S&W Seed Co - FORM 10-Q

Attached files

file	filename
EX-32.2 - EX-32.2 - S&W Seed Co	sanw-ex322_6.htm
EX-32.1 - EX-32.1 - S&W Seed Co	sanw-ex321_7.htm
EX-31.2 - EX-31.2 - S&W Seed Co	sanw-ex312_8.htm
EX-31.1 - EX-31.1 - S&W Seed Co	sanw-ex311_11.htm
EX-10.1 - EX-10.1 - S&W Seed Co	sanw-ex101_10.htm
EX-3.3 - EX-3.3 - S&W Seed Co	sanw-ex33_288.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period year ended March 31, 2020

☐	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		27-1275784
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


2101 Ken Pratt Blvd, Suite 201, Longmont, CO		80501
(Address of Principal Executive Offices)		(Zip Code)

(720) 506-9191

(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	SANW	The Nasdaq Capital Market

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

☒ Yes ☐ No

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

☒ Yes ☐ No

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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

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

The number of shares outstanding of common stock of the registrant as of May 12, 2020 was 33,416,204.

S&W SEED COMPANY

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements (Unaudited):	4
	Consolidated Balance Sheets at March 31, 2020 and June 30, 2019	4
	Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31, 2020 and 2019	5
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 31, 2020 and 2019	6
	Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended March 31, 2020 and 2019	7
	Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2020 and 2019	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II.	OTHER INFORMATION	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include but are not limited to, any statements concerning the potential effects of the COVID-19 pandemic on our business, 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,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions or variations intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We have based these forward-looking statements on our current expectations about future events. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Risks, uncertainties and assumptions include the following:

•	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 alfalfa, sorghum, sunflower and stevia products;

•	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;

•	the effectiveness of our global supply chain and distribution capabilities;

•	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 “Risk Factors” below, 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 listed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K, for the fiscal year ended June 30, 2019 (the “Annual Report”), as updated in Part II, Item 1A. “Risks Factors” of this Quarterly Report on Form 10-Q.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this Quarterly Report on Form 10-Q, some of which are beyond our control, will be important in determining our future performance. Consequently, these statements are inherently uncertain and actual results may differ materially from those that might be anticipated from the forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this Quarterly Report on Form 10-Q as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Furthermore, such forward-looking statements represent our views as of, and speak only as of, the date of this Quarterly Report on Form 10-Q, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We undertake no obligation to publicly update any forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “the Company,” “S&W” and “S&W Seed” refer to S&W Seed Company and its subsidiaries or, as the context may require, S&W Seed Company only. Our fiscal year ends on June 30, and accordingly, the terms “fiscal 2020,” “fiscal 2019” and “fiscal 2018” in this Quarterly Report on Form 10-Q refer to the respective fiscal year ended June 30, 2020, 2019 and 2018, respectively, with corresponding meanings to any fiscal year reference beyond such dates. Trademarks, service marks and trade names of other companies appearing in this report are the property of their respective holders.

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

S&W SEED COMPANY

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS	March 31, 2020			June 30, 2019
CURRENT ASSETS
Cash and cash equivalents	$	8,466,437		$	3,431,802
Accounts receivable, net		19,254,556			13,380,464
Inventories, net		70,807,964			71,295,520
Prepaid expenses and other current assets		1,746,268			1,687,490
Assets held for sale		—			1,850,000
TOTAL CURRENT ASSETS		100,275,225			91,645,276
Property, plant and equipment, net		20,628,422			20,634,949
Intangibles, net		37,854,710			32,714,484
Goodwill		2,381,684			—
Other assets		6,459,625			1,369,560
TOTAL ASSETS	$	167,599,666		$	146,364,269
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	14,739,329		$	6,930,829
Deferred revenue		8,416,430			9,054,549
Accrued expenses and other current liabilities		8,017,363			6,073,110
Lines of credit, net		28,145,189			10,755,548
Current portion of long-term debt, net		1,755,905			1,113,502
TOTAL CURRENT LIABILITIES		61,074,216			33,927,538
Long-term debt, net, less current portion		13,852,560			12,158,095
Contingent consideration obligation		4,037,922			—
Other non-current liabilities		3,418,905			280,424
TOTAL LIABILITIES		82,383,603			46,366,057
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.001 par value; 50,000,000 shares authorized; 33,423,019 issued and 33,398,019 outstanding at March 31, 2020; 33,303,218 issued and 33,278,218 outstanding at June 30, 2019;		33,423			33,303
Treasury stock, at cost, 25,000 shares		(134,196	)		(134,196	)
Additional paid-in capital		137,480,467			136,751,875
Accumulated deficit		(45,338,714	)		(30,466,618	)
Accumulated other comprehensive loss		(6,679,462	)		(6,138,467	)
Noncontrolling interests		(145,455	)		(47,685	)
TOTAL STOCKHOLDERS' EQUITY		85,216,063			99,998,212
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	167,599,666		$	146,364,269

See notes to consolidated financial statements.

S&W SEED COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Revenue
Product and other	$	29,091,884		$	18,176,166		$	53,717,442		$	62,877,299
Total revenue		29,091,884			18,176,166			53,717,442			62,877,299
Cost of revenue
Product and other		22,667,126			13,388,470			42,027,439			47,942,933
Total cost of revenue		22,667,126			13,388,470			42,027,439			47,942,933
Gross profit		6,424,758			4,787,696			11,690,003			14,934,366
Operating expenses
Selling, general and administrative expenses		5,895,984			4,610,471			15,663,907			11,840,547
Research and development expenses		2,041,650			1,824,613			5,301,714			4,190,280
Depreciation and amortization		1,209,433			1,171,057			3,620,235			3,061,771
Gain on disposal of property, plant and equipment		(7,719	)		(97,483	)		(20,794	)		(94,020	)
Total operating expenses		9,139,348			7,508,658			24,565,062			18,998,578
Loss from operations		(2,714,590	)		(2,720,962	)		(12,875,059	)		(4,064,212	)
Other expense
Foreign currency loss (gain)		81,574			4,793			67,399			(53,638	)
Reduction of anticipated loss on sub-lease land		—			(141,373	)		—			(141,373	)
Change in estimated value of assets held for sale		—			—			92,931			—
Loss on extinguishment of debt		—			—			140,638			—
Interest expense - amortization of debt discount		96,222			103,362			393,935			238,754
Interest expense		444,401			758,669			1,382,680			2,057,377
Loss before income taxes		(3,336,787	)		(3,446,413	)		(14,952,642	)		(6,165,332	)
Provision (benefit) for income taxes		(7,296	)		(82,411	)		17,224			(77,878	)
Net loss	$	(3,329,491	)	$	(3,364,002	)	$	(14,969,866	)	$	(6,087,454	)
Net loss attributed to noncontrolling interests		(47,742	)		(22,102	)		(97,770	)		(429	)
Net loss attributable to S&W Seed Company	$	(3,281,749	)	$	(3,341,900	)	$	(14,872,096	)	$	(6,087,025	)

Net loss attributable to S&W Seed Company per common share:
Basic	$	(0.10	)	$	(0.10	)	$	(0.45	)	$	(0.21	)
Diluted	$	(0.10	)	$	(0.10	)	$	(0.45	)	$	(0.21	)
Weighted average number of common shares outstanding:
Basic		33,385,376			33,267,258			33,323,239			29,043,493
Diluted		33,385,376			33,267,258			33,323,239			29,043,493

See notes to consolidated financial statements.

S&W SEED COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2020			2019			2020			2019
Net loss	$	(3,329,491	)	$	(3,364,002	)	$	(14,969,866	)	$	(6,087,454	)
Foreign currency translation adjustment, net of income taxes		(486,500	)		36,576			(540,995	)		(289,045	)
Comprehensive loss	$	(3,815,991	)	$	(3,327,426	)	$	(15,510,861	)	$	(6,376,499	)
Comprehensive loss attributable to noncontrolling interests		(47,742	)		(22,102	)		(97,770	)		(429	)
Comprehensive loss attributable to S&W Seed Company	$	(3,768,249	)	$	(3,305,324	)	$	(15,413,091	)	$	(6,376,070	)

See notes to consolidated financial statements.

S&W SEED COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Preferred Stock						Common Stock				Treasury Stock						Additional Paid-In			Accumulated			Noncontrolling			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount			Shares		Amount		Shares			Amount			Capital			Deficit			Interests			Loss			Equity
Balance, December 31, 2018		—			—			33,246,141	$	33,246		(25,000	)	$	(134,196	)	$	136,495,216		$	(23,906,501	)		21,673		$	(6,116,283	)	$	106,393,155
Stock-based compensation - options, restricted stock, and RSUs		—			—			—		—		—			—			156,175			—			—			—			156,175
Net issuance to settle RSUs		—			—			51,205		51		—			—			(5,634	)		—			—			—			(5,583	)
Proceeds from sale of common stock, net of fees and expenses		—			—			—		—		—			—			(46,620	)		—			—			—			(46,620	)
Other comprehensive income		—			—			—		—		—			—			—			—			—			36,576			36,576
Net loss		—			—			—		—		—			—			—			(3,341,900	)		(22,102	)		—			(3,364,002	)
Balance, March 31, 2019		—		$	—			33,297,346	$	33,297		(25,000	)	$	(134,196	)	$	136,599,137		$	(27,248,401	)	$	(429	)	$	(6,079,707	)	$	103,169,701

Balance, December 31, 2019		—		$	—			33,329,566	$	33,329		(25,000	)	$	(134,196	)	$	137,204,276		$	(42,056,965	)	$	(97,713	)	$	(6,192,962	)	$	88,755,769
Stock-based compensation - options, restricted stock, and RSUs		—			—			—		—		—			—			325,587			—			—			—			325,587
Net issuance to settle RSUs		—			—			93,453		94		—			—			(49,396	)		—			—			—			(49,302	)
Other comprehensive loss		—			—			—		—		—			—			—			—			—			(486,500	)		(486,500	)
Net loss		—			—			—		—		—			—			—			(3,281,749	)		(47,742	)		—			(3,329,491	)
Balance, March 31, 2020		—		$	—			33,423,019	$	33,423		(25,000	)	$	(134,196	)	$	137,480,467		$	(45,338,714	)	$	(145,455	)	$	(6,679,462	)	$	85,216,063

	Preferred Stock						Common Stock				Treasury Stock						Additional Paid-In			Accumulated			Noncontrolling			Accumulated Other Comprehensive			Total Stockholders'
	Shares			Amount			Shares		Amount		Shares			Amount			Capital			Deficit			Interests			Loss			Equity
Balance, June 30, 2018		—			—			24,367,906	$	24,367		(25,000	)	$	(134,196	)	$	108,803,991		$	(21,161,376	)		—		$	(5,790,662	)	$	81,742,124
Stock-based compensation - options, restricted stock, and RSUs		—			—			—		—		—			—			533,633			—			—			—			533,633
Net issuance to settle RSUs		—			—			86,723		87		—			—			(31,168	)		—			—			—			(31,081	)
Proceeds from sale of preferred stock, net of fees and expenses		7,235			7			—		—		—			—			22,373,835			—			—			—			22,373,842
Conversion of preferred stock to common stock		(7,235	)		(7	)		7,235,000		7,235		—			—			(7,228	)		—			—			—			—
Proceeds from sale of common stock, net of fees and expenses		—			—			1,607,717		1,608		—			—			4,926,074			—			—			—			4,927,682
Other comprehensive loss		—			—			—		—		—			—			—			—			—			(289,045	)		(289,045	)
Net loss		—			—			—		—		—			—			—			(6,087,025	)		(429	)		—			(6,087,454	)
Balance, March 31, 2019		—		$	—			33,297,346	$	33,297		(25,000	)	$	(134,196	)	$	136,599,137		$	(27,248,401	)	$	(429	)	$	(6,079,707	)	$	103,169,701

Balance, June 30, 2019		—		$	—			33,303,218	$	33,303		(25,000	)	$	(134,196	)	$	136,751,875		$	(30,466,618	)	$	(47,685	)	$	(6,138,467	)	$	99,998,212
Stock-based compensation - options, restr

S&W Seed Co - FORM 10-Q - May 14, 2020

Attached files