PART I

Item 1. Business

Overview

Overview

We areFounded in 1980 and headquartered in the businessCentral Valley of contracting productionCalifornia, we are a leading producer of our proprietarywarm climate, high- yield alfalfa seed varieties, including varieties that can thrive in poor, saline soils. We also offer seed cleaning and processing for other seed manufacturers, leveraging the seedexcess capacity currently available at our facilities, obtaining state certification and marketing the certified seedmilling facilities. In addition, in fiscal 2010, we launched a business expansion initiative to agribusiness firms and farmers throughout the world. Since the inception of our predecessor general partnership in 1980, we have built our reputationcommercially produce stevia leaf in the niche marketU.S. in response to growing global demand from the food and beverage industry for salt- and heat-tolerant, non-dormant varieties of alfalfa seed. We believe our proprietary varieties are well-suited to meet the needs of the marketplace, typified by surging nutritional demands in developing countries that are plagued by declining resources of arable land and fresh water. Our “flagship” salt-tolerant variety, SW 9720, was rated No. 1 out of 44 top alfalfa varieties as of the end of the 2008 season in yield per acre tests conducted by UC Davis. During the fall of 2009, we contracted with certain of our growers to produce our recently introduced seed variety, SW 9215, in quantity. SW 9215, which evolved from our popular SW 9720, is more salt tolerant than SW 9720 while producing equal or better yields. In June 2010, we began sales of our newly-certified alfalfa seed variety, SW 8421S, a high-yielding, highly-salt tolerant alfalfa seed that is an “8” dormancy variety. We are not aware of any other “8” dormancy salt tolerant alfalfa seed on the market.

We contract locally-grown alfalfa seed from farmers in the San Joaquin Valley (many of which are family farmers who have grown for us for two or three generations). In the current growing season, we have contracted for approximately 3,280 acres of seed. Several of our growers are capable of increasing the acreage they devote to alfalfa seed production as we expand our seed business and have indicated a willingness to do so. We also believe we could add growers to our network.

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all-natural, zero calorie sweetener.

We own a seed cleaning and processing facility in Five Points, California that we constructed and have operated since 1980. Our facility was extensively modernized and rebuilt in the late 1980’s.1980's. The property encompasses a total of 40 acres, including 35 acres that are in reserve for future development and five acres on which are situated permanent structures and three seed processing lines. We believe that the replacement cost of our Five Points facility would be at least $12 million. TheIn recent years, the facility has been operatingoperated at less than 25% of capacity, providing ample opportunity for growth. We intendgrowth, both in terms of cleaning the alfalfa seed we grow or that is purchased from our growers, as well as enabling us to capitalize on our facility’s central location in theprovide cleaning services for San Joaquin Valley by aggressively marketing our seed cleaning and processing services to other growers of alfalfa seed, as well as growers of small grains such as wheat, barley and triticale, which are processed at different times of the year than alfalfa seed. We have allocated a portion of the net proceeds from our May 2010 initial public offering to upgrading and expanding the use of our seed cleaning facility.triticale.

One of the biggest challenges of the 21st century will be to expand agricultural production so that it can meet the food and nutritional demands of the world’sworld's growing population. According toWorld Population Prospects, The 2008 Revision, Executive Summary, published by the United Nations in 2009, the world population is projected to reach 7.0 billion in late 2011, up from the 6.8 billion previously estimated, and surpass 9.0 billion people by 2050.

Improvements in farm productivity have allowed agriculture to keep pace with growing food demand. Yield-enhancing technologies such as mechanization, hybrid seed and crop protection chemicals have enabled farmers to meet the ever-growing demand for food. Because of decreases in the amount of arable land and shrinking worldwide fresh water resources, further increases in agricultural production must come from improvements in agricultural productivity. We address this need by breeding high-yielding alfalfa seed that is tolerant to inferior, saline soils, thereby allowing farmers to make marginal soils with inferior water quality as productive as superior soils.

Alfalfa seed is primarily used for growing animal feed and is referred to generically known as “forage.”"forage." Seed is planted to produce alfalfa that is then used for grazing, “greenchop”"greenchop" (fresh alfalfa cut in the field without drying), silage, baled hay, cubes or pellets as a primary food stock for the livestock industry, which includes dairy and beef cattle, horses and sheep. Although originally a hot climate plant native to the Middle East, dormant and semi-dormant varieties of alfalfa have adapted to cold climates by going dormant during periods when frost or snow conditions would otherwise kill them. Dormancy is rated using a numerical

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system under which fully dormant varieties are rated 2 through 4, and the most non-dormant varieties are rated 10. The non-dormant varieties, which are our specialty, are best suited to hot, dry climates, where the growing season is able to be sustainedlasts for most of the year, resulting in larger yields per plant.acre.

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Approximately 80 million pounds of alfalfa seed are produced in the U.S. each year according to a study by Shannon Mueller (Alfalfa Seed Production in the Western United States, published by the University of California at Davis). The cooler climate of the Pacific Northwest produces seed of semi-dormant and dormant varieties, while substantially all of the seed produced in California is of non-dormant varieties, with dormancy ratings of between 7 and 10. The climate in the western U.S. is excellent for production of high-quality alfalfa seed, and Mueller’sMueller's study cited above estimates that 85% of U.S. alfalfa seed is produced in California, Idaho, Oregon, Washington and Nevada. Although California is the largest supplier of alfalfa seed in the U.S., changes in economics, including the cost of water and the economic return to farmers for planting competing crops, as well as environmental and regulatory constraints, including pesticide regulations, have had a negative impact on California production. While expansion in Idaho, Oregon and Washington has maintained total U.S. supplies of alfalfa seed at a near constant level, this production has not replaced California’sCalifornia's production of non-dormant varieties because these Northwestern states lack the warm climate suited to non-dormant varieties. A significant percentage of California’sCalifornia's production is exported to the Middle East, North Africa, Mexico and other hot, arid regions of the world.

A significant portion of our production is sold in these regions.

Alfalfa seed production is demanding for even the most experienced farmers. Farming practices must be tailored to the climatic conditions of each area. Irrigation must be carefully controlled and timed to stress the plants to cause maximum flowering and seed production. Weed control is essential in order to pass inspections for purity needed for certification. Insect pests, especially lygus bugs, must be managed throughout the season, using strategies that protect pollinators, such as honey bees, leafcutter bees and alkali bees. Fields are desiccated using chemicals that remove moisture and then are harvested as quickly thereafter as possible to limit or avoid rain damage.

The alfalfa industry (and therefore the alfalfa seed industry) is highly dependent on the dairy industry, which is the largest consumer of alfalfa hay. In recent years, the California dairy industry has been severely impacted by low milk prices being set belowand increasing production costs. Dairy prices are now improving, albeit slowly.costs such as feed.

High-grade stevia is a fast-growing newcomer in the estimated over $50 billion global sweetener market. Although this market which is still dominated by sugar, although sugar substitutes now account for more than $5 billion of the global sweetener market (according to data derived fromArtificial Sweeteners—GlobalSweeteners-Global Strategic Business Report, Global Industry Analysts, Inc., July 2007; United States Department of Agriculture, Economic Research Service, and World Sugar Reports). Sugar substitutes include artificial chemical sweeteners as well as naturally derived non-caloric sweeteners.

Traditional sweeteners, or nutritive sweeteners, provide calories and include sugar and high fructose corn syrup or corn sugar. Sugar is ubiquitous throughout the world; however, it carries risks associated with over-consumption. Such over-consumption has contributed to increased rates of obesity, diabetes and other health-related issues. In recent years, these concerns have stimulated a demand in the market for alternatives to sugar and especially non-nutritive sweeteners (i.e., carbohydrate sugar substitutes that do not require insulin in the metabolism process), a trend that is occurring globally.

Artificial sweeteners have historically dominated the non-nutritive sweetener market, but the recent trend is toward natural sweeteners. All are considered high-intensity sweeteners because they are estimated to be at least 200 times sweeter than sucrose, or common table sugar.

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varieties are as follows:

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The trials referred to inOur highest dormancy varieties (FD 10 and 9) are by far the above table above were conducted by independent university researchers, and the more recent results are posted on their respective websites. For the trial results compiled by UC Davis, see http://alfalfa.ucdavis.edu/, then click on the link for the Variety Selection drop down menu to select specific trials. The UC Davis trial results are also published in Agronomy Progress Report, published by the Agronomy Research and Information Center of UC Davis. References in the above table to “APR” are to Agronomy Progress Report. For trial results compiled by the University of Arizona, see http://ag.arizona.edu/research/azalfalf/yield/. In addition, the 2008 yield trial results compiled by the University of Arizona, which include results for SW 10, SW 9628, SW 9720, SW 9215 and SW 8718, are available in Nondormant Alfalfa Varieties for Arizona—2008, September 2008, published by the College of Agriculture and Life Sciences, Arizona Cooperative Extension.

In June 2010, we announced the commercial launchlargest part of our newest certified seedbusiness and are best suited to hot, arid climates. Our salt tolerant high FD varieties do well in salty irrigation waters and salty soils. By contrast, our FD 4 variety a high-yielding, highly-salt tolerantis adapted to the winter-hardy intermountain west and to irrigated areas of the Sacramento Valley and Northern San Joaquin Valley of California. Our agronomist continues the multi-year process of developing improved varieties over much of the dormancy spectrum, but concentrating primarily on high salt- and heat-tolerant, non-dormant alfalfa seed, that is an “8” dormancy variety, whichwhere we called SW 8421S. We are not aware of any other “8” dormancy salt-tolerant alfalfa seed varieties on the market. This variety will be available for sale for the first time during the sales season in fiscal 2011.

We continue to develop other varieties of alfalfa seed, focusing primarily on non-dormant, salt-tolerant varieties.have established ourselves as a leading provider. We also plan to create blends of seed varieties.

We grow no alfalfa seed intended for human consumption, which alleviates the need to comply with the more rigorous regulatory requirements applicable to products intended for human consumption.

Genetically Modified Organism Alfalfa

Historically,Currently, Europe, the Middle East and certain other parts of the world prohibit the sale of genetically modified organism ("GMO") alfalfa. Therefore, historically, we have not employed genetic engineering in the developmentbreeding of our proprietary seed varieties. We believe thatvarieties, which permits our GMO-free products provide a marketing benefit because there are many geographic regions in which GMO products are not permitted, including Europe, the Middle East, the U.S. and certain other parts ofto be sold throughout the world. This situation could change soon inWith the U.S., given a June 2010 U.S. Supreme Court ruling in favor of Monsanto Company, which licenses the technology to enable growers to produce Roundup Ready alfalfa, an existing GMO product. The ruling provided thatJanuary 2011 deregulation by the U.S. Department of Agriculture may now consider allowing limited planting of Roundup Ready alfalfa, pending completion of the USDA’s environmental impact statement that ultimately could clear the way for unrestricted planting in the U.S.

Because we expecta GMO product, Roundup Ready alfalfa to become legal for saleis being grown in the U.S.United States, currently without any regulations governing field isolation and other protections. We are evaluating our options with respect to incorporating biotechnology into our alfalfa seed traits and the resulting impact on our business strategy and operations.

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Due to the current regulatory landscape, particularly with respect to the lack of rules requiring adequate isolation of Roundup Ready alfalfa fields from conventional fields in order to prevent cross-contamination, we are taking steps to protect our seed for sales into international markets, including acquiring land in the future,Imperial Valley of California, where no GMO alfalfa is being grown. Alternatively, or in addition to this step, we may consider initiating joint venture or other arrangementscould decide to license GMO germplasm for use with our proprietary varieties. There are numerous factors that would weigh in this decision, including the impact it could have on salesgrow a portion of our seed through our distributors, to end users outside of the U.S. We are currently investigating the steps we would need to take were we to decide to license the technology, when it becomes available,, although we have made no formal decisions about whether we will add Roundup Ready alfalfa seed varietiescurrent plans to our product offerings.do so.

Alfalfa Seed Cleaning and Processing

We currently processDuring the 2012 fiscal year, we processed approximately 2.251.7 million pounds of seed per year on our three cleaning lines, which is less than 25% of the capacity of our cleaning and processing facility. This under-utilization estimate is based on the fact that we currently operate the facility for one eight-hour shift per day, using two of our three processing lines, and only from July until November. By hiring more employees to run

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the plant 24-hours per day (that is, adding two additional shifts per line) and continuing our processing operations through December,In future growing seasons, we could process over 12.0 million pounds of seed per year, compared to the approximately 2.25 million pounds of seed that we processed in the 2010 fiscal year. We expect to increase the utilization of our processing facilities in future growing seasons, which we can do without making any capital improvements, simplyboth by running additional shifts. However, we also are makingadding shifts and, where advisable, implementing further plant improvements that we believe willwould increase plant efficiency and provide additional benefits forto our customers.

The production process is straightforward: Upon harvesting, our growers (or our employees, on those acres that we directly farm) collect raw seed in large truck-pulled containers loaded from combines on theirthe fields. We weigh each container as it arrives from the grower.at our milling facility. Each lot is tagged with customer-specificgrower-specific lot numbers and its weight, then stored in one of our bulk storage tanks.stored. We then move seed from the bulk storage tanks into our milling facility, to one of our operational seed cleaning lines, where we clean the seed, removing foreign matter, such as weeds. The seed is then weighed, bagged, palletized until ready for shipment and then shipped. Although our basic cleaning process is the same for each lot, we can treat specific seed pursuant to the customer’scustomer's specifications, including chemical applications. Some export and domestic orders also require the seed to be coated, which we outsource to a seed-coating company.

We take samples to determine ifassure that all weed seed and inert material has been removed. As and when the samples are cleared by an official seed analysis report, we send the reports to the CCIA for its certification. Once seed is certified by the CCIA, we bag it in 50-pound sacks for our domestic sales.

We bag with the S&W logos forlogo, clearly identify each variety and label with a California “Certified”certified label, known as the "blue tag." We also offer custom bags for customers with logos incorporated into the bag print. If seed is treated with a chemical of any kind, a treatment tag must also be placed on the bagged, finished product. Most of our seed sold into the domestic market is not chemically treated. If seed is used to satisfy an export order, we usually treat it with Thiram, a widely used seed fungicide, and then bag for the order immediately prior to shipment.

For specific foreign markets, additional pre-shipment testing may be required. Seed samples are sent to the Federal Seed Laboratory (U.S. Department of Agriculture) for shipments to Saudi Arabia and the majority of all Saudi Arabianother international shipments. Seed samples are sent to the California Department of Food & Agriculture Seed Laboratory for each lot of seed we market in Mexico, as this is required in order to qualify for a Phytosanitary Certificate issued by the USDA, a requirement for all seed shipments to Mexico.

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Unlike many seed varieties, particularly many kinds of vegetable seed, alfalfa seed improves with some aging. Although historically we have typically sold the majority of our inventory of seed each year, ifIf we do have unsold seed at the end of the planting season, it can be stored and sold in the next year, and its yield per acre typically will improve.future years.

Sales, Marketing and Distribution

We primarily sell high quality proprietary "non-dormant" seed productvarieties to those parts of the world with hot, arid climates, which includeclimates. Our primary geographical focus in the Middle East and North Africa, although we currently sell to customers in a broad range of areas, including the Western U.S., Mexico, South America, the Middle East and Africa, as well as other countries with Mediterranean climates. Unlike cooler climates, the geographic areas on which we concentrate are able to sustain long growing seasons and therefore alfalfa growers can benefit from our high-yielding, non-dormant varieties. In future years, we expect to expand geographically into colder climates where our newly-acquired dormant variety seed should be expected to thrive.

Our customers and end users are primarily our distributors, dealers and, to a lesser extent, the end user, namely, a corporate or individual farmer. Our distributors and dealers, in turn, sell to farmers, consisting primarily of dairy farmers, livestock producers and othermerchant hay growers. However,

Although we have a sales team of five people, we primarily sell our largest customers are twoseed through our network of distributors and dealers, as well as through the services of seed brokers. We do not have formal distribution agreements with most of our distributors, Genetics International, Inc.but instead, operate on the basis of purchase orders and S.C.A.L.E. Ag Services, representing 46%invoices. We believe that selling through dealers and 15%distributors enables our products to reach hay growers in areas where there are geographic or other constraints on direct sales efforts. We select dealers and distributors based on shared vision, technical expertise, local market knowledge and financial stability. We build dealer/distributor loyalty through an emphasis on service, access to breeders, ongoing training and promotional material support. We limit the number of dealers and distributors with whom we have relationships in any particular area in order to provide adequate support and opportunity to those with whom we choose to do business.

Historically, all of our international sales were made to U.S. distributors who then, in turn, sold our seed into foreign markets. However, our approach to international sales has shifted, and most of our sales are made to non-U.S. customers. Through our distributors, our primary export market has been Saudi Arabia and, to a lesser extent, other Middle Eastern countries and African countries, including Sudan and Morocco. We also market in Mexico and, to a very small degree, other Latin American countries, which we view as an important area for potential expansion.

At the end of fiscal 2011, our longstanding distributor in the Middle East and North Africa closed its business, and we purchased the customer list from the owner in July 2011. With the cooperation of our former distributor and the consulting services of its owner, we began selling directly to that former distributor's customers. Sorouh Agricultural Company, one of the Saudi Arabian customers to whom we first began selling directly in July 2011, represented approximately 67% of our consolidated revenue in fiscal 2010, respectively.2012. We expect this customer to represent a significant portion of our revenue in fiscal 2013 as well. The loss of eitherthis customer would have a material adverse effect on our business unless we were able to offset the lost

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alfalfa seed revenue with sales from other alfalfa seed customers or other sources. We do not have a written contractscontract with eitherthis customer requiring it to purchase any specific quantity of these customers;seed; however, we believe our relationship with Geneticsthis customer is strong. In fiscal 2012, we expanded our presence in the Middle East and Africa by reaching additional customers in Sudan and Morocco, none of whom represented ten percent or more of our annual revenue in fiscal 2012, but all of whom, collectively, represent what we believe to be an important growth opportunity for the future. International dates back tosales represented 70% of our total revenue for the 1980’s, and we have been selling to S.C.A.L.E. since 2006.2012 fiscal year.

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We primarily sell

Most of our seedinternational marketing efforts are accomplished through our network of distributors and dealers and brokers. We do not have formal distribution agreementsface-to-face meetings with our distributors, but instead, operate on the basis of purchase ordersexisting and invoices. As a small company,potential customers, their end users and governmental officials. In addition, we have very little pricing power. Generally, the large seed producing companies set their prices,participate in international trade shows to boost our international presence and we follow, usually at a slight discount. The price, terms of sale, trade credit and payment terms are negotiated on a customer-by-customer basis. Our arrangements with our distributors do not include a right of return. Typical terms for domestic customers require payment in full within 60 days of the date of shipment. Sales to our dealers who distribute internationally are either paid in advance of shipment or typically within 60 to 120 days of the date of embarkation. Our credit policies are determined based upon the long-term nature of the relationship with our customers. Credit limits are established for individual customers based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable.

sales efforts.

Domestically, we market our alfalfa seed in California, Arizona, New Mexico, Texas and Nevada. We anticipate broadening our domestic geographic reach in the future as we add more lower dormancy certified varieties to our current offerings. Domestic seed marketing is based primarily upon the dormancy attributes of our varietals as suited to climates in target markets. Since our marketing efforts in California have been somewhat limited in recent years, we believe there are opportunities to expand our sales volume in California by implementing a marketing program that will reach beyond the network of customers and end users with whom we typically transact business. We launched this new marketing effort in late June 2010, with our first ever radio advertising campaign in order to educate local alfalfa hay growers in California’sCalifornia's Central Valley as to the benefits of our high yield, non-dormant, salt-tolerant certified alfalfa seed varieties.

AllThe price, terms of sale, trade credit and payment terms are negotiated on a customer-by-customer basis. Our arrangements with our distributors do not include a right of return. Typical terms for domestic customers require payment in full within 60 days of the date of shipment. Sales to our international salescustomers are made to U.S. distributors who then,either paid in turn, sell our seed into foreign markets.advance of shipment or typically within 90 days of shipment. Our primary export market is Saudi Arabia and, to a lesser extent, other Middle Eastern and North African countries such as Sudan, Egypt and Morocco. We also market in Mexico and, to a very small degree, Latin America, which we view as an important area for potential expansion.

Wecredit policies are currently exploringdetermined based upon the possibility of warehousing product in Saudi Arabia, with title retained either by us or by Genetics International, Inc., our U.S. distributor who sells into Saudi Arabia.  The detailslong-term nature of the arrangementrelationship with our customers. Credit limits are still to be determined. We believe that if either we or Genetics International warehouses our alfalfa seed in Saudi Arabia, it may be possible to gain the benefits of local warehousingestablished for individual customers based on historical collection experience, current economic and increase sales volume by improving the availability of product. We have allocatedmarket conditions and a portionreview of the net proceedscurrent status of our initial public offering for this purpose, although we believe the majority of those funds would be for inventory because we do not expect the facility expense to be significant.

Although we have an internal sales staff of three people, we primarily sell our seed through our network of distributors and dealers. Dealers and distributors enable our products to reach growers in areas where there are geographic or other constraints on direct sales efforts. We select dealers and distributors based on shared vision, technical expertise, local market knowledge and financial stability. We limit the number of dealers with whom we have relationships in any particular area. In addition, we build dealer/distributor loyalty through an emphasis on service, access to breeders, ongoing training and promotional material support. Other than our distributor who sells into Saudi Arabia and our distributor in New Mexico, no single dealer or distributor accounted for greater than 10% of our total sales in fiscal year 2010.

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each customer's trade accounts receivable.

Both farmers (dairy farmers and hay growers) and dealers use pest-control consultantsadvisors who recommend the varieties of alfalfa that will produce the best results in a particular location. Therefore, a key part of our marketing strategy is to educate the consultants, as well as the farmers, as to benefits of our non-dormant varieties of seed.

seed varieties.

We believe that our best marketing tool is the dissemination of information regarding the quality and characteristics of our propriety seed varieties of those persons who make the hay growing decisions. Accordingly, we plan to continue to expand our sales and marketing activities, a process that began shortly after our initial public offering. We intend to increase our sales force,continue to place advertisements in trade journals, participate in seed industry conferences and trade shows and engage in various other educational and outreach programs as we deem appropriate, as well as devote significant resources to media resources, such as the radio campaign underway in the summerappropriate.

Seed Production

Historically, we fulfilled all of 2010.

Grower Production

We contractour alfalfa seed requirements under contracts with farmers primarily located in the San Joaquin Valley of CaliforniaCalifornia. Although for the foreseeable future, we expect to producecontract out the majority of our seed production, we have increasingly expanded our internal S&W farming operation. In fiscal 2011, we began direct farming approximately 900 leased acres located in Kern County. In fiscal 2012, we entered into a one year lease of additional farmland in Madera County and contracted with a farming corporation in Merced County to grow seed on our account. In early fiscal 2013, we both purchased and leased farmland in California's Imperial Valley on which we expect to plant additional acreage devoted to alfalfa seed. MostWe believe that by controlling a portion of our acreage, either by lease or purchase, we will be better able to source our proprietary varieties at competitive prices. However, with this strategy comes the potential risks and rewards of farming and, like our growers, this subjects us to factors such as weather, insect pressure and other farming risks.

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Except for our Imperial Valley production, most of our growers are located no more than an hour’shour's drive from our processing facility. Double L Ranch,facility in the San Joaquin Valley. Triangle T Ranch, and WC Davis Farms, each of which provided us with at least 10% of the seed we purchased from our growers during the past harvest season that ended in the fall of 2009,and Imperial Valley Milling collectively accounted for approximately 44%64% of our total seed purchased in fiscal 2010. The2012. Triangle T Ranch is winding down its operations and will no longer be a significant grower for us. Although the loss of any of these growers could have a material adverse effect onimpact our ability to have sufficient inventory available to satisfy the needs of our customers. Triangle T Partners has informed us that it is likely to conclude a sale and partial leaseback of its real estate, Triangle T Ranch, before November 2010. Whether or not the sale is consummated,customers, we are advised that Triangle T plans to farm its existing plantings of S&W alfalfa seed in 2011 and that Triangle T is willing to farm significant seed acres in 2012. In addition, we have been informed that Triangle T intends to retain enough acres to more than satisfy our current plans for stevia cultivation. We believe that our foreseeable needssuccessful efforts to secure additional acreage for alfalfa seed production can be met by other growers, if necessary. Welease or purchase in fiscal 2011, 2012 and 2013 have significantly offset the potential risk that we might not have sufficient seed were we to lose the services of one of our currently major growers. Generally, we enter into one-year contracts to purchase seed. Theseed, and we intend to continue that practice as it is the typical in the industry. These contracts range from one to three years, include a price for the seed is fixedthat we fix annually, and that generally does not vary from grower to grower or variety to variety. WeUnder these contracts, we pay our growers based on the weight of cleaned and processed seed.

We have multi-year contracts with one large grower under the terms of which we have agreed to a fixed price per acre, and we assume the farming risk.

Alfalfa seed is an extremely demanding crop to grow, and many farmers do not have the skill or experience needed to consistently obtain satisfactory results. Our network of growers has that expertise. We have worked with substantiallymany of the same growers for much of the past 25 years, and we believe that we have strong relationships with them. We allocate our seed production among our growers so that we can purchase the proper mix of seed varieties each year. The growers and our internal farming operation incur theirthe greatest cost in the first year of production, when they plant seed, eradicate weeds and pests and manage the pollination process; they then may be able to harvest seed from the same stands for several additional years, with the average alfalfa seed field producing for three years. We believe we have the ability to expand our production with our existing growers, although we also believe that we could contract with additional growers if our current network of growers and our own acreage could not fulfill our needs as we expand our business or otherwise.

Our growers must purchase their stock seed directly from us. Although a contractual right of return does not exist, from time to time we will allow growers to return unused alfalfa seed to us for credit against future sales. These infrequent product returns are a result of seed delivered to the grower’sgrower's farm at the time of planting that was found to be in excess of the amount needed to fully plant the grower’s farmlands.grower's farmland. These credits issued to growers are small and infrequent. If a right of return existed in our seed business, sales revenue would be reduced at the time of sale to reflect expected returns.

ProcessorMilling Services

In addition to processing seed for our alfalfa seed business, we also provide processingmilling services, including cleaning, conditioning and bagging, for outside growers’other growers' alfalfa seed, as well as safflower and cotton seed and small grains, such as barley, wheat and wheat.triticale. We currently have one co-packing agreement under which we clean, processbelieve cleaning and bag another

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company’s triticale varieties. This portion of our business typically represents less than 10% of our revenue in any fiscal year. However, we believe processingconditioning small grains is a valuable service that we can make available to neighboring growers, and in the future we planwill try to pursue other co-packing opportunities as they become availableexpand this portion of our business as a means of increasing our revenue and usingincreasing the excess capacity inutilization of our mill.

Stevia Breeding and Production

BacklogWe believe that the FDA's GRAS no objections letters issued in December 2008 with respect to the stevia extract, Reb-A, opened a previously largely untapped market for high quality stevia leaf production in the U.S. The dramatic rise in sales of processed stevia and products that incorporate stevia as a sugar substitute since the beginning of 2009 support this belief.

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In general

Therefore, in fiscal 2010, we do not producelaid the groundwork for the commercial production of stevia in California's Central Valley by conducting trials on sample stevia material sourced from stevia plant breeders in India, China and Paraguay. We planted our seed products againstfirst small-scale commercial crop of stevia in May and June 2011 and completed the first harvest and its first small-scale shipment of dried stevia leaf under a backlogpreviously signed supply agreement during the second quarter of orders.fiscal 2012. We manageplanted our second commercial crop of stevia in June and July 2012, which consisted of approximately 156 acres. We currently have a total of approximately 270 acres planted for stevia production and inventory levels basedwill be harvesting stevia in the fall of 2012.

We have identified stevia plant lines that we believe grow to heights and plant mass that exceed any results ever obtained in China and Paraguay, which have historically been the primary regions for growing stevia before we began our stevia operation in California. Our lines contain high overall steviol glycosides, including Reb A, Reb B and Reb C. Although they contain lower percentages of Reb A than our current commercial lines, we anticipate breeding these new lines with their higher overall steviol glycosides. We are focused on projections of future demand. Because ofdeveloping our proprietary stevia germplasm into commercial varieties.

We believe that the long lead timemethod for growing alfalfa plants or other California crops for seed can be adapted to stevia and the majorityproduction of our seed is sold to long-term customers who have predictable order patterns and express their buying intentions a year or more in advance.stevia plants. We further believe that backlog informationour existing grower base will in the future provide a scalable production platform for large scale cultivation of stevia in the San Joaquin Valley, although we currently plant and harvest all of the stevia we sell.

Our processing facility, located in the heart of California's San Joaquin Valley, is not materialwithin a short distance of farmland that we currently have planted, as well as additional farmland we believe is well suited for stevia production. After harvest, we will process the stevia, which will primarily involve separating the leaves from the stems, drying the leaves and packaging them, and will then market and sell the dried stevia leaf to understandingcompanies that process it for its derivatives (primarily Reb-A) for incorporation into food and beverages.

In July 2010, we entered into a five-year supply agreement with PureCircle Sdn Bhd, a major stevia processor. Under this agreement, PureCircle has agreed to purchase our overall businessproduction of stevia that is grown from plants sourced through that company or its agents, up to certain maximum amounts. Our goal is to select or breed varieties that produce the highest Reb A content stevia under our local growing conditions, which we believe will be desired by our future customers. The supply agreement does set certain minimum specifications for Reb-A content and should not be considered a reliable indicator ofother factors, and our ability to achieve any particular level ofstevia cultivation program has focused on developing varieties that meet the stated requirements.

Although minimal in amount, we recorded our first stevia revenue or financial performance.in connection with the supply agreement during fiscal 2012.

Seasonality

Sale of alfalfa seed is affected by seasonal planting patterns of farmers in the geographical areas in which our seed varieties are sold. Our sales and earnings performance in North America typically is the strongest in the autumn.first and second fiscal quarters. As a result of the seasonal nature of our business, our alfalfa seed inventory is at its highest level at the end of the first fiscal quarter (September 30) and is reduced by sales during the remaining quarters. Our working capital requirements are typically greatest in our second and third fiscal quarters (between October and March) since payments to growers are largely deferred until this time. Our trade receivables are at a low point in September and increase through the selling season toand typically peak at the end of the second fiscal quarter.

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We experience seasonality in capacity utilization at our Five Points, California facility associated with the alfalfa seed harvest (typically September and October) and, to a lesser extent, the wheat harvest (typically June, July and July)August).

Although our commercial stevia operations have not yet grown to a point in which seasonality is a material issue, we expect that we will be harvesting stevia in the fourth, first and second fiscal quarters. After drying and packaging, we will promptly ship the product to the customer and would expect payment within 30 to 60 days. Accordingly, our stevia operations will also have a seasonal component but, to some extent, will offset the seasonality of our alfalfa seed business.

Proprietary Rights

Ownership of and access to intellectual property rights are important to us and our competitors. We sell only our proprietary alfalfa seed varieties that have been specially selected to manifest the traits we deem best suited to particular regions in which our seed is planted for alfalfa hay. Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings, processes, technologies and materials owned by or used by us or our growers. If any competitors independently develop any technologies that substantially equal or surpass our process technology, it will adversely affect our competitive position. We do not rely upon patent protection, but guard our proprietary property by exercising a high degree of control over the supply chain. As part of this control process, we require our growers to deliver back to us all seed derived from our proprietary varieties. Historically, we have found that this control mechanism has been an effective means to protect our proprietary seed. However, because we do not have more formal proprietary rights protections in place, it would be possible for persons with access to our seed or plants grown from our seed to potentially reproduce and market our proprietary seed varieties, which could significantly harm our business and our reputation. In the future, we may deem it appropriate to implement more formal proprietary rights protections.

Stevia Production

In October 2009, we formed Stevia California, LLC, which we intend to use as a vehicle for commercializing the production of stevia plant varieties. We believe that the FDA’s GRAS no objections letters issued in December 2008 with respect to the stevia extract, Reb-A, opened a previously largely untapped market for high quality stevia leaf production in the U.S.

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Stevia must be processed promptly, through desiccation, or much of the natural sweetening agent will be lost through organic decomposition. Our processing facility, located in the heart of California’s San Joaquin Valley, is within a short distance of farmland that we believe is well suited for stevia production.

We believe that the method for growing alfalfa plants for seed can be easily adapted to stevia and that production of stevia plants is likely to be substantially less demanding of farming expertise than alfalfa seed production. We further believe that our existing grower base provides a scalable production platform for large scale cultivation of stevia in the San Joaquin Valley.

We are working with one of our largest alfalfa seed growersalso developing proprietary stevia lines, although to plant our initial stevia crop under our supervision and that of our suppliers. Stevia leaf will be brought to our facilities for desiccation and packaging. For this initial phase of our stevia plant breeding program, we have not entered into any formal contracts, either with suppliers of stevia test plants or with our grower. We do have an oral arrangement to reimburse our grower for its direct and indirect costs. In addition, we currently pay a monthly fee of $15,000 to this grower for management services related to our stevia program, including services related to fulfilling the commercial production contract with PureCircle.

In this first year of the pilot program,date, we do not anticipate earningclaim that we have any meaningful amount of revenue from stevia sales but instead will be using the trial for proof of concept purposes and to determine which varieties are likely to be best suited for commercial exploitation. We have been in discussions with stevia processors, who are potential purchasers ofspecial proprietary rights regarding our stevia leaf. In July 2010, we entered into a three-year supply agreement with a major stevia processor that has agreedplants or operations. We will continue to purchaseevaluate the means and methods of protecting our production of stevia that is grown from plants sourced through that company or its agents. Our goal is to pick varieties that produce the highest Reb A content stevia under our local growing conditions, which we believe will be desired by our future customers. The initial supply agreement does set certain minimum specifications for Reb-A content and factors, andrights as our stevia cultivation program will focus on developing varieties that meet the stated requirements. After the pilot period, we expect to contract with additional growers for production and harvest of the varieties of stevia leaf we settle upon. After harvest, we will process the stevia, which will primarily involve separating the leaves from the stems, drying the leaves and packaging them, and will then market and sell the dried stevia leaf to companies that process it for its derivatives (primarily Reb-A) for incorporation into food and beverages. Because we will only be acting as a supplier of stevia leaf and will not be extracting Reb-A or other derivatives from the leaves or adding such derivatives to any food or beverages, we will not need to apply to the FDA for a GRAS no objections determination. However, should our plans with respect to stevia cultivation and processing expand in future years, we will then reexamine the advisability of seeking a GRAS determination.operations grow.

Competition

Competition in the alfalfa seed industry in California and internationally is intense. We face direct competition by other seed companies, including small family-owned businesses, as well as subsidiaries or other affiliates of chemical, pharmaceutical and biotechnology companies, many of which have substantially greater resources than we do.

Our principal competitors in our alfalfa seed business are Forage Genetics International (a subsidiary of Land O’O' Lakes, Inc.), Cal/West Seeds (a cooperative of seed growers), Dairyland Seed Co., Inc. (owned by Dow AgroSciences LLC, a wholly ownedwholly-owned subsidiary of The Dow Chemical Company), Imperial Valley Milling, Top Notch Corporation, Seed Services and Pioneer Seed Company (a Dupont business). We believe that the key competitive drivers in the industry are proven performance, customer support in the field and value, which takes into account not simply the price of the

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Compliance with these laws and related regulations is an ongoing process that is not expected to have a material effect on our capital expenditures, earnings or competitive position. Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by us, and there can be no assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies thereunder, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.

We also are subject to the Federal Seed Act (the “FSA”"FSA"), which regulates the interstate shipment of agricultural and vegetable seed. The FSA requires that seed shipped in interstate commerce be labeled with information that allows seed buyers to make informed choices and mandates that seed labeling information and advertisements pertaining to seed must be truthful. The FSA also helps promote uniformity among state laws and fair competition within the seed industry.

Because, under our existing business plan, we will only be acting as a breeder and supplier of stevia leaf and will not be extracting Reb-A or other derivatives from the leaves or adding such derivatives to any food or beverages, we believe that we do not need to apply to the FDA for a GRAS no objections determination or any other FDA approval. However, should our plans with respect to stevia cultivation and processing expand in future years, we will then reexamine the advisability of seeking a GRAS determination or other FDA approval. We do not believe that our stevia operations are subject to any special regulatory oversight.

Internationally, we are subject to various government laws and regulations (including the U.S. Foreign Corrupt Practices Act and similar non-U.S. laws and regulations) and local government regulations. To help ensure compliance with these laws and regulations, we have adopted specific risk management and compliance practices and policies, including a specific policy addressing the U.S. Foreign Corrupt Practices Act.

We are also subject to numerous other laws and regulations applicable to businesses operating in California, including, without limitation, health and safety regulations.

Employees

As of September 22, 2010,21, 2012, we had nine full-time employees and nine20 part-time, seasonal employees, and our chief executive officer and chief financial officer, both of whom work for us part-time.employees. Of the full-time employees, threefour work in the mill, three workoperations, one works in sales and threefour are in executive and/or administrative positions. All of the nine20 part-time, seasonal employees work in the mill.operations. Our labor requirements typically peak during the first fiscal quarter, when we generally use temporary labor to supplement our full-time work force. We also retain consultants for specific purposes when the need arises. None of our employees is represented by a labor union. We consider our relations with our employees to be good.

Corporate History

S&W Seed Company was foundedOur business began operating as a California general partnership in July 1980. The corporate entity was incorporated in Delaware in October 2009 ("S&W Delaware"). Between June 2008 and December 2009, the general partners sold 85% of their partnership interests to our wholly-owned subsidiary, Seed Holding, LLC, a Nevada limited liability company. In January 2010, S&W Delaware acquired the 85% interest in the partnership from the members of Seed Holding in exchange for 3,000,000 shares of S&W Delaware common stock, making S&W Delaware the sole member of Seed Holding. In May 2010, S&W Delaware purchased the remaining 15% of the general partnership, resulting in Seed Holding owning 100% of the former partnership.

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In December 2011, S&W Delaware consummated a merger (the "Reincorporation") with and asinto its wholly-owned subsidiary, S&W Seed Company, a result, becameNevada corporation ("S&W Nevada"), pursuant to the consolidated operating entity for accounting purposes.terms of an Agreement and Plan of Merger entered into by S&W Nevada and S&W Delaware. As a result of the applicable accounting rules,Reincorporation, we were treated asare now a Nevada corporation. Unless the 100% owner ofcontext otherwise provides, references to "we", "us," "our," "S&W Seed Company," or the "company" generally refer to S&W Seed Company, a Nevada corporation, our predecessor entities - S&W Seed Company, a Delaware corporation and S&W Seed Company, a general partnership at December 31, 2009 for accounting purposes.

In January 2010, we became the sole member of- and our wholly-owned subsidiaries, Seed Holding, by consummating an exchange of 100% of the membership units in Seed Holding for 3,000,000 shares of our common stock inLLC, a tax-free exchange pursuant to Section 351 of the Internal Revenue Code. We acquired the remaining 15% of the general partnership withNevada limited liability company, and Stevia California, LLC, a portion of the net proceeds of our initial public offering.California limited liability company.

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Executive Officers

Our executive officers as of September 22, 201021, 2012 are as follows:

Mark S. Grewal, age 54,56, President and Chief Executive Officer

Mr. Grewal was appointed our President, Chief Executive Officer and a director in October 2009. Beginning in February 2009 until October 2009, he provided advisory services to S&W Seed Company, our predecessor general partnership (the “Partnership”"Partnership"). He also has served as the Chief Executive Officer, President and Farm Manager of Chowchilla, California-based Triangle T Partners, LLC (“TTP”) since August 2009 and has held the same positions with Triangle T Ranch, Inc. (“TTR”), the parent of TTP, since February 2009. At TTP and TTR, Mr. Grewal is responsible for all operations involvedbecame our full-time employee in farming a 13,000 acre diversified farming operation.October 2010. Since October 2009, he also has held the title of President and manager of our subsidiary, Seed Holding, LLC. Mr. Grewal devotes a minimum of 80 hours per month to carry out his functionsserved as ourthe Chief Executive Officer, President and Chief Executive Officer.Farm Manager of Chowchilla, California-based Triangle T Partners, LLC ("TTP") from August 2009 through October 2010 and held the same positions with Triangle T Ranch, Inc. ("TTR"), the parent of TTP during the same period. At TTP and TTR, Mr. Grewal was responsible for all operations involved in farming a 13,000 acre diversified farming operation. From January 2006 until he joined TTR, Mr. Grewal was the principal of Grewal Consulting, in Lemoore, California, where he addressed water, land, drainage and fertilizing, herbicide and insecticide management issues. From February 2005 to December 2006, Mr. Grewal served as the Chief Operations Officer of SK Foods, in Lemoore, California, a leading grower and processor of vegetable products for remanufacturers, retail and foodservice markets (“("SK Foods”Foods"). His responsibilities included being in charge of procuring raw products to ensure proper plant production, with the goal of maximizing cost benefits. Prior thereto, Mr. Grewal served in various executive management and operational roles for over 26 years with JG Boswell, Co., in Corcoran, California, a very large grower of agricultural crops. From 1999 to February 2005, Mr. Grewal served as the Vice President of Ranching/Ranching and a member of the Board of Director of JG Boswell, Co., in Corcoran, California, a very large grower of agricultural crops. At both SK Foods and JG Boswell, he managed over 300 employees. Mr. Grewal is Chairman of the Board of California Ammonia Co. and privately held TTP; he is the Chairman of the Plant Science Advisory Council of California State University and a member of the Leadership Committee of California State University, Fresno. Mr. Grewal earned a B.S. in Agronomy from California State University, Fresno, and an M.A. in Leadership from Saint Mary’sMary's College, Moraga, California.

Matthew K. Szot, age 36,38, Senior Vice President of Finance and Chief Financial Officer

Mr. Szot haswas promoted to Senior Vice President in November 2011. Prior thereto, he had served as our Vice President of Finance and Chief Financial Officer since March 2010. He will devote such time as is necessary to carry out his functions as our Vice President of Finance and Chief Financial Officer, which we expect will be approximately 60 hours per month. SinceOfficer. From February 2007 until October, 2011, Mr. Szot has served as the Chief Financial Officer for Cardiff Partners, LLC, a strategic consulting company that provides executive financial services to various publicly traded and privately held companies. From July 2011 until October, 2011, Mr. Szot has also served as the Chief Financial Officer for CommerceTel Corporation. From 2003 to December 2006, Mr. Szot served as Chief Financial Officer and Secretary of Rip Curl, Inc., a market leader in wetsuit and action sports apparel products. Mr. Szot also servesserved as Chief Financial Officer of Trans-Pacific Aerospace Company, Inc. (sincefrom June 2009).2009 to October 2010 and as Chief Financial Officer of Management Energy, Inc. from January 2009 to September 2010. Mr. Szot has a Bachelor of Science degree in Agricultural Economics/Accountancy from the University of Illinois, Champaign-Urbana and is a Certified Public Accountant in the State of California.

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Daniel Z. Karsten, age 43,45, Executive Vice President of Operations and Plant Manager

Chief Operating Officer

From August 2008 until February 2010, Mr. Karsten served as Plant Manager for our Five Points facility, maintaining overall responsibility for our manufacturing operations. He was appointed to the position of Vice President of Operations and Chief Operating Officer in February 2010 and Executive Vice President in June 2010. His responsibilities include operations, engineering and design and start-up of our manufacturing operations. From March 2005 until he joined our company in August 2008, Mr. Karsten was Production Manager and Safety Officer for Colusa County Canning, a canning and industrial bulk tomato processing company located in Williams, California, where his responsibilities included operations, maintenance, compliance with facility safety and environmental requirements and supervision of a crew of 200-450 seasonal and non-seasonal employees.

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Item 1A. Risk Factors

Risks Relating to Our Business and Industry

Our earnings may be sensitive to fluctuations in demand for our products.

Our earnings can be negatively impacted by declining demand brought on by varying factors, many of which are out of our control. By way of example, our earnings declined significantly in fiscal 2011, largely driven by a decline in demand by end users both domestically and internationally. The severe downturn in the California dairy industry in recent years that resulted from over-supply has had a corresponding negative effect on sales of alfalfa hay. Therefore demand for our alfalfa seed in the domestic market declined during fiscal 2011. In fiscal 2011, demand for our certified seed also severely declined in the Middle East, which historically has been a significant market. The decline was primarily the result of common, uncertified seed flooding the market at lower prices than those at which we were willing to sell our certified seed. As a result of this price competition, the demand for our proprietary seed materially declined in fiscal 2011. Fiscal 2012 saw a rebound as many of these factors corrected themselves, but these circumstances could continue or reoccur, and our earnings could again be negatively impacted. In addition, demand for our products could decline because of ordinary, more expected, supply and quality issues or for any other reason, including products of competitors that might be considered superior by end users. A decline in demand for our products could have a material adverse effect on our business, results of operations and financial condition.

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Our earnings may also be sensitive to fluctuations in market prices.

Market prices for our alfalfa seed can be impacted by factors such as the quality of the seed and the available supply, including whether lower quality, uncertified seed is available. Growing conditions, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors influencing the quality and quantity of the seed and therefore, the market price at which we can sell our seed to our customers. A decrease in the prices received for our products could have a material adverse effect on our business, results of operations and financial condition.

Our cost of seed production is increasing, which could impact our profitability and margins.

We have seen our costs of growing seed continue to increase because our growers can elect to grow more profitable crops on their farmland. In order to ensure that we have adequate inventory to satisfy our customers' requirements, we have had to increase the amount we pay our growers or make different contractual arrangements from our historical standard terms. In addition, we have begun to grow some of our seed ourselves, thereby incurring the farming-related costs of production that we avoid when we contract out all of our seed production. These factors, both separately and together, could cause our margins and profitability to decline unless we are able to pass along the increased price of production to our customers. We may not be able to increase the price of our seed sufficiently to maintain our margins and profitability in the future.

Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.

Alfalfa seed, our primary product, is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are quite common but difficult to predict. In addition, alfalfa seed is vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. Unfavorable growing conditions can reduce both crop size and quality. While

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historically, we dohave not growgrown the alfalfa seed we sell, these factors can nevertheless directly impact us by decreasing the quality and yields of our seed, reducing our inventory and supply of seed we sell to our customers, increasingcustomers. Moreover, beginning in fiscal 2012, we began growing a portion of our alfalfa seed directly as well as farming wheat and alfalfa hay, and therefore, we have a direct vulnerability to the same adverse effects of weather, pests, natural disasters and other natural conditions that concern our third party growers. These factors can increase costs, and decreasingdecrease revenue and gross margins,lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.

Our earnings may be sensitive to fluctuations in market prices and demand for our products.

Growing conditions, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product. Recently, the severe downturn in the California dairy industry that resulted from over-supply had a corresponding negative effect on sales of alfalfa hay and thereforeBecause our alfalfa seed. In addition, demand for our products could decline, whether because of supply and quality issues or for any other reason, including products of competitors that might be considered superior by end users. A decrease in the selling price received for our products or a decline in demand for our products could have a material adverse effect on our business, results of operations and financial condition.

Because ourseed business is highly seasonal, our revenue, cash flows from operations and operating results may fluctuate on a seasonal and quarterly basis.

We expect that the majority of our revenues will continue to be generated from our alfalfa seed business, even though we have recently entered the commercial stevia growing business. Our alfalfa seed business is highly seasonal. The seasonal nature of our operations results in significant fluctuations in our working capital during the growing and selling cycles. As a result, operating activities during the second and third fiscal quarters use significant amounts of cash because we typically pay our growers progressively, starting in the second quarter. In contrast, operating activities for the fourthfirst and firstsecond fiscal quarters typically generate cash as we ship inventory and collect accounts receivable. We have experienced, and expect to continue to experience, significant variability in net sales, operating cash flows and net income on a quarterly basis.

Because we depend on a core group of significant customers, our sales, cash flows from operations and results of operations may be negatively affected if our key customers reduce the amount of products they purchase from us.

Our top threeHistorically, we have relied upon a small group of customers together accounted for approximately 67%a large percentage of our net sales, inincluding Sorouh Agricultural Company, which serves the Saudi Arabian market. In fiscal 2010. We are dependent upon sales to our two largest distributors, Genetics International, Inc.2012 and S.C.A.L.E

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Ag Services, which2011, Sorouh accounted for approximately 46%67% and 15%18% of our fiscal 2010 net revenue,sales, respectively. Genetics International distributes our products to Saudi Arabia and other foreign countries. S.C.A.L.E. distributes our products to its customers in the U.S. We do not have written contracts with either of these customers.

Our results of operations are significantly impacted not only by the quantity of seed purchased by these customers, but also by the timing of their purchases, a factor over which we do not have any control. Timing of purchases, particularly by our customer for Saudi Arabian sales, has in the past impacted our financial results. We expect that a small number of customers will continue to account for a substantial portion of our net sales for the foreseeable future. We do not have long-term contractsexpect that Sorouh, together with any of our customers, and they may not continue to purchase our products.

Because our two largest customers account for suchS.C.A.L.E Ag Services, a domestic distributor, will represent a material portionamount of our sales thein fiscal 2013.

The loss of, or a significant adverse change in, our relationship with these customers, or any other major customer, could have a material adverse effect on our business, financial position, results of operations and operating cash flows. The loss of, or a reduction in orders from any significant customers, losses arising from customers’customers' disputes regarding shipments, product quality, or related matters, or our inability to collect accounts receivable from any major customer could have a material adverse effect on us. In addition, revenue fromThere is no assurance that we will be able to maintain the relationships with our major customers or that have accounted for significant revenuethey will continue to purchase our seed in past periods, individually or as a group, may not continue, or if continued, may not reach or exceed historical levels in any period.the quantities that we expect and rely upon. If we cannot do so, our results of operations could suffer.

Because we do not grow anymost of the alfalfa seed that we sell, we are entirelysubstantially dependent on our network of growers, and our sales, cash flows from operations and results of operations may be negatively affected if our largest growers were to stop supplying seed to us.

We currentlyHistorically, we have relied on a relatively small network of growers of alfalfa seed that together providehave provided all of the seed we sell to our customers. Double L Ranch, Triangle T RanchAlthough beginning in fiscal 2012, we are growing and WC Davis Farms, eachproducing a portion of whom provided usour own seed, most of our seed will continue to be grown under contracts with at least 10%farmers, most of the seed we purchased from ourwhich are one year contracts. Three growers during the past harvest season that ended in the fall of 2009, collectively accounted for approximately 44%64% of our total seed purchases from growers in fiscal 2010. Each of these growers is a well-established farming organization located in California’s San Joaquin Valley and have produced alfalfa seed under annual contracts with us for many years. Most2012. Many of our other growers also have had long-term grower relationships with us. However, we do not have long-term supply contracts with

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any of these growers, which makes us particularly vulnerable to factors beyond our control. Events such as a shift in pricing caused by an increase in the value of commodity crops other than seed crops, increase in land prices or competition could disrupt our chain of supply.supply chain. Any of these disruptions could limit the supply of seed that we obtain in any given year, adversely affecting supply and thereby lowering revenues in the subsequent marketing season.revenues. Such disruption could also damage our distributorcustomer relationships and rancher and farmer loyalty to us if we cannot supply the quantity of seed expected by them.

We are particularly dependent onencountered a meaningful shift in our relationshipgrower network in fiscal 2011, with Triangle T.

some of our growers who had grown for us for many years opting to cut back their alfalfa seed acreage or to not grow alfalfa seed at all. This trend continued in fiscal 2012 and will continue in the current fiscal year as Triangle T, Partners has informed us that it is in advanced stagesone of a potential saleour longstanding growers, winds down its operations. This situation could reoccur and partial leaseback of the Ranch, during the fourth quarter of calendar 2010. Whether orcould negatively impact our revenues if we do not the sale is consummated, we are advised that Triangle T has agreed to farm its existing plantings of S&W alfalfaotherwise have sufficient seed in 2011, and we expect that Triangle T will enter into our customary one-year production contract. We have been further advised that Triangle T is willing to farm significant seed acres in 2012. We have been advised that Triangle T intends to retain enough acres to more than satisfy our current plansinventory available for stevia cultivation. We believe that our foreseeable needs for alfalfa seed production can be met by other growers, if necessary.sale.

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A lack of availability of water in California’sCalifornia's San Joaquin Valley could impact our business.

Adequate quantities and correct timing of the application of water are vital for most agriculture to thrive. Due to three consecutive years of drought conditions in California, the state experienced below normal snowpack, river runoff and reservoir levels between 2006 and 2009. Although many people believe that the drought was over because of above-average rainfall in 2010, shortages remain in many places in the state. Federal allocations of water to farmers have been severely cut back during the drought years and continued, although in slightly less severe amounts, in 2010. These conditions have caused some farmers to revise their crop plans to plant less water-intensive crops or, in the most severe cases, to lose their farms. Whether particular farms are experiencing water shortages depends, in large part, on their location, althoughlocation. However, continuing drought conditions couldcan threaten all farmland other than those properties with their own water sources. Although alfalfa seed is not a water-intensive crop, the availability or the cost of water is a factor in the planting of the alfalfa hay grown from our seed. If the dairy farmers and others who purchase our alfalfa seed to grow hay cannot get an adequate supply of water, or if the cost of water makes it uneconomical for the farmers to grow alfalfa, we may not be able to sell our seed, which could have an adverse impact on our results of operations. We cannot predict if water shortages will impact our business in the future, but if alfalfa hay growers are impacted by water shortages, our business could also materially decline.

We face intense competition, and our inability to compete effectively for any reason could adversely affect our business.

The alfalfa seed market is highly competitive, and our products face competition from a number of small seed companies, as well as large agricultural and biotechnology companies. We also now face new competition with the availability of Roundup Ready alfalfa beginning to be a viable alternative. We compete primarily on the basis of consistency of product quality and traits, product availability, customer service and price. Many of our competitors are, or are affiliated with, large diversified companies that have substantially greater marketing orand financial resources than we have. These resources give our competitors greater operating flexibility that, in certain cases, may permit them to respond better or more quickly to changes in the industry or to introduce new products more quickly and with greater marketing support. Increased competition could result in lower profit margins, substantial pricing pressure, reduced market share and lower operating cash flows. Price competition, together with other forms of competition, could have a material adverse effect on our business, financial position, results of operations and operating cash flows.

If we are unable to estimate our customers’customers' future needs accurately and to match our production to the demand of our customers, our business, financial condition and results of operations may be adversely affected.

We sell our seed primarily to dealers and distributors who, in turn, sell primarily to hay and dairy farmers who grow hay for dairy cattle and other livestock. Due to the nature of the alfalfa seed industry, we normally produce seed according to our production plan before we sell and deliver seed to distributors and dealers. Our dealers and distributors generally make purchasing decisions for our products based on market prices, economic and weather conditions and other factors that we and our dealers and distributors may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and types

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of products sought by the end users and otherwise adequately manage production amounts, we may produce more seed than our dealers and distributors want, resulting in reduced gross margins and excess

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inventory investment.levels. On the other hand, if we underestimate demand, which has happened in the past, we may not be able to satisfy our dealers and distributors’distributors' demand for alfalfa seed, and thus damage our customer relations and end-user loyalty. Our failure to estimate end users’users' future needs and to match our production to the demand of our dealers, distributors and farmers to whom we sell seed directlycustomers may adversely affect our business, financial condition and results of operations.

We could be unsuccessful in transitioning from selling into international markets through distributors to our new business plan that contemplates direct sales into those markets.

Historically, sales of our alfalfa seed in international markets have been made by U.S. distributors having a presence in various international markets, and sales into international markets have historically represented the largest percentage of our net sales of alfalfa seed. In the last quarter of fiscal 2011, our largest international distributor closed its alfalfa seed business. With the cooperation of the former distributor, we began selling directly to its customers in June 2011. Until then, we had never sold directly into Saudi Arabia, Sudan, South Africa, Morocco and Argentina. We have now only had one year of direct experience selling alfalfa seed or otherwise doing business directly in these markets. There is no assurance that we will be able to retain the customers that have purchased our seed from our distributor in the past or that these customers will continue to purchase the quantities of our proprietary seed that they have historically purchased from our distributor. We also may not succeed in expanding the customer base in these locations. Failure to sell significant quantities of alfalfa seed to these customers or to new customers in these or other countries could have a material adverse effect on our financial condition and results of operations.

We extend credit to customers who currently represent or are expected to represent the largest percentage of our sales.

Our singlelargest customer in fiscal 2012 was Sorouh Agricultural Company, which accounted for approximately 67% of our annual revenue. Although payment terms for our seed sales generally are 90 days, we extended credit to this customer in fiscal 2012, and at June 30, 2012, the receivable totaled $2.1 million. We expect that sales of our alfalfa seed varieties to Sorouh will represent a material portion of our revenue in fiscal 2013 and that we will continue to extend credit in connection with those sales. Because this customer is located in Saudi Arabia, collection efforts, were they to become necessary, could be much more difficult and expensive. Moreover, future political and/or economic factors, as well as future unanticipated trade regulations, could negatively impact our ability to timely collect outstanding receivables from this important customer. In addition, we expect that S.C.A.L.E. Ag Services, a domestic distributor, will also account for a material portion of our alfalfa seed revenue in fiscal 2013 and that we will extend credit to this distributor. The extension of credit to our major customers exposes us to the risk that our seed will be delivered but that we may not receive all or a portion of the payment therefor. If either of these customers were unable or unwilling to fully pay for the seed they purchase on credit, our results of operations and financial condition could be materially negatively impacted. Moreover, our internal forecasts on which we make business line ofdecisions throughout the year could be severely compromised, which could, in turn, mean that we spend capital for operations, investment or otherwise that we would not have spent had we been aware that the customer would not honor its credit extension obligation.

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Our current reliance on the seed development and production business does not permit us to spread our business risks among different business segments and, thus, a disruption in our seed production or the industry would harm us more immediately and directly than if we were diversified.

We currently operate mainly in the alfalfa seed business, and we do not expect this to change materially in the foreseeable future, even as we beginexpand our commercial stevia pilot project.business. In fiscal 2012, sale of alfalfa seed accounted for 90% of our total revenue. Without business line diversity, we will not be able to spread the risk of our operations. Therefore, our business opportunities, revenue and income could be more immediately and directly affected by disruptions from such things as drought and disease or widespread problems affecting the alfalfa industry, payment disruptions and customer rejection of our varieties of alfalfa seed. If there is a disruption as described above, our revenue and income willcould be reduced, and our business operations maymight have to be scaled back. Moreover, because our stevia operations are also agriculture-based and centered in California's Central Valley where the majority of our alfalfa seed operations are located, it is possible that the same problems that might negatively impact our alfalfa seed business could, at the same time, negatively impact our stevia business. Accordingly, we do not consider our stevia business a hedge against the risks of our alfalfa seed business.

If we fail to introduce and commercialize new alfalfa seed varieties, we may not be able to maintain market share, and our future sales may be harmed.

We cannot guarantee that the performance of our new alfalfa seed varieties will meet our customers’customers' expectations, or that we will be able to introduce and commercialize specific seed varieties. Reorder rates are uncertain due to several factors, many of which are beyond our control. These include changing customer preferences, which could be further complicated by the new availability of Roundup Ready alfalfa, competitive price pressures, our failure to develop new products to meet the evolving demands of the end users, the development of higher-demand products by our competitors and general economic conditions. The process for new products to gain market recognition and acceptance is long and has uncertainties. If we fail to introduce and commercialize a new seed variety that meets the demand of the end user, if our competitors develop products that are favored by the end users, or if we are unable to produce our existing products in sufficient quantities, our growth prospects may be materially and adversely affected, and our revenue may decline. In addition, sales of our new products could replace sales of some of our current similar products, offsetting the benefit of even a successful product introduction.

Deregulation of Roundup Ready alfalfa could be available for sale in 2010 or soon thereafter, and its availability could negatively impact our sales if we do not license the technology.and production of alfalfa seed.

Roundup Ready alfalfa, which is a GMO product of Monsanto Company developed in partnership with Forage Genetics International, currently cannot be sold in the U.S. as a result of a 2007 federal injunction that halted its sale pending release of an environmental impact statement (“EIS”) by the Animal and Plant Health Inspection Service (“APHIS”) ofIn December 2010, the U.S. Department of Agriculture (the “USDA”("USDA") published the final environmental impact statement on Roundup Ready Alfalfa ("RRA"). APHIS releasedFollowing that publication, in late January 2011, the USDA announced the deregulation of RRA, without imposing any regulations, providing any guidance pertaining to field separation or mandating any other conditions. Forage Genetics, a co-developer of RRA, and other licensed seed companies, had a substantial supply of RRA in inventory that was awaiting this decision, and consequently, RRA became available for comment the draft EISspring 2011 planting season. This development potentially could adversely impact our sales. Domestically, hay farmers may choose the GMO alfalfa seed over our seed in November 2009,order to control weeds with Roundup, Monsanto's powerful herbicide. The greater the use of GMO seed in California, the greater the risk that our seed production could be contaminated with GMO traits due to pollination from hay fields or other seed feeds. In fiscal 2013, we encountered a minimum number of lots of our seed that tested positive for the presence of GMO traits that could only be sold domestically. Internationally, we may face a challenge to demonstrate to our customers and end users that our seed is free of any cross-contamination between GMO and organic and conventionally-farmed fields since GMO crops currently are prohibited in most of

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the international markets in which our proprietary seed is currently sold. Unless and until we begin selling RRA, our domestic sales could be negatively impacted, although the USDA has not providedactual impact on the alfalfa seed market in general and on sales of our proprietary seed, in particular, is currently unknown.

The adoption of GOZ zones in our primary alfalfa seed growing region could impact our international operations.

A substantial portion of our alfalfa seed is grown in Fresno County for both domestic and international sales. In January 2012, the National Alfalfa & Forage Alliance held a timetable forvote of growers in Fresno County to determine if they should form a Genetically Enhanced ("GE") Grower Opportunity Zone ("GOZ") in part of Fresno County. A GOZ is a seed grower-defined region within which a super-majority of growers (by number of growers or acreage) elects to focus on the releaseproduction of a final EIS and record of decision deregulating the crop. However, in June 2010, a U.S. Supreme Court ruling opened the way for limited planting ofeither Adventitious Presence Sensitive ("APS") or GE alfalfa seed, including Roundup Ready alfalfa. The January 2012 vote to organize the proposed GOZ in Fresno County failed to obtain the required super-majority, and therefore the motion failed. However, there is no assurance that another vote will not be taken and that, at a future meeting, the proposal will not succeed in obtaining the required vote to form a GOZ for GMO alfalfa. If a GOZ were formed in Fresno County or in any other county where we currently produce seed or might produce seed in the future, our efforts to grow conventional alfalfa pendingseed for international sale in such county could be threatened because of the environmental reviews. Once Roundup Readyisolation and contamination issues about which we remain concerned. In such circumstance, we might be forced to find alternative locations to grow our proprietary alfalfa is availableseed for sale ininto Saudi Arabia and other locations that prohibit GMO seed, and there is no assurance that we would be able to do so successfully.

Our per acre pricing model could cause us to lose money on those contracts.

In fiscal 2012, we entered into three contracts, covering approximately 730 acres, with a grower under which we deviated from our historical model and agreed to pay the U.S.,grower a fixed price per acre rather than a fixed price per cleaned pound of seed. As such, regardless of the amount of seed this grower produces, we expect that there will be end users who will choose Roundup Ready alfalfa over conventionally grown alfalfarequired to pay the fixed price per acre. This could result in our paying more per pound of seed varieties, including our proprietary varieties, because it does make weed control easier. Unlessthan we are willingable to enter intosell the seed to our customers, thereby causing a license with Monsanto to allow us to incorporate the Roundup Ready genetic trait into our seed,loss on this acreage. Moreover, these contracts cover a three year period, and therefore, we could potentially lose sales to customers or end users who desirebe overpaying for seed on these contracts through crop year 2014 if the benefitsgrower does not produce the minimum amount of Roundup Ready alfalfa. Ifseed we do license the technology to grow Roundup Ready alfalfa, we will incur royalty costs and will need to upgrade our facilities to accommodate GMO products by adding a separate cleaning and processing line, both of which will increase our expenses.

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The approval of GMO alfalfa seed products in the U.S.expect. These contracts could negatively impact our operations if our growers cannot satisfy field separation requirements we may have to impose on them to avoid cross-pollinationresults of GMO and non-GMO products.operations.

The stevia market may not develop as we anticipate and therefore our investment in stevia may not be as profitable as we expect.

There are a number of challenges to market acceptance of stevia as a natural, non-caloric sweetener. Stevia has its own unique flavor, which can affect the taste of some foods and beverages. Other factors that could impact market acceptance include the price structure compared to other sugar substitutes and availability. If the high intensity, non-caloric sweetener market declines or if stevia fails to achieve substantially greater market acceptance than it currently enjoys, we willmight not be able to grow our revenue sufficiently for us to achieve consistent profitability from this portion of our business. Even if products conform to applicable safety and quality standards, sales could be adversely affected if consumers in target markets lose confidence in the safety, efficacy and quality of stevia. Adverse publicity about stevia or stevia-based products may discourage consumers from buying products that contain stevia. Any of these developments could adversely impact the amount of processed stevia leaves or extract we are able to sell, which could adversely impact our results of operations.

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If demand for stevia does not increase, there may be excess capacity that could decrease the market price of stevia and reduce our revenue expectations.

Historically, stevia has been marketed and sold in the U.S. as a dietary supplement, available in natural food and health food stores. Since December 2008, stevia producers have increased production capacity in expectation of a large demand for stevia products, and we haveproducts. We started our pilot stevia operation because we expect that demand for stevia will increase significantly in the future, particularly since Reb-A, a stevia extract, has received GRAS (meaning generally accepted as safe) status in the U.S., which That determination by the FDA allows itReb-A to be used as a food and beverage additive.additive, and a market for products incorporating stevia has developed and grown since then. However, there can be no assurance that there will continue to be widespread growth in the demand for stevia products, and ifproducts. If demand for stevia does not increase to the extent predicted by the industry, the stevia market may be subject to significant excess capacity, which would put downward pressure on the market price of stevia and negatively impact our expectations with respect to stevia as a revenue source.

Stevia competes with sugar and other high intensity sweeteners in the global sweetener market, and the success of stevia will largely depend on consumer perception of the positive health implications of stevia relative to other sweeteners.

The continued growth of stevia’sstevia's share of the global sweetener market depends upon consumer acceptance of stevia and stevia-related products and the health implications of consuming stevia relative to other sweetener products. The publication of any studies or revelation of other information that has negative implications regarding the health impacts of consuming stevia may slow or reverse the growth in consumer acceptance of stevia, which may have a material adverse effect on our business operations and financial condition.

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The sweetener industry is highly competitive with companies that have greater capital resources, facilities and diversity of product lines. Additionally, if demand for stevia continues to grow, we expect many new competitors to enter the market as there are no significant barriers to entry in the industry. More established agricultural companies with much greater financial resources who do not currently compete with us may be able to easily adapt their existing operations to the production of stevia. Due to this competition, there is no assurance that we will not encounter difficulties in earning revenue and gaining market share or in the positioning of our services or that competition in the industry will not lead to reduced prices for the stevia leaf. Our competitors may also introduce new non-stevia based low-calorie sweeteners or be successful in developing a fermentation-derived stevia ingredient or other alternative production method which could also increase competition and decrease demand for stevia-based products.

There are difficulties in managing our storage system, which may result in damage to our seedsproducts held in storage.

Alfalfa seed and stevia storage particularly outside the U.S., entails significant risks, including difficulties in the management of moisture, temperature and humidity. In addition, stevia can lose all viability unless stored in a controlled, refrigerated environment. Any material storage problem may result in damage to our seed or dried stevia leaf and, thus, could create operating losses.

If we are unable to acquire sufficient raw materials or produce sufficient finished product, we will not be able to meet the demands of our customers.

We currently must acquire sufficient alfalfa seed to meet the demands of our customers. An alfalfa seed shortage could result in loss of sales and damage to our reputation. Because our proprietary seed is only available through our direct farming efforts and from our growers, if our growers become unable or unwilling to produce the required commercial quantities of alfalfa seed on a timely basis and at commercially reasonable prices, we will likely be unable to meet customer demand. We do not own or lease sufficient farmland to make up for a significant loss of acreage from our grower network. The failure to satisfy our customers not only could adversely impact our financial results but could irreparably harm our reputation. Although we are just entering the commercial stevia production business, we know we will encounter similar risks if we are unable to satisfy our customers’customers' requirements for dried stevia due to our inability to obtain sufficient quantities of plants, either by growing stevia ourselves or acquiring stevia under contract from our growers, are unable to develop stevia plants with the desired specifications or are unable to timely process the stevia to satisfy our customers’customers' needs. In addition, we currently have only a small quantity of acreage allocated to growing stevia plants, and there is no assurance that growers in the San Joaquin Valley will decide in future growing seasons that growing stevia is the best use for their land. If we are unable to contract for a sufficient amount of acreage to grow stevia or to acquire through lease or purchase land on which we could grow stevia plants, we may not be able to capitalize on what we consider tocurrently believe could be a very largemeaningful growth opportunity.

The loss of key employees or the failure to attract qualified personnel could have a material adverse effect on our ability to run our business.

The loss of any of our current executives, key employees or key advisors, and in particular Mark S. Grewal, our Chief Executive Officer, or the failure to attract, integrate, motivate and retain additional key employees, could have a material adverse effect on our business. Although we have employment agreements with our chief executive officer, chief financial officer and chief operating officer, any employee could leave our employ if he chose to do so. We do not have “key

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person”carry "key person" insurance on the lives of any of our management team, nor do we have employment agreements with any of our executive officers. Also, asteam. As we develop additional capabilities, we may require more skilled personnel who must be highly skilled and have a sound understanding of our industry, business or processing requirements. Recruiting skilled personnel is highly competitive. Although to date we have been successful in recruiting and retaining qualified personnel,

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there can be no assurance that we will continue to attract and retain the personnel needed for our business. The failure to attract or retain qualified personnel could have a material adverse effect on our business.

We may not be able to manage our expansion of operations effectively.

We expect our operations to grow rapidly in the near future, both as we expand our historical alfalfa seed business by implementing new salesboth domestically and marketing activities, expandinginternationally, expand our mill utilization, and increasingincrease our growers’growers' production, and as we develop and begin operatingexpand our stevia production and sales business. We also are looking to expand our business through acquisition of synergistic companies. These efforts will require the addition of employees, expansion of facilities and greater oversight.oversight, perhaps in diverse locations. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute on our business strategies or respond to competitive pressures, and we may have difficulties maintaining and updating the internal procedures and the controls necessary to meet the planned expansion of our overall business.

Our management will also be required to maintain and expand our relationships with customers, suppliers and third parties as well as attract new customers and suppliers. We expect that our sales and marketing costs will increase as we grow our product lines and as we increase our sales efforts in new and existing markets.

There is no assurance that our current and planned operations, personnel, systems and internal procedures and controls will be adequate to support our future growth. We expect that our general and administrative costs will increase as our operations grow to meet existing sales orders for our products and for future growth as we increase our sales efforts in new and existing markets.

Changes in government policies and laws could adversely affect international sales and therefore, our financial results.

SalesOther than in fiscal 2011, which we believe was an abnormal year, historically sales to our distributors who then, in turn, sell our productsproprietary alfalfa seed varieties outside the U.S. constitute almost halfhave constituted a substantial portion of our annual revenue. We anticipate that these sales into international markets will continue to represent a substantial portion of our total sales and that continued growth and profitability will require further international expansion, particularly in Saudi Arabiathe Middle East and North Africa. Our financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include but are not limited to changes in a country’scountry's or region’sregion's economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries, changes in the regulatory or legal environment, burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced distribution of our products into international markets and reduced profitability associated with such sales.

We could face international transportation risks in the future.

Revenue from our seed sales is recognized when risk and title to the product are transferred to the customer, which usually occurs at the time shipment is made from our facilities. For sales to dealers or distributors who distribute internationally, title to the product is transferred at the time the product is

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delivered to the port of debarkation. A portion of the net proceeds from our initial public offering has been allocated to warehousing some of our seed inventory in Saudi Arabia in order to have inventory more readily available for sale when desired by end users. The terms of such an arrangement have not yet been determined, but if we retain title to the seed in the warehouse in Saudi Arabia rather than first selling the seed and agreeing to hold it for our distributor, we could be subject to the risk of loss in the event our seed does not arrive in Saudi Arabia. This could occur because of interruptions in the shipments of product due to strikes, natural disasters or otherwise. While we would attempt to ensure that we are adequately insured and would attempt to transport our seed by alternative means in the event of a transportation interruption, we may not be able to do so or be successful in doing so in a timely and cost-effective manner. Future significant increases in transportation costs could have a material adverse effect on our business, particularly if we are not able to pass on such price increases to our customers. Material interruptions in service or stoppages in transportation, whether caused by strike or otherwise, could adversely impact our business, results of operations, financial position and operating cash flows.

Insurance covering warranty claims may become unavailable or be inadequate.

Defective seed could result in warranty claims and negative publicity. Although we carry general liability insurance to cover warranty claims, such coverage may become unavailable or be inadequate. Even if coverage is offered, it may be at a price and on terms not acceptable to us. If claims exceed coverage limits, or if insurance is not available to us, the occurrence of significant claims could have a material adverse effect on our business, results of operations and financial condition.

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We may be exposed to product quality claims, which may cause us to incur substantial legal expenses and, if determined adversely against us, may cause us to pay significant damage awards.

We may be subject to legal proceedings and claims from time to time relating to our seed or dried stevia leaf quality. The defense of these proceedings and claims can be both costly and time consuming and may significantly divert efforts and resources of our management personnel. An adverse determination in any such proceeding could subject us to significant liability and damage our market reputation and prevent us from achieving increased sales and market share. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase of our products.

The current global economic downturn could result in a decrease in our sales and revenue, which could adversely affect the results of our operations, and we cannot predict the extent or duration of these trends.

The global economic downturn of the past twoseveral years has significantly impacted the agricultural industry, with many farmers losing their farms or laying fallow their fields, as well as other negative impacts. The full impact of the current global economic downturn on growers, customers, vendors and other business partners cannot be known with any certainty. For example, major customers may have financial challenges unrelated to us that could result in a decrease in their business with us or, in extreme cases, cause them to file for bankruptcy protection. Similarly, parties to contracts may be forced to breach their obligations under those contracts. Although we exercise prudent oversight of the financial strength of our major business partners and seek to diversify our risk to any single business partner, there can be no assurance that there will not be a grower, customer or other business partner that is unable to meet its contractual commitments to us. Similarly, stresses and pressures in the industry may result in impacts on our business partners and competitors that could have wide ranging impacts on the future of the industry.

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Capital and credit market issues could negatively affect our liquidity, increase our costs of borrowing and disrupt the operations of our growers and customers.

The capital and credit markets have experienced increased volatility and disruption over the past twoseveral years, making it more difficult for companies to access those markets. Although we believe that our operating cash flows, and recent access to the capital market and our untapped line of credit will permit us to meet our financing needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing, if we need to access the credit market. Our business could also be negatively impacted if our growers or customers experience disruptions resulting from tighter capital and credit markets or a continued slowdown in the general economy.

If we are unable to protect our intellectual property rights, our business and prospects may be harmed.

Our ability to compete effectively is dependent upon the proprietary nature of the seeds, seedlings, processes, technologies and materials owned by or used by us or our growers. If any competitors independently develop anynew traits, seeds, seedlings, processes or technologies that substantially equalcustomers or surpassend users determine are better than our process technology, it willexisting products, such developments could adversely affect our competitive position. We do not rely upon patent protection, but guard our proprietary property by exercising a high degree of control over the alfalfa seed supply chain.chain, as well as over our stevia material. However, because we do not have more formal proprietary rights protections in place, it would be possible for persons with access to our seed or plants grown from our seed to reproduce and market our proprietary seed varieties, which could significantly harm our business and our reputation. Litigation may be necessary to protect our proprietary property and determine the validity and scope of the proprietary

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rights of competitors. Intellectual property litigation could result in substantial costs and diversion of our management and other resources. If we are unable to successfully protect our intellectual property rights, our competitors could be able to market products that compete with our proprietary products without obtaining a license from us.

Risks RelatingRelated to Investment in Our Securities

An active market may not develop or be maintained forThe value of our securities.

Our common stock and Class A warrants and Class B warrants trade oncan be volatile.

The overall market and the NASDAQ Capital Market and is thinly traded. We can provide no assurance that a more active public market will develop or be sustained for any of our securities. If a more active public trading market for our securities does not develop or cannot be sustained, it may be difficult for investors to resell their securities at the price investors feel is appropriate.

Our largest stockholder has a controlling interest in our company and may have interests that differ from our other stockholders.

Yellowjacket, LP, our largest stockholder, owns 2,566,000 shares, or approximately 44%, of our outstanding common stock. Yellowjacket could, for the foreseeable future, have significant influence over our management and affairs and will be able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other sales of our company or assets. Its interests could differ from ours and those of our other stockholders. In addition, the concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

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While the public warrants are outstanding, it may be more difficult to raise additional equity capital.

We issuedstock and Class A warrants and Class B warrants can fluctuate greatly. The trading price of our common stock and Class A and Class B warrants may be significantly affected by various factors, including:

Our quarter-to-quarter performance may vary substantially, and this variance, as partwell as general market conditions, may cause our stock price to fluctuate greatly and potentially expose us to litigation.

Our alfalfa seed business, our primary source of revenue, is highly seasonal because it is tied to the units we soldgrowing and harvesting seasons. Typically, a substantial portion of our revenue is recognized during our first and second fiscal quarters. We generally experience lower revenue during our third and fourth fiscal quarters. Sales in the first and second fiscal quarters accounted for approximately 77% of our initial public offering. Both classesrevenue for the fiscal year ended June 30, 2012 and accounted for 51% of warrantsour revenue in fiscal 2011. If sales in these quarters are lower than expected, expenses may not be offset, which would adversely affect our operating results and would have a five-year term, expiringdisproportionately large impact on our operating results for that fiscal year.

Our future expense estimates are based, in May 2015. Duringlarge part, on estimates of future revenue, which are difficult to predict. We expect to continue to make significant expenditures in order to expand production, sales, marketing and administrative systems and processes. We may be unable to, or may elect not to, adjust spending quickly enough to offset any unexpected revenue shortfall. If our increased expenses are not accompanied by increased revenue in the termsame quarter, our quarterly operating results would be harmed.

In one or more future quarters, our results of operations may fall below the expectations of investors or analysts, and the trading price of our securities may decline as a consequence. We believe that these warrants are outstanding,quarter-to-quarter comparisons of our operating results will not be a good indication of our future performance and should not be relied upon to predict the holdersfuture performance of our stock price.

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In the warrants will be given the opportunity to profit from a risepast, companies that have experienced volatility in the market price of our common stock.their stock have often been subject to securities class action litigation. We may find it more difficult to raise additional equity capital while these warrants are outstanding. At any time during which these warrants are likely to be exercised, we may be able to obtain additional equity capital on more favorable termsthe target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other sources.business concerns, which could seriously harm our business.

The redemption of the Class A warrants or Class B warrants issued in our initial public offering may require warrantholders to sell or exercise the those warrants at a time that may be disadvantageous for them.

At any time after November 3, 2010, provided that our common stock has closed at a price at least equal $8.80 for five consecutive trading days, we may redeem the outstanding Class A warrants, in whole or in part, upon not less than 30 days’days' notice, at a price of $0.25 per warrant. Our Class B warrants are redeemable, in whole or in part, for $0.25 upon 30 days’days' notice after November 3, 2010, provided that our common stock has closed at a price at least equal to $13.75. The terms of our warrants prohibit us from redeeming them unless we have a current and effective registration statement available covering the exercise of the warrants. In the event we exercise our right to redeem either the Class A warrants or the Class B warrants, those warrants will be exercisable until the close of business on the date fixed for redemption in such notice. If any warrant called for redemption is not exercised by such time, it will cease to be exercisable, and the holder thereof will be entitled only to the redemption price of $0.25 per warrant. Notice of redemption of the public warrants could force holders to exercise the warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so or to sell the warrants at the current market price when they might otherwise wish to hold the warrants or accept the redemption price, which is likely to be substantially less than the market value of the warrants at the time of redemption.

While the Class A and Class B warrants are outstanding, it may be more difficult to raise additional equity capital.

During the term that the Class A warrants and Class B warrants are outstanding, the holders of those warrants are given the opportunity to profit from a rise in the market price of our common stock. We may find it more difficult to raise additional equity capital while these warrants are outstanding. Also, we may be forced to honor the exercise of the warrants at times when we may be able to obtain additional equity capital on more favorable terms from other sources.

Future sales or the potential for future salessale of a substantial number of shares of our common stock maycould cause the trading price of our common stock and public warrants to decline and could impair our ability to raise capital through subsequent equity offerings.

Approximately 52%Sales of our outstanding common stock is held by our pre-IPO stockholders, all of whom will be able to sell their securities under Rule 144 after November 3, 2010 without restriction, other than affiliates, who must comply with the timing and volume restrictions of Rule 144. If those stockholders sell a largesubstantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could cause the market price of our stock and redeemable warrants to decline and could materially impair our ability to raise capital through the sale of additional equity securities. For example, the grant of a large number of stock options or other securities under an equity incentive plan or the sale of our securities in private placement transactions at one time or over a short period of time,discount from market value could adversely affect the market price of our common stock or warrants.

If we issue shares of preferred stock, your investment could decline significantly. This declinebe diluted or subordinated to the rights of the holders of preferred stock.

Our Board of Directors is authorized by our Articles of Incorporation to establish classes or series of preferred stock and fix the designation, powers, preferences and rights of the shares of each such class or series without any further vote or action by our stockholders. Any shares of preferred stock so issued could have priority over our common stock with respect to dividend or liquidation rights. Although we

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have no plans to issue any shares of preferred stock or to adopt any new series, preferences or other classification of preferred stock, any such action by our Board of Directors or issuance of preferred stock by us could dilute your investment in turn,our common stock or subordinate your holdings to the higher priority rights of the holders of shares of preferred stock issued in the future.

If we do not maintain an effective registration statement or comply with applicable state securities laws, warrantholders may not be able to exercise the Class A or Class B warrants.

For holders of our Class A and Class B warrants to be able to exercise those securities, the exercise must be covered by an effective and current registration statement and qualify or be exempt under the securities laws of the state or other jurisdiction in which the warrantholders live. Although we will endeavor to have a negative impact oncurrent registration statement available at all times when the market pricewarrants are in-the-money, warrantholders may encounter circumstances in which they will be unable to exercise the Class A or Class B warrants. We can give no assurance that we will be able to continue to maintain a current registration statement relating to the shares of our warrants. In addition,common stock underlying the perceptionredeemable warrants or that an exemption from registration or qualification will be available throughout their term. This may have an adverse effect on demand for the redeemable warrants and the prices that can be obtained from reselling them.

Our principal stockholder will continue to have substantial control over our company, which could limit the ability of our other stockholders to influence the outcome of key transactions, including a change in control, and could result in the public marketapproval of transactions that holderswould be adverse to their interests.

Yellowjacket, LP, our largest stockholder, owns 1,897,605 shares, or approximately 25%, of restrictedour outstanding common stock mightas of September 25, 2012. Although its ownership interest will decline, if outstanding stock options or warrants are exercised or if we sell additional shares of common stock or securities convertible into common stock, Yellowjacket can, for the foreseeable future, have significant influence over our management and affairs and will be able to control virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as mergers or other sales of our company or assets. Its interests could depressdiffer from ours and those of our other stockholders. In addition, the concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock, regardlessstock.

Our actual operating results may differ significantly from our guidance.

Although we have not provided earnings guidance to date, from time to time, we may release guidance in our quarterly earnings releases, quarterly earnings conference call, or otherwise, regarding our future performance that represent our management's estimates as of the date of release. If given, this guidance, which includes forward-looking statements, will be based on projections prepared by our management. These projections are not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither our registered public accountants nor any other independent expert or outside party compiles or examines the projections and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.

Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. If we issue guidance, we will generally state possible outcomes as high and low ranges that are intended to provide a sensitivity

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analysis as variables are changed but are not intended to represent that actual plansresults could not fall outside of those stockholders. These sales could also makethe suggested ranges. The principal reason that we would release guidance would be to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons.

Guidance is necessarily speculative in nature, and it more difficult forcan be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance, if given, is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to sell sharesrely upon, or otherwise consider, our guidance in making an investment decision in respect of our common stock, Class A warrants or equity-related securities inClass B warrants.

Any failure to successfully implement our operating strategy or the future.

Anti-takeover provisions and our right to issue preferred stock could make a third-party acquisitionoccurrence of us difficult.

Our certificateany of incorporation contains provisions that would make it more difficult for a third party to acquire control of us, including a provision that our board of directors may issue preferred stock without stockholder approval. In addition, certain anti-takeover provisions of Delaware law could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to our stockholders.

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Tablefunds and short-term investments with original maturities of Contents

Purchase of Equity Securities by the Small Business Issuer and Affiliated Purchasers

None

Equity Compensation Plans

The following table provides a summary of the number of options granted under our 2009 Equity Incentive Plan, the weighted average exercise price and the number of options remaining available for issuance at June 30, 2010.

2009 Equity Incentive Plan

In October 2009 and January 2010, our Board of Directors and stockholders, respectively, approved the 2009 Equity Incentive Plan (the “2009 Plan”). The plan authorized the grant and issuance of options, restricted shares and other equity compensation to our directors, employees, officers and consultants, and those of our subsidiaries and parent, if any. Initially, 750,000 shares of have been reserved for issuance under the 2009 Plan.

The 2009 Plan is administered by the Compensation Committee of the Board of Directors. Subject to the provisions of the 2009 Plan, the Committee determines who will receive the options or other equity incentive grants or awards, the number of options or other awards granted, the manner of exercise and the exercise price of the options. The term of incentive stock options granted under the 2009 Plan may not exceed ten years, or five years for incentive stock options granted to an optionee owning moreless than 10% of the Company’s voting stock. The exercise price of options granted under the 2009 Plan must be equal to or greater than the fair market value of the shares of the common stock on the date the option is granted. An incentive stock option granted to an optionee owning more than 10% of voting stock must have an exercise price equal to or greater than 110% of the fair market value of the common90 days.

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operationour market and the quality niche of a stevia cultivation pilot project. Inasmuch as this is a new lineour certified seed have resulted in relatively stable demand in most years. However, the supply of business for us and incorporation of stevia extracts into food and beverages soldseed in the marketplace is subject to substantial swings. Fiscal 2011 proved to be a particularly challenging year, but fiscal 2012 reflected a significant turnaround in seed revenue.

From inception until 2003, almost all our seed sales were to distributors who exported our products to international markets. Modest sales efforts in the western U.S. is a relatively new development,were initiated around 2003, and in the fiscal year ended June 30, 2010, our plans may not succeedseed shipments were allocated approximately 51% to the extentdomestic market and 49% to distributors who sold into international markets. In fiscal 2011, both markets were negatively impacted by events beyond our control: The domestic market continued to be impacted by the dairy industry downturn that began in fiscal 2009 when dairy prices declined due to over-supply. While in normal years, we expect or onare typically able to offset this situation with sales to our distributors in our international markets, in fiscal 2011, our Middle East distributor experienced the time schedule we have planned, ormost challenging year in its history due to an over-supply of uncertified common seed being sold at all.significantly reduced prices. We expectand our distributor elected to incur substantial additional expenses during the 2011hold back much of our certified proprietary seed rather than sell into that depressed market in fiscal year as we expand our alfalfa seed development, processing, sales and marketing activities and enter the stevia production business. Additionally, commencing on January 28, 2010, our operations are subject to federal and state income taxes as2011. As a result of convertingall of these factors, seed sales were down in fiscal 2011 compared to the company from a limited liability company to a corporation. Accordingly, results of operations subsequent to January 28, 2010 are subject to a statutory tax rate of approximately 42.8%.

We currently are using less than 25%prior year. However because of our mill capacity, leaving roomdecisions in fiscal 2011, we had strong levels of certified seed inventory available for substantial growth without havingsale in fiscal 2012 when most of the common seed that glutted those markets in fiscal 2011 had been sold out. This allowed us to incur significant capital costs. Our mill operations are not labor intensive, but we anticipate hiring additional personnelmeet expected demand and, to run additional shifts, ifsome extent, control pricing during our first year selling directly into international markets. We plan to continue to expand our served markets and as needed. We also expect to make some alterations to a portion of our mill facility to accommodate stevia desiccation and bundling. Intherefore minimize the future, we may also add a GMO processing line, if Roundup Ready alfalfa becomes legal to sell in the U.S., and our management team decides that it is in our best interest to have the capability (both in terms of licensing rights and facilities) to sell Roundup Ready alfalfa. In November 2009, the USDA released its draft environmental impact report for public comment, which is a major step towards the expected deregulation of Roundup Ready alfalfa, and a June 2010 U.S. Supreme Court case opened the door to limited planting of Roundup Ready alfalfa in the U.S., pending release of final environmental studies We have not maderisks associated with any definitive decision regarding whether to pursue licensing of Roundup Ready alfalfa.

specific geographic market.

Our alfalfa seed business is seasonal, with sales concentrated in the first six months of September, October and Novemberour fiscal year (July through December) when customers are planting their fields. This coincides with the period during which seed growers harvest and deliver seed to us. We contract with growers based upon our anticipated market demand; we mill, clean and stock the seed during the harvest season and ship from inventory throughout the year, with the objective of selling most of the inventory from the current year’s harvest before the next year’s harvest.year. Tests show that seed that has been held in inventory for over one year produces higher hay yields.improves quality of the seed. Therefore, provided that we have sufficient capital to carry additional inventory, we may increase our seed purchases and planned season end inventory if, in our judgment, we can generate increased margins and revenue with the aged seed. This will also reduce the potential for insufficient inventory availabilityshortages in the event that we have higher than anticipated demand.

Thedemand or other factors, such as growers electing to plant alternative, higher priced crops, reducing our available seed supply and demand for alfalfa seed, and consequently our revenue and margins, are difficult to project, particularly with respect to our distributor who sells our seed to its customers in Saudi Arabia and other international markets. We contract annually at fixed prices with approximately 15 growers who have established a history of yields that provide some predictability into anticipated supply volume and cost. Nevertheless, yields are subject to agriculture risk and the farming practices of each grower. Additionally, depending upon market prices for hay, the availability of water and the market prices for alternative crops, alfalfa hay growers may choose to convert growing hay crop to non-certified seed, and this additional supply, though temporary, can drive down the overall market price for seed, including the market for certified alfalfa seed.

particular year.

Although we believe an opportunity exists to materially expand our alfalfa seed business is largely dependent upon the dairy industry’s demand for alfalfa hay,without substantially overhauling our sales are made to a worldwide market. From inception until 2003, almost alloperations, we could nevertheless encounter unforeseen problems. For example, in fiscal 2011 and 2012, some of our seed sales weregrowers elected to distributors who exported our productsgrow alternative crops, such as cotton, that yielded greater profit than alfalfa seed, and this could reoccur from time to international markets. Modest sales effortstime as commodity prices shift. However, having first leased farmland in fiscal 2011, and then gained long-term access to additional farmland in the western U.S. were initiated around 2003,San Joaquin and Imperial Valleys of California through additional leases entered into in fiscal 2012 and a farmland purchase in fiscal 2013, we now have the ability to grow a portion of our alfalfa seed production ourselves, which could partially mitigate this risk in future years. Although we have an experienced farming management and operations staff, this recently implemented direct farming opportunity poses new challenges. As we obtain additional farmland, by lease or purchase, both our farming costs and risks could continue to climb, and as our direct farming operations account for an increasingly significant portion of our seed requirements, the farming decisions we make could have a very negative impact on our results of operations. Nevertheless, we believe that by vertically integrating our alfalfa seed business to include our own production, we can leverage our management infrastructure, our experienced agronomics team and milling capacity, while reducing our costs and more directly controlling our inventory.

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Beginning in fiscal 2011, we also faced the new challenge created by the availability of Roundup Ready alfalfa ("RRA") in the U.S. We are still uncertain as to the extent to which RRA might negatively impact our business, if at all, but lack of regulations regarding field isolation could raise concerns about contamination of our non-GMO seed. In fiscal 2012, the first year in which RRA was planted in the San Joaquin Valley, some field contamination was discovered. Moreover, we sell into regions of the world that have a zero tolerance policy regarding GMO seed, so we will have to be able to maintain the integrity of our seed in order to sell in certain parts of the world. We are evaluating our options with respect to incorporating biotechnology into our alfalfa seed traits and the resulting impact on our business strategy and operations.

We currently are using less than 25% of our mill capacity, leaving room for substantial revenue growth without having to incur significant capital costs. In particular, we clean, process and bag seed and small grains for growers in the Five Points, California area during the periods in which we are not using the mill for our alfalfa seed business. Although only representing a small portion of our business, our milling services operations have historically represented the highest margin portion of our business.

We have also been developing our stevia business, working closely with PureCircle, one of the world's top stevia breeders and the world's largest stevia processor, in an effort to breed and select the best stevia varieties for the climate, soil and water conditions in the San Joaquin Valley. In July 2010, we entered into a five-year supply agreement with PureCircle under which it agreed to purchase all of our dried stevia leaf produced from seeds, plants and plant materials sourced from the processor or its agents that meets the contractual specifications, up to 130% of the quantity agreed upon by the parties on an annual basis. In May 2011, we commenced the planting of our first commercial crop of stevia and harvested a portion of that crop in the fall of 2011. We earned a modest amount of revenue from that harvest during the second quarter of fiscal 2012 when the dried leaf was shipped to our customer. In that initial commercial planting operation, our agronomists focused their efforts on ensuring our plantation has a healthy stand for the first winter months, not on maximizing yield. This was essentially a test harvest in which we cut only the top portion of the plants and experimented with harvesting methods and equipment settings. We expect the next stevia harvest will take place in the first half of fiscal 2013, although the exact timing of such harvest will depend on factors such as bloom rate and results of our internal tests, as we continue to evaluate and settle upon best farming practices.

In April 2012, we leased additional farmland for our stevia production near Los Banos, California, located in the heart of California's Central Valley. This newly leased farmland became our second stevia field, which was planted during the summer of 2012 and will also be harvested in the first quarter of fiscal 2013.

Inasmuch as this is a new line of business for us, and the incorporation of stevia extracts into food and beverages sold in the U.S. is still a relatively new industry, our plans may not succeed to the extent we expect or on the time schedule we have planned, or at all. We incurred substantial expenses and earned no revenue during the 2011 fiscal year ended June 30, 2010,as we entered the stevia production business. In fiscal 2012, the amount of research and development expenses for stevia has decreased as we moved into commercial production of stevia leaf, but we earned only nominal revenue from our seed shipments were allocated approximately 43%stevia operations. We expect our stevia revenue to the domestic market and 57% to distributors who sell into international markets. While the dairy business is subject to significant cycles of over-supply and under-supply, these fluctuations are generally localized. Consequently,grow significantly in fiscal 2013 although we are subject to the volatility of local markets, the breadthit will remain a small portion of our market and the quality niche of our certified seed have resulted in

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relatively stable demand. However, the supply of seed in the marketplace is subject to substantial swings. The negative effect of the severe hay market downturn, which began in fiscal 2009 when the dairy industry prices declined due to over-supply, is somewhat offset by our existing sales to distributors selling internationally and the need of many our customerstotal revenue for the specific seed traits bred into our certified high yield, salt tolerant, non-dormancy products. We plan to continue to expand our served markets and therefore minimize the risks associated with any specific geographic market.foreseeable future.

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Historical Background

Our business was operated as a partnership beginning in 1980. On June 27, 2008, the general partners entered into an agreement with Seed Holding, LLC for the purchase of a 90% interest in the partnership over a two-year period. Pursuant to that purchase agreement, Seed Holding had initially purchased a 60% interest in the partnership for $2,400,000 in cash, with the obligation to acquire an additional 15% interest on June 30, 2009 for $600,000 in cash and another 15% interest on June 30, 2010 for an additional $600,000 in cash. The original agreement was modified in December 2009 to permit Seed Holding to purchase the entire partnership.

The corporate entity, S&W Seed Company (S&W Seed Delaware”) was incorporated in Delaware on October 2, 2009. In January 2010, the members of the Seed Holding exchanged their membership units for 3,000,000 shares of S&W Seed Delaware, the Delaware corporation became the sole member of Seed Holding, and the corporation assumed the obligation to purchase the remaining 15% general partnership interest. Following the receipt of the net proceeds from the initial public offering in May 2010, S&W Seed Delaware repaid the former S&W partners the principal and interest due under the outstanding promissory notes and purchased the remaining 15% of the partnership, resulting in Seed Holding owning 100% of the former partnership. Seed Holding and S&W Seed Delaware collectively paid a total of $3,819,542 in cash plus 69,000 shares of common stock (issued in January 2010 in exchange for 560 membership units of Seed Holding) for 100% of S&W.

Despite the legal consequences intended by the purchase agreement and its amendments, the accounting rules applicable to the agreement mandate that Seed Holding account for the acquisition of 90% of the partnership as of June 30, 2009 and 100% of the partnership as of December 31, 2009 and subsequent periods. The financial statements of S&W Seed Delaware, presented elsewhere in this Report, reflect this accounting treatment.

Both because S&W Seed Delaware has moved from the partnership and limited liability structures to the corporate structure, and because it is entering a new growth mode that it has not historically pursued, management does not believe that historical financial results are indicative of future results.

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Results of Operations

Fiscal Year Ended June 30, 20102012 Compared to the Fiscal Year Ended June 30, 20092011

Revenue for fiscalthe year ended June 30, 2010 (the “2010 Fiscal Year”)2012 was $6,729,020$14,147,617 compared to $4,947,105$3,641,380 for the fiscal year ended June 30, 2009 (the “2009 Fiscal Year”).2011. The $1,781,915$10,506,237, or 289% increase in revenue for the 2010 Fiscal Year2012 fiscal year, was due to a $1,089,718an $10,597,597 increase in volume,seed and crop revenue, partially offset by a $539,987 increase due to pricing and a $ 153,210 increase$91,360 decrease in milling and other services. The substantial increase in volume representedseed and crop revenue is due primarily to the continuation of direct sales to our customer in Saudi Arabia and to a 22%, or 322,133 pound, increaselesser extent in other international markets, which reflects the volume of seed sold. The $539,987 increase in pricing is a result of a 12%, or $0.36 per pound, increase in the average selling pricesuccess of our initiatives to sell direct into the international markets, along with strong demand for our proprietary alfalfa seed varieties. As previously communicated, we and our former distributor had intentionally decided to withhold our certified seed from the market in fiscal 2011 due to depressed pricing resulting from a glut of uncertified seed in the 2010 Fiscal Year. market, rather than sell it at prices we felt were too low. International sales accounted for 70% of our 2012 fiscal year revenue compared to 18% in the prior year. Domestic revenue accounted for 30% and 82% of our total revenue for the fiscal years ended June 30, 2012 and 2011, respectively.

Throughout fiscal 2011, the prices of commodities, such as cotton, corn and wheat, which compete with alfalfa hay for acreage, increased dramatically and, in some cases, hit all-time record highs. Additionally, the economic recovery of the U.S. dairy industry continued to lag in comparison to the agricultural industry as a whole and encouraged hay growers (our customers or customers of our distributor customers) to look for alternative crops such as cotton, which experienced dramatic price increases in fiscal 2011. This posed certain sales challenges in the domestic market during the 2011 fiscal year, but also created the opportunity of a developing shortage (and pricing power) for our alfalfa seed products in the 2012 fiscal year. We experienced a 44% increase in domestic revenue over the prior year.

Revenue for the 2010 Fiscal Yearyear ended June 30, 2012 included approximately $606,729$885,764 of milling and other services compared to $453,519$977,124 for the year ended June 30, 2011. The decrease is due to a reduction in the 2009 Fiscal Year. We plan to devote additional resources in the future to expanding ourvolume of milling services business and accordingly, we expect our milling revenues to increase commensurately.

being performed.

Cost of revenue of $4,880,250$10,239,914 in the 2010 Fiscal Yearyear ended June 30, 2012 was 73%72% of revenue, while the cost of revenue of $3,652,226$2,280,855 in the 2009 Fiscal Yearyear ended June 30, 2011 was 74%63% of revenue. The dollar increase in cost of revenue for the 2010 Fiscal Yearcurrent year was attributed to a $560,655 increase in the cost of seed and an $827,646 increase in volume of seed sold, partially offset by a $160,277 decrease in costs of milling and other services. The slight decrease in the percentage cost of revenue in the 2010 Fiscal Year wasprimarily attributable primarily to an increase in higher margin milling services. Gross marginsthe amount seed sold. Margins on seed and crop revenue decreasedtotaled 25% in fiscal 2012 versus 24% in the 2010 Fiscal Year ascomparable period in the prior year. Included in the current year gross margins is a $277,325 loss on wheat and triticale crops that occurred in June 2012. We believe these are one-time non-recurring losses. Excluding the crop losses from wheat and triticale, seed and crop margins totaled 27% in the fiscal 2012, which was an improvement from the prior year. The improvement can be primarily attributed to a 2% increase in the average selling price of our seed increased by $0.36 per pound or 12% andcoupled with a 4% decrease in the average cost of seed sold increased by $0.38 per pound or 17%.versus the prior year.

Total gross profit margins for the current year totaled 27.6% versus 37.4% in the prior year. The significant increase in seed revenue in the current year principally contributed to the decrease in the total gross profit margins in fiscal 2012. This occurred because seed and crop sales constituted most of the revenue in the current year, and margins are lower in seed and crop sales than for milling services, which represented only 6% of the revenue in fiscal 2012. By comparison, in fiscal 2011, milling and other services contributed 27% of the total revenue recorded in the year, and therefore, the higher margin line of business impacted the gross profit margins to a greater degree.

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We have contracts with our growers for the production of seed for harvest periods that began in August 2010late summer and will end in October 2010.the fall. The price per pound in these 2012 grower contracts is approximately 18% lessmore than the 2010 Fiscal Year2011 harvest product price.

In the second quarter of the 2010 Fiscal Year, weWe began our stevia initiative in fiscal 2010. We moved from a pilot program to commercial production pilot program. In May 2010, we entered intoin fiscal 2011, planting the first commercial crop in the spring and summer of 2011. We earned our first stevia revenue of $25,382 during the second fiscal quarter of 2012 under a trialing arrangementcommercial supply agreement with a major stevia producer thatprocessor. Our agronomists focused their efforts on ensuring our plantation has a healthy stand for the first winter months, not on maximizing yield. This was essentially a test harvest in which we cut only the top portion of the plants and experimented with harvesting methods and equipment settings. We expect the next stevia harvest of this crop, as well as new acreage we planted in the summer of 2012, will allow us to plant stevia material provided by it for evaluation purposes, andtake place in the first half of fiscal 2013.

As of June 30, 2012, we have agreed to share our evaluation results with the processor. In connection with this pilot program, one of our largest alfalfa seed growers planted test varieties ofincurred $536,512 in stevia in June 2010. We have agreed to reimburse the grower for its direct and indirect costs, including costs incurred in the 2010 Fiscal Year prior to planting. In addition, we currently pay a monthly fee of $15,000 to this grower for management services related to our stevia program, including services related to fulfilling the commercial production contract with PureCircle. These grower costs aggregated $102,681 in the 2010 Fiscal Year andexpenditures that are included in work in process inventories and $935,467 has been recorded as crop production costs, which is a long-term asset and the remaining costs have been expensed to research and development expense on the consolidated statement of operations. There was no harvest of stevia

Inasmuch as we are still in the 2010 Fiscal Year, inasmuchearliest stages of commercial stevia development, it is currently unknown whether these early crops will produce multiple cuttings and whether the cuttings will result in improved yields, although we expect future harvests will provide crop improvements as we perfect best agronomic practices for stevia. We further expect that our costs will be highest in the stevia seedlings were notfirst year of production and will decline in subsequent years as we continue to harvest crops planted until the last month of the fiscal year. We expect to begin commercial sales of dried stevia leaf during the fiscal year ending June 30, 2011, however, we do not anticipate earning meaningful revenue from this product in this fiscal year.earlier years.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses (“("SG&A”&A") for the fiscal year ended June 30, 2012 totaled $2,772,711 compared to $2,166,375 in the 2010 Fiscal Year was $1,017,608 compared to $559,377 for the 2009 Fiscal Year.year ended June 30, 2011. The $458,231$606,336 or 28% increase in 2010 SG&A expense versus the prior year was primarily due to a $220,355$305,633 increase in personnel costs for sales and marketing and administration. The remainder of the increase can be primarily attributedcommissions paid to anour international sales consultant, a $64,837 increase in marketingnon-cash stock based compensation, a $78,865 increase in repairs and maintenance and the remaining increase relates to various expenses of $42,812, legalto support our expansion. Included in SG&A expenses of $48,071, accounting expenses of $31,012 and other miscellaneous expenses. Duringis non-cash stock-based compensation, which totaled $187,022 in the 2011 Fiscal Year, selling expenses will increase further, bothcurrent year versus $122,185 in dollar amount and asthe prior year. As a percentage of revenue, SG&A expenses were 20% in the current year compared to 59% in the year ended June 30, 2011, primarily as we expand our marketing activities (both in termsa result of the nature and extent of such activities, as well as in geographic expansion) in support of our efforts to expand our presencesignificant increase in the marketplace. We also expect an increasedollar amount of revenue in legal, accounting, investor relations and consulting SG&A expenses, associated with operations as a reporting public company. In line with the expanded scope of our operations, we also anticipate a modest increase in employees.fiscal 2012 compared to fiscal 2011.

Research and development expenses (“("R&D”&D") for the 2010 Fiscal Year andfiscal year ended June 30, 2012 totaled $242,523 compared to $450,016 in the 2009 Fiscal Year were $218,834 and $56,782, respectively.prior year. R&D expenses increased $162,052decreased $207,493 in 2010fiscal 2012 due to $112,191 ofa $131,618 decrease in stevia product development expenses incurred the 2010 Fiscal Year that were not incurred in the prior fiscal year.expenses. In addition, we increaseddecreased our alfalfa seed product development expenses by $49,861 in the 2010 Fiscal Year, primarily due to fees paid to our geneticist for developing and improving our seed varieties. We anticipate an increase in R&D$75,875 in fiscal 2011 as we expand2012 compared to fiscal 2011. We do expect to increase our alfalfa seed and stevia product development. As we move from the pilot program to stevia commercial sales, R&D expense associated with stevia will decline, and suchdevelopment expenses will impact cost of revenue and gross profit. This could occur as early asin fiscal 2011, although the timing of commencement of commercial sales is not yet certain.2013.

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Depreciation and amortization expense infor the 2010 Fiscal Yearfiscal year ended June 30, 2012 was $216,035$272,855 compared to $187,073 in$242,431 for the 2009 Fiscal Year.fiscal year ended June 30, 2011. Included in the amount is amortization expense for intangibles assets, which totaled $46,236$60,783 in both fiscal 20102012 and 2009.$46,238 in fiscal 2011. The increase in depreciation expense was attributable primarily to the addition of certain new fixed assets, including vehicles, a traileradditional storage containers, irrigation equipment and other equipment.bee trailers.

Interest expense, net induring the 2010 Fiscal Year was $101,890fiscal year ended June 30, 2012 totaled $20,937 compared to $77,565 ininterest income, net of $6,978 for the 2009fiscal year ended June 30, 2011. Fiscal Year.2012 interest expense consisted of the fee for the unused credit facility, partially offset by interest income derived from cash and cash equivalents.

Income tax expense totaled $199,310 for the fiscal year ended June 30, 2012 compared to an income tax benefit of $685,577 for the fiscal year ended June 30, 2011.

We had net income of $374,835 for the fiscal year ended June 30, 2012 compared to a net loss of $811,448 for the fiscal year ended June 30, 2011. The increase in 2010profitability was attributable primarily to the increase in borrowings on the working capital lineshipments of credit. This increase was partially offset by a decreasealfalfa seed into international markets and revenue growth in interest expense (accretion expense) associated with our acquisition purchase obligation. Accretion expense was $66,376 and $36,540 for the 2010 and 2009 Fiscal Years, respectively.

Income Tax Benefit

Income tax benefit totaled $184,488 for the 2010 Fiscal Year and represents the tax benefit to be realizeddomestic markets in future periods for losses incurred since we completed the January 28, 2010 exchange transaction.

Net Income Including Non-Controlling Interests

We had net income including non-controlling interests of $478,891 for the 2010 Fiscal Year compared to $420,800 for the 2009 Fiscal Year. The $58,091 or 14% increase in net income in 2010 was attributable primarily to the increase in gross profit and income tax benefit discussed above,fiscal 2012, partially offset by an increase in SG&A R&D and interest expensesincome tax expense, all of which is alsoare discussed above. The net income per basic and diluted common share for fiscal 2012 was $0.06, compared to a net loss per basic and diluted common share of $0.14 for the fiscal year ended June 30, 2011.

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Liquidity and Capital Resources

Overview

Our working capital and working capital requirements fluctuate from quarter to quarter depending on the phase of the growing and sales cycle that falls during a particular quarter. Our need for cash is highest in the second and third fiscal quarters (October through March) because we typically pay our contracted growers progressively, starting in the second quarter. In certain years, we have deferred our payments until later in the year to coincide with collections from our customers. Because of our long-standing,long- standing, excellent relationships with most of our growers, we have the ability to negotiate extended payment terms with them to coincide with the timing of our cash collections from customers.terms. In the 20102011 Fiscal Year, we deferred a portion of grower payments due in February and had paid our growers approximately 65%50% of the total obligation for the Fall 2009 harvest as of March 31, 2010. We madeamount owed in October 2010 (the second fiscal quarter) and the remaining 50% in February 2011 (the third fiscal quarter), in accordance with the annual contracts. In fiscal 2012, we paid our growers paymentsapproximately 33% of the amount owed in October 2011, an additional 33% in February 2012, and the remaining 34% was paid in May 2010. Combined, these payments represent approximately 80% of our annual cash operating expenses.2012. Alfalfa seed harvest occurs during our first fiscal quarter (August and September), and we typically process most of our alfalfa seed during September, October and November. Therefore, the value of inventory is the highest in the first and second quarters, as are our labor costs. But we also generate the greatest amount of cash receipts during the planting season in the second fiscal quarter (October through December).

DueHistorically, due to the concentration of sales to our distributor who sells into Saudi Arabia,certain distributors and key customers, which typically represented approximately 46%a significant percentage of alfalfa seed sales, in the 2010 Fiscal Year, our month-to-month and quarter-to-quarter sales and associated cash receipts arewere highly dependent upon the timing of deliveries to and

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payments from that distributor,these distributors and customers, which have varied significantly from year to year.

This concentration At the end of fiscal 2011, our largest international distributor left the alfalfa seed sales has also resultedbusiness, and we purchased its customer list in a concentrationJuly 2011. We commenced direct international sales in June 2011. Although we had no history of credit. Atdirectly selling into the Middle East and other international markets prior to June 30, 2010, this customer accounted for 58% of our accounts receivable. However, we have a long-standing relationship of over two decades with this customer, and2011, we believe that all of its outstanding accounts receivable balances are fully collectible. we have successfully transitioned into our direct sales model into the Middle East. We expect that as direct sellers, we will experience similar timing constraints to that which we were accustomed when we sold into these markets through our former distributor.

We continuously monitor and evaluate our credit policies with all of our customers based on historical collection experience, current economic and market conditions and a review of the current status of the respective trade accounts receivable balance. Our relationships with our distributors do not include a right of return.

Our principal working capital components include cash and cash equivalents, accounts receivable, inventory, prepaid expense and other current assets and accounts payable. Since

In May 2012, we sold 1,000,000 shares of our inception until 2009,common stock in a confidentially marketed public offering that priced at $5.50 per share. We received total proceeds, net of underwriting discounts and equity offering costs, of $5,006,311. In September 2012, we generated sufficient operating cash flow throughoutsold 600,000 shares of our common stock in a private placement to one accredited investor, which was priced at $5.85 per share, resulting in gross proceeds received by us of $3,510,000. No commissions or discounts were paid in connection with the year to fund our operations and to distribute surplus annually to the partners of the predecessor general partnership. Until the 2009 Fiscal Year, one of the general partners advanced working capital from time to time as the business needs dictated on a seasonal basis to fund operations. As of May 18, 2010, the S&W Seed Company general partnership ceased to exist, and the business of the partnership is now owned and operated by S&W Seed Company and our wholly-owned subsidiary, Seed Holding, LLC.

private placement.

In the 2009 Fiscal Year,fiscal 2012, we established aincreased our working capital line of credit with Wells Fargo Bank under the terms of which we wereare able to draw down up to $2,500,000$7,500,000 to fund our seasonal working capital needs. The outstanding principal balance of the line boreof credit bears interest at 3% over the daily one month LIBOR in effect from time to time. In May 2010, we paid offplus 2%, which equals 2.22% per annum as of September 21, 2012. The line of credit bears a standby fee on one-half percent per annum on the average daily unused amount of the line withof credit, for a maximum of $25,000 if the line is not utilized. As of September 21, 2012, we have not drawn down on the line, and during the fiscal year ended June 30, 2012, we incurred $29,236 of fees for the unused portion of the credit facility.

InJuly 2012, we obtained a term loan from Wells Fargo in a principal amount of up to $2,625,000 (the "Term Loan"), which we used to fund a portion of the net proceedspurchase of the 640 acres of Imperial Valley farmland. The Term Loan bears interest at a rate per annum equal to 2.35% above LIBOR in effect on the from our initial public offeringtime to time as specified in the term note. Under the term loan, we are also required to pay both monthly and terminatedannual principal reduction as follows: The first installment of monthly principal repayments commenced in August 2012 and will continue at a fixed amount per month until the line.

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