American Vanguard Corp: Form 10-Q for the period ended Jun 30, 2025

FORWARD-LOOKING STATEMENTS/RISK FACTORS:

The Company, from time-to-time, may discuss forward-looking statements including assumptions concerning the Company’s operations, future results and prospects. Generally, “may,” “could,” “will,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue” and similar words identify forward-looking statements. Forward-looking statements appearing in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on our current expectations and are subject to risks and uncertainties that can cause actual results and events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions contained in the entire report. Such factors include, but are not limited to: product demand and market acceptance risks; the effect of economic conditions; weather conditions; changes in regulatory policy; the impact of competitive products and pricing; changes in foreign exchange rates; product development and commercialization difficulties; capacity and supply constraints or difficulties; availability of capital resources given that interest rate and inflation affect the debt market; the impact of, and our ability to, remediate the identified material weaknesses in our internal controls over financial reporting; and general business regulations, including taxes and other risks as detailed from time-to-time in the Company’s reports and filings filed with the U.S. Security and Exchange Commission (“SEC”). It is not possible to foresee or identify all such factors. We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this report. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in Part II, Item 1A of this Form 10-Q under the heading "Risk Factors," in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Item 3 "Quantitative and Qualitative Disclosures About Market Risk."

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

Three Months Ended June 30, 2025 and 2024:

Overview of the Company’s Performance

The agricultural economy appears to be in the early stages of a recovery. While commodity prices remain at low levels, a combination of factors, including lower inflation, anticipation of lower interest rates, and legislation supportive of growers, has improved sentiment and strengthened demand for crop protection products. Channel inventory levels remain lower than this time last year, but we are seeing dealer inventories move higher with increasing confidence in market conditions. While uncertainty around tariffs continues to cloud the outlook, global trading partners are forging ahead with their own arrangements, and short- to mid-term demand appears to be stabilizing.

Against this backdrop, overall sales for the second quarter of 2025 improved 1% compared to the second quarter of 2024. From a regional perspective, our domestic sales increased by 1%, while our international sales were largely unchanged. Our herbicide business was an area of strength with net sales increasing by 48%, as compared to the same period in the prior year, while growth regulator sales were down 37%. Other areas of the business were relatively stable, as compared to the year ago period.

Efforts by management to operate our factories more efficiently led to lower cost of goods sold, which were down 2%, as compared to the same quarter of 2024. These, together with some raw material cost improvements, led to an improvement of average gross margins to 31% of net sales, as compared to 29% in the same period of 2024.

Operating expenses declined by 23% as management continued to manage expenses closely and reduced to 28% of net sales in the quarter from 37% in the comparable period of 2024. With a sharp reduction in transformation expenses, operating profit rose to $4,366 for the second quarter of 2025, as compared to a loss of $9,232 for the same period of 2024.

Interest expense slightly increased, as compared to the same quarter of the prior year, yielding a net loss before taxes of $84, as compared to a net loss of $13,274 in the second quarter of 2024.

The Company recorded an income tax expense of $765, as compared to an income tax benefit of $1,553 in the same period of last year.

These factors yielded a net loss of $849, or $(0.03) per share, as compared to $11,721, or $(0.42) per share, in the prior year quarter.

RESULTS OF OPERATIONS

Our domestic crop business recorded net sales during the second quarter of 2025 that were 1% higher than those of the second quarter of 2024 ($52,674, as compared to $52,289). Herbicide sales were driven by increased corn acres and the launch of a new product, which is capturing share from generic competitors. Soil fumigant sales were also an area of strength, up approximately 50%. Partially, offsetting these gains, sales of our growth regulators declined due to generic competition.

Our domestic non-crop business posted a 3% increase in net sales in the second quarter of 2025, as compared to the same period in the prior year ($19,585 in 2025 v. $19,011 in 2024). Delayed weed pressure negatively impacted non-crop herbicide products, but overall this business continues to grow faster than the overall portfolio.

Net sales of our international businesses were slightly higher ($57,054 in 2025, as compared to $56,909 in 2024). This increase was led by sales in our Central American business, which rose by 7%, driven by strength in our banana products. Partially offsetting these gains, sales in Australia (a much smaller business) were down approximately 40% due to drought conditions.

On a consolidated basis, gross profit for the second quarter of 2025 increased by 7% ($40,547 in 2025, as compared to $37,763 in 2024). The overall gross margin percentage ended at 31% in the second quarter of 2025, as compared to 29% in the second quarter of the prior year.

Operating expenses decreased by $10,814 to $36,181 for the three-month period ended June 30, 2025, as compared to the same period in 2024. The changes in operating expenses by department are as follows:

• Selling expenses decreased by $1,768 for the three months ended June 30, 2025, as compared with the same period of the prior year. This was mainly associated with reduced headcount across our global sales and marketing teams, as we implement new organization structures intended to drive a more customer focused team. We also experienced reduced marketing expenses.
• Other general and administrative expenses increased by 12%, primarily associated with incentive compensation as a result of improved financial performance, offset by reduced headcount costs.
• Amortization declined slightly during the three months ended June 30, 2025, as compared to the same period of the prior year, as the result of impaired and fully amortized assets.
• In the three months ended June 30, 2025, the Company reserved an immaterial amount for a minor product complaint. In the comparable period of the prior year, the Company recorded a larger legal contingency related to certain labor and employment matters. The two matters are unrelated.
• As part of the Company’s actions to focus on key products, the Company made the decision to discontinue selling one small volume product and wrote off the remaining intangible asset book value in the amount of $134 as of June 30, 2025.
• Research, product development costs and regulatory expenses decreased by $2,795 for the three months ended June 30, 2025, as compared to the same period of 2024. This is primarily driven by the decision to stop investing in the SIMPAS delivery system.
• Transformation costs related to the Company’s digital and structural transformation project reduced dramatically, as expected and ended at $1,621, as compared to $7,345 in the same period of the prior year. The Company expects that these costs will continue at lower levels than recorded last year.

Interest costs net of capitalized interest were $4,450 and $3,917 during the three-month period ended June 30, 2025 and 2024, respectively. Interest costs are summarized in the following table:

Average Indebtedness and Interest expense

The Company’s average overall debt for the three-month period ended June 30, 2025 was $196,703, as compared to $214,107 for the same period of the prior year. Our borrowings are higher as the result of expenses incurred during the balance of 2024, pertaining to one-time expenses. As can be seen from the table, the effective bank interest rate on our revolving line of credit was 8.4% and 7.5% for the three-month periods ended June 30, 2025 and 2024, respectively.

Income tax expense was $765 for the three months ended June 30, 2025, as compared to an income tax benefit of $1,553 for the three months ended June 30, 2024. The effective income tax rate for the three months ended June 30, 2025, was computed based on the estimated effective tax rate for the full year which is approximately 28%, excluding discrete items and entities subject to full valuation allowances against related net deferred tax assets. During the fourth quarter ended December 31, 2024, the Company established a valuation allowance against the U.S. entities net deferred tax assets. The company continues to maintain valuation allowances established against the net deferred tax assets of the U.S. and certain international entities, primarily in Brail, for the three months ended June 30, 2025. During the three months ended June 30, 2025, several of the Company's international business outside of Brazil were profitable resulting in an income tax expense.

We generated losses before provision for income taxes of $84 and $13,274 for the three months ended June 30, 2025 and 2024, respectively. Our net loss, after income taxes, for the three-month period ended June 30, 2025, was $849 or ($0.03) per basic and diluted share, as compared to $11,721 or ($0.42) per basic and diluted share in the same quarter of 2024.

Six Months Ended June 30, 2025 and 2024:

Overview of the Company’s Performance

Distributor destocking negatively impacted first-half 2025 results, as compared to the year ago period. This phenomenon was particularly strong during the first quarter but trailed off as the second quarter progressed. Nevertheless, the early first-half conditions negatively impacted sales and gross profit for the six-month period taken as a whole. Agricultural commodities trended higher during the first few months of the year but were unable to maintain their gains as the first half year progressed. Corn prices finished the first six months slightly lower than at the start of the year, while soybean prices were flat.

On a consolidated basis, domestic sales were down 7% and international sales were down 6%, as compared to the same period of last year Overall net sales decreased by 7% ($245,113 in 2025, as compared to $263,352 in 2024) largely driven by channel destocking. Cost of goods sold decreased by 5% on an absolute basis due to lower volumes. In spite of improved factory performance, these factors, taken together, yielded a gross profit that was lower than the same period of 2024 ($71,106, as compared to $80,181) and the average gross margin percentage declined slightly to 29% from 30% in the first half of 2024.

During the first half of 2025, operating expenses declined by about 18% as compared to the first half of 2024, and operating expenses as a percent of sales decreased to 28%, as compared to 32% for the same period prior year. Transformation costs for the period dropped significantly.

Overall, the business recorded an operating income of $56 for the first half of the year, as compared to an operating loss of $3,141 during the first half of 2024.

The Company incurred an income tax expense of $1,152 during the six-month period, as compared to an income tax benefit of $69 during the first half of 2024, yielded a net loss for the period of $9,311, as compared to $10,169 for the same period of the prior year, and a loss per share of $0.33, as compared to $0.36, as compared to the first half of last year.

RESULTS OF OPERATIONS

Our domestic crop business recorded net sales that were 8% lower than those of first half of 2024 ($110,201 as compared to $119,542 in 2024). Weakness in the first half sales, as compared to the year ago period, can be attributed to not having revenue from a product that was previously recalled; further cotton acreage was down substantially leading to weakness in products with exposure to this crop. Broadly, channel destocking in the early portion of 2025 continued to negatively impacted overall results.

Our domestic non-crop business recorded a 5% decrease in net sales for the first half of the year (to $34,834 from $36,787). Fungicide and pest strip sales were weak during the first half of 2024. Also, a delayed weed season led to weakness, as compared to the first half of 2024.

Net sales of our international businesses were down 6% as compared to the first half of 2024 ($100,078 versus $107,023 in 2024). Australian sales were weaker due to the ongoing drought, which were partially offset by strength in granular soil insecticides. Herbicide sales were off nearly 20% in the first half of the year, due to a weak agave season and a change in product mix.

On a consolidated basis, gross profit for the six months of 2025 decreased ending at $70,738, as compared to $80,181 last year. Gross margin performance in 2025 decreased to 29% from 30% compared to the first half of 2025.

Operating expenses decreased by $12,640 to $70,682 for the six-month period ended June 30, 2025, as compared to the same period in 2024. The changes in operating expenses by department are as follows:

• Selling expenses decreased by $3,925 to end at $22,356 for the six-month period ended June 30, 2025, as compared to the same period of 2024. The main drivers were reduced global headcount following our organizational redesign and tighter control of marketing and other third-party services.
• Other general and administrative expenses increased by $1,049 to end at $26,764 for the six-month period ended June 30, 2025, as compared to the same period of 2024. The main driver was primarily associated with incentive compensation as a result of improved financial performance, offset by reduced headcount costs.
• Amortization declined slightly during the six months ended June 30, 2025, as compared to the same period of the prior year, as the result of impaired and fully amortized assets.
• In the six months ended June 30, 2025, the Company reserved an immaterial amount for a minor product complaint. In the comparable period of the prior year, the Company recorded a larger legal contingency related to certain labor and employment matters. The two matters are unrelated.
• As part of the Company’s actions to focus on key products, the Company made the decision to discontinue selling one small volume product and wrote off the remaining intangible asset book value in the amount of $134 as of June 30, 2025.
• Research, product development costs and regulatory expenses decreased by $2,820 to end at $11,485 for the six-month period ended June 30, 2025, as compared to the same period of 2024. The cost reduction was primarily driven by lower spending associated with the decision to stop our investment in the SIMPAS delivery system.
• Transformation costs related to the Company’s digital and structural transformation project amounted to $3,812 for the first six months of 2025, as compared to $8,497 for the prior year. The digital transformation effort is intended to ensure that business process owners have access to current and complete data that has been generated through standardized systems and processes. The structural transformation effort is intended to improve operating leverage by applying business analytics to current operations, structures, products and services and identifying process improvements. The Company expects significantly lower such costs over the balance of 2025.

Interest costs net of capitalized interest were $8,215 in the first six-month period of 2025, as compared to $7,610 in the same period of 2024. Interest costs are summarized in the following table:

Average Indebtedness and Interest expense

22

The Company’s average overall debt for the six-month period ended June 30, 2025, was $179,710, as compared to $195,375 for the same period of the prior year. Our borrowings increased as a result of higher inventory levels. As can be seen from the table above, our effective bank interest rate on our revolving line of credit was 8.5% for the six months ended June 30, 2025, as compared to 7.9% in 2024.

Income tax expense was $1,152 for the six months ended June 30, 2025, as compared to an income tax benefit of $69 for the three months ended June 30, 2024. The effective income tax rate for the six months ended June 30, 2025, was computed based on the estimated effective tax rate for the full year which is approximately 28%, excluding discrete items and entities subject to full valuation allowances against related net deferred tax assets. During the fourth quarter ended December 31, 2024, the Company established a valuation allowance against the U.S. entities net deferred tax assets. The company continues to maintain valuation allowances established against the net deferred tax assets of the U.S. and certain international entities, primarily in Brazil, for the six months ended June 30, 2025. During the six months ended June 30, 2025, several of the Company's international business outside of Brazil were profitable resulting in an income tax expense.

We incurred a loss before provision before income taxes of $8,159 for the six months ended June 30, 2025, as compared to a loss before taxes of $10,238 for the six months ended June 30, 2024. Our net loss, after income taxes, for the six-month period ended June 30, 2025 was $9,311 or $0.33 per basic and diluted share, as compared to $10,169 or $0.036 per basic and per diluted share in the same period of 2024.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s operating activities utilized net cash of $39,836 during the six-month period ended June 30, 2025, as compared to $49,357 during the six months ended June 30, 2024. Included in the $39,836 are net loss of $9,311, plus non-cash depreciation, amortization of intangibles and other assets and discounted future liabilities, in the amount of $10,027, and provision for bad debts in the amount of $1,999, change in deferred income taxes of $200 and changes in liabilities for uncertain tax positions or unrecognized tax benefits of $60. Also included are stock-based compensation of $981, asset impairment of $134, and net foreign currency adjustments of $855.

During the six-month period of 2025, the Company increased working capital by $21,381, as compared to an increase of $49,375 during the same period of the prior year. Included in this change: inventories increased by $9,785, as compared to $27,770 for the same period of 2024. While increases in inventories are normal for the Company’s annual cycle, the Company has seen distinct changes in buying patterns across its global markets as customers are pushing back purchase close to time of use as they manage working capital and interest expense. In response the Company has focused on holding inventory levels down including holding down manufacturing output.

Customer prepayments decreased by $46,187, as compared to $53,468 in the same period of 2024, driven by customer decisions regarding the amount of prepayments they made during the final quarter of 2024, and by purchase orders received from those customers during the first two quarters and the product mix and payment terms on those purchase orders. Our accounts payable balances increased by $24,547, as compared to $34,292 in the same period of 2024, reflecting both the timing and terms of the related purchase orders. Accounts receivables increased by $3,293, as compared to a decrease of $11,962 in the same period of 2024. Prepaid expenses increased by $1,863, as compared to $3,730 in the same period of 2024. Income tax receivable changed by $1,024 as compared to $7,129 in the prior year. Accrued programs increased by $10,267, as compared to $18,209 in the prior year, driven by changes in mix of sales (products attract different program arrangements) and lower sales in our US Crop business (which is the main driver from programs). Finally, other payables and accrued expenses decreased by $15,073, as compared to an increase of $1,665 in the prior year.

Accrued program costs are recorded in line with the growing season upon which specific products are targeted. Typically crop products have a growing season that ends on September 30th of each year. During the first six months of 2025, the Company made accruals for programs in the amount of $41,451 and payments in the amount of $31,032, resulting in a net increase in accrued program costs of $10,267. During the first six months of the prior year, the Company made accruals in the amount of $44,633 and made payments in the amount of $26,615, resulting in a net increase of accrued program costs of $18,018.

Cash used for investing activities for the six-month period ended June 30, 2025, and 2024 was $1,085 and $6,398, respectively. In 2025, the Company spent $1,020 on purchases of fixed assets primarily focused on continuing to invest in manufacturing infrastructure, as compared to $4,944 for the same period of prior year. The Company made a payment of $88 for a product acquisition.

During the six months ended June 30, 2025, financing activities provided $41,479, as compared to $63,190 during the same period of the prior year. Net borrowings under the Credit Agreement amounted to $42,169 during the six-month period ended June 30, 2025, as compared to $65,259 in the same period of the prior year. The Company did not declare and pay dividends for the first six months of 2025, as compared to paying $1,670 during the six months ended June 30, 2024. The Company received $333 for the issuance of shares under our Employee Stock Purchase Program ("ESPP") and exercise of stock options for the six months ended June 30, 2025, as compared to $430 for the same period in prior year. Lastly, in exchange for shares of common stock returned by employees, the Company paid $142 and $829 for tax withholding on stock-based compensation awards during the six months ended June 30, 2025 and 2024, respectively.

The Company has a revolving line of credit that is shown as long-term debt in the condensed consolidated balance sheets at June 30, 2025 and December 31, 2024. These are summarized in the following table:

As of June 30, 2025, the Company is deemed to be in compliance with its financial covenants.

At June 30, 2025, according to the terms of the Credit Agreement, as amended, and based on our performance against the most restrictive covenant listed above, the Company had the capacity to increase its borrowings by up to $31,836, compared to $28,623 as of December 31, 2024.

We believe that anticipated cash flow from operations, existing cash balances and available borrowings under our amended senior credit facility will be sufficient to provide us with liquidity necessary to fund our working capital and cash requirements for the next twelve months.

RECENTLY ISSUED ACCOUNTING GUIDANCE

Please refer to Note 1 in the accompanying notes to the condensed consolidated financial statements for recently issued accounting standards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company continually re-assesses the critical accounting policies used in preparing its financial statements. In the Company’s Form 10-K filed with the SEC for the year ended December 31, 2024, the Company provided a comprehensive statement of critical accounting policies. These policies have been reviewed in detail as part of the preparation work for this Form 10-Q. After our review of these matters, we have determined that, during the subject reporting period there has been no material change to the critical accounting policies that are listed in the Company’s Form 10-K for the year ended December 31, 2024.

The Company is exposed to market risk related to changes in interest rates, primarily from its borrowing activities. The Company’s indebtedness to its primary lender is evidenced by a line of credit with a variable rate of interest, which fluctuates with changes in the lender’s reference rate. For more information, please refer to the applicable disclosures in the Company’s Form 10-K filed with the SEC for the year ended December 31, 2024.

The Company faces market risk to the extent that changes in foreign currency exchange rates affect our non-U.S. dollar functional currency as to foreign subsidiaries’ revenues, expenses, assets and liabilities. The Company currently does not engage in hedging activities with respect to such exchange rate risks.

Assets and liabilities outside the U.S. are located in regions where the Company has subsidiaries or joint ventures: Central America, South America, North America, Europe, Asia, and Australia. The Company’s investments in foreign subsidiaries and joint ventures with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company does not hedge these net investments.

Evaluation of Disclosure Controls and Procedures

The Company has a comprehensive set of disclosure controls and procedures designed to ensure that all information required to be disclosed in our filings under the Securities Exchange Act (1934) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, completed their evaluation, as of June 30, 2025, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures . Based on this evaluation, and as a result of the material weaknesses in our internal control over financial reporting further described in Management’s Report on Internal Control Over Financial Reporting in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, our principal executive officer and principal financial officer, concluded that as of June 30, 2025, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosure. Specifically, in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, management identified the following material weaknesses associated with the control environment, control activities and risk assessment components of the COSO framework:

• Control Environment – within the Company’s Australian component (AgNova), the Company identified that the individuals performing control activities within the component were not sufficiently trained or adequately supervised, and lacked appropriate reporting lines and accountability in accordance with principles of the COSO framework.
• Control Activities – due to insufficient resources to facilitate a timely financial close process, the operation of internal controls over financial reporting specific to the controls being performed timely in accordance with principles of the COSO framework were not operating effectively. Further, within AgNova, the Company did not have sufficient segregation of duties in place in accordance with a principle of the COSO framework.
• Risk Assessment – the Company identified that it did not design and implement an effective risk assessment based on the criteria established in the COSO framework. Specifically, the Company did not identify and assess changes to the business that could significantly impact the system of internal control in accordance with principles of the COSO framework.

In addition, management identified a deficiency that constituted a material weakness related to the review of customer agreements related to the accrued Program costs and customer prepayments balances. The Company did not perform a sufficiently precise review in order to appropriately consider all agreed-upon terms with customers in its determination of the accrued Program costs and customer prepayments balances.

In order to remediate these matters, we have identified the following remediation measures:

• Enhancing the oversight, reporting lines and authorities, and accountability processes within our finance organization and including improved training, additional personnel with appropriate skillsets, dedicated personnel regarding risk assessment, more comprehensive supervisory processes and completing the implementation of, and standardized processes relating to, the global ERP system.
• Implementing additional resources to mitigate risks and facilitate a timely financial close process including enhancing policies and procedures including implementing changes to the segregation of duties within AgNova.
• Enhancing our risk assessment process to ensure it is sufficiently robust to identify and analyze significant events affecting our business, including the impact of these events on the timely completion of our financial statements and SEC filings.
• Enhancing our review process of agreed upon terms related to the accrued Program costs and customer prepayments balances to ensure it is sufficiently precise to identify changes that may impact the balances.

We will consider the material weakness to be fully remediated once the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively. We have established the process of identifying these transactions and adding additional internal reviews to account for them under current accounting standards. These processes will be tested in the coming months.

We do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting that occurred during the most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

The Company was not required to report any matters or changes for any items of Part II except as disclosed below.

The Company continually re-assesses the business risks, and as part of that process detailed a range of risk factors in the disclosures in American Vanguard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed on May 29, 2025. The following disclosure amends and supplements those risk factors and, except to the extent stated below, there are no material changes to the risk factors as so stated.

Reduced financial performance may adversely affect the Company’s ability to maintain a capital structure that is sufficient to meet working capital needs. Because the Company’s credit agreement expires in August 2026, under applicable accounting rules, if the credit agreement is not extended or replaced by the time that the Company reports its financial results for the quarter and period ending September 30, 2025, then such debt (which is currently recorded as long term debt) will need to be recorded as current debt on the Company's balance sheet. In addition, such a characterization could lead to the accounting conclusion that the Company was not able to operate as a going concern. The threat of such result could have an adverse effect upon relationships with business partners. Thus, it is in the Company's best interest to extend or replace the credit agreement as soon as possible and, at any rate, well prior to such filing date. However, despite improved financial performance in the immediately preceding quarter, in light of poor financial performance of the prior several quarters, there is no guarantee that the Company will be able to maintain capital sufficient to meet its working capital needs or that such capital will be available on terms that are as favorable as those under the current agreement. Failure to obtain capital in a timely fashion or in inadequate amounts or on unfavorable terms could have an adverse effect upon the Company’s financial performance and/or could impair the Company’s ability to carry on business as a going concern.

The MAHA Commission and MAHA movement may adversely affect demand for the Company’s crop inputs. By virtue of Executive Order, the Administration has established a “Make America Healthy Again” or MAHA Commission consisting of Administrators of the Department of Health and Human Services, the Department of Agriculture and the Environmental Protection Agency. Shortly after the commission’s establishment, the Center for Biological Diversity filed a petition with the commission and its constituent agencies seeking the cancellation of certain pesticides in the name of purported advancing children’s health. At the same time, the ideology at the foundation of the commission has engendered a MAHA movement which has influenced several states to introduce legislation that would call for labeling of foods that were grown with various pesticides. While the MAHA Commission has yet to take a formal position on pesticide use, and state legislatures are still considering food-labeling legislation, there is no guarantee that the commission will support the use of crop inputs or that state legislatures will rein in further requirements on food labeling. In short, it is possible that both federal agencies and state legislatures could impose significant limitations on the use of pesticides in food production in a manner that could adversely affect the Company’s product sales and overall financial performance.