S&W Seed pany(SANW) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, detailing the company's financial position, results, and cash flows for the period ended December 31, 2022 Condensed Consolidated Balance Sheets As of December 31, 2022, total assets were $134.2 million, total liabilities increased to $87.1 million, and stockholders' equity decreased to $42.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $81,662 | $77,230 | | Total Assets | $134,221 | $133,788 | | Total Current Liabilities | $80,065 | $48,291 | | Total Liabilities | $87,136 | $77,574 | | Total Stockholders' Equity | $42,052 | $51,409 | Condensed Consolidated Statements of Operations For the three and six months ended December 31, 2022, revenue increased and net loss significantly narrowed compared to the prior year Statement of Operations Summary (Three Months Ended Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $12,937,802 | $12,631,409 | | Gross Profit | $2,749,291 | $1,660,364 | | Loss from Operations | $(6,249,547) | $(8,897,022) | | Net Loss Attributable to S&W | $(5,986,005) | $(9,795,102) | | Net Loss per Share | $(0.14) | $(0.25) | Statement of Operations Summary (Six Months Ended Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $32,803,667 | $28,163,090 | | Gross Profit | $7,253,802 | $4,787,033 | | Loss from Operations | $(9,649,447) | $(14,666,093) | | Net Loss Attributable to S&W | $(10,494,946) | $(16,195,077) | | Net Loss per Share | $(0.25) | $(0.43) | Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2022, operating cash flow remained negative, while investing activities provided cash, leading to a net decrease in cash Cash Flow Summary (Six Months Ended Dec 31) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,399,653) | $(8,065,824) | | Net cash provided by (used in) investing activities | $2,248,663 | $(1,206,255) | | Net cash provided by financing activities | $5,446,944 | $8,699,613 | | Net Decrease in Cash | $(728,336) | $(805,871) | Notes to Condensed Consolidated Financial Statements The notes highlight a 'going concern' warning, strategic partnerships with Trigall and Shell, and details on revenue sources and debt structure - The company's financial statements include a 'going concern' warning, citing a net loss of $10.5 million and $8.4 million in cash used by operations for the six months ended Dec 31, 2022. This raises substantial doubt about its ability to continue operating[36][37] - Effective December 23, 2022, the company partnered with Trigall Genetics, selling an 80% interest in its Australian wheat subsidiary for $2.0 million in cash, a $1.0 million promissory note, and a 20% equity stake[28] - Subsequent to the quarter end, on February 6, 2023, the company entered a major partnership with Shell for biofuel feedstock development. Shell contributed cash, paid $7.0 million to S&W, and paid off S&W's ~$7.0 million Rooster Note[99][102] Revenue by Destination Country (Six Months Ended Dec 31) | Country | 2022 Revenue | % of Total | 2021 Revenue | % of Total | | :--- | :--- | :--- | :--- | :--- | | Saudi Arabia | $7,337,966 | 22% | $5,147,756 | 18% | | United States | $6,104,580 | 19% | $6,069,406 | 22% | | Australia | $5,059,366 | 15% | $5,679,852 | 20% | | Other | $14,301,455 | 44% | $11,266,526 | 40% | | Total | $32,803,667 | 100% | $28,163,090 | 100% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic focus on sorghum and forages, improved operational results, and ongoing liquidity challenges including debt refinancing Strategic Review The company's strategic review focuses on core value centers, aiming to reduce operating expenses and improve liquidity through key partnerships - The company is implementing a plan to reduce annual operating expenses by approximately $4.0 to $5.0 million through strategic partnerships, streamlining European operations, and reducing headcount[111] - A key strategic initiative is the partnership with Shell to develop camelina and other oilseeds for biofuel production, leveraging S&W's capabilities in seed production and processing[105][108] - The partnership with Trigall Genetics for wheat development in Australia involved S&W contributing its breeding program for $2.0 million cash, a $1.0 million note, and a 20% ownership stake in the new entity, Trigall Australia[107] Results of Operations Operational results show increased revenue, improved gross profit, and reduced net loss for both the three and six-month periods ended December 31, 2022 Three Months Ended Dec 31, 2022 vs 2021 | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $12.9M | $12.6M | +2.4% | | Gross Profit | $2.7M | $1.7M | +65.6% | | Operating Expenses | $9.0M | $10.6M | -14.8% | | Net Loss | $(6.0)M | $(9.8)M | -38.8% | Six Months Ended Dec 31, 2022 vs 2021 | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $32.8M | $28.2M | +16.5% | | Gross Profit | $7.3M | $4.8M | +51.5% | | Operating Expenses | $16.9M | $19.5M | -13.1% | | Net Loss | $(10.5)M | $(16.2)M | -35.1% | - The improvement in gross margin for Q2 was driven by increased sales of higher-margin alfalfa in the MENA region and grain sorghum in North America, coupled with decreased sales of lower-margin products[133] Liquidity and Capital Resources The company faces significant liquidity challenges, including historical covenant non-compliance and debt refinancing needs, but expects sufficiency for the next 12 months - The company has a history of non-compliance with covenants in its CIBC Loan Agreement and was required to obtain waivers. The agreement matures on March 23, 2023, and the company is actively pursuing refinancing[167][177] - To support its obligations, the company's largest stockholder, MFP Partners, provided a letter of credit and a subordinate loan agreement for up to $12.0 million[171][172] - The company believes cash flow from operations, payments from the Shell partnership, and existing debt facilities will be sufficient to meet cash requirements for the next 12 months[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, S&W Seed Company is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide information regarding market risk[193] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2022, with no significant changes to internal controls - Based on an evaluation as of December 31, 2022, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective[195] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[196] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, other information, and exhibits Item 1. Legal Proceedings The company is involved in various legal matters but expects no material adverse impact from current pending proceedings - The company reports no pending legal proceedings that are expected to have a material adverse impact on its business or financials[198] Item 1A. Risk Factors As a smaller reporting company, S&W Seed Company is not required to provide risk factor disclosures - The company is a smaller reporting company and is not required to provide risk factor disclosures in its Form 10-Q[199] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[200] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[201] Item 5. Other Information The company's Australian subsidiary amended its NAB Finance Agreement to revise the maximum permissible net related entity position - On February 8, 2023, the NAB Finance Agreement was amended to change the maximum net related entity position from AUD $25.0 million to USD $18.5 million[203] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including loan agreement amendments and officer certifications