UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
May 6, 2016
Date of Report (Date of earliest event reported)
S&W SEED COMPANY
(Exact Name of Company as Specified in Its Charter)
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7108 North Fresno Street, Suite 380
Fresno, CA 93720
(559) 884-2535
Not Applicable
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement.
On May 6, 2016, Seed Genetics International Pty Ltd ("SGI"), the wholly-owned subsidiary of S&W Seed Company (the "Company"), executed a Business Letter of Advice with National Bank of Australia Limited ("NAB") dated April 28, 2016 (the "Business Letter of Advice"), modifying certain terms and conditions of SGI's existing Trade Refinance Facility (the "Trade Refinance Facility") and NAB Business Markets-Flexible Rate Loan (the "Keith Building Loan"). The Trade Refinance Facility and Keith Building Loan are two components of SGI's credit facilities with NAB, which also include an overdraft facility and machinery and equipment loans (collectively, the "NAB Credit Facilities").
The material changes provided in the Business Letter of Advice include the following:
Except as set forth in the Business Letter of Advice, the NAB Credit Facilities remain unchanged and in full force and effect. The foregoing description of the Business Letter of Advice does not purport to be complete and is qualified in its entirety by reference to, and should be read in conjunction with, the full text of the Business Letter of Advice, which is filed as Exhibit 10.1 hereto and incorporated herein by this reference.
Item 2.02. Results of Operations and Financial Condition.
On May 12, 2016, the Company issued a press release entitled "S&W Announces Results for the Third Quarter of Fiscal 2016." The text of the press release is furnished as Exhibit 99.1.
The information in Exhibit 99.1 hereto shall not be deemed "filed" for the purposes of or otherwise subject to the liabilities under Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Unless expressly incorporated into a filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act made after the date hereof, the information contained in Exhibit 99.1 hereto shall not be incorporated by reference into any Company filing, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
See Item 1.01 above.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit |
Description |
10.1 |
Business Letter of Advice from National Bank of Australia Limited to Seed Genetics International Pty Ltd, dated as of April 28, 2016 (executed by Seed Genetics International Pty Ltd on May 6, 2016) |
99.1 |
Press Release of S&W Seed Company dated May 12, 2016, announcing financial results for the period ended March 31, 2016* |
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* This exhibit is furnished and shall not be deemed "filed" for purposes of the Exchange Act, as amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
S&W SEED COMPANY |
By: /s/ Matthew K. Szot |
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Matthew K. Szot | |
Executive Vice President of Finance and Administration and Chief Financial Officer |
Date: May 12, 2016
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EXHIBIT INDEX
Exhibit |
Description |
10.1 |
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99.1 |
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* This exhibit is furnished and shall not be deemed "filed" for purposes of the Securities Exchange Act of 1934, as amended.
EXHIBIT 10.1
Adelaide Agribusiness
908 US 22-28 King William St Adelaide
SA 5000
Ph: 08 8407 6181
Fax: 08 8407 6280
28 April 2016
The Secretary
Seed Genetics International Pty Ltd 5 13-15 King William Rd
UNLEY SA 5061
Business Letter of Advice for Seed Genetics International Pty Ltd ACN/ARBN/ABN 44061114814
("you")
I'm writing today to let you know of some changes that are being made to your facilities. Please review the changes as detailed at the end of this letter and then read below to understand when these changes will take effect.
Unless otherwise stated, these changes take effect once we receive a signed copy of this letter duly signed, provided we receive it within 30 days of the date of this letter.
We recommend that you keep this letter in a safe place in case you want to refer to it in the future.
If you have any questions, please feel free to call me on 08 8407 6181. I'd be happy to help.
Thank you again for choosing to work with NAB.
/s/ Barry Willhelm
Agribusiness Manager
Changes to facilities
The information in this letter is current as at the date of this letter and some of this information may be subject to change, Words printed like This have the same meaning as they do in your current terms and conditions. This letter Is a Transaction Document for the purposes of your Agreement with NAB.
Facility |
Trade Refinance Facility |
Existing Facility Limit |
AUD 12,000,000.00 |
Extension |
This facility will be extended. |
New expiry date 30/03/2018
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If this facility is subject to financial, reporting or other covenants or undertakings, we may review your compliance with those covenants or undertakings separately. This letter is not a waiver of any rights we may have if those covenants or undertakings are not met.
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Facility |
NAB Business Markets - Flexible Rate Loan |
Existing Facility Limit |
$650,000.00 |
Facility Limit Change |
The facility limit for this facility will change. |
New facility limit: $800,000.00 |
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It Is your responsibility to ensure that the new facility limit is not exceeded. |
Changes to Covenants
Additional Lending Covenants
Minimum capital adequacy of 30.00% as measured on a daily basis and reported in relation to the 12 month period ending on 31st December annually for Seed Genetics International Pty Ltd. To be reported on by the 15th February annually via the December quarterly management reports. Capital adequacy being tangible net worth + intercompany loans from S&W divided by total tangible assets.
Signed contract for sale to be provided for Keith land purchases 4 weeks before settlement to enable documentation and funding to be scheduled.
Borrowing Base Facility agreed Inventory 'Selling Price' for stock value calculation is to be confirmed at annual review by the Bank by 31 March each year.
Stock harvested in prior calendar year is to be excluded from Borrowing Base Facility approved inventory from 31 December of the calendar year following harvest.
These additional lending covenants apply in relation to all facilities provided to you by NAB.
All other lending covenants set out in your Agreement (as amended from time to time), remain in place.
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Lending Covenants to be removed
No dividends are to be paid in respect of Seed Genetics International Pty Ltd without the prior written consent of the Bank.
Market Rate 'stock' facility limit to reduce to $7,000,000 by no later than 31/10/2014.
Monthly stock reports to be provided with 15 days of months end. Maximum drawdown under Market Rate Facility to be 36% of sales price. The agreed forecast harvest price for 2013 & 2014 harvest is $6.20 per kg. This price is locked in until agreement on setting for the succeeding years harvest.
Minimum capital adequacy of 30.00% as measured on a daily basis and reported in relation to the 12 month period ending on 31st December annually for Seed Genetics International Pty Ltd. To be reported on by the 15th February annually via the December quarterly management reports.
Final FYE 2014 Accounts for Seed Genetics International Pty Ltd at to be provided by no later than 30th April 2015.
Progress payments for the construction of the industrial shed situate at 4 & 5 Stirling Road Keith SA to be made via approved invoices (that correlate to the fixed price building contract). National Australia Bank internal staff to review work completed and vet payment at each stage.
Market Rate 'stock' facility limit to reduce to $6,500,000 by no later than 31/12/2014. Market Rate 'stock ' facility limit to reduce to $6,000,000 by no later than 30/11/2014.
Drawdowns under the MRF facility are to be exclusively for the purchase of seed from growers.
Current seasonal stock facility is to be fully cleaned down by 30th September of the following year, approx 16 month clean down period. At the start of each season a separate facility is to be drawn, providing a clear distinction between the current & past seasonal facilities. Should the past seasonal facility not fully clean down by September of the following calendar year, the borrower is to provide to NAB, within 5 business days a strategy to fully clean down the facility, acceptable to NAB.
No further grower payments over or above budgeted payments are to be made without the prior written consent of the Bank.
The Borrower is to provide to the Bank a copy of the Trade Credit Insurance Policy from an insurer who is on the Bank's panel of acceptable insurers with fully policy details and buyer limits including NAB noted as 'Financier noted/first loss payee'.
All terms and conditions outlined in the SCF Support Paper dated 5/3/2015 are to be strictly adhered too. Trade paper is to be signed by SCF Director (Andre Taye).
These lending covenants no longer apply. Please note that all other lending covenants set out in your Agreement (as amended from time to time), remain in place.
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Fees and charges
The following fees are payable by you immediately on your acceptance of this letter.
Unless otherwise stated, these fees are in addition to any other fees set out in the terms and conditions applicable to any of the facilities and any other fees listed in the relevant fees guide.
Estimate of NAB's credit fees and charges
Application fee |
$ 750.00 |
This application fee is the total application fee payable under this Agreement. It includes any separate facility application fees set out in the Facility Details. |
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Company search fee |
$ 40.00 |
Estimate of Government charges (payable to the relevant government department) |
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Personal Property Securities registration fee |
$ 22.47 |
Other Fees and charges (payable to third parties) |
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Estimate of total amount of credit fees and charges to establish the facilities (as far as can be ascertained now). These fees (if any) are payable by you immediately (unless NAB otherwise tells you), if not already paid. Any additional fees and charges to establish the facilities will be advised to you and are payable on demand. |
$ 812.47 |
Acceptance
To accept this Letter of Advice, you must sign the duplicate and return it to us before any deadline for acceptance set out at the start of this letter.
If provision is made for guarantors to sign the duplicate of this letter, then each such guarantor must also sign the duplicate.
By executing this document, you:
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Signed by the Borrower
Signature Section for Companies
Seed Genetics International Pty Ltd
Customer Company Name (BLOCK LETTERS)
Executed by the company named above in accordance with Section 127 of the Corporations Act 2001 (Cwith)
/s/ Andrew Ross Carthew |
/s/ Dennis Jury |
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Signature |
Signature |
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ANDREW ROSS CARTHEW |
DENNIS JURY |
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Full name (BLOCK LETTERS) |
Full name (BLOCK LETTERS) |
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Secretary* |
Director |
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Office Held |
Office Held |
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May 6, 2016 |
06/05/16 |
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Date |
Date |
o * Please tick here if you are signing as Sole Director and Sole Company Secretary
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Changes to General Conditions
The General Conditions forming part of your Agreement with NAB are varied to include the following provisions. All other General Conditions set out in your Agreement (as amended from time to time) remain in place.
1. Protecting NAB's Security Position
(a) If:
(i) a PPS Law applies, or will at a future date apply to any of the Transaction Documents or any of the transactions contemplated by them, or NAB determines that a PPS Law applies, or will at a future date apply, to any of the Transaction Documents or any of the transactions contemplated by them; and
(ii) in the opinion of NAB, the PPS Law adversely affects or would or may adversely affect NAB's security position or the rights or obligations of NAB under or in connection with the Transaction Documents,
NAB may from time to time give notice to you requiring you to do anything, including
(iii) promptly providing all necessary information (including serial numbers) and taking all necessary action (including obtaining any consent or agreement or giving any notice) to enable NAB to register fully valid and effective financing statements or financing change statements (each as defined in the PPSA) with respect to any Security Interest held or intended to be held by NAB under the Transaction Documents at any time;
(iv) amending any Transaction Document or executing any new Transaction Document; and
(v) to continuously perfect any security interest in respect of which you are or may become the secured party in such manner and by such time as NAB may direct so as to achieve the priority over competing security interests and other claims and protection against loss, extinguishment and diminution of the security interest,
that in NAB's opinion is necessary to ensure that, to the maximum possible extent, NAB's security position, and rights and obligations, are not adversely affected as contemplated by paragraph (ii) (or that any such adverse effect is overcome to the maximum extent possible). You must comply with the requirements of that notice within the time stipulated in the notice.
(b) In this clause and in clause 3, PPS Law means:
(i) the PPSA;
(ii) any regulations made at any time under the PPSA;
(iii) any provision of the PPSA or regulations referred to in paragraph (i) or (ii);
(iv) any amendment to any of the above, made at any time; or
(v) any amendment made at any time to the Corporations Act or any other legislation as a consequence of the PPSA.
2. Fees
You must pay NAB and indemnify NAB for an amount equal to any Costs or Taxes in connection with preparing, registering and maintaining any financing statement or financing change statement (each as defined in the PPSA) in relation to a Security, or taking any action that in NAB's opinion is necessary under clause 1 above.
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3. PPSA Waiver
You waive, to the extent permitted under the PPS Law, your right to receive any notices NAB is required to give under the PPS Law (including a notice of a verification statement).
4. Confidentiality
(a) You agree and NAB agrees that neither party will disclose to an Interested Person, or any other person at the request of an Interested Person, any information of the kind described in section 275(1) of the PPSA unless allowed or required by law.
(b) You will not authorise the disclosure of any information of the kind described in section 275(1) of the PPSA.
(c) Each party agrees not to disclose information provided by the other party (including the existence or contents of a Transaction Document) except:
(i) to officers, employees, legal and other advisers and auditors of you, NAB or a Receiver;
(ii) with the consent of the other party (who must not unreasonably withhold their consent);
(iii) if required by any stock exchange or if allowed or required by law;
(iv) by NAB under any other provision of a Transaction Document;
(v) by NAB to any Related Entity of NAB or you;
(vi) by NAB to any assignee of NAB's rights under a Transaction Document or any other arrangement (including a request, bill of exchange, agreement guarantee or a Security Interest) by or with you under which obligations are or could in the future be owed to NAB;
(vii) by NAB to any person in connection with NAB exercising rights or dealing with rights or obligations (including preparatory steps such as negotiating with any potential assignee of NAB's rights or other person who is considering contracting with NAB or a Receiver in connection with a Transaction Document;
(viii) by NAB for the purpose of registering and maintaining any financing statement or financing change statement (each as defined in the PPSA) relating to NAB's Security; or
(ix) by NAB to any Debtor/Guarantor or person NAB believes may become a Debtor/Guarantor,
provided that the prohibition under clause 3(a) or 3(b) is absolute and therefore none of the exceptions in this clause 3(c)(i) - (viii) apply to
(d) NAB agrees that you accept this Letter of Advice on condition that NAB compiles with its obligations of confidentiality under clauses 3(a) and 3(c) above.
5. Representations and Warranties
You represent and warrant to NAB that at the time of this Letter of Advice, and at all times thereafter, except as disclosed to and agreed to by NAB in writing, you are not a trustee of any Trust or a partner in a partnership.
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6. Definitions
The following definitions apply to your Agreement with NAB:
(a) Debtor/Guarantor means:
(i) any person who guarantees or has provided a Security Interest to secure the payment of any part of the Balance Owing;
(ii) If any part of the Balance Owing includes obligations you owe under a guarantee, the person whose obligations you guarantee and any other person who guarantees that other person's obligations; and
(iii) any other person you and NAB agree is to be a "Debtor/Guarantor" for the purpose of a Transaction Document.
(b) Interested Person has the meaning given to that term for the purposes of section 275 of the PPSA, and includes:
(i) any person granting a Security;
(ii) a person with another Security Interest in the same property in which NAB has a Security;
(iii) if a person granting a Security is a body corporate, an auditor of that person;
(iv) an execution creditor with an interest in the property in which NAB has a Security;
(v) an authorised representative of any of the above.
(c) PPSA means the Personal Property Securities Act 2009 (Cwith).
(d) Security Interest:
(i) in relation to any personal property (as defined in the PPSA), has the same meaning as in the PPSA;
(ii) in relation to any other property, means any security for the payment of money or performance of obligations including a lien, pledge, trust or power.
7. Interpretation
In your Agreement with NAB, a reference to law means common law, principles of equity, and laws made by parliament (and laws made by parliament include regulations and other instruments under them, and consolidations, amendments, re-enactments or replacements of them). For example, a reference to a section or other provision of a law made by parliament Includes any amendment or replacement of that section or provision, Including an amendment to the number of that section or provision.
Changes to Specific Conditions
Global Trade Finance Specific Conditions
The Global Trade Finance Specific Conditions (if any) forming part of your Agreement with NAB are varied to include the following provisions. All other Specific Conditions (if any) set out in your Agreement (as amended from time to time), remain in place.
1. Pledge
NAB may request that, as security for your obligations to NAB (whether in relation to the Facility or otherwise), you authorise NAB to retain by way of pledge the document and goods relating to each Letter of Credit Drawn under a Facility. If requested by NAB, you agree to execute any document necessary to grant NAB a Security Interest in the document and goods relating to such Letter of Credit (a "Pledge Agreement").
2. Additional consequences of default
If you are in Default, in addition to any other rights and obligations under the General Conditions or Global Trade Finance Specific Conditions, NAB may sell, dispose of or otherwise deal with any documents or goods pledged under a Pledge Agreement as NAB thinks fit and apply the proceeds towards satisfaction of your obligations to NAB (whether in relation to the Facility or otherwise).
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EXHIBIT 99.1
S&W Announces Results for the Third Quarter of Fiscal 2016
For Immediate Release
Company Contact: |
Investor Contact: www.lythampartners.com |
FRESNO, California - May 12, 2016 - S&W Seed Company (Nasdaq: SANW) today announced financial results for the third quarter of fiscal year 2016 ended March 31, 2016.
Third Quarter and Year-to-Date Fiscal 2016 Financial Highlights:
Quarterly Results
For the third quarter of fiscal year 2016, revenue was $25.0 million versus $30.5 million in the comparable period of the prior year. The decrease in revenue for the third quarter of fiscal
2016 versus the comparable period in the prior year was attributable to the timing of sales under the Company's distribution and production agreements with DuPont Pioneer. Shipments that
were originally scheduled for delivery in the third quarter of fiscal 2016 were shipped during the second quarter of fiscal 2016. Year-to-date, shipments to DuPont Pioneer have totaled $30.8
million compared to $22.9 million in the year ago period. Revenue generated outside of our distribution and production agreements with DuPont Pioneer increased 17% in the third quarter
versus the comparable period in the prior fiscal year.
Gross profit margins during the third quarter of fiscal 2016 were 22.0% compared to gross profit margins of 23.3% in the third quarter of fiscal 2015. Gross profit margins during the third quarter of fiscal 2016 reflect a change in product mix from the year ago period. As previously mentioned, the Company accelerated certain shipments of its dormant alfalfa seed to DuPont Pioneer during the second quarter of fiscal 2016, which generally carry a higher margin profile than its non-dormant business. Additionally, the Company continues to be impacted by higher seed costs within the Company's non-dormant operations, driven by lower than expected yields on the 2015 alfalfa seed harvests. To limit variability of future production costs due to farming yields, the Company has terminated production arrangements where its production costs are variable on a per unit basis.
Selling, general and administrative (SG&A) expenses for the third quarter of fiscal 2016 totaled $2.5 million compared to SG&A of $2.2 million for the comparable period in fiscal 2015. Total operating expenses for the third quarter of fiscal 2016 were $3.9 million compared to total operating expenses of $3.5 million in the year ago period. The Company incurred SG&A and total operating expenses of $0.1 million in the third quarter of fiscal 2015 pertaining to non-recurring transaction expenses.
Adjusted non-GAAP net income (see Table A-1) for the third quarter of fiscal 2016, excluding various items (change in derivative warrant liabilities, change in contingent consideration obligation, loss on equity method investment, and interest expense - amortization of debt discount), was $0.6 million, or $0.04 per basic and diluted share. Adjusted non-GAAP net loss (see Table A-1) for the third quarter of fiscal 2015, excluding various items (non-recurring cost of revenue charges, non-recurring transaction costs, change in derivative warrant liabilities, and interest expense - amortization of debt discount) was $2.0 million, or $0.16 per basic and diluted share.
GAAP net income for the third quarter of fiscal 2016 was $0.6 million, or $0.04 per basic and diluted share, compared to a GAAP net loss of $(0.5) million, or $(0.04) per basic and diluted share, in the third quarter of fiscal 2015.
Adjusted EBITDA (see Table B) for the third quarter of fiscal 2016 was $2.7 million compared to Adjusted EBITDA of $4.6 million in the third quarter of fiscal 2015.
Outlook
Based upon the evaluation of information currently available to management, the Company continues to expect to generate annual revenue of approximately $95 million for the fiscal
year ending June 30, 2016, reflecting an increase of approximately 17% over fiscal 2015.
Management Discussion
Mark Grewal, president and chief executive officer of S&W Seed Company, commented, "Fiscal 2016 continues to be a pivotal year in the growth and evolution of S&W Seed
Company in becoming a leader in the alfalfa seed industry. We have built a strong
contracted seed grower production base, established global seed distribution channels and are leveraging our leading research and development capabilities to address significant
opportunities in agriculture.
Matthew Szot, chief financial officer of S&W Seed Company, commented, "During the third quarter, we continued to execute successfully on our distribution and production agreements with DuPont Pioneer, while also driving organic growth from our historical non-dormant operations. Our gross profit margins on our non-dormant business continue to be impacted during the current fiscal year as the weaker than anticipated seed yields have increased our seed production costs. We have terminated production arrangements where we carry farming and yield risk, which should result in expanded margins in fiscal 2017 and beyond. Additionally, we remain focused on other gross margin expansion initiatives that we believe will drive profitability on a go forward basis."
Mr. Szot continued, "We continue to make strides to strengthen our balance sheet. Our original convertible debt balance of $27 million has been paid down to $8.8 million through today. We look forward to retiring the remaining convertible debt balance over the next 10 months."
Mr. Grewal concluded, "The alfalfa seed markets continue to be characterized by strong demand and decreased supply on a global basis. The 2016 harvest from Australian has largely been characterized as 'average,' which we believe should allow for a continuation of these prevailing market trends, while allowing S&W to benefit compared to the year ago period from increased optimization initiatives. These trends, coupled with our recent successful efforts to increase our acres dedicated to alfalfa seed production by 15% during calendar year 2016 compared to 2015, are expected to be a catalyst for organic revenue growth and gross margin improvement in fiscal 2017. I am pleased with the progress made to drive value in S&W and look forward to building on this progress into the future."
Conference Call
S&W Seed Company has scheduled a conference call for today, Thursday, May 12, 2016, at 4:30 pm ET (1:30 pm PT) to review the results of its most recent quarter. Interested parties
can access the conference call by dialing (844) 861-5498 or (412) 317-6580 or can listen via a live Internet webcast, which is available in the Investor Relations
section of the Company's website at http://www.swseedco.com/investors. A teleconference replay of the call will be available for three days at (877) 344-7529 or (412) 317-0088, confirmation
# 10085828. A webcast replay will be available in the Investor Relations section of the Company's website at http://www.swseedco.com/investors for 30 days.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company has provided the following non-GAAP
financial measures in this release and the accompanying tables: adjusted gross profit margin, adjusted selling, general and administrative expenses, adjusted operating expenses,
adjusted EBITDA, adjusted net income (loss) and adjusted earnings (loss) per share. S&W uses these non-GAAP financial 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 S&W'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
financial measures used by other companies, even when similar terms are used to identify such measures. For reconciliations of these measures where applicable to the most
applicable financial measures under GAAP, see Tables A-1, A-2, and B included in the tables accompanying this release.
In order to calculate these non-GAAP financial measures, the Company makes targeted adjustments to certain GAAP financial line items found on its Consolidated Statement of Operations, backing out non-recurring or unique items or items that the Company believes otherwise distort the underlying results and trends of the ongoing business. The Company has excluded the following items from one or more of our non-GAAP financial measures for the periods presented:
Cost of revenue. We exclude a portion of cost of revenue representing losses incurred in connection with the farming of various non-seed crops. These amounts are non-recurring and unrelated to our core performance during any particular period, and therefore, we believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Selling, general and administrative expenses; operating expenses. We exclude a portion of SG&A expense and operating expenses related to non-recurring transaction expenses related to acquisitions and financings. Acquisition-related expenses include transaction fees, due diligence costs and other direct costs associated with our acquisitions. These amounts are unrelated to our core performance during any particular period and are impacted by the timing of the acquisition. We exclude acquisition-related expenses from our SG&A expense and total operating expenses to provide investors a method to compare our operating results to prior periods and to peer companies because such amounts can vary significantly based on the frequency of acquisitions and magnitude of acquisition expenses.
Impairment charges - Disposal of property, plant and equipment loss (gain). We exclude an impairment charge of $500,000 attributable to the unrecovered stand establishment and growing crop costs that were incurred on certain farmland sold in March 2015. These amounts are non-recurring charges and are unrelated to our core performance during any particular period, and therefore, we believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Changes in derivative warrant liabilities. Change in derivative warrant liabilities are related to the change in fair value of the warrants issued in conjunction with our Convertible Debentures issued in December 2014. These amounts are non-cash gains and/or losses, and are unrelated to our core performance during any particular period. We believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Changes in contingent consideration obligation. Change in contingent consideration obligation is related to the change in fair value of the contingent consideration owed to DuPont Pioneer for the December 2014 acquisition. These amounts are non-cash gains and/or losses, and are unrelated to our core performance during any particular period. We believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Gain on sale of marketable securities. Gain on the sale of marketable securities is related to a gain on purchase and subsequent sale of certain bonds. These amounts are unrelated to our core performance during any particular period, and therefore, we believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Loss on equity method investment. Losses from our equity method investment are related to our portion of losses incurred at our 50% owned Joint Corporation in Argentina. These amounts are unrelated to our core performance during any particular period, and therefore, we believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Interest expense - amortization of debt discount. Amortization of debt discount and issuance costs are related to our Convertible Debentures and warrants issued in December 2014. These amounts are non-cash charges and are unrelated to our core performance during any particular period. We believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Non-GAAP Tax Rate. The estimated non-GAAP effective tax rate adjusts the tax effect to quantify the tax consequences of the excluded non-GAAP items.
Descriptions of the non-GAAP financial measures included in this release and the accompanying tables are as follows:
Adjusted gross profit margin is a non-GAAP financial measure that we have calculated by excluding losses incurred in connection with the farming of various non-seed crops. These amounts are unrelated to our core performance during any particular period, and therefore, we believe it is useful to exclude these amounts in order to better understand our business performance and allow investors to compare our results with peer companies.
Adjusted net income (loss) and non-GAAP earnings (loss) per share. We define non-GAAP net income (loss) as net income (loss) less losses incurred on farming of non-seed crops, acquisition related expenses, impairment charges, change in derivative warrant liabilities, change in contingent consideration obligation, interest expense - amortization of debt discount, gain on sale of marketable securities and loss on equity method investment. However, in order to provide a complete picture of our recurring core business operating results, we also exclude from non-GAAP net income (loss) the tax effects of these adjustments. We used an effective tax rate that we believe would be applied had our income approximated the non-GAAP net income (loss) for the presented periods. We caution investors that the tax effects of these adjustments are based on management's estimates. We believe that these non-GAAP financial measures provide useful supplemental information for evaluating our operating performance.
Adjusted EBITDA is a non-GAAP financial measure that we define as GAAP net income (loss), adjusted to exclude losses incurred in connection with the farming of various non-seed crops, acquisition and financing related expenses, impairment charges, depreciation and amortization, non-cash stock-based compensation, foreign currency (gain) loss, change in derivative warrant liabilities, change in contingent consideration obligation, interest expense - amortization of debt discount, interest expense - convertible debt and other, loss on equity method investment, gain on sale of marketable securities and provision (benefit) for income taxes. We believe that the use of adjusted EBITDA is useful to investors and other users of the Company's financial 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 adjusted EBITDA 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 financial 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 financial performance reported in accordance with GAAP.
About S&W Seed Company
Founded in 1980, S&W Seed Company is a global agricultural company, headquartered in Fresno, California. The Company's vision is to be the world's preferred proprietary seed
company, supplying a range of forage and specialty crop products that support the growing global demand for animal proteins and healthier consumer diets. The Company is the global leader
in alfalfa seed, with unrivaled research and development, production and distribution capabilities. S&W's capabilities span the world's alfalfa seed production regions, with
operations in the San Joaquin and Imperial Valleys of California, five other U.S. states, Australia and three provinces in Canada, and S&W sells its seed
products in more than 30 countries around the globe. Additionally, the Company is utilizing its research and breeding expertise to develop and produce stevia, the all-natural, zero
calorie sweetener for the food and beverage industry. For more information, please visit www.swseedco.com.
Safe Harbor Statement
This release 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, statements concerning annual revenue, gross profit margins and adjusted EBITDA for the
fiscal year ending June 30, 2016, diversification of our business, and a strengthening alfalfa seed market. 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 actual results may
differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in our filings with the Securities and Exchange Commission,
including our Annual Report on Form 10-K for the fiscal year ended June 30, 2015, and in other filings subsequently made by the Company with the Securities and Exchange Commission.
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.
Table A-1
S&W SEED COMPANY
Table A-2
S&W SEED COMPANY
Table B
S&W SEED COMPANY
S&W SEED COMPANY
S&W SEED COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
Three Months Ended
March 31,
March 31,
2016
2015
NON-GAAP
NON-GAAP
NON-GAAP
NON-GAAP
GAAP
Adjustments
Adjusted
GAAP
Adjustments
Adjusted
Revenue
$
25,013,779
-
$
25,013,779
$
30,527,798
-
$
30,527,798
Cost of revenue
19,500,605
-
19,500,605
23,410,046
-
23,410,046
Gross profit
5,513,174
-
5,513,174
7,117,752
-
7,117,752
Operating expenses
Selling, general and administrative expenses
2,459,737
-
2,459,737
2,260,978
(111,106)
2,149,872
Research and development expenses
626,316
-
626,316
611,688
-
611,688
Depreciation and amortization
796,062
-
796,062
580,365
-
580,365
Disposal of property, plant and equipment loss (gain)
(2,427)
-
(2,427)
24,646
-
24,646
Total operating expenses
3,879,688
-
3,879,688
3,477,677
(111,106)
3,366,571
Income (loss) from operations
1,633,486
-
1,633,486
3,640,075
(111,106)
3,751,181
Other expense
Foreign currency loss
87,342
-
87,342
33,503
-
33,503
Change in derivative warrant liabilities
(694,800)
694,800
-
1,082,000
(1,082,000)
-
Change in contingent consideration obligation
48,963
(48,963)
-
-
-
-
Loss on equity method investment
28,916
(28,916)
-
-
-
-
Interest expense - amortization of debt discount
1,150,412
(1,150,412)
-
2,020,472
(2,020,472)
-
Interest expense - convertible debt and other
438,879
-
438,879
728,957
-
728,957
Income (loss) before income taxes
573,774
(533,491)
1,107,265
(224,857)
(3,213,578)
2,988,721
Provision for income taxes
5,901
544,947
550,848
244,471
702,954
947,425
Net income (loss)
$
567,873
(1,078,438)
$
556,417
$
(469,328)
(3,916,532)
$
2,041,296
Net income (loss) per common share:
Basic
$
0.04
$
0.04
$
(0.04)
$
0.16
Diluted
$
0.04
$
0.04
$
(0.04)
$
0.16
Weighted average number of common shares outstanding:
Basic
15,420,308
15,420,308
13,166,004
13,166,004
Diluted
15,420,308
15,420,308
13,166,004
13,166,004
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended
Nine Months Ended
March 31,
March 31,
2016
2015
NON-GAAP
NON-GAAP
NON-GAAP
NON-GAAP
GAAP
Adjustments
Adjusted
GAAP
Adjustments
Adjusted
Revenue
$
61,409,948
-
$
61,409,948
$
52,485,798
-
$
52,485,798
Cost of revenue
49,890,460
(259,566)
49,630,894
42,093,045
(265,890)
41,827,155
Gross profit
11,519,488
(259,566)
11,779,054
10,392,753
(265,890)
10,658,643
Operating expenses
Selling, general and administrative expenses
7,239,821
-
7,239,821
7,040,906
(1,256,170)
5,784,736
Research and development expenses
2,049,332
-
2,049,332
1,052,226
-
1,052,226
Depreciation and amortization
2,376,101
-
2,376,101
1,210,676
-
1,210,676
Disposal of property, plant and equipment loss (gain)
(2,427)
-
(2,427)
24,646
-
24,646
Impairment charges
-
-
-
500,198
(500,198)
-
Total operating expenses
11,662,827
-
11,662,827
9,828,652
(1,756,368)
8,072,284
Income (loss) from operations
(143,339)
(259,566)
116,227
564,101
(2,022,258)
2,586,359
Other expense
Foreign currency (gain) loss
(164,471)
-
(164,471)
116,392
-
116,392
Change in derivative warrant liabilities
(2,176,800)
2,176,800
-
1,082,000
(1,082,000)
-
Change in contingent consideration obligation
1,490
(1,490)
-
-
-
-
Gain on sale of marketable securities
(123,038)
123,038
-
-
-
-
Loss on equity method investment
252,619
(252,619)
-
-
-
-
Interest expense - amortization of debt discount
3,111,866
(3,111,866)
-
2,046,615
(2,046,615)
-
Interest expense - convertible debt and other
1,672,863
-
1,672,863
1,137,208
-
1,137,208
Income (loss) before income taxes
(2,717,868)
(1,325,703)
(1,392,165)
(3,818,114)
(5,150,873)
1,332,759
Provision (benefit) for income taxes
(2,773,294)
2,319,360
(453,934)
(931,808)
1,328,970
397,162
Net income (loss)
$
55,426
(3,645,063)
$
(938,231)
$
(2,886,306)
(6,479,843)
$
935,597
Net income (loss) per common share:
Basic
$
0.00
$
(0.07)
$
(0.24)
$
0.08
Diluted
$
0.00
$
(0.07)
$
(0.24)
$
0.08
Weighted average number of common shares outstanding:
Basic
14,278,107
14,278,107
12,179,184
12,179,184
Diluted
14,278,107
14,278,107
12,179,184
12,179,184
ITEMIZED RECONCILIATION BETWEEN NET INCOME (LOSS) AND NON-GAAP ADJUSTED EBITDA
(unaudited)
Three Months Ended
Nine Months Ended
March 31
March 31
2016
2015
2016
2015
Net income (loss)
$
567,873
$
(469,328)
$
55,426
$
(2,886,306)
Non-recurring cost of revenue charges
-
-
259,566
265,890
Non-recurring transaction costs
-
111,106
-
1,256,170
Non-cash stock based compensation
289,314
233,848
917,487
680,923
Depreciation and amortization
796,062
580,365
2,376,101
1,210,676
Impairment charges
-
-
-
500,198
Foreign currency (gain) loss
87,342
33,503
(164,471)
116,392
Change in derivative warrant liabilities
(694,800)
1,082,000
(2,176,800)
1,082,000
Change in contingent consideration obligation
48,963
-
1,490
-
Gain on sale of marketable securities
-
-
(123,038)
-
Loss on equity method investment
28,916
-
252,619
-
Interest expense - amortization of debt discount
1,150,412
2,020,472
3,111,866
2,046,615
Interest expense - convertible debt and other
438,879
728,957
1,672,863
1,137,208
Provision (benefit) for income taxes
5,901
244,471
(2,773,294)
(931,808)
Non-GAAP Adjusted EBITDA
$
2,718,862
$
4,565,394
$
3,409,815
$
4,477,958
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31,
June 30,
2016
2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
6,267,622
$
3,535,458
Accounts receivable, net
12,970,876
26,728,741
Inventories, net
43,049,181
25,521,747
Prepaid expenses and other current assets
2,079,983
797,199
Deferred tax assets
286,734
286,508
TOTAL CURRENT ASSETS
64,654,396
56,869,653
Property, plant and equipment, net
12,889,609
11,476,936
Intangibles, net
35,978,261
38,004,916
Goodwill
9,496,202
9,630,279
Deferred tax assets
7,305,559
4,060,156
Other assets
2,324,268
2,301,127
TOTAL ASSETS
$
132,648,295
$
122,343,067
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
$
15,605,814
$
13,722,900
Accounts payable - related parties
90,711
1,128,630
Deferred revenue
371,383
525,530
Accrued expenses and other current liabilities
1,506,130
1,802,819
Foreign exchange contract liabilities
-
59,116
Lines of credit
21,710,803
13,755,800
Current portion of long-term debt
428,681
2,223,465
Current portion of convertible debt, net
8,910,997
9,265,929
TOTAL CURRENT LIABILITIES
48,624,519
42,484,189
Contingent consideration obligation
2,079,490
2,078,000
Long-term debt, less current portion
11,181,481
10,682,072
Convertible debt, net, less current portion
-
8,777,041
Derivative warrant liabilities
4,081,200
6,258,000
Other non-current liabilities
158,137
188,160
TOTAL LIABILITIES
66,124,827
70,467,462
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;
16,839,666 issued and 16,814,666 outstanding at March 31, 2016;
13,479,101 issued and 13,454,101 outstanding at June 30, 2015;
16,839
13,479
Treasury stock, at cost, 25,000 shares
(134,196)
(134,196)
Additional paid-in capital
77,118,847
62,072,379
Accumulated deficit
(4,924,045)
(4,979,471)
Accumulated other comprehensive loss
(5,553,977)
(5,096,586)
TOTAL STOCKHOLDERS' EQUITY
66,523,468
51,875,605
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
132,648,295
$
122,343,067
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
March 31,
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
$
55,426
$
(2,886,306)
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities
Stock-based compensation
917,487
680,923
Change in allowance for doubtful accounts
(7,350)
17,264
Impairment charges
-
500,198
Depreciation and amortization
2,376,101
1,296,464
(Gain) loss on disposal of property, plant and equipment
(2,427)
24,646
Change in deferred tax asset
(2,974,375)
(904,887)
Change in foreign exchange contracts
(55,817)
27,873
Change in derivative warrant liabilities
(2,176,800)
1,082,000
Change in contingent consideration obligation
1,490
-
Amortization of debt discount
3,111,866
2,046,615
Intercompany foreign exchange gain
(284,774)
-
Gain on sale of marketable securities
(123,038)
-
Loss on equity method investment
252,619
-
Changes in operating assets and liabilities, net:
Accounts receivable
13,498,542
8,167,899
Inventories
(16,946,534)
10,179,531
Prepaid expenses and other current assets
(974,732)
(546,449)
Other non-current assets
(140,569)
249,005
Accounts payable
1,632,353
(12,595,681)
Accounts payable - related parties
(1,021,524)
1,768,819
Deferred revenue
(163,211)
242,250
Accrued expenses and other current liabilities
(277,084)
(13,038)
Other non-current liabilities
(31,311)
6,358
Net cash (used in) provided by operating activities
(3,333,662)
9,343,484
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(2,089,420)
(1,034,183)
Proceeds from disposal of property, plant and equipment
28,100
7,100,000
Acquisition of business
-
(36,688,881)
Investment in Bioceres
-
(4,982)
Purchase of marketable securities
(316,000)
-
Sale of marketable securities
439,038
-
Equity method investment
(439,038)
-
Net cash used in investing activities
(2,377,320)
(30,628,046)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock
13,309,716
4,169,025
Net proceeds from exercise of common stock options
34,566
1,080,000
Taxes paid related to net share settlements of stock-based compensation awards
(83,803)
(61,669)
Borrowings and repayments on lines of credit, net
7,822,160
(715,779)
Proceeds from sale of convertible debt and warrants
-
27,000,000
Borrowings of long-term debt
601,341
493,956
Debt issuance costs
-
(1,915,417)
Repayments of long-term debt
(1,974,582)
(2,486,358)
Repayments of convertible debt
(11,274,679)
(5,000,000)
Net cash provided by financing activities
8,434,719
22,563,758
EFFECT OF EXCHANGE RATE CHANGES ON CASH
8,427
189,464
NET INCREASE IN CASH AND CASH EQUIVALENTS
2,732,164
1,468,660
CASH AND CASH EQUIVALENTS, beginning of the period
3,535,458
1,167,503
CASH AND CASH EQUIVALENTS, end of period
$
6,267,622
$
2,636,163
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