The consolidated financial statements include the accounts of S&W Seed Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements were prepared in accordance with U.S. GAAP and include the assets, liabilities, revenue and expenses of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company's exercises control. Outside stockholders' interests in subsidiaries are shown on the condensed consolidated financial statements as Noncontrolling interests.

The Company owns 50.1% of SeedVision, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and SeedVision is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of SeedVision because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of SeedVision, which are considered to be the activities that have the greatest impact on the future economic performance of SeedVision.

The Company owns 51.0% of Sorghum Solutions South Africa, which is a variable interest entity as defined in ASC 810-10, Consolidation, because no substantive equity contributions have been made to it, and Sorghum Solutions South Africa is being funded through advances, as needed, from its investors. The Company has concluded that it is the primary beneficiary of Sorghum Solutions South Africa because it has the power, through a tie-breaking vote on the board of directors, to direct the sales and marketing activities of Sorghum Solutions South Africa, which are considered to be the activities that have the greatest impact on the future economic performance of Sorghum Solutions South Africa.

Because the Company is its primary beneficiary, SeedVision's and Sorghum Solutions South Africa’s financial results are included in these financial statements. We have recorded a combined $0.8 million of current assets (restricted) and $0.5 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of December 31, 2019. We have recorded a combined $0.6 million of current assets (restricted) and $0.2 million of current liabilities (nonrecourse) for these entities in our consolidated balance sheet as of June 30, 2019.

The Company has prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the Company’s consolidated balance sheets, statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for the periods presented. Operating results for the periods presented are not necessarily indicative of the results to be expected for the full year ending June 30, 2020. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, as filed with the SEC.

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, revenue recognition, inventory valuation, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), 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 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 27% and 52% of its revenue for the three months ended December 31, 2019 and 2018, respectively. One customer accounted for 41% and 65% of its revenue for the six months ended December 31, 2019 and 2018, respectively.

Two customers accounted for 26% of the Company’s accounts receivable at December 31, 2019. One customer accounted for 19% of the Company’s accounts receivable at June 30, 2019.

The Company sells a substantial portion of its products to international customers. Sales to international markets represented 51% and 33% of revenue during the three months ended December 31, 2019 and 2018, respectively. Sales to international markets represented 48% and 23% of revenue during the six months ended December 31, 2019 and 2018, respectively. The net book value of fixed assets located outside the United States was 13% and 11% of total fixed assets at December 31, 2019 and June 30, 2019, respectively. Cash balances located outside of the United States may not be insured and totaled $518,429 and $236,822 at December 31, 2019 and June 30, 2019, respectively.

	Three Months Ended December 31,								Six Months Ended December 31,
	2019				2018				2019				2018
United States	$	6,098,755	49	%	$	12,464,626	67	%	$	12,803,301	52	%	$	34,204,005	77	%
Saudi Arabia		2,095,140	17	%		863,982	5	%		2,285,140	9	%		1,570,275	4	%
Mexico		787,624	6	%		986,303	5	%		1,818,416	7	%		1,379,253	3	%
Australia		527,063	4	%		1,040,480	6	%		1,293,514	5	%		1,370,150	3	%
Pakistan		464,537	4	%		464,936	3	%		1,243,467	5	%		730,583	2	%
Libya		414,880	3	%		800,375	4	%		1,044,860	4	%		1,798,750	4	%
Italy		364,907	3	%		82,880	0	%		678,614	3	%		82,880	0	%
South Africa		343,997	3	%		121,567	1	%		458,444	2	%		248,696	1	%
China		213,168	2	%		—	0	%		379,270	2	%		169,027	0	%
Bolivia		169,900	1	%		119,464	1	%		169,900	1	%		230,464	1	%
Other		873,129	8	%		1,636,383	8	%		2,450,631	10	%		2,917,050	5	%
Total	$	12,353,100	100	%	$	18,580,996	100	%	$	24,625,557	100	%	$	44,701,133	100	%

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.

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.

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.

The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. The allowance for doubtful trade receivables was $1,798,093 and $1,742,887 at December 31, 2019 and June 30, 2019, respectively.

Inventories are stated at the lower of cost or net realizable value, and an inventory reserve permanently reduces the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods based on the normal capacity of the production facilities.

The Company’s subsidiary, S&W Australia, does not fix the final price for seed payable to its growers until the completion of a given year’s sales cycle pursuant to its standard contract production agreement. S&W Australia records an estimated unit price; accordingly, inventory, cost of revenue and gross profits are based upon management’s best estimate of the final purchase price to growers.

Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Inventory quality is a function of germination percentage. Our experience has shown that our alfalfa seed quality tends to be stable under proper storage conditions; therefore, we do not view inventory obsolescence for alfalfa seed as a material concern. Hybrid crops (sorghum and sunflower) seed quality may be affected by warehouse storage pests such as insects and rodents. The Company maintains a strict pest control program to mitigate risk and maximize hybrid seed quality.

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 acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets are amortized using the straight-line method over the estimated useful life of the asset. Periods of 10-30 years for technology/IP/germplasm, 5-20 years for customer relationships and trade names and 3-20 for other intangible assets. The weighted average estimated useful lives are 25 years for technology/IP/germplasm, 17 years for customer relationships, 18 years for trade names, 15 years for license agreements and 16 years for other intangible assets.

Goodwill originated from acquisitions of Imperial Valley Seeds, Inc. (“IVS”) and S&W Australia in fiscal year 2013, the acquisition of the alfalfa business from Pioneer in fiscal year 2015, the acquisition of assets of SV Genetics in fiscal year 2016 and acquisition of substantially all of the assets of Chromatin, Inc. in fiscal year 2019.

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 of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit 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 of a reporting unit with its carrying amount, including goodwill. The Company uses market capitalization and an estimate of a control premium to estimate the fair value of its one reporting unit as well as discounted cash flow analysis. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

The Company performed a quantitative assessment of goodwill at June 30, 2019 and determined that goodwill was fully impaired. See Note 7 for further information.

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 December 31, 2019 and June 30, 2019, and the investment is included in Other Assets on the Consolidated Balance Sheet.

The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities beginning July 1, 2018. As such, this investment is accounted for in accordance with ASC 321, Investments – Equity Securities. As the stock is not publicly traded, the Company has elected to account for its investment at cost, with adjustments to fair value when there are observable transactions that provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated and the investment written down to that fair value if it is lower than the carrying value.

No adjustments for impairment or observable transactions were made for the three months or six months ended December 31, 2019 or December 31, 2018.

The Company is engaged in ongoing research and development (“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.

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 three and six months ended December 31, 2019 and December 31, 2018 has been affected by the valuation allowance on the Company’s deferred tax assets.

Basic net income (loss) per common share ("EPS"), is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated by adjusting both the numerator (net income (loss)) and the denominator (weighted-average number of shares outstanding) for the dilutive effects of potentially dilutive securities, including options, restricted stock awards 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.

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Numerator:
Net loss attributable to S&W Seed Company	$	(6,664,857	)	$	(2,766,056	)	$	(11,590,347	)	$	(2,745,125	)
Numerator for basis EPS		(6,664,857	)		(2,766,056	)		(11,590,347	)		(2,745,125	)
Effect of dilutive securities:
Warrants		—			—			—			—
		—			—			—			—
Numerator for diluted EPS	$	(6,664,857	)	$	(2,766,056	)	$	(11,590,347	)	$	(2,745,125	)
Denominator:
Denominator for basic EPS-weighted- average shares		33,301,578			29,153,852			33,294,344			26,996,483
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		33,301,578			29,153,852			33,294,344			26,996,483
Basic EPS	$	(0.20	)	$	(0.09	)	$	(0.35	)	$	(0.10	)
Diluted EPS	$	(0.20	)	$	(0.09	)	$	(0.35	)	$	(0.10	)

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 for the three and six months ended December 31, 2019 and 2018.

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.

The Company’s subsidiary, S&W Australia, is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts.

The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging”, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. The Company’s foreign currency contracts are not designated as hedging instruments under ASC 815; accordingly, changes in the fair value are recorded in current period earnings.

The Company discloses assets and liabilities that are recognized and measured at fair value, presented in a three-tier fair value hierarchy, as follows:

The assets acquired and liabilities assumed in the Chromatin acquisition were valued at fair value on a non-recurring basis as of October 25, 2018.

The assets acquired and liabilities assumed in the Dow Wheat acquisition (see Note 7 below) were valued at fair value on a non-recurring basis as of August 15, 2019.

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 December 31, 2019 Using:
	Level 1		Level 2		Level 3
Foreign exchange contract asset	$	—	$	32,827	$	—
Total	$	—	$	32,827	$	—

	Fair Value Measurements as of June 30, 2019 Using:
	Level 1		Level 2		Level 3
Foreign exchange contract liability	$	—	$	42,255	$	—
Total	$	—	$	42,255	$	—

The Company adopted Accounting Standards Update No. 2016-02: Leases (“ASU 2016-02”) effective July 1, 2019. ASC 842 superseded previously existing guidance on accounting for leases and generally requires all leases to be recognized in the statement of financial position.

The adoption of ASC 842 resulted in the recognition of $2.6 million of right-of-use assets ("ROU assets") and $4.3 million related lease liabilities as of July 1, 2019, with no cumulative effect adjustment. The adoption of ASC 842 had no impact on the Company’s consolidated statement of operations and consolidated statement of cash flows.

The Company adopted ASC 842 on a modified retrospective approach at the effective date and, therefore, did not revise comparative period information or disclosure. In addition, the Company elected the package of practical expedients permitted under ASC 842.

In August 2018, the FASB issued authoritative guidance intended to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance also requires presentation of the capitalized implementation costs in the statement of financial position and in the statement of cash flows in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented, and the expense related to the capitalized implementation costs to be presented in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement. This guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of the adoption of Subtopic 350-40 on its consolidated financial statements and related disclosures.