portfolio and increase
value on the farm. Pathways include in-house development, licensing from third party technology developers, and licensing
from land grant universities.
Proprietary Traits Development
and Anticipated Launch Timing
S&W’S ONGOING EVOLUTION TO A NON-GMO SEED TRAIT TECHNOLOGY COMPANY
Over the past few years, S&W has made signifi cant progress toward its evolution into a completely integrated agricultural
seed company. Key to that transformation has been the development and commercialization of our proprietary seed trait
technology products. With a highly accomplished management team that has successfully developed, marketed, licensed,
and sold similar trait technologies over the years, we believe the Company is entering a new era. Below is our current
pipeline of trait technology products and anticipated launch timing.
Lead Novel Commercial
T r a i t T e c h n o l o g i e s
THE LAUNCH OF OUR THREE NEW TRAIT TECHNOLOGY PRODUCTS IS EXPECTED TO PROVIDE
S&W WITH AN OPPORTUNITY FOR SIGNIFICANT EARNINGS.
LAUNCHED SPRING 2021
Double TeamTM Sorghum (DTTM) has non-GMO tolerance
to broad spectrum grass herbicide. There is currently no
other effective post-emergence control for tough grassy
weeds in sorghum that is commercially available.
DTTM is designed to improve yields in sorghum fi elds and
expand acres of drought-tolerant sorghum, replacing
herbicide-tolerant but water-hungry corn.
ANTICIPATED LAUNCH SPRING 2022
Developed in partnership with leading biotech company,
Calyxt, Inc., Improved Quality Alfalfa (IQATM) is gene-
edited to down-regulate lignin synthesis and improve
forage digestibility in ruminants.
Alfalfa is a critical component in dairy rations. Improved
digestibility increases effi ciency of dairy operations,
resulting in more milk per ton of feed, higher income for
alfalfa producers, and reduced dietary wastage.
ANTICIPATED LAUNCH 2023
Dhurrin Free Sorghum (DFTM) removes naturally toxic
metabolite from stressed forage sorghum resulting in
safe, worry-free grazing and hay.
Dhurrin is a natural toxin that sorghum produces to
protect itself from grazing animals when the plant is
under stress from drought, temperature fl uctuation or
other conditions. In some circumstances, the biproducts
of dhurrin metabolism, prussic acid, can kill livestock.
Genetically removing dhurrin eliminates the risk of grazing
or producing hay from stressed sorghum fi elds.
Double TeamTM Sorghum (DTTM)
Improved Quality Alfalfa (IQATM)
Dhurrin Free Sorghum (DFTM)
|Trait Technology Goals|
1
Our primary goal is to solve customer crop
production problems for which there is no current
solution through novel seed-based technology
such as:
• Eliminating grassy weeds in sorghum
• Reducing lignin to improve digestibility in alfalfa
• Removing dhurrin to effectively remove toxicity in grazed
sorghum therefore increasing productivity of farmer
fi elds
2
3
Continue to share value creation among our
partners and stakeholders, including:
• S&W Seed Company employees and shareholders
• Technology partners
• End customer and farmers
• Distribution channel
Continue to drive towards profi tability through:
• Deploying new technologies across multiple crop and
product lines
• Expanding private label relationships with key distribution
partners
• Licensing traits to industry partners
Total Company Revenue
a n d E B I T D A V i s i o n
FINANCIAL VISION
We have conducted substantial market research to assess the combined potential opportunity for our three lead trait technology
products and core non-tech business. This included surveys with growers, distributors, potential licensees and industry experts,
among others. Based on this market research and management’s estimates and assumptions of market share, technology
prices and anticipated continued growth of the existing core business, we provided the following mid- and long-term fi nancial
vision. The following is intended to provide a guide as to the potential fi nancial opportunity for S&W. While subject to risk and
uncertainty, and our company’s performance as compared to various estimates and assumptions, we believe the following
provides useful insight into management’s view regarding the potential growth opportunities for the business, and how
management intends to measure the success of its planned commercial launch of our three lead trait technology products.
Revenue Excluding Acquisitions
Revenue from Tech Products
(Seed + Tech + License)
Revenue excluding Tech
Products
Combined Gross Profi t Margins
Adjusted EBITDA
Adjusted EBITDA Margins
3 Year Vision
(FY24)
$130M
$12M
$118M
35%
$13M
10%
5 Year Vision
(FY26)
$176M
$35M
$141M
41%
$34M
19%
10 Year Vision
(FY31)
$234M
$70M
$164M
48%
$69M
30%
For additional detail regarding our assumptions, refer to our Seed Trait Technology Development and Commercialization Update presentation issued in December 2020.
Signifi cant Earnings Power
Through Tech Products
REVENUE VISION
Fiscal Year Ends June
($ in millions)
$234
$70
$164
$176
$35
$141
$130
$12
$118
Revenue Excluding Tech Products
Revenue from Tech Products
ADJUSTED EBITDA VISION
Fiscal Year Ends June
($ in millions)
$69
$34
$13
Adjusted EBIDTA
2020 revenue excluding product revenue attributable to Pioneer, which the company defi nes as Core Revenue. Numbers may not equate due to rounding.
|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
Total Operating Expenses
Loss From Operations
Other Expenses
Foreign currency (gain) loss
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 tax
Net Loss
Net income (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
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
2021
$ 84,049,036
70,372,139
13,676,897
21,867,529
8,515,786
5,469,581
(1,906,738)
33,946,158
(20,269,261)
(94,214)
--
(4,016,904)
--
--
689,514
2,283,215
(19,130,872)
(24,358)
$ (19,106,514)
64,453
$ (19,170,967)
(0.55)
34,590,883
CORE REVENUE
$ in millions
TOTAL REVENUE
$ in millions
$69.8
$59.9
$37.9
$24.6
Core Revenue
Pioneer Seed Revenue
Pioneer License Revenue
$84.0
$14.2
$69.8
$109.7
$34.2
$79.6
$19.7
$59.9
$37.6
$37.9
$64.1
$39.5
$24.6
Core Revenue is defi ned as total revenue, excluding product revenue attributable to Pioneer. Numbers may not equate due to rounding.
|Disclaimers|
FORWARD LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" describe future expectations, plans, results,
or strategies and are generally preceded by words such as "may," "future,” "plan" or "planned,” "will" or "should,” "expected,” "anticipates,”
"draft,” "eventually" or "projected.” Forward-looking statements in this release include, but are not limited to: contributions of current and
future technology products to our fi nancial performance, including the related underlying projections and assumptions; fi nancial projections,
including core revenue and revenue from tech products; commercialization plans and our ability to leverage our industry experience and
customer base to achieve our commercialization plans; pipeline product development and launch timing; potential benefi ts of our Double
TeamTM Sorghum, Improved Quality Alfalfa and Dhurrin-Free Sorghum products and key growth assumptions related to such products;
and the execution of our strategy and commercial plans. You are cautioned that such statements are subject to a multitude of risks and
uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking
statements, including the risks that our research and development efforts may not yield the anticipated benefi ts; sales of our tech products
may be lower than anticipated; our strategy may not achieve the expected results; global pandemics and other health crises, such as
COVID-19, may continue to negatively impact our operations and fi nancial results; and the risks associated with our ability to successfully
optimize and commercialize our business. These and other risks are identifi ed in our fi lings with the Securities and Exchange Commission,
including, without limitation, our Annual Report on Form 10-K for the year ended June 30, 2021 and in other fi lings subsequently made by the
Company with the Securities and Exchange Commission. All forward-looking statements contained in this press release speak only as of
the date on which they were made and are based on management’s assumptions and estimates as of such date. We do not undertake any
obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future
events or otherwise.
NON-GAAP FINANCIAL MEASURES
In addition to fi nancial measures included in this report that are calculated in accordance with accounting principles generally accepted in
the United States of America ("GAAP"), the Company has provided the following non-GAAP fi nancial measures in this presentation: adjusted
EBITDA; and adjusted EBITDA margins. S&W uses these non-GAAP fi nancial measures internally to facilitate period-to-period comparisons
and analysis of its operating performance and liquidity, and believes they are useful to investors as a supplement to GAAP measures in
analyzing, trending and benchmarking the performance and value of the Company's business.
However, these measures are not intended to be a substitute for those reported in accordance with GAAP. These measures may be different
from non-GAAP fi nancial measures used by other companies, even when similar terms are used to identify such measures. Adjusted EBITDA
is a non-GAAP fi nancial measure that we defi ne as GAAP net income (loss), adjusted to exclude non-recurring transaction costs, depreciation
and amortization, non-cash stock-based compensation, foreign currency (gain) loss, change in contingent consideration liability, reduction
of anticipated loss on sub-leased land, interest expense – amortization of debt discount, interest expense, and provision (benefi t) for income
taxes.
We believe that the use of adjusted EBITDA is useful to investors and other users of the Company's fi nancial statements in evaluating
our operating performance because it provides them with an additional tool to compare business performance across companies and
across periods. We use these non-GAAP measures in conjunction with traditional GAAP operating performance measures as part of our
overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate the
effectiveness of our business strategies and to communicate with our board of directors concerning our fi nancial performance.
Management does not place undue reliance on adjusted EBITDA as its only measure of operating performance. Adjusted EBITDA should
not be considered as a substitute for other measures of fi nancial performance reported in accordance with GAAP. The Company has not
reconciled adjusted EBITDA to net income (loss) because the Company has not provided assumptions for the other line items that are
reconciling items, including depreciation, amortization, interest expense and stock-based compensation, among others. As these items
are out of the Company's control and cannot be reasonably predicted, the Company is unable to provide such an outlook. Accordingly,
reconciliation of these non-GAAP measures to their most directly comparable GAAP measures is not available without unreasonable effort.
[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 001-34719
S&W SEED COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(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
☐ Yes ☒ 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.
☐ Yes ☒ 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.
☒ Yes ☐ 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).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☒
☐
Accelerated filer
Smaller reporting company
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ 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 $38,015,909.
The number of shares outstanding of common stock of the registrant as of September 27, 2021 was 36,777,094.
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, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
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S&W SEED COMPANY
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2021
TABLE OF CONTENTS
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
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
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,”
“designed,” “estimate,” “expect,” “intend,” “may,” “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:
•
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, or the Annual Report, and that are otherwise described or
updated from time to time in our filings with the Securities Exchange Commission.
You are urged to carefully review the disclosures made concerning risks and uncertainties that may affect our
business or operating results, which include, among others, those described above.
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 2021,” “fiscal 2020,” and “fiscal 2019” in this
Annual Report on Form 10-K refer to the respective fiscal year ended June 30, 2021, 2020 and 2019, 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.
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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 20 new products during the 2022-2023 fiscal years.
Founded in 1980, we began our operations as a limited producer of non-dormant alfalfa seed varieties bred for warm
climates and high-yields, including varieties that can thrive in poor, saline soils. Over the years we have built a
diversified, global agricultural platform through a combination of organic growth and strategic acquisitions and
collaborations, including:
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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;
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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 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-
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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
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 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 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 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 20
new products during the 2022-2023 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 completed a Spring 2021 pilot 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. 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 200 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
Genetics International) into our proprietary germplasm. We also are evaluating commercialization options for alfalfa
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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 2022-2023.
We recently completed a Spring 2021 pilot 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 approximately six high-yield sunflower hybrids in the market. Our
research and development programs in Australia and Europe has focused 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 and the Middle East and North
Africa region.
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 distribute to growers.
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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 dual purpose varieties which we believe have the potential to offer
a number of benefits to Australian wheat growers as compared to existing commercial varieties, including forage
potential, 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, 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.
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 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 Idaho, Texas and Australia; although in
some markets (for example, California) we use third-party processing services. We believe that direct 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.
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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
performance 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:
• 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 Barenbrug Group and PGG Wrightson Seeds Ltd. In Australia, we also face
competition from smaller companies offering non-proprietary seed.
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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 and Limagrain.
• Australian Wheat. Our principal competitors in the Australian wheat market are AGT, LongReach Plant
Breeders Pty Ltd., and InterGrain.
• Pasture Seed. Our principal competitors in the Australian pasture seed market are the Barenbrug Group,
PGG Wrightson Seeds Ltd. And Seedforce, a subsidiary of RAGT.
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;
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•
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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;
• 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, 2021 totaled $8.5 million compared to $7.3 million
in the year ended June 30, 2020.
Employees
As of September 27, 2021, we had 195 total employees, of which 171 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.
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
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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 COVID-19 pandemic, have had and may continue to have an adverse
impact on our business, operations and the markets and communities in which we, our partners and customers
operate.
As a result of the COVID-19 pandemic, we have and may in the future experience disruptions that have adversely
impacted our business, including:
• 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.
• Approximately 30% of our sales revenue depends on cross-border export of seed products from our
primary production areas in the United States and Australia. We have experienced significant disruption in
cross-border shipments resulting, from reduced capacity of the global shipping network and quarantine
measures.
• Approximately 70% of our sales revenue is from dealers and distributors in the United States and Australia.
Disruption in shipments resulting from reduced capacity of the trucking and logistics network and
quarantine measures have adversely impacted our business.
• 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.
• 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.
• 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. Throughout
the COVID-19 pandemic, in part in response to the many stay-at-home, shelter-in-place and other
quarantine measures implemented by national, state and local governments in our target markets,
we shifted our sales activities to video conferencing and similar customer interaction models. We have
found these alternative approaches to generally be less effective than in-person sales efforts, and this had
contributed in certain instances to a decrease in sales revenue and a negative impact on our business and
financial results.
• 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.
• 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,
our customers may be unable to repay their obligations to us when due, which could adversely affect our
results and financial condition.
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• 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 adverse effects on our business and financial condition due to the COVID-19 pandemic
have negatively impacted our financing terms and our stock price. This, in turn, has negatively affected our
ability to raise capital on terms acceptable to us, and therefore our liquidity.
• We are subject to various affirmative and negative covenants in our loan agreements with our lenders. The
effects of COVID-19 on our business and financial condition have, in part, caused us to fall out of
compliance with our fixed charge coverage ratio covenant under our CIBC facility as of June 30, 2021. On
September 27, 2021, the CIBC loan agreement was amended, and, among other things, CIBC waived the
fixed charge coverage ratio covenant as of June 30, 2021 and suspended its applicability prospectively until
the quarter ending March 31, 2022. In the future, we may fall out of compliance with one or more other
covenants. If we are unable to secure a future 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. 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.
• 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
minimized 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.
We need to raise additional capital in the future. If we are unsuccessful in attracting new capital, we may not be
able to continue operations or may be forced to sell assets to do so. Alternatively, capital may not be available to
us on favorable terms, or if at all. If available, financing terms may lead to significant dilution of our
stockholders’ equity.
We are not profitable and have had negative cash flow from operations for the last several years. To help fund our
operations, we have in part relied on equity and debt financings. We currently anticipate that our cash and cash
equivalents may be sufficient to enable us to fund our operations for at least the next 12 months. However, we will
need to obtain additional funds to finance our operations in the future, and we could spend our available financial
resources much faster than we currently expect. Our loan and security agreement with CIBC Bank USA, or CIBC,
and our secured promissory notes with Conterra Agriculture Capital, LLC contain various operating and financial
covenants, and the COVID-19 pandemic has increased the risk of our inability to comply with these covenants,
which could result in acceleration of our repayment obligations and foreclosure on our pledged assets. For example,
we were not in compliance with certain of these covenants as of June 30, 2021 and we were required to obtain
waivers and/or amendments from CIBC and Conterra. We believe it is uncertain if we will be able to generate
sufficient cash flow from operations or maintain sufficient liquidity to meet these covenants. These factors raise
substantial doubt regarding our ability to continue as a going concern. If we are unable to meet these covenants, we
will need to raise additional capital in the future to enhance our working capital. 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. There can be no assurance that we will be
successful in raising additional capital or securing future amendments from CIBC or our other lenders. If we are
12
unable to raise sufficient additional capital or secure future amendments, we may need to reduce the scope of our
operations, repay amounts owing to our lenders or sell certain assets. 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.
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.
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
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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.
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
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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
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
15
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.
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
16
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.
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.
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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;
•
•
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;
• minimizing potential adverse effects on existing business relationships with other suppliers and customers;
•
•
•
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.
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
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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, and anticipate that we will need to make a capital
infusion into S&W Australia in the near future. S&W Australia's financial dependency upon us could have a
negative adverse effect upon our financial condition.
S&W Australia is dependent on a group of seed growers and a favorable pricing model for alfalfa seed
production.
S&W Australia relies on a group of approximately 50 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 a Production Fee for compliant
seed. The Production Fee is advised each year at the time of crop harvest but no later than May 31 and is based on
carryover stock, estimated size of harvest and prevailing and estimated market values. Following the grower’s
delivery of uncleaned seed to a milling facility, S&W Australia typically pays 40% of the Production Fee to the
grower based on pre-cleaning weight. Following this initial payment, S&W Australia makes two equal progress
payments to the total of the Production Fee in September and December and, if applicable, a bonus payment for
“first grade” alfalfa seed. The final amount payable to each grower is also subject to adjustment based upon the
clean weight of the seed grown. Once the Production Fee has been advised each year S&W Australia is committed
to payment amounts and timing exposing it to adverse changes in market values due to price and currency
fluctuations.
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
2021 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.
20
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. 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. 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 40 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 coverage ratio. 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 the quarter ended June 30, 2021,
we were not in compliance with the fixed charge coverage ratio under our loan agreement with CIBC. On
September 27, 2021, we entered into an amendment with CIBC which, among other things, waived this non-
compliance and suspended our quarterly fixed charge coverage ratio covenant until the quarter ending March 31,
2022. This amendment also established a minimum EBITDA covenant for the quarters ending September 30, 2021
and December 31, 2021, and on ongoing minimum liquidity covenant requiring us to maintain minimum liquidity of
not less than $3,000,000 as of the last day of each quarter beginning September 30, 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. 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 Coronavirus Aid, Relief,
and Economic Security Act, or 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.
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:
•
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
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.
24
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.
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.
25
Item 2.
Properties
The following is a description of our material properties:
Location
Size
Primary Use
Leased or Owned
Dumas (Moore County),
Texas
9,021 sq. ft.
Warehouse storage
Owned by S&W
Kern County, California
584 acres
Keith, South Australia
8.2 acres
Keith, South Australia
Longmont (Boulder
County), Colorado
58 acres
8,948 sq. ft.
Lubbock (Lubbock
County), Texas
Lubbock (Lubbock
County), Texas
Nampa (Canyon County),
Idaho
41,380 sq. ft.
1,972 sq. ft.
80 acres (approx.)
Nampa (Canyon County),
Idaho
16 acres
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.
Szeged, Hungary
Tamworth, New South
Wales
13 acres
15,392 sq. ft.
Tifton (Tift County),
Georgia
Toowoomba, Queensland
3,000 sq. ft.
12,110 sq. ft.
Tulia (Swisher County),
Texas
Victoria (Victoria County),
Texas
Wingfield, South Australia
12,000 sq. ft.
2,400 sq. ft.
17,200 sq. ft.
Farmland suitable for
farming alfalfa seed and
alfalfa hay
Processing facility
Leased by S&W
Owned by S&W Australia
Research farm
Corporate Headquarters for
S&W
Leased by S&W Australia
Leased by S&W
Research facilities and
warehouse storage
Laboratory and general
office
Alfalfa research and
development facilities
Leased by S&W
Leased by S&W
Owned by S&W
Milling facilities
Owned by S&W
Leased by S&W
Leased by S&W
Owned by S&W
Leased by S&W Australia
Leased by S&W Australia
Leased by S&W Hungary
Leased by S&W Hungary
Leased by S&W Australia
Leased by S&W
Leased by S&W Australia
Leased by S&W
Leased by S&W
Leased by S&W Australia
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
Research and development
and warehousing and
production storage
Research facilities
Research and development
and warehousing and
production storage
Warehouse storage
Research facilities and
warehouse storage
Warehousing and
production storage
26
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.
27
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 24, 2021 was $3.03.
Year Ended June 30, 2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended June 30, 2021
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$
$
3.13 $
2.57
3.00
2.50
3.98 $
3.54
4.36
4.12
2.21
1.92
1.75
1.67
2.21
2.15
2.85
3.33
Holders
As of September 27, 2021, we had 36,777,094 shares of common stock outstanding held by 32 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 2021 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 2021 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.
28
Item 6.
Selected Financial Data
As a smaller reporting company, we are not required to provide information typically disclosed under this item.
29
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:
•
•
•
•
•
•
•
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., which we jointly refer to as 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 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;
30
• Our 2019 license of commercialized and developmental wheat germplasm from Corteva, through
which we entered the largest grain crop market in Australia;
• Our 2020 acquisition of Pasture Genetics Ltd., or Pasture Genetics, the third largest pasture seed
company in Australia, which further diversified our product offerings in Australia and strengthened our
Australian sales team and distribution relationships;
• Our 2020 collaboration with ADAMA Ltd., or ADAMA, a subsidiary of China National Chemical
Engineering Co Ltd., or ChemChina, to bring to the U.S. sorghum market the DoubleTeam™ grassy
weed management system, consisting of ADAMA’s proprietary herbicides and our non-GMO,
herbicide tolerant sorghum hybrids; and
• Our 2020 licensing agreement with The Agricultural Alumni Seed Improvement Association, Inc., an
affiliate of Purdue University in West Lafayette, IN, to develop and commercialize worldwide a non-
GMO, dhurrin-free trait in sorghum species, which essentially eliminates potential livestock death
from hydrogen cyanide poisoning when grazing sorghum
In 2019, we restructured our relationship with Corteva (parent company of Pioneer), under which, among other
things:
• We received $45.0 million in fiscal 2019, approximately $16.7 million in fiscal 2020 and approximately
$8.3 million in fiscal 2021.
• Corteva received a fully pre-paid, exclusive license to produce and distribute certain of our alfalfa varieties
world-wide (except South America). The licensed varieties include certain of our existing commercial
conventional (non-GMO) alfalfa varieties and six pre-commercial dormant alfalfa varieties. Corteva
received no license to our other commercial alfalfa varieties or pre-commercial alfalfa pipeline products
and no rights to any future products developed by us.
• We assigned to Corteva grower production contract rights, and Corteva assumed grower production
contract obligations, related to the licensed and certain other alfalfa varieties.
• Our prior Distribution Agreement, related to conventional (non-GMO) alfalfa varieties, and Contract
Alfalfa Production Services Agreement, related to GMO-traited alfalfa varieties, with Corteva both
terminated. Under the Distribution Agreement, Corteva was obligated to make minimum annual purchases
from us.
As a result of the 2018 Chromatin acquisition, the 2019 restructuring of our relationship with Corteva and our
February 2020 acquisition of Pasture Genetics, we expect that our results of operations for fiscal 2022 and future
periods will differ significantly from prior periods as the mix of our product portfolio rebalances away from a
reliance on alfalfa sales (sales of alfalfa seed to Corteva totaled $14.2 million and $19.7 million during the years
ended June 30, 2021 and 2020, respectively) to a more diverse product mix. We do not expect any other significant
revenue from sales to Corteva in the future.
COVID-19 Update
We are 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 has and will
continue to have a negative impact on our sales, operating results and financial condition. The extent of the impact of
the COVID-19 pandemic on our sales, operating results and financial condition will depend on certain developments,
including the duration and spread of the outbreak, impact on our customers, employees and vendors, all of which are
uncertain and cannot be predicted.
Our sales efforts historically involved significant in-person interaction with potential customers and distributors.
Throughout the COVID-19 pandemic, many national, state and local governments in our target markets implemented
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various stat-at-home, shelter-in-place and other quarantine measures in response to the COVID-19 pandemic. As a
result, we have shifted our sales activities to video conferencing and similar customer interaction models. We continue
to evaluate our sales approach, but we have found these alternative approaches to generally be less effective than in-
person sales efforts. In particular, our sales cycle is highly seasonal, and the majority of our sales season activities for
the United States and Australia are typically concentrated between March and June each year. If ongoing measures
designed to protect against COVID-19 remain in effect throughout the 2022 sales season, we may experience similar
negative impacts that we experienced during the 2020 and 2021 sales seasons.
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 will adversely affect our product
revenue. During the twelve months ended June 30, 2021, we experienced numerous logistical challenges due to
limited availability of trucks for product deliveries, congestion at the ports, and overall rising costs of shipping and
transportation costs. We expect these logistical challenges to persist throughout fiscal 2022.
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 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, and our strategic acquisitions.
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.
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.
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.
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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 3-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20
years for other intangible assets. Property, plant and equipment is depreciated using the straight-line method over the
estimated useful life of the asset, consisting of periods of 5-35 years for buildings, 2-20 years for machinery and
equipment and 2-5 years for vehicles.
Other (Income) Expense
Other 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
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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, 2021 Compared to the Fiscal Year Ended June 30, 2020
Revenue and Cost of Revenue
Revenue for the year ended June 30, 2021 was $84.0 million compared to $79.6 million for the year ended June 30,
2020. The $4.4 million increase in revenue for the year ended June 30, 2021 was primarily due to a $9.9 million
increase in core product revenue offset by a $5.5 million decrease in product revenue received from Pioneer
(subsidiary of Corteva). In May 2019, we terminated the production and distribution agreements with Pioneer, and
entered into a new license agreement with Corteva. As of June 30, 2021, we have fully recorded all revenue from
Pioneer under its agreement announced in May 2019.
Core Revenue (which we define as total revenue, excluding product revenue attributable to Pioneer) for the year
ended June 30, 2021 was $69.8 million compared to Core Revenue for the year ended June 30, 2020 of $59.9
million, representing an increase of $9.9 million or 16.6%. Due to the revised agreements with Pioneer in May 2019,
we plan to provide Core Revenue as a metric to track performance of our business until product revenue attributable
to our revised agreements with Pioneer is no longer reflected in comparisons between fiscal periods. The increase in
Core Revenue for the year ended June 30, 2021 can be primarily attributed to our Pasture Genetics operation, which
was acquired in February 2020. Excluding contributions from Pasture Genetics, Core Revenue was flat year over
year.
Sales into international markets represented 56% and 54% of our total revenue during the year ended June 30, 2021
and 2020, respectively. Domestic revenue accounted for 44% and 46% of our total revenue for the year ended June
30, 2021 and 2020, respectively. The decrease in domestic revenue as a percentage of total revenue was primarily
attributable to the termination of the Pioneer and Corteva agreement mentioned above and our Pasture Genetics
acquisition in February 2020.
The following table shows revenue from external sources by destination country:
United States
Australia
Saudi Arabia
South Africa
China
Pakistan
Mexico
Argentina
Libya
Sudan
Other
Total
Years Ended June 30,
2020
2021
44% $36,724,591 46 %
$37,124,047
26% 15,079,996 19 %
21,470,810
7% 9,189,291 12 %
5,911,498
3 %
3% 2,182,553
2,456,216
1 %
817,867
2%
2,042,585
3 %
2% 2,124,038
2,041,548
3 %
2% 2,454,504
1,928,856
1 %
2%
681,183
1,838,648
1 %
1% 1,142,920
1,249,554
1% 1,308,874
1 %
1,218,168
6,767,106
8% 7,876,381 10 %
$84,049,036 100% $79,582,198 100 %
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Cost of revenue of $70.4 million for the year ended June 30, 2021 was equal to 83.7% of total revenue for the year
ended June 30, 2021, while the 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. Cost of revenue for the years ended June 30, 2021 and 2020 included
inventory write-downs of $1.4 million and $2.3 million, respectively. The write-down of inventory during the years
ended June 30, 2021 and 2020 related to certain inventory lots that deteriorated in quality and germination rates during
the year.
Gross profit margin for the year ended June 30, 2021 was 16.3% compared to 18.8% in the prior year. The decrease
in gross profit margin was primarily driven by compressed gross margins in Australia due to sales mix as we had a
higher concentration of lower margin forage cereal products. During the year ended June 30, 2021, the Company
experienced numerous logistical challenges due to limited availability of trucks for product deliveries, congestion at
the ports, and overall rising costs increases of shipping and transportation costs. The Company expects these logistical
challenges to persist throughout fiscal 2022.
Excluding the $1.4 million of inventory write-downs, gross margin would have been 18.0% for the year ended June
30, 2021. Excluding the $2.3 million of inventory write-downs in the prior year, gross margin would have been
21.7% for the year ended June 30, 2020. We believe it’s useful to exclude inventory write-downs 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, 2021 totaled $21.9 million
compared to $21.3 million for the year ended June 30, 2020. The $0.6 million increase in SG&A expense versus the
prior year was primarily due to $2.4 million from our Pasture Genetics operations acquired in February 2020
partially offset by various other cost reductions. As a percentage of revenue, SG&A expenses were 26.0% for the
year ended June 30, 2021, compared to 26.8% for the year ended June 30, 2020.
Research and Development Expenses
Research and development expenses for the year ended June 30, 2021 totaled $8.5 million compared to $7.3 million
for the year ended June 30, 2020. The $1.2 million increase in research and development expense versus the prior
year is driven by additional investment in wheat, hybrid sunflower and our hybrid sorghum programs.
Depreciation and Amortization
Depreciation and amortization expense for the year ended June 30, 2021 was $5.5 million compared to $5.0 million
for the year ended June 30, 2020. Included in the amount was amortization expense for intangible assets, which totaled
$2.4 million for the year ended June 30, 2021 and $2.1 million for the year ended June 30, 2020. The $0.5 million
increase in depreciation and amortization expense over the comparable period of the prior year was primarily driven
by $0.5 million of expense associated with our February 2020 acquisition of Pasture Genetics and $0.2 million of
additional expense following our August 2019 acquisition of a wheat breeding program in Australia from Dow
AgroScience, or the Dow Wheat Acquisition, partially offset by the decrease of $0.1 million in depreciation due to
sale of Five Points in January 2021.
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Gain on disposal of property, plant and equipment
We recorded a gain on disposal of property, plant and equipment during the year ended June 30, 2021. This gain is
primarily related to the sale of our Five Points facility and other assets located in California.
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 $4.0 million benefit to non-cash change in contingent consideration for the year ended
June 30, 2021 represents the decrease in the estimated fair value of the contingent consideration obligation
associated with the February 2020 Pasture Genetics acquisition.
Interest Expense - Amortization of Debt Discount
Non-cash amortization of debt discount expense for the year ended June 30, 2021 was $0.7 million compared to $0.6
million for the year ended June 30, 2020. 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, 2021 totaled $2.3 million compared to $2.0 million for the year ended
June 30, 2020. Interest expense for the year ended June 30, 2021 primarily consisted of interest incurred on the
working capital credit facilities, the secured property loan entered into in November 2017, and equipment finance
leases. Interest expense for the year ended June 30, 2020 primarily consisted of interest incurred on the working
capital credit facilities, the secured property loan entered into in November 2017, and equipment finance leases. The
$0.3 million increase in interest expense for the year ended June 30, 2021 was primarily driven by higher interest
resulting from increased levels of borrowing on the working capital credit facilities.
Provision for Income Taxes
Our income tax benefit totaled $(24,358) for the year ended June 30, 2021 compared to an income tax expense of
$0.4 million for the year ended June 30, 2020. Our effective tax rate was 0.1% for the year ended June 30, 2021
compared to (2.0%) for the year ended June 30, 2020. Our effective tax rate was relatively consistent year over year.
The slight increase in our effective tax rate for the year ended June 30, 2021 was primarily attributable to a decrease
in our non-US income tax expense for the year ended June 30, 2021 compared to the year ended June 30, 2020. Our
tax expense is substantially driven by our full valuation allowance. 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 do record certain tax expenses and benefits related to some of our activity in our non-US
locations. For example, we recorded income tax benefit related to the current year activity and prior year tax return
filings of our subsidiary located in Australia. We also recorded minor tax expense related to current year activity
and prior tax return filings of our subsidiaries in South Africa and Hungary, as well as related to our state tax return
liabilities.
Liquidity and Capital Resources
Our working capital and working capital requirements fluctuate from quarter to quarter depending on the phase of
the growing and sales cycle that falls during a particular quarter. Our need for cash has historically been highest in
the second and third fiscal quarters (October through March) because we historically have paid our North American
contracted growers progressively, starting in the second fiscal quarter. In fiscal year 2021, we paid our North
American growers approximately 50% of amounts due in the fall of 2020 and the balance was paid in the spring of
2021. This payment cycle to our growers was similar in fiscal year 2020, and we expect it to be similar for fiscal
36
year 2022. 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.
In addition to funding our business with cash from operations, we have historically relied upon sales of our debt and
equity securities and credit facilities from financial institutions, both in the United States and Australia.
Capital Resources and Funding Requirements
We are not profitable and have had negative cash flow from operations for the last several years. To help fund our
operations, we have in part relied on equity and debt financings. We currently anticipate that our cash and cash
equivalents may be sufficient to enable us to fund our operations for at least the next 12 months. However, we will
need to obtain additional funds to finance our operations in the future, and we could spend our available financial
resources much faster than we currently expect. Our loan and security agreement with CIBC Bank USA, or CIBC,
and our secured promissory notes with Conterra Agriculture Capital, LLC contain various operating and financial
covenants, and the COVID-19 pandemic has increased the risk of our inability to comply with these covenants,
which could result in acceleration of our repayment obligations and foreclosure on our pledged assets. For example,
we were not in compliance with certain of these covenants as of June 30, 2021 and we were required to obtain
waivers and/or amendments from CIBC and Conterra. We believe it is uncertain the Company will be able to
generate sufficient cash flow from operations or maintain sufficient liquidity to meet these covenants. These factors
raise substantial doubt regarding our ability to continue as a going concern. If we are unable to meet these
covenants, we will need to raise additional capital in the future to enhance our working capital. 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.
37
Our future liquidity and capital requirements will be influenced by numerous factors, including:
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;
•
competition;
• market developments; and
•
developments related to the COVID-19 pandemic.
There can be no assurance that we will be successful in raising additional capital or securing future waivers and/or
amendments from CIBC or our other lenders. If we are unable to raise sufficient additional capital or secure future
waivers and/or amendments, we may need to reduce the scope of our operations, repay amounts owing to our
lenders or sell certain assets. 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.
Below is a summary of our material sources of capital in recent periods:
Debt Financings
Loan and Security Agreement with CIBC
On December 26, 2019, we entered into a Loan and Security Agreement with CIBC, or the Loan Agreement, which
we amended on September 22, 2020, December 30, 2020, May 12, 2021 and September 27, 2021. As amended, the
Loan Agreement provides for a $25.0 million credit facility, or the CIBC Credit Facility. The key terms of the
amended Loan Agreement include the following:
• Advances under the CIBC Credit Facility are to be used: (i) to finance our ongoing working capital
requirements; and (ii) for general corporate purposes. We may also use a portion of the CIBC Credit
Facility to finance permitted acquisitions and related costs.
• All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest due
under the CIBC Credit Facility, will be payable in full on December 23, 2022.
• The Credit Facility generally establishes a borrowing base of up to 85% of eligible domestic accounts
receivable (90% of eligible foreign accounts receivable) plus up to the lesser of (i) 65% of eligible
inventory, (ii) 85% of the appraised net orderly liquidation value of eligible inventory, and (iii) an eligible
inventory sublimit as more fully set forth in the Loan Agreement, in each case, subject to lender reserves.
• Loans 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. Pursuant to the September 27, 2021
amendment, the Loans will now be based on Prime plus 2.0% per annum. In the event of a default, at the
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option of CIBC, the interest rate on all obligations owing will increase by 2% per annum over the rate
otherwise applicable.
• The CIBC Credit Facility is secured by a first priority perfected security interest in substantially all of our
assets (subject to certain exceptions), including intellectual property.
• The Loan Agreement contains customary representations and warranties, affirmative and negative
covenants and customary events of default that permit CIBC to accelerate our outstanding obligations
under the Credit Facility, all as set forth in the Loan Agreement and related documents. The CIBC Credit
Facility also contains customary and usual financial covenants imposed by CIBC.
Pursuant to the September 2021 amendment to the Loan Agreement, CIBC waived noncompliance with our fixed
charge coverage ratio as of June 30, 2021, and suspended our fixed charge coverage ratio financial covenants for the
fiscal quarters ended September 30, 2021 and December 31, 2021 and replaced that financial covenant with the
minimum EBITDA threshold tested quarterly for the quarters ending September 30, 2021 and December 31, 2021.
Pursuant to the September 2021 amendment, we revert back to our previous financial covenant to require that we
maintain a fixed charge coverage ratio equal to or greater than (i) 1.00 to 1.00, beginning with the fiscal quarters
ending March 31, 2022 and (ii) 1.15 to 1.00 for each fiscal quarter thereafter. In addition, pursuant to the September
2021 amendment, we are required to maintain liquidity of no less than $3,000,000 at all times for the remainder of
the term of the Loan Agreement. After giving effect to the September 2021 amendment, we were in compliance with
the Loan Agreement for the year ended June 30, 2021.
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.
Australian Facilities
At June 30, 2021, S&W Australia has debt facilities with NAB, all of which are guaranteed by S&W Seed Company
up to a maximum of AUD $15,000,000 (USD $11,247,000 at June 30, 2021) and cross-guaranteed by S&W Australia.
In June 2020, S&W Australia executed documentation to consolidate the Pasture Genetics debt facility with NAB into
its debt facilities with NAB. The documentation became effective in July 2020. The consolidated debt facilities with
NAB provide up to an aggregate of AUD $35,500,000 (USD $26,617,900) of credit as of June 30, 2021, and include
the following:
• S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal
credit facility comprised of two facility lines: (i) an overdraft line having a credit limit of AUD $3,000,000
(USD $2,249,400 at June 30, 2021) and (ii) a borrowing base line having a credit limit of AUD
$26,000,000 (USD $19,494,800 at June 30, 2021). In March 2021, S&W Australia entered into an
amendment with NAB which temporarily increased the Overdraft Facility to AUD $3,000,000 (USD
2,249,400) for a three-month period and extended the maturity date of the seasonal credit facility to June
30, 2022. As of June 30, 2021, the Borrowing Base Line accrued interest on Australian dollar drawings at
approximately 3.5% 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, 2021, the Overdraft Facility accrued interest at approximately 5.47% per annum calculated daily.
As of June 30, 2021, AUD $26,823,515 (USD $20,112,272) 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.
39
• S&W Australia has a flexible rate loan, or the Term Loan, in the amount of AUD $4,500,000 (USD
$3,374,100) at June 30, 2021. Required annual principal payments of AUD $500,000 on the Term Loan
commenced on November 30, 2020, with the remainder of any unpaid balance becoming due on March 31,
2025. Monthly interest amounts outstanding under the Term Loan will be payable in arrears at a floating
rate quoted by NAB for the applicable pricing period, plus 2.6%. The Term Loan is secured by a lien on all
the present and future rights, property and undertakings of S&W Australia.
• S&W Australia finances certain equipment purchases under a master asset finance facility with NAB. The
master asset finance facility has various maturity dates through June 2026 and have interest rates ranging
from 2.86% to 5.31%. The credit limit under the facility is AUD $2,000,000 (USD $1,499,600) at June 30,
2021. As of June 30, 2021, AUD $892,602 (USD $669,273) was outstanding under S&W Australia’s
master asset finance facility.
S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at June 30, 2021.
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.
In March 2021, the PPP loan was forgiven in full.
Equity Issuances
On September 23, 2020, we entered into an At Market Issuance Sales Agreement, or the ATM Agreement, with B.
Riley Securities, Inc., or B Riley, under which we may offer and sell from time to time, at our sole discretion, shares
of our common stock having an aggregate offering price of up to $14.0 million through B. Riley as our sales agent.
40
For the year ended June 30, 2021, we received gross proceeds of approximately $10.9 million from the sale of
3,008,015 shares of its common stock pursuant to the ATM Agreement.
As of September 27, 2021, we have $3.1 million remaining available for sale under the ATM Agreement.
Summary of Cash Flows
The following table shows a summary of our cash flows for the years ended June 30, 2021 and 2020:
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,
2021
2020
$(14,221,042) $ (5,763,627 )
2,465,746 (10,286,370 )
10,892,685 17,049,699
(308,410 )
267,454
(595,157)
4,123,094
691,292
3,431,802
$ 3,527,937 $ 4,123,094
Operating Activities
For the year ended June 30, 2021, operating activities used $14.2 million in cash. Net loss plus and minus the
adjustments for non-cash items as detailed on the statement of cash flows used $15.8 million in cash, and changes in
operating assets and liabilities as detailed on the statement of cash flows provided $1.6 million in cash. The decrease
in cash from changes in operating assets and liabilities was primarily driven by an increase in accounts payable of
$7.3 million, partially offset by a decrease in deferred revenue of $5.8 million and a decrease in accrued expenses
and other current liabilities of $1.0 million.
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.
Investing Activities
Investing activities during the year ended June 30, 2021 provided $2.5 million in cash. Proceeds from the disposal of
property, plant and equipment of $0.8 million and net proceeds from the sale of properties in California provided
$2.8 million. Net proceeds were partially offset by additions to property, plant and equipment of $1.1 million
consisting primarily of equipment purchases for our distribution facility in Keith, Australia, and research and
development facilities in Tamworth, Australia.
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.
41
Financing Activities
Financing activities during the year ended June 30, 2021 provided $10.9 million in cash. During the year ended June
30, 2021, we had net proceeds from the sale of our common stock of $10.2 million, net borrowings on the working
capital lines of credit of $5.0 million, borrowings of long-term debt of $0.4 million and repayments of long-term
debt of $4.4 million and debt issuance costs of $0.2 million.
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.
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, 2021.
Critical Accounting Policies
The accounting policies and the use of accounting estimates are set forth in the footnotes to our consolidated
financial statements.
In preparing our financial statements, we must select and apply various accounting policies. Our most significant
policies are described in Note 2 – Summary of Significant Accounting Policies of the footnotes to the consolidated
financial statements. In order to apply our accounting policies, we often need to make estimates based on judgments
about future events. In making such estimates, we rely on historical experience, market and other conditions, and on
assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that
estimates depend on events over which we may not have control. If market and other conditions change from those
that we anticipate, our results of operations, financial condition 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 our 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.
42
The goodwill balance at June 30, 2021 and 2020 relates to our February 2020 acquisition of Pasture Genetics. Upon
completing the impairment test on our one reporting unit, there was no impairment for the year ended June 30, 2021.
Intangible Assets
All amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. Such an
assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the
review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying
amount of the intangible is compared to its fair value, with an impairment loss recognized if the fair value is below
carrying value. Fair values are typically estimated using discounted cash flow techniques. Significant changes in key
assumptions about the business, market conditions and prospects for which the intangible asset is currently utilized
or expected to be utilized could result in an impairment charge.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB Accounting Standards Codification Topic 718
Stock Compensation, which establishes accounting for equity instruments exchanged for employee services. Under
such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of
the award, and is recognized as an expense, under the straight-line method, over the employee’s requisite service
period (generally the vesting period of the equity grant).
We account for equity instruments, including stock options issued to non-employees, in accordance with
authoritative guidance for equity-based payments to non-employees (FASB ASC 505-50). Stock options issued to
non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is
re-measured as they vest.
We utilize the Black-Scholes-Merton option pricing model to estimate the fair value of options granted under share-
based compensation plans. The Black-Scholes-Merton model requires us to estimate a variety of factors including,
but not limited to, the expected term of the award, stock price volatility, dividend rate, risk-free interest rate. The
input factors to use in the valuation model are based on subjective future expectations combined with management
judgment. The expected term used represents the weighted-average period that the stock options are expected to be
outstanding. We have used the historical volatility for our stock for the expected volatility assumption required in
the model, as it is more representative of future stock price trends. We use a risk-free interest rate that is based on
the implied yield available on U.S. Treasury issued with an equivalent remaining term at the time of grant. We have
not paid dividends in the past and currently do not plan to pay any dividends in the foreseeable future, and as such,
dividend yield is assumed to be zero for the purposes of valuing the stock options granted. We evaluate the
assumptions used to value stock awards on a quarterly basis. If factors change, and we employ different
assumptions, share-based compensation expense may differ significantly from what we have recorded in the past.
When there are any modifications or cancellations of the underlying unvested securities, we may be required to
accelerate, increase or cancel any remaining unearned share-based compensation expense. To the extent that we
grant additional equity securities to employees, our share-based compensation expense will be increased by the
additional unearned compensation resulting from those additional grants.
Income Taxes
We regularly assess the likelihood that deferred tax assets will be recovered from future taxable income. To the
extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation
allowance is established. When a valuation allowance is established or increased, an income tax charge is included
in the consolidated financial statements and net deferred tax assets are adjusted accordingly. Changes in tax laws,
statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred
tax assets being materially different from the amounts provided for in the consolidated financial statements. If the
actual recovery amount of the deferred tax asset is less than anticipated, we would be required to write-off the
remaining deferred tax asset and increase the tax provision, resulting in a reduction of earnings and stockholders’
equity.
43
Inventories
All inventories are accounted for on a lower of cost or net realizable value. Inventories consist of raw materials and
finished goods. Depending on market conditions, the actual amount received on sale could differ from our estimated
value of inventory. In order to determine the value of inventory at the balance sheet date, we evaluate a number of
factors to determine the adequacy of provisions for inventory. The factors include the age of inventory, the amount
of inventory held by type, future demand for products and the expected future selling price we expect to realize by
selling the inventory. Our estimates are judgmental in nature and are made at a point in time, using available
information, expected business plans and expected market conditions. We perform a review of our inventory by
product line on a quarterly basis.
During the year ended June 30, 2021, we recognized a write-down of inventory in the amount of $1.4 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, 2021 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
We are a smaller reporting company; we are not required to provide information typically disclosed under this item.
44
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, 2021 and 2020
Consolidated Statements of Operations for the Fiscal Years Ended June 30, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended June 30, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended June 30, 2021 and 2020
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2021 and 2020
Notes to Consolidated Financial Statements
Page
46
48
49
50
51
52
53
45
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows
for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally
accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, the Company believes it is uncertain it will
be able to generate sufficient cash flow from operations or maintain sufficient liquidity to meet future covenants
associated with its credit agreements that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. We determined that there are no critical audit matters.
46
/s/ Crowe LLP
We have served as the Company's auditor since 2015.
Sacramento, California
September 27, 2021
47
S&W SEED COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 2021 June 30, 2020
$
$
$
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
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;
36,772,983 issued and 36,747,983 outstanding at June 30, 2021;
33,457,861 issued and 33,432,861 outstanding at June 30, 2020;
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.
3,527,937 $
19,389,213
63,395,256
1,555,530
87,867,936
17,740,974
37,130,942
1,651,634
7,079,490
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
151,470,976 $ 155,955,633
15,947,918 $
385,328
9,134,869
33,946,565
1,681,166
61,095,846
11,590,500
741,552
3,649,885
77,077,783
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
—
—
33,458
36,773
(134,196)
(134,196 )
137,809,540
149,684,357
(50,140,942)
(69,311,909 )
(6,111,424)
(5,850,826 )
(120,459)
(31,006 )
81,335,977
74,393,193
151,470,976 $ 155,955,633
48
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue
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
Total operating expenses
Loss from operations
Other (income) expense
Foreign currency (gain) loss
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 income (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,
2020
2021
79,582,198
84,049,036 $
64,647,936
70,372,139
14,934,262
13,676,897
21,867,529
8,515,786
5,469,581
(1,906,738 )
33,946,158
(20,269,261 )
(94,214 )
—
(4,016,904 )
—
—
689,514
2,283,215
(19,130,872 )
(24,358 )
(19,106,514 ) $
64,453
(19,170,967 ) $
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)
(0.55 ) $
(0.55 ) $
(0.59)
(0.59)
34,590,883
34,590,883
33,348,263
33,348,263
$
$
$
$
See notes to consolidated financial statements.
49
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net loss
Foreign currency translation adjustment, net of income taxes
Comprehensive loss
Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive loss attributable to S&W Seed Company
$
$
$
See notes to consolidated financial statements.
Years Ended June 30,
2021
(19,106,514 ) $
260,598
(18,845,916 ) $
64,453
$
(18,910,369 )
2020
(19,747,098)
27,043
(19,720,055)
(72,774)
(19,647,281)
50
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S
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,
2021
2020
$
(19,106,514 ) $
(19,747,098)
cash used in 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
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
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 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
Acquisition of germplasm
Acquisition of business, net of cash acquired
Acquisition of wheat assets
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common 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
Capital contribution from minority shareholder of subsidiary
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
1,766,353
(235,201 )
1,416,029
5,469,581
(1,906,738 )
79,403
(4,016,904 )
—
689,514
—
504,021
648,448
(120,030 )
54,259
7,265,195
(5,786,697 )
(964,282 )
22,521
(14,221,042 )
(1,079,880 )
782,645
2,771,480
(8,499 )
—
—
2,465,746
10,223,311
(111,532 )
4,954,687
385,636
25,000
(196,952 )
(4,387,465 )
10,892,685
267,454
(595,157 )
4,123,094 $
3,527,937 $
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
2,244,478 $
366,502
1,984,703
272,027
$
$
$
See notes to consolidated financial statements.
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.
In September 2018, the Company and AGT Foods Africa Proprietary Limited, or AGT, formed a venture based in
South Africa named SeedVision Proprietary Limited, or SeedVision. SeedVision will leverage AGT's African-based
production and processing facilities to produce S&W's hybrid sunflower, grain sorghum, and forage sorghum to be
sold by SeedVision in the African continent, Middle East countries, and Europe.
As part of the Company’s 2018 acquisition of all assets of Chromatin, Inc., the Company acquired 51.0% of
Sorghum Solutions South Africa.
In February 2020, S&W Australia acquired all of the issued and outstanding shares of Pasture Genetics Ltd., or
Pasture Genetics, from Pasture Genetics’ sole shareholder.
Business Overview
Since its establishment, the Company, including its predecessor entities, has been principally engaged in breeding,
growing, processing and selling agricultural seeds. The Company owns seed cleaning and processing facilities,
which are located in Nampa, Idaho, Dumas, Texas, New Deal, Texas Keith, South Australia and Penfield, South
Australia. The Company’s seed products are primarily grown under contract by farmers. The Company began its
stevia initiative in fiscal year 2010 and is currently focused on breeding improved varieties of stevia and developing
marketing and distribution programs for its stevia products.
The Company has also been actively engaged in expansion initiatives through a combination of organic growth and
strategic initiatives.
The Company had a long-term distribution agreement with Pioneer Hi-Bred International, Inc., or Pioneer, now a
subsidiary of Corteva Agriscience, Inc., which is jointly referred to as Corteva, regarding conventional (non-GMO)
varieties, and a production agreement with Pioneer (relating to GMO-traited varieties). These agreements were
terminated on May 20, 2019. See Note 4 for further discussion.
In May 2016, the Company acquired the assets and business of SV Genetics, a private Australian company
specializing in the breeding and licensing of proprietary hybrid sorghum and sunflower seed germplasm, which
represented the Company’s initial effort to diversify its product portfolio beyond alfalfa seed and stevia.
In October 2018, the Company acquired substantially all of the assets of Chromatin, Inc., a U.S.-based sorghum
genetics and seed company, as part of the Company's efforts to expand its penetration into the hybrid sorghum
market.
53
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
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.
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 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 $0.6 million of current assets
(restricted) and $0.1 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as
of June 30, 2021.
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.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are
adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the
financial statements. These include allowance for doubtful trade receivables, inventory valuation, asset impairments,
provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the
Company), contingent consideration obligations, contingencies and litigation. Significant estimates and assumptions
are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets,
goodwill as well as valuing stock-based compensation. Actual results may differ from those estimates and
assumptions, and such results may affect income, financial position or cash flows.
The COVID-19 pandemic and the efforts to contain it have, among other things, negatively impacted the global
economy and created significant volatility and disruption of financial markets. In addition, the COVID-19 pandemic
54
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 19% of its revenue for the
year ended June 30, 2021. One customer accounted for 26% of its revenue for the year ended June 30, 2020.
One customer accounted for 11% of the Company’s accounts receivable at June 30, 2021. One customer accounted
for 21% of the Company’s accounts receivable at June 30, 2020.
The Company sells a substantial portion of its products to international customers. Sales to international markets
represented 56% and 54% of revenue during the years ended June 30, 2021 and 2020, respectively. The net book
value of fixed assets located outside the United States was 19% and 17% of total fixed assets at June 30, 2021 and
June 30, 2020, respectively. Cash balances located outside of the United States may not be insured and totaled
$204,813 and $1,690,748 at June 30, 2021 and June 30, 2020, respectively.
The following table shows revenue from external sources by destination country:
United States
Australia
Saudi Arabia
South Africa
China
Pakistan
Mexico
Argentina
Libya
Sudan
Other
Total
2021
$37,124,047
21,470,810
5,911,498
2,456,216
2,042,585
2,041,548
1,928,856
1,838,648
1,249,554
1,218,168
6,767,106
$84,049,036
Years Ended June 30,
2020
44% $36,724,591
26% 15,079,996
7% 9,189,291
3% 2,182,553
2%
817,867
2% 2,124,038
2% 2,454,504
2%
681,183
1% 1,142,920
1% 1,308,874
8% 7,876,381
100% $79,582,198
46%
19%
12%
3%
1%
3%
3%
1%
1%
1%
10%
100%
Liquidity and Covid-19 Pandemic
The Company is monitoring 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.
The Company’s sales efforts historically involved significant in-person interaction with potential customers and
distributors. Throughout the COVID-19 pandemic, many national, state and local governments in its target markets
implemented various stay-at-home, shelter-in-place and other quarantine measures. As a result, the Company shifted
its sales activities to video conferencing and similar customer interaction models and continues to evaluate its sales
approach, but the Company has found these alternative approaches to generally be less effective than in-person sales
efforts. In particular, the Company’s sales cycle is highly seasonal, and the majority of its sales season activities for
the United States and Australia are typically concentrated between March and June of each year. If ongoing measures
55
to protect against COVID-19 remain in effect throughout the 2022 sales season, the Company may experience similar
negative impacts that it experienced during the 2020 and 2021 sales seasons.
In addition, the Company’s product revenue is predicated on its ability to timely fulfill customer orders, which depends
in large part upon the consistent availability and operation of shipping and distribution networks operated by third
parties. Farmers typically have a limited window during which they can plant seed, and their buying decisions can be
shaped by actual or perceived disruptions in the Company’s distribution and supply channels. If the Company’s
customers delay or decrease their orders due to potential disruptions in its distribution and supply channels, this would
adversely affect the Company’s product revenue.
During the year ended June 30, 2021, the Company experienced numerous logistical challenges due to limited
availability of trucks for product deliveries, congestion at the ports, and overall increases in shipping and transportation
costs. The Company expects these logistical challenges to persist well into fiscal 2022.
Given the level of uncertainty regarding the duration and broader impact of the COVID-19 pandemic, the Company
is unable to fully assess the extent of its impact on the Company’s operations.
The Company’s loan and security agreement with CIBC Bank USA, or CIBC, and the Company’s secured
promissory notes with Conterra Agriculture Capital, LLC contains various operating and financial covenants (See
Note 9). The COVID-19 pandemic has increased the risk of the Company’s inability to comply with these
covenants, which could result in acceleration of its repayment obligations and foreclosure on its pledged assets. For
example, the loan and security agreement with CIBC requires the Company to comply with a minimum EBITDA
covenant for the fiscal quarters ending September 30, 2021 and December 31, 2021 and a fixed charge coverage
ratio, tested on a trailing twelve-month basis beginning with the quarter ending March 31, 2022. It also requires the
Company to maintain minimum liquidity of no less than $3,000,000 at all times. The Company was not in
compliance with certain covenants as of June 30, 2021 and has obtained waivers and/or amendments from CIBC and
Conterra (Note 9). The Company believes it is uncertain it will be able to generate sufficient cash flow from
operations or maintain sufficient liquidity to meet these covenants. These factors raise substantial doubt regarding
the Company’s ability to continue as a going concern. If the Company is unable to meet these covenants, the
Company will need to raise additional capital or secure future waivers and/or amendments from its lenders.
There can be no assurance the Company will be successful in raising additional capital or securing future waivers
and/or amendments from its lenders. If the Company is unable to raise sufficient additional capital or secure future
waivers and/or amendments, it may need to reduce the scope of its operations, repay amounts owing to its lenders 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.
56
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
$57,582 and $1,366,220 at June 30, 2021 and June 30, 2020, respectively.
Inventories
Inventories consist of seed and packaging materials.
Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the
cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as
packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of
carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant
conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal
capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and wasted
material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods
based on the normal capacity of the production facilities.
Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is
determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Inventory
quality is a function of germination percentage. Our experience has shown that our alfalfa seed quality tends to be
stable under proper storage conditions; therefore, we do not view inventory obsolescence for alfalfa seed as a
material concern. Hybrid crops (sorghum and sunflower) seed quality may be affected by warehouse storage pests
such as insects and rodents. The Company maintains a strict pest control program to mitigate risk and maximize
hybrid seed quality.
Components of inventory are:
Raw materials and supplies
Work in progress
Finished goods
June 30, 2020
June 30, 2021
$ 2,722,832 $ 1,227,185
6,662,006 4,395,503
54,010,418 58,260,250
$63,395,256 $63,882,938
Property, Plant and Equipment
Property, plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset
- periods of 5-35 years for buildings, 2-20 years for machinery and equipment, and 2-5 years for vehicles.
Intangible Assets
Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated
amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the
asset. Periods of 3-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and
3-20 for other intangible assets. The weighted average estimated useful lives are 26 years for
technology/IP/germplasm, 20 years for customer relationships, 15 years for trade names and 18 years for other
intangible assets.
57
Goodwill
Goodwill is assessed at least annually, or when certain triggering events occur, for impairment using fair value
measurement techniques. These events could include a significant change in the business climate, legal factors, a
decline in operating performance, competition, sale or disposition of a significant portion of the business, or other
factors. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair
value is less than its carrying amount, including goodwill. If management concludes that it is more likely than not
that the fair value is less than its carrying amount, management conducts a quantitative goodwill impairment test.
The goodwill impairment test is used to identify potential impairment by comparing the fair value with its carrying
amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to
estimate the fair value. If the fair value exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired. If the carrying amount exceeds its fair value, an impairment loss is recognized in an amount equal to that
excess, limited to the total amount of goodwill.
The Company acquired Pasture Genetics in February 2020, and recorded goodwill of $1,452,436 as part of this
transaction. The Company performed a quantitative assessment of goodwill at June 30, 2021 and June 30, 2020 on
its one reporting unit and determined that goodwill was not impaired. See Note 7 for further information.
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, 2021 and 2020, 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.
No adjustments for impairment or observable transactions were made in fiscal years 2021 or 2020.
Research and Development Costs
The Company is engaged in ongoing research and development, or R&D, of proprietary seed and stevia varieties.
All R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred.
Third-party R&D costs are expensed when the contracted work has been performed or as milestone results have
been achieved. The costs associated with equipment or facilities acquired or constructed for R&D activities that
have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of
the asset.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis
of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax
rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance
is established, when necessary, to reduce deferred tax 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, 2021 and 2020 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.
58
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,
2020
2021
$(19,170,967) $(19,674,324 )
(19,170,967) (19,674,324 )
—
—
$(19,170,967) $(19,674,324 )
—
—
34,590,883 33,348,263
—
—
—
—
—
—
—
—
34,590,883 33,348,263
(0.59 )
$
(0.59 )
$
(0.55) $
(0.55) $
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.
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
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
59
balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not
designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current
period earnings.
Fair Value of Financial Instruments
The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier
fair value hierarchy, as follows:
•
•
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
and
Level 1. Observable inputs such as quoted prices in active markets;
•
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 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.
Assets and liabilities that are recognized and measured at fair value on a recurring basis are categorized as follows:
Fair Value Measurements as of
June 30, 2021 Using:
Level 2
Level 3
Level 1
— $
— $
— $
96,466 $
—
— $ 741,552
96,466 $ 741,552
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
Foreign exchange contract liability
Contingent consideration obligations
Total
Foreign exchange contract liability
Contingent
Total
$
$
$
$
$
$
60
Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update, or ASU 2018-15 effective July 1, 2020. The Financial
Accounting Standards Board, or 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. The Company adopted
the ASU prospectively for the annual period beginning July 1, 2020. The adoption of this ASU had no impact on the
Company’s consolidated statement of operations and consolidated statement of cash flows.
Recently Issued, but Not Yet Adopted, Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes. This ASU is intended to simplify various aspects to accounting for income taxes by removing certain
exceptions to the general principles of Topic 740 and clarifying certain aspects of the current guidance to promote
consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15,
2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early
adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be
applied on a prospective basis, while certain amendments must be applied on a retrospective or modified
retrospective basis. The Company has not yet adopted this ASU. The Company is currently evaluating the impact of
the new standard on our 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.
Right-of-use, or ROU, assets represent the Company’s right to use the underlying assets for the lease term and lease
liabilities represent the net present value of the Company’s obligation to make payments arising from these leases.
The lease liabilities are based on the present value of fixed lease payments over the lease term using the implicit
lease interest rate or, when unknown, the Company's incremental borrowing rate on the lease commencement date or
July 1, 2019 for leases that commenced prior to that date. If the lease includes one or more options to extend the
term of the lease, the renewal option is considered in the lease term if it is reasonably certain the Company will
exercise the option(s). Operating lease expense is recognized on a straight-line basis over the term of the lease. As
permitted by ASC 842, leases with an initial term of twelve months or less, or short-term leases, are not recorded on
the accompanying consolidated balance sheet.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease
component under the practical expedient provisions of the standard. The Company has lease agreements with terms
less than one year. For the qualifying short-term leases, the Company elected the short-term lease recognition
exemption in which the Company will not recognize ROU assets or lease liabilities, including the ROU assets or
lease liabilities for existing short-term leases of those assets in upon adoption.
Variable lease payments consist primarily of common area maintenance, utilities and taxes, which are not included
in the recognition of ROU assets and related lease liabilities. Variable lease payments and short-term lease expenses
were immaterial to the Company’s financial statements for the year ended June 30, 2021. The Company’s lease
agreements do not contain material restrictive covenants.
61
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, 2021
$
$
$
$
$
4,314,802
2,241,739
(894,200)
1,347,539
5,662,341
909,413
1,204,944
1,108,709
3,298,160
6,521,226
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, 2021
404,884
677,862
260,621
656,981
2,000,348
Maturities of lease liabilities as of June 30, 2021 are as follows:
2022
2023
2024
2025
2026
After 2026
Total lease payments
Less: Interest
Present value of lease liabilities
Operating
Leases
1,387,530 $
1,057,064
964,599
626,158
547,674
339,240 $
Finance
Leases
975,090
841,807
269,876
38,105
7,960
—
4,922,265 2,132,838
(419,161 ) $
(114,716)
4,503,104 $ 2,018,122
$
$
$
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, 2021:
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
4.6 years
4.21%
2.34 years
5.17%
1,023,841
1,403,749
$
$
62
NOTE 4 – PIONEER RELATIONSHIP
Distribution and Production Agreements with Pioneer
In 2014, the Company purchased from Pioneer certain assets related to alfalfa and entered into a long-term contract
to sell alfalfa seed to Pioneer under a production agreement (GMO varieties) and a distribution agreement
(conventional varieties). Under the production and distribution agreements with Pioneer, the Company grew,
processed, and delivered alfalfa seed for and to Pioneer. See Note 5 for a discussion of the recognition of revenue
under these agreements.
On May 22, 2019, the Company and Pioneer terminated the production and distribution agreements. As part of the
termination, Pioneer’s parent company, Corteva, agreed to purchase from the Company certain quantities of seed
held by the Company as of that date that Pioneer was not previously obligated to purchase. Those quantities of seed
were delivered to Corteva periodically through March 2021.
The Company does not expect to sell any other products to Pioneer or Corteva beyond those quantities of seed.
License Agreement with Corteva
Contemporaneously with the 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 fiscal 2019, $16.7 million in fiscal 2020, $8.3 million in fiscal
2021 from Pioneer/Corteva, which totaled $70.0 million. Approximately $34.2 million of these amounts referenced
above has been allocated to the license to the Company’s alfalfa varieties. The $34.2 million is reported as licensing
revenue in the consolidated statement of operations for the year ended June 30, 2019.
The remaining amounts were recognized as revenue as the seed was delivered to Corteva through March 2021. The
amount allocated to the seed 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
recognition at contract termination and the remainder of the payments was allocated to the license using a residual
method approach. The unbilled receivable is $0 as of June 30, 2021.
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 contract:
Pioneer product sales
Other product sales
Services
Years Ended June 30,
2021
14,198,857
67,234,359
2,615,820
84,049,036
$
$
2020
19,681,450
57,896,346
2,004,402
79,582,198
$
$
63
Pioneer Product Sales
For the years ended June 30, 2021 and 2020, Pioneer product sales consisted of product shipments to Pioneer under
the termination agreement discussed in Note 4.
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, conditioning, treating and packaging services, which are performed on the
customer's product, is recognized as services are completed and the milled product is delivered to the customer.
Revenue from research and development services is recognized over time as the services are performed.
Payment Terms and Related Balance Sheet Accounts
Accounts receivable represent amounts that are payable to the Company by its customers subject only to the passage
of time. Payment terms on invoices are generally 30 to 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, 2021, the Company recognized a net gain from collections on amounts previously written off to bad
debt expense of $235,201. During the period ended June 30, 2020, the Company recognized bad debt expense of
$255,000 associated with impaired accounts receivable.
Deferred revenue represents payments received from customers in advance of completion of the Company's
performance obligation. During the year ended June 30, 2021, the Company recognized $6.2 million of revenue that
was included in the deferred balance as of June 30, 2020. 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.
64
NOTE 6 - BUSINESS COMBINATIONS
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.
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
65
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
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, 2021.
The following unaudited pro forma financial information presents results as if the Acquisition occurred on July 1,
2019.
Revenue
Net loss
Year Ended June 30, 2020
88,664,131
$
(20,299,845)
$
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.
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, 2021 on its one reporting
unit and determined that goodwill was not impaired.
The following table summarizes the activity of goodwill for the years ended June 30, 2021 and 2020, respectively.
Balance at
July 1, 2020 Additions
Goodwill
$ 1,508,675 $
— $
Impairment
Currency
Translation
Adjustment
Balance at
June 30, 2021
— $ 142,959 $ 1,651,634
Balance at
July 1, 2019 Additions
Impairment
Goodwill
$
— $ 1,452,436 $
— $
66
Currency
Translation
Adjustment
Balance at
June 30, 2020
56,239 $ 1,508,675
For the years ended June 30, 2021 and 2020, the Company determined there was no impairment on its intangible
assets. Refer to Note 4 for further information.
Intangible assets consist of the following:
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
Currency
Translation
Adjustment
Balance at
July 1, 2020 Additions Amortization
— $ (206,311) $
—
—
—
—
—
Balance at
June 30, 2021
37,522 $ 1,310,489
$ 1,479,278 $
(376,431) 491,936 6,302,591
6,187,086
5,058
(16,254)
—
21,312
50,146
(7,164)
—
57,310
—
(75,633)
850,874
926,507
— 1,436,988
1,542,393
(105,405)
— 24,427,857
25,415,665 388,499 (1,376,307)
—
—
—
(176,646) 216,856 2,340,269
406,670
(67,778)
8,499 $(2,407,929) $ 746,314 $ 37,130,942
380,000 (380,000)
—
—
2,300,059
474,448
$38,784,058 $
—
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
Currency
Translation
Adjustment
Amortization
Balance at
July 1, 2019 Additions
Balance at
June 30, 2020
11,716 $ 1,479,278
(202,197) 190,452 6,187,086
21,312
—
57,310
—
—
926,507
— 1,542,393
— 25,415,665
380,000
—
34,491 2,300,059
474,448
$32,714,484 $7,946,162 $(2,113,247) $ 236,659 $ 38,784,058
$ 1,205,346 $ 402,215 $ (139,999) $
1,055,747 5,143,084
(8,955)
—
(7,165)
—
(75,647)
—
(105,407)
—
— (1,370,803)
—
—
(135,295)
— 2,400,863
(67,779)
—
30,267
64,475
1,002,154
1,647,800
26,786,468
380,000
542,227
—
Amortization expense totaled $2,407,929 and $2,113,247 for the years ended June 30, 2021 and 2020, respectively.
Estimated aggregate remaining amortization is as follows:
Amortization expense
$ 2,474,218 $2,396,478 $2,373,943 $2,362,393 $ 2,275,976 $ 25,247,934
2022
2023
2024
2025
2026
Thereafter
Acquisition of Wheat Assets
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:
• A 15-year prepaid license of germplasm. The license includes commercial, pre-commercial and
experimental proprietary wheat populations.
• 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.
• An option to renew the license for five additional years.
• Tangible fixed assets used in the wheat breeding program.
67
• 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, 2021 June 30, 2020
$ 2,297,529 $ 2,157,663
8,196,593 10,014,879
13,935,053 13,550,413
1,046,937 2,087,634
552,810
71,316
26,077,402 28,434,715
(8,336,428) (7,940,403 )
$17,740,974 $20,494,312
552,810
48,480
Depreciation expense totaled $2,518,356 and $2,580,234 for the years ended June 30, 2021 and 2020, respectively.
68
NOTE 9 - DEBT
Total debt outstanding is presented on the consolidated balance sheet as follows:
Working capital lines of credit
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
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, 2021 June 30, 2020
14,500,000 11,205,664
19,494,800 16,437,600
617,471
(665,706)
—
(660,000 )
$33,946,565 $26,983,264
$
909,413 $
(5,077) $
809,632
(8,154 )
374,900
342,450
165,802
—
275,684
(39,556)
272,997
200,779
202,374
(39,556 )
1,681,166 1,780,522
1,108,709 1,642,975
(6,923 )
(1,847)
2,999,200 3,082,050
526,564
—
396,404
313,470
6,974,356 8,956,885
(56,038 )
11,590,500 14,328,823
$13,271,666 $16,109,345
(16,482)
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 December 30, 2020, May 12, 2021 and September
27, 2021. 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:
• Advances under the CIBC Credit Facility are to be used: (i) to finance the Company’s ongoing working
capital requirements; and (ii) for general corporate purposes.
• All amounts due and owing, including, but not limited to, accrued and unpaid principal and interest due
under the CIBC Credit Facility, will be payable in full on December 23, 2022.
• The Credit Facility generally establishes a borrowing base of up to 85% of eligible domestic accounts
receivable (90% of eligible foreign accounts receivable) plus up to the lesser of (i) 65% of eligible
inventory, (ii) 85% of the appraised net orderly liquidation value of eligible inventory, and (iii) an eligible
inventory sublimit as more fully set forth in the Loan Agreement, in each case, subject to lender reserves.
• Loans 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 the Company’s option. Pursuant to the September 27,
2021 amendment, the Loans will be based on Prime plus 2.0% per annum. In the event of a default, at the
69
option of CIBC, the interest rate on all obligations owing will increase by 2% per annum over the rate
otherwise applicable.
• The CIBC Credit Facility is secured by a first priority perfected security interest in substantially all of the
Borrowers’ assets (subject to certain exceptions), including intellectual property.
• The Loan Agreement contains customary representations and warranties, affirmative and negative
covenants and customary events of default that permit CIBC to accelerate the Company’s outstanding
obligations under the Credit Facility, all as set forth in the Loan Agreement and related documents. The
CIBC Credit Facility also contains customary and usual financial covenants imposed by CIBC.
Pursuant to the September 2021 amendment to the Loan Agreement, CIBC waived noncompliance with the
Company’s fixed charge coverage ratio as of June 30, 2021 and suspended the Company’s fixed charge coverage
ratio financial covenants for the fiscal quarters ending September 30, 2021 and December 31, 2021 and replaced that
financial covenant with a minimum EBITDA threshold tested quarterly for the quarters ending September 30, 2021
and December 31, 2021. Pursuant to the September 2021 amendment, the Company reverts back to its previous
financial covenant to require that it maintain a fixed charge coverage ratio equal to or greater than (i) 1.00 to 1.00 for
the fiscal quarters ended March 31, 2022 and (ii) 1.15 to 1.00 for each fiscal quarter thereafter. In addition, pursuant
to the September 2021 amendment, the Company is required to maintain liquidity of no less than $3,000,000 at all
times for the remainder of the term of the Loan Agreement. After giving effect to the September 2021 amendment,
the Company was in compliance with the Loan Agreement for the year ended June 30, 2021.
As of June 30, 2021, there was approximately $6.7 million of unused availability on the CIBC Credit Facility
In November 2017, the Company entered into a secured note financing transaction, or the Loan Transaction, with
Conterra Agricultural Capital, LLC, or Conterra, for $12.5 million in gross proceeds. Pursuant to the Loan
Transaction, the Company issued two secured promissory notes, or the Notes, to Conterra as follows:
The secured real estate note was issued in the principal amount of $10.4 million, bears interest at 7.75% per annum
and is secured by a first priority security interest in the property, plant and fixtures, or the Real Estate Collateral,
located at the Company's Nampa, Idaho production facilities and its Nampa, Idaho research facilities. On December
24, 2019, the Company signed an amendment to extend the maturity date to November 30, 2022, and revise the
amount payable under the note. Pursuant to the December 2019 amendment, the Company agreed to make (i) a
principal and interest payment of approximately $515,711 on January 1, 2020; (ii) five consecutive semi-annual
principal and interest payments of approximately $454,185, beginning on July 1, 2020; and (iii) a one-time final
payment of approximately $8,957,095 on November 30, 2022. The Company may prepay the Secured Real Estate
Note, in whole or in part, at any time. In January 2021, the Company completed the sale of its Five Points facility
which resulted in the Company making a one-time principal pay-down of $1,706,845 on the secured real estate note.
The Company will also make three consecutive semi-annual principal and interest payments of approximately
$388,045, beginning on July 1, 2021; and a one-time final payment of approximately $7,184,109 on November 30,
2022. The Company was not in compliance with certain financial covenants as of June 30, 2021. The Company has
obtained a waiver for the year ended June 30, 2021.
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:
•
•
The Company sold the equipment to American AgCredit for $2,106,395 million in proceeds. The proceeds
were used to pay off in full a note (in the principal amount of $2,081,527, plus accrued interest of $24,868)
held by Conterra Agricultural Capital, LLC, which had an interest rate of 9.5% per annum and was secured
by, among other things, the equipment.
The Company entered into a lease agreement with American AgCredit relating to the equipment. The lease
agreement has a five-year term and provides for monthly lease payments of $40,023 (representing an annual
interest rate of 5.6%). At the end of the lease term, the Company will repurchase the equipment for $1. During
70
January 2021, the Company completed the sale of its Five Points facility which triggered the Company
making a one-time principal pay down of $294,163 on the finance lease agreement.
Australian Facilities
At June 30, 2021, S&W Australia has debt facilities with National Australia Bank, or NAB, all of which are
guaranteed by S&W Seed Company up to a maximum of AUD $15,000,000 (USD $11,247,000).
In June 2020, S&W Australia executed documentation to consolidate Pasture Genetics debt facility with NAB into
its debt facilities with NAB. The documentation became effective in July 2020. The consolidated debt facilities
with NAB provide for up to an aggregate of AUD $35,500,000 (USD $26,617,900) of credit as of June 30, 2021,
and include the following:
• S&W Australia finances the purchase of most of its seed inventory from growers pursuant to a seasonal
credit facility comprised of two facility lines: (i) an Overdraft Facility having a credit limit of AUD
$3,000,000 (USD $2,249,400 at June 30, 2021) and (ii) a Borrowing Base Line having a credit limit of
AUD $26,000,000 (USD $19,494,800 at June 30, 2021). In March 2021, S&W Australia entered into an
amendment with NAB which temporarily increased the Overdraft Facility to AUD $3,000,000 (USD
2,249,400) for a three-month period and extended the maturity date of the seasonal credit facility to June
30, 2022. As of June 30, 2021, the Borrowing Base Line accrued interest on Australian dollar drawings at
approximately 3.5% 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, 2021, the Overdraft Facility accrued interest at approximately 5.47% per annum calculated daily.
As of June 30, 2021, AUD $26,823,515 (USD $20,112,272) was outstanding under S&W Australia’s
seasonal credit facility with NAB. The seasonal credit facility is secured by a fixed and floating lien over
all the present and future rights, property, and undertakings of S&W Australia.
• S&W Australia has a flexible rate loan, or the Term Loan, in the amount of AUD $4,500,000 (USD
$3,374,100 at June 30, 2021). 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.
• S&W Australia finances certain equipment purchases under a master asset finance facility with NAB. The
master asset finance facility has various maturity dates, beginning in August 2021 through June 2026 and
have interest rates ranging from 2.86% to 5.31%. The credit limit under the facility is AUD $2,000,000
(USD $1,499,600) at June 30, 2021. As of June 30, 2021, AUD $892,602 (USD $669,273) was
outstanding under S&W Australia’s master asset finance facility.
• S&W Australia had a facility for the machinery and equipment used in the operations of the Keith building.
The final repayment for this facility was made in February 2021. As of June 30, 2021, AUD $0 (USD $0)
was outstanding under this facility.
S&W Australia was in compliance with all debt covenants under its debt facilities with NAB at June 30, 2021.
71
The annual maturities of short-term and long-term debt are as follows:
Fiscal Year
2022
2023
2024
2025
2026
Thereafter
Total
Amount
$ 1,709,832
8,310,934
785,979
2,367,693
160,190
—
$13,334,628
NOTE 10 - INCOME TAXES
Loss before income taxes consists of the following:
United States
Foreign
Loss before income taxes
Years Ended June 30,
2020
2021
$(22,519,842) $(18,778,030 )
(583,100 )
$(19,130,872) $(19,361,130 )
3,388,970
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,
2020
2021
$
— $
(5,385)
(197,163)
(202,548)
—
15,972
369,996
385,968
—
—
—
—
—
178,190
178,190
—
(24,358) $ 385,968
$
72
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:
Tax benefit at statutory tax rate
State benefit, net of federal benefit
Estimated GILTIO Inclusion
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
Tax law changes
Other
Years Ended June 30,
2020
2021
$(4,018,362) $(4,065,839 )
(387,398 )
—
134,141
(239,373 )
170,693
10,526
11,778
5,178,300 4,540,563
(417,868)
5,428
(86,691)
(675,527)
431,265
(29,156)
—
(411,306)
(441)
(24,358) $
$
210,877
385,968
Significant components of the Company's deferred tax assets are shown below.
June 30,
2021
2020
Deferred tax assets:
Net operating loss carry forwards
Compensation accruals
Allowance for bad debts
Stock compensation
Tax credit carry forwards
Intangible assets
Lease liability
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)
312,496
1,378,422
550,471
1,169,978
660,103
1,209,560
723,740
968,138
$ 15,623,619 $ 10,681,884
478,696
1,338,083
444,725
901,656
1,628,858
1,126,905
349,003
693,637
22,596,527 17,643,447
(19,892,644) (14,656,843 )
2,986,604
2,703,883
(1,293,365)
(1,588,708)
(2,882,073)
(178,190) $
(1,253,577 )
(1,733,027 )
(2,986,604 )
—
$
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
73
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, 2021 and June 30, 2020, 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 $5.2 million for the year ended June 30, 2021, 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, or 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, 2021, the Company is not aware of any applicable Section 382 limitations that may exist on its net
operating losses.
As of June 30, 2021, the Company had federal and state net operating loss carryovers of approximately $66.2
million and $23.5 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, which
total $41.7 million. The Company has federal research credits of $1,115,804 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 $0 Australian net operating loss carryover as of the year ended June 30, 2021. In addition, the Company has $3.2
million of Section 163(j) interest limitation carryovers as of June 30, 2021 which do not expire.
As of June 30, 2021, the Company has not provided for foreign withholding taxes on approximately $6.0 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, 2021.
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, 2021. 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.
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
74
of June 30, 2021 and 2020. 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, or QIP. Of these highlighted
provisions, the Company has only recognized the provisional impact of the 100% bonus on QIP in fiscal 2020. 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 for the years ended June 30, 2021 or June 30, 2020.
Consolidated Appropriations Act
On December 27, 2020, the United States enacted the Consolidated Appropriations Act of 2021, or CAA. The CAA
includes provisions extending certain CARES Act provisions and adds coronavirus relief tax and health extenders.
The Company will continue to evaluate the impact of the CAA and its impact on our financial statements in fiscal
2021 and beyond. However, the Company does not anticipate that the provisions of the CAA will impact the
Company’s tax expense calculations or related income tax account balances for the year ended June 30, 2021.
NOTE 11 - EQUITY
On September 23, 2020, the entered into an At Market Issuance Sales Agreement, or the ATM Agreement, with B.
Riley Securities, Inc., or B Riley, under which the Company may offer and sell from time to time, at its sole
discretion, shares of its common stock having an aggregate offering price of up to $14 million through B. Riley as
its sales agent. The Company agreed to pay B. Riley a commission of 3.5% of the gross proceeds of the sales price
per share of any common stock sold through B. Riley under the 2020 ATM Agreement. For the year ended June 30,
2021, the Company received gross proceeds of approximately $10.9 million from the sale of 3,008,015 shares of its
common stock pursuant to the ATM Agreement. As of June 30, 2021, the Company had $3.1 million remaining
under the ATM Agreement.
In December 2020, the Company’s shareholders approved the amendment to the Company’s Articles of
Incorporation to increase the authorized number of shares of common stock from 50,000,000 shares to 75,000,000
shares.
NOTE 12 - 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 $9,114,857 at June 30,
2021 and their maturities range from July 2021 to April 2022.
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 $96,466 at June 30, 2021 and foreign currency
contract liabilities totaled $35,218 at June 30, 2020. The Company recorded a loss on foreign exchange contracts of
$79,403 for the year ended June 30, 2021 and a gain on foreign exchange contracts of $7,615 for the year ended
June 30, 2020, which are reflected in cost of revenue for the years ended June 30, 2021 and 2020, respectively.
75
NOTE 13 - 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 14 - 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
and December 2012, the Company's Board of Directors and stockholders, respectively, approved the amendment
and restatement of the 2009 Plan, including an increase in the number of shares available for issuance as grants and
awards under the Plan to 1,250,000 shares. In September 2013 and December 2013, the Company's Board of
Directors and stockholders, respectively, approved the amendment and restatement of the 2009 Plan, including an
increase in the number of shares available for issuance as grants and awards under the Plan to 1,700,000 shares. In
September 2015 and December 2015, the Company's Board of Directors and stockholders, respectively, approved
the amendment and restatement of the 2009 Plan, including an increase in the number of shares available for
issuance as grants and awards under the Plan to 2,450,000 shares.
In December 2018 and January 2019, the Company's Board of Directors and stockholders, respectively, approved
the 2019 Equity Incentive Plan, or the 2019 Plan, as a successor to and continuation of the 2009 Plan. In October
2020 and December 2020, the Company’s Board of Directors and stockholders approved, respectively, the
amendment to the 2019 Plan to increase the number of shares available for issues as grants and awards by 4,000,000
shares. Subject to adjustment for certain changes in the Company's capitalization, the aggregate number of shares of
the Company's common stock that may be issued under the 2019 Plan, as amended, will not exceed 8,243,790
shares, which is the sum of (i) 4,000,000 new shares, (ii) 2,750,000 additional shares that were reserved as of the
effective date of the 2019 Plan, (iii) 350,343 shares (the number of unallocated shares that were available for grant
under the 2009 Plan as of January 16, 2019, the effective date of the 2019 Plan), plus (iv) 1,143,447 shares, which is
the number of shares subject to outstanding stock awards granted under the 2009 Plan that on or after the effective
date of the 2019 Plan may expire or terminate for any reason prior to exercise or settlement, are forfeited because of
the failure to meet a contingency or condition required to vest such shares or otherwise return to us, or are
reacquired, withheld or not issued to satisfy a tax withholding obligation in connection with an award or to satisfy
the purchase price or exercise price of a stock award.
The term of incentive stock options granted under the Company’s equity incentive plans may not exceed ten years,
or five years for incentive stock options granted to an optionee owning more than 10% of the Company's voting
stock. The exercise price of options granted under the Company’s equity incentive plans must be equal to or greater
than the fair market value of the shares of the common stock on the date the option is granted. An incentive stock
option granted to an optionee owning more than 10% of voting stock must have an exercise price equal to or greater
than 110% of the fair market value of the common stock on the date the option is granted.
76
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,
2021
0.24%-0.33%
0%
52.1%-53.0%
2.3%
2020
0.3%-1.66%
0 %
39.4%-48.9%
1.1 %
During the year ended June 30, 2021, the Company granted 976,924 options to its directors, certain members of the
executive management team and other employees at exercise prices ranging from $2.41 - $2.48. These options vest
in either quarterly or annual periods over one to three years, and expire ten years from the date of grant.
A summary of stock option activity for the years ended June 30, 2021 and 2020 is presented below:
Outstanding at June 30, 2019
Granted
Exercised
Canceled/forfeited/expired
Outstanding at June 30, 2020
Granted
Exercised
Canceled/forfeited/expired
Outstanding at June 30, 2021
Options vested and exercisable at June 30, 2021
Options vested and expected to vest as of
June 30, 2021
Weighted -
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Number
Outstanding
1,122,752 $
1,899,934
—
(146,792)
2,875,894
976,924
(65,990)
(10,260)
3,776,568
1,965,712
Per Share
3.55
2.36
—
4.12
2.74
2.41
2.48
2.94
2.65
2.87
34,135
8.0 $
—
—
—
—
—
—
22,409
8.6
—
—
—
—
—
—
8.0 3,962,766
7.4 1,728,490
3,770,648 $
2.65
8.0 $ 3,955,427
The weighted average grant date fair value of options granted and outstanding at June 30, 2021 was $1.00. At June
30, 2021, the Company had $1,381,775 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 1.77 years. The Company settles employee stock option exercises with newly issued shares of common
stock.
During the years ended June 30, 2021 and 2020, the Company issued 291,206 and 417,933 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, 2021 and 2020 totaled $1,965,712 and $940,700,
respectively, and was based on the closing stock price on the date of grants.
77
The Company recorded $866,017 and $700,724 of stock-based compensation expense associated with grants of
restricted stock units during the years ended June 30, 2021 and 2020, respectively. A summary of activity related to
non-vested restricted stock units is presented below:
Nonvested restricted units outstanding at June 30, 2019
Granted
Vested
Forfeited
Nonvested restricted units outstanding at June 30, 2020
Granted
Vested
Forfeited
Nonvested restricted units outstanding at June 30, 2021
Number of Nonvested
Restricted Stock Unis
Weighted-Average
Remaining Contractual
Life (Years)
Weighted-Average
Grant Date Fair Value
2.69
2.25
2.45
2.83
2.33
2.59
2.36
—
2.51
157,204 $
417,933
(177,010)
(1,324)
396,803
291,206
(326,439)
—
361,570 $
1.4
2.8
—
—
1.6
1.9
—
—
1.3
At June 30, 2021, the Company had $585,081 of unrecognized stock compensation expense related to the restricted
stock units, which will be recognized over the weighted average remaining service period of 1.29 years.
At June 30, 2021, there were 3,651,594 shares available under the 2019 Plan for future grants and awards.
Stock-based compensation expense recorded for stock options, restricted stock grants and restricted stock units for
the years ended June 30, 2021 and 2020, totaled $1,766,353 and $1,167,951, respectively.
NOTE 15 - 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, 2021 and 2020, respectively.
Purchases of equipment classified as finance lease
Contingent consideration issued
Years Ended June 30,
2020
2021
(468,390 )
(696,303)
— (4,407,887 )
NOTE 16 – PAYCHECK PROTECTION PROGRAM
In response to the COVID-19 pandemic, the Payment Protection Program, or PPP, was established under the
Coronavirus Aid, Relief and Economic Security Act, or the CARES Act and administered by the U.S. Small
Business Administration, or 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.
78
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, 2021 or 2020.
In December 2020 the Company submitted an application to have the PPP loan forgiven. In March 2021, the PPP
loan was forgiven in full.
NOTE 17 - SUBSEQUENT EVENTS
S&W Australia is currently in the process of modifying its seasonal credit facility with NAB. This agreement is
expected to increase the credit limit of the Company’s seasonal credit facility by $6,000,000 AUD ($4,498,800 USD),
reduce the overdraft facility by $1,000,000 AUD ($749,800 USD) and extend the maturity date of the existing facilities
until September 30, 2023.
During the month of September 2021, NAB provided a temporary increase in the seasonal credit facility of $3,700,000
AUD ($2,774,260 USD) while the Company works to complete its new long-term credit agreement with NAB. The
Company expects this new credit agreement to be completed by mid-October 2021.
On September 27, 2021, the Company entered into a Fourth Amendment to the Loan and Security Agreement with
CIBC, which amended the Loan Agreement. Pursuant to the amendment, among other things (i) CIBC waived
noncompliance with the Company’s fixed charge coverage ratio as of June 30, 2021, (ii) CIBC suspended the
Company’s fixed charge coverage ratio financial covenants under the Loan Agreement for the fiscal quarters ending
September 30, 2021 and December 30, 2021 and replaced that financial covenant with a minimum EBITDA threshold
tested quarterly for the quarters ending September 30, 2021 and December 31, 2021; (iii) the Company is required to
maintain liquidity no less than $3,000,000 for the remainder of the term of the Loan Agreement; and (iv) CIBC
modified the interest rate on the Loan to Prime plus 2.0% per annum. Pursuant to the September 2021 amendment,
the Company reverts back to its previous financial covenant to require that it maintain a fixed charge coverage ratio
equal to or greater than (i) 1.00 to 1.00, beginning with the fiscal quarter ending March 31, 2022 and (ii) 1.15 to 1.00
for each fiscal quarter thereafter. Except as modified by the foregoing amendment, all terms and conditions of the
loan agreement with CIBC remain in full force and effect.
79
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, 2021, 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, 2021, 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.
80
Item 9B. Other Information
On September 27, 2021, the Company entered into a Fourth Amendment to the Loan and Security Agreement with
CIBC, which amended the Loan Agreement. Pursuant to the amendment, among other things (i) CIBC waived
noncompliance with the Company’s fixed charge coverage ratio as of June 30, 2021, (ii) CIBC suspended the
Company’s fixed charge coverage ratio financial covenants under the Loan Agreement for the fiscal quarters ending
September 30, 2021 and December 30, 2021 and replaced that financial covenant with a minimum EBITDA threshold
tested quarterly for the quarters ending September 30, 2021 and December 31, 2021; (iii) the Company is required to
maintain liquidity no less than $3,000,000 for the remainder of the term of the Loan Agreement; and (iv) modified the
interest rate on the Loan to Prime plus 2.0% per annum. Pursuant to the September 2021 amendment, the Company
reverts back to its previous financial covenant to require that it maintain a fixed charge coverage ratio equal to or
greater than (i) 1.00 to 1.00, beginning with the fiscal quarter ending March 31, 2022 and (ii) 1.15 to 1.00 for each
fiscal quarter thereafter. Except as modified by the foregoing amendment, all terms and conditions of the loan
agreement with CIBC remain in full force and effect.
On September 27, 2021, the Company entered into revised employment agreements with each of Mark W. Wong,
President and Chief Executive Officer, Matthew K. Szot, the Company's Executive Vice President of Finance and
Administration and Chief Financial Officer, and Donald M. Panter, Executive Vice President, Americas.
CEO Employment Agreement
Pursuant to Mr. Wong's employment agreement, Mr. Wong is entitled to continue to receive an annual base salary of
$525,000, and he continues to be eligible to receive an annual performance bonus, comprised of three parts: (i) a cash
bonus with an initial target amount of $393,750 (up to a maximum of $525,000); (ii) an RSU award with an initial
target value of $210,000 (up to a maximum of $315,000); and (iii) a stock option award with an initial target value of
$600,000 (up to a maximum of $1,000,000).
Mr. Wong is also entitled to reimbursement of certain business and travel expenses, and is eligible to participate in all
our employee benefit plans, policies and arrangements that are applicable to our other executive or key management
employees.
The employment agreement also provides for certain severance benefits, each subject to a requirement that Mr. Wong
provide the Company with a general release of claims in a termination agreement acceptable to the Company:
•
•
In the event Mr. Wong’s employment is terminated without cause or he resigns for good reason (each
as defined in the employment agreement), he will be entitled to receive (i) continuation of his base
salary for twelve (12) months, (ii) a lump sum payment equal to 100% of his target cash bonus, (iii)
full acceleration of the vesting of all of his outstanding equity grants and awards, and any outstanding
stock option will remain exercisable for the remainder of the full term of the option, and (iv) payment
or reimbursement of COBRA premiums for twelve (12) months.
If Mr. Wong’s employment is terminated without cause or he resigns for good reason during the three
(3) months before or twelve (12) months after the effective date of a change of control (as defined in
the employment agreement), he will be eligible to receive full acceleration of the vesting of all of his
outstanding equity grants and awards, and any outstanding stock option will remain exercisable for the
remainder of the full term of the option, and payment or reimbursement of COBRA premiums for
twenty-four (24) months (or thirty-six (36) months in the event the Transaction Price (as defined
below) is at least $10). In addition, Mr. Wong will be eligible to receive a lump sum cash payment
equal to: (i) twenty-four (24) months of his base salary, plus (ii) 200% of his target cash bonus, plus
(iii) contingent and depending upon the value of the per share consideration payable in connection with
81
the change of control (the “Transaction Price”), a percentage of the combined target dollar value of the
RSU award and stock option award included in Mr. Wong’s annual performance bonus, as follows:
Transaction Price
$6.00 to $9.00
$9.01 to $12.00
>$12.00
CFO Employment Agreement
% of
Combined
Target Value
200 %
250 %
300 %
Pursuant to Mr. Szot's employment agreement, Mr. Szot is entitled to continue to receive an annual base salary of
$325,000, and he continues to be eligible to receive an annual performance bonus, comprised of three parts: (i) a cash
bonus with an initial target amount of $243,750 (up to a maximum of $325,000); (ii) an RSU award with an initial
target value of $65,000 (up to a maximum of $130,000); and (iii) a stock option award with an initial target value of
$200,000 (up to a maximum of $300,000).
Mr. Szot is also entitled to reimbursement of certain business and travel expenses, and is eligible to participate in all
our employee benefit plans, policies and arrangements that are applicable to our other executive officers. In addition,
the Company is obligated to maintain a term life insurance policy for the benefit of Mr. Szot's beneficiaries.
The employment agreement also provides for certain severance benefits, each subject to a requirement that Mr. Szot
provide the Company with a general release of claims in a termination agreement acceptable to the Company:
•
•
In the event Mr. Szot’s employment is terminated without cause or he resigns for good reason (each as
defined in the employment agreement), he will be entitled to receive (i) continuation of his base salary
for twelve (12) months, (ii) a lump sum payment equal to 100% of his target cash bonus, (iii) full
acceleration of the vesting of all of his outstanding equity grants and awards, and any outstanding
stock options will remain exercisable for up to twelve (12) months following termination, and (iv)
payment or reimbursement of COBRA premiums for twelve (12) months.
If Mr. Szot’s employment is terminated without cause or he resigns for good reason during the three
(3) months before or twelve (12) months after the effective date of a change of control (as defined in
the employment agreement), he will be eligible to receive full acceleration of the vesting of all of his
outstanding equity grants and awards, and any outstanding stock options will remain exercisable for up
to twelve (12) months following termination, and payment or reimbursement of COBRA premiums for
eighteen (18) months (or twenty-four (24) months in the event the Transaction Price is at least $10). In
addition, Mr. Szot will be eligible to receive a lump sum cash payment equal to: (i) eighteen (18)
months of his base salary, plus (ii) 150% of his target cash bonus, plus (iii) contingent and depending
upon the Transaction Price, a percentage of the combined target dollar value of the RSU award and
stock option award included in Mr. Szot’s annual performance bonus, as follows:
Transaction Price
$6.00 to $9.00
$9.01 to $12.00
>$12.00
% of
Combined
Target Value
125 %
150 %
200 %
82
EVP, Americas Employment Agreement
Pursuant to Mr. Panter’s employment agreement, Mr. Panter is entitled to continue to receive an annual base salary of
$300,000, and he continues to be eligible to receive an annual performance bonus, comprised of three parts: (i) a cash
bonus with an initial target amount of $150,000 (up to a maximum of $225,000); (ii) an RSU award with an initial
target value of $60,000 (up to a maximum of $120,000); and (iii) a stock option award with an initial target value of
$125,000 (up to a maximum of $250,000).
Mr. Panter is also entitled to reimbursement of certain business and travel expenses, and is eligible to participate in
all our employee benefit plans, policies and arrangements that are applicable to our other executive officers.
The employment agreement also provides for certain severance benefits, each subject to a requirement that Mr. Panter
provide the Company with a general release of claims in a termination agreement acceptable to the Company:
•
•
In the event Mr. Panter’s employment is terminated without cause or he resigns for good reason (each
as defined in the employment agreement), he will be entitled to receive (i) continuation of his base
salary for twelve (12) months, (ii) a lump sum payment equal to 100% of his target cash bonus, (iii)
acceleration of vesting of 1/3 of the then-unvested portion of his equity grants and awards, and any
outstanding stock options will remain exercisable for up to twelve (12) months following termination,
and (iv) payment or reimbursement of COBRA premiums for twelve (12) months.
If Mr. Panter’s employment is terminated without cause or he resigns for good reason during the three
(3) months before or twelve (12) months after the effective date of a change of control (as defined in
the employment agreement), he will be eligible to receive full acceleration of the vesting of all of his
outstanding equity grants and awards, and any outstanding stock options will remain exercisable for up
to twelve (12) months following termination, and payment or reimbursement of COBRA premiums for
eighteen (18) months. In addition, Mr. Panter will be eligible to receive a lump sum cash payment
equal to: (i) eighteen (18) months of his base salary, plus (ii) 150% of his target cash bonus.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
83
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.
84
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.
85
(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
86
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
Form of Common Stock Certificate
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
3.1
10/25/18
10-Q
001-34719
3.3
5/14/20
S-3
10-K
8-K
333-219726
4.3
8/4/17
001-34719
4.3
9/23/20
001-34719 10.4
1/7/15
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
87
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, as amended (the “Plan”)
8-K
001-34719
10.1
12/18/20
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
September 27, 2021
10.16*
Employment Agreement between the
Registrant and Mark W. Wong, dated
September 27, 2021
10.17*
Employment Agreement between the
Company and Donald Panter, dated September
27, 2021
10.18*
Employment Agreement between the
Company and David Callachor, dated
September 27, 2021
10.19†
Collaboration Agreement between the
Registrant and Calyxt, Inc., dated May 28,
2015 and entered into by the Registrant on
June 3, 2015
S-8
333-229625
99.2
2/12/19
S-8
333-229625
99.3
2/12/19
X
X
X
X
10-K
001-34719
10.39
9/28/15
88
10.20
10.21
10.22
10.23
10.24
10.25
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
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
89
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
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-K
001-34719 10.27 9/23/20
10-Q
001-34719 10.2
2/12/20
10-K
001-34719 10.29 9/23/20
10-K
001-34719 10.30 9/23/20
10-K
001-34719 10.31 9/23/20
10-K
001-34719 10.32 9/23/20
10.33
10.34
10.35
10.36
10.37
Business Letter of Offer between National
Australia Bank Limited and S&W Seed
Company Australia Pty Ltd, dated May 28,
2020
Second Amendment to Loan and Security
Agreement, dated December 30, 2020, by and
among the Registrant, Seed Holding, LLC,
Stevia California, LLC and CIBC Bank USA.
Business Letter of Variation between National
Australia Bank Limited and S&W Seed
Company Australia Pty Ltd, dated March 8,
2021.
Third Amendment to Loan and Security
Agreement, dated May 12, 2021, by and
among the Registrant, Seed Holding, LLC,
Stevia California, LLC and CIBC Bank USA.
Fourth Amendment to Loan and Security
Agreement, dated September 27, 2021, by and
among the Registrant, Seed Holdings, LLC,
Stevia California, LLC and CIBC Bank USA
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
31.2
Chief Executive Officer Certification pursuant
to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended
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.INS XBRL Instance Document
101.SCH XBRL Shema Document
101.CAL XBRL Calculation Linkbase Document
90
10-Q
001-34719 10.2
11/12/20
10-Q
001-34719 10.2
2/11/21
10-Q
001-34719 10.1
5/13/21
10-Q
001-34719 10.2
5/13/21
X
X
X
X
X
X
X
X
X
X
X
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
X
X
X
†
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.
91
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 28, 2021
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 28, 2021
September 28, 2021
Chairman of the Board
September 28, 2021
September 28, 2021
September 28, 2021
September 28, 2021
September 28, 2021
September 28, 2021
September 28, 2021
Director
Director
Director
Director
Director
Director
92
|Offi cers & Directors|
OFFICERS & EXECUTIVE MANAGEMENT
BOARD MEMBERS
Mark M. Wong
Chief Executive Offi cer
Matthew K. Szot
Chief Financial Offi cer,
Executive Vice President of Finance & Administration
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
Global Director of Human Resources
Jacob Kurzawa
Vice President of Finance & Accounting
Cameron Henley
Commercial General Manager, International
CORPORATE HEADQUARTERS
S&W Seed Company
2101 Ken Pratt Blvd., Suite 201
Longmont, CO 80501 United States
www.swseedco.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Crowe LLP, San Francisco, CA
Mark J. Harvey, Chairman
Chairman of the Board, S&W Seed Company
Mark M. Wong
Chief Executive Offi cer, S&W Seed Company
David A. Fischhoff
Former Senior Executive R&D, Monsanto Company, retired
Consuelo Madere
Former Executive Offi cer, Global Commercial/Operations,
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
Former Chairman of Cargill Asia Pacifi c and Lead Cargill’s
Agriculture Supply Chain, retired
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.
TRADEMARKS
Double Team is a registered Trademark of ADAMA.
DT is a registered Trademark of S&W Seed Company.
DF is a registered Trademark of S&W Seed Company.
First Act is a registered Trademark of ADAMA.
IQA is a registered Trademark of S&W Seed Company.
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.sorghumpartners.com
www.sunfl ower-partners.com
S&W Seed Company
Australia Headquarters
Offi ce 2, 7 Pomona Road
Stirling SA 5152
Australia
+61 88271 6000
www.swseedco.com.au