---

 

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

 

In June 2016, the Financial Accounting Standards Board (FASB) issued guidance ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which changes the accounting for credit losses for certain instruments, including trade receivables, from an incurred loss method to a current expected loss method. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The guidance, and subsequent guidance related to the topic, is effective for our annual and interim periods beginning in 2023 and we must be adoptedadopt the guidance on a modified retrospective approach through cumulative-effect adjustment to retained earnings as of January 1, 2023. Based on the nature of our current receivables and our credit loss history, we do not expect the adoption of the guidance to have a significant impact on our results of operations, financial position, or cash flows.

NOTE 4. CASH AND CASH EQUIVALENTS

 

As of JuneSeptember 30, 2022, we have $2.7 million of cash and cash equivalents invested in a money market fund with net assets invested in U.S. Dollar denominated money market securities of domestic and foreign issuers, U.S. Government securities and repurchase agreements. We consider all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

 

We have cash on deposit in excess of federally insured limits at a bank. We do not believe that maintaining substantially all such assets with the bank or investing in a liquid mutual fund represent material risks.

NOTE 5. ACCOUNTS RECEIVABLE AND REVENUES

 

Amounts billed and due from our customers are classified as accounts receivable on our consolidated balance sheets and require payment on a short-term basis. Invoices are generally issued at the point control transfers and substantially all of our invoices are due within 30 days or less, however certain customers have terms of up to 120 days. For substantially all of our contracts, control of the ordered product(s) transfers at our location. Periodically, we require payment prior to the point in time we recognize revenue. AmountsWe classify amounts received from customers prior to revenue recognition on a contract are contract liabilities, are classified as customer prepayments liability on our consolidated balance sheets and aresheets. We typically appliedapply customer prepayments to an invoice within 30 days of the prepayment. Revenues in the three and sixnine months ended JuneSeptember 30, 2022 and 2021, include $0.1 million, or less, in unearned revenue as of the end of the prior year.

 

Our accounts receivable potentially subject us to significant concentrations of credit risk. Revenues and accounts receivable from significant customers (customers with revenue or accounts receivable in excess of 10% of consolidated totals) are stated below as a percent of consolidated totals.

 

		Customer
		A				B				C
% of revenues, three months ended June 30, 2022			13	%			10	%			1	%
% of revenues, three months ended June 30, 2021			6	%			15	%			15	%
% of revenues, six months ended June 30, 2022			12	%			10	%			3	%
% of revenues, six months ended June 30, 2021			6	%			12	%			11	%
% of accounts receivable, as of June 30, 2022			8	%			9	%			1	%
% of accounts receivable, as of December 31, 2021			15	%			8	%			9	%

		Customer
		A				B				C				D
% of revenues, three months ended September 30, 2022			15	%			5	%			11	%			-	%
% of revenues, three months ended September 30, 2021			21	%			7	%			-	%			9	%
% of revenues, nine months ended September 30, 2022			13	%			8	%			5	%			2	%
% of revenues, nine months ended September 30, 2021			10	%			11	%			1	%			11	%
% of accounts receivable, as of September 30, 2022			13	%			7	%			17	%			-	%
% of accounts receivable, as of December 31, 2021			15	%			8	%			-	%			9	%

 

The following table presents revenues by geographic area shipped to (in thousands).

 

 

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 6. PROPERTY AND EQUIPMENT

 

The following table details the components of property and equipment (amounts in thousands).

 

 

Amounts payable for property and equipment included in accounts payable totaled $0.1 million at JuneSeptember 30, 2022, and $0.2 million at December 31, 2021. Assets which had not yet been placed in service, included in property and equipment, totaled $0.8$1.1 million at JuneSeptember 30, 2022, and $0.9 million at December 31, 2021.

NOTE 7. LEASES

 

The components of lease expense and cash flows from leases (in thousands) follow.

 

 

As of JuneSeptember 30, 2022, variable lease payments do not depend on a rate or index. As of JuneSeptember 30, 2022, and December 31, 2021, property and equipment, net, includes $0.3$0.6 million and $0.2 million of finance lease right-of-use-assets, with an original cost of $0.9 million as of September 30, 2022, and $0.5 million. million as of December 31, 2021. During the three months and sixnine months ended JuneSeptember 30, 2022, we financed the purchase of $0.1 million and $0.3 million of property and equipment in noncash finance lease transactions. During the three months and sixnine months ended JuneSeptember 30, 2021, we financed the purchase of less than $0.1 million of property and equipment in noncash finance lease transactions.

 

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

 

As of JuneSeptember 30, 2022, we do not believe it is certain that we will exercise any renewal options. The remaining terms of our leases and the discount rates used in the calculation of our lease liabilities as of JuneSeptember 30, 2022, follows.

 

 

Maturities of lease liabilities as of JuneSeptember 30, 2022, follows (in thousands).

 

		Operating				Finance
		Leases				Leases
2022 (six months ended December 31, 2022)		$	244			$	74
2023			528				79
2024			429				38
2025			439				23
2026			451				20
Thereafter			578				5
Total lease payments			2,669				239
Amounts representing interest			(557	)			(44	)
Present value of lease obligations		$	2,112			$	195

		Operating				Finance
		Leases				Leases
2022 (three months ended December 31, 2022)		$	122			$	52
2023			528				158
2024			429				117
2025			440				102
2026			450				100
Thereafter			578				60
Total lease payments			2,547				589
Amounts representing interest			(517	)			(102	)
Present value of lease obligations		$	2,030			$	487

NOTE 8. DEBT

 

We finance certain amounts owed for annual insurance premiums under financing agreements. As of JuneSeptember 30, 2022, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through March 2023, at interest rates of 3.5% to 3.9% per year.

 

We borrow under a factoring agreement with a lender (the Lender), which provides a $7.0 million credit facility. We may only borrow to the extent we have qualifying accounts receivable as defined in the agreement. The facility had an initial two-year term and automatically renews for successive annual periods unlessuntil delivery of a proper termination notice is given.notice. The facility term has automatically extended to October 2022.2023. We paid a $0.2 million facility fee upon inception of the agreement which amortized to interest expense on a straight-line basis over the two years ending in October 2021. We incur recurring fees under the agreement, including a funding fee of 0.5% above the prime rate, in no event to be less than 5.5%, on any advances and a service fee on average net funds borrowed. The lender has the right to demand repayment of the advances at any time. The lenderLender has a security interest in our personal property assets.

The Lender advanced us $0.9 million effective September 30, 2022 (the Over-advance), pending restructuring of our mortgage promissory note with the Lender. The Over-advance accrues interest at an annual rate which is the greater of 7.0% above the Lender's prime rate and 10.3% (13.3% at September 30, 2022). The Over-advance is due the earlier of the completion of the restructuring of the mortgage promissory note or December 29, 2022.

 

Additional information related to our factoring obligation (exclusive of the Over-advance) follows.

 

 

As of JuneSeptember 30, 2022, we had $1.8 million outstanding under a line of credit with a bank. The borrowing is secured by our cash on deposit with the bank and bears interest at prime (4.8%(6.3% at JuneSeptember 30, 2022). There are no stipulated repayment terms for the line as long as we maintain sufficient cash collateral. Our borrowings under the line of credit averaged $0.1$1.5 million in the three months ended JuneSeptember 30, 2022, and less than $0.1$0.5 million for the sixnine months ended JuneSeptember 30, 2022.

 

RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

 

Long-term debt consists of the following (in thousands).

 

		June 30,				December 31,
		2022				2021
Mortgage promissory note - Originally dated July 2020 and modified in December 2021. As modified, interest accrues at an annual rate which is the greater of 7.0% above the lender's prime rate and 10.3% (11.8% at June 30, 2022) payable in monthly installments through December 2023. Net of $17 debt issuance costs at June 30, 2022.		$	1,906			$	2,469
Face amount $2.5 million. Interest accrued at the effective discount rate 11.5%. Secured by certain real property in Wynn, Arkansas.
Equipment note - Dated May 2021. Original principal $46. Due in monthly installments through June 2025.
Interest accrues at the effective discount rate of 3.6% per year.			28				33
Equipment note - Dated December 2019. Original principal $40. Due in monthly installments through December 2024.
Interest accrues at the effective discount rate of 9.3% per year.			22				26
Equipment notes - Initially recorded in November 2018, in an acquisition, at the present value of future payments using a discount rate of 4.8% per year. Due in monthly installments through August 2022.			3				11
Total long term debt, net		$	1,959			$	2,539

		September 30,				December 31,
		2022				2021
Mortgage promissory note - Originally dated July 2020 and modified in December 2021. As modified, interest accrues at an annual rate which is the greater of 7.0% above the Lender's prime rate and 10.3% (13.3% at September 30, 2022) payable in monthly installments through December 2023. Net of $11 debt issuance costs at September 30, 2022. Face amount $2.5 million. Secured by certain real property in Wynne, Arkansas.		$	1,614			$	2,469
Progress payment agreement - Dated August 2022. Original principal $37. Interest is payable monthly at the rate of 25.2% per year. Due in November 2022, unless a finance lease is executed with the lender before that date for the related equipment.			37				-
Equipment note - Dated May 2021. Original principal $46. Due in monthly installments through June 2025. Interest accrues at the effective discount rate of 3.6% per year.			27				33
Equipment note - Dated December 2019. Original principal $40. Due in monthly installments through December 2024. Interest accrues at the effective discount rate of 9.3% per year.			20				26
Equipment note - Initially recorded in November 2018, in an acquisition, at the present value of future payments using a discount rate of 4.8% per year. Due in monthly installments through August 2022.			-				11
Total long-term debt, net		$	1,698			$	2,539

 

Future principal maturities of long-term debt outstanding as of JuneSeptember 30, 2022, follow (in thousands).

 

2022 (six months ended December 31, 2022)		$	620
2023			1,332
2024			19
2025			5
Principal maturities			1,976
Debt issuance costs			(17	)
Total long term debt, net		$	1,959

2022 (three months ended December 31, 2022)		$	347
2023			1,337
2024			19
2025			5
Principal maturities			1,708
Debt issuance costs			(10	)
Total long-term debt, net		$	1,698

NOTE 9. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

 

In August 2022, our board of directors approved a 1 for 10 reverse split of our common stock. Our common stock began trading on a post-split basis on August 26, 2022. All share and per share information has been retrospectively adjusted for all prior periods presented giving retroactive effect to the reverse stock split. Such adjustments include calculations of our weighted average number of shares outstanding and loss per share, as well as disclosures regarding our share-based compensation and warrants.

On July 14, 2022, shareholders approved a 600,000 share increase in the number of shares of common stock authorized for issuance under our Amended and Restated 2014 Equity Incentive Plan (the 2014 Plan). As of September 30, 2022, 228,201 shares of common stock remained available for issuance under the 2014 Plan.

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

A summary of equity activity follows (in thousands, except share amounts).

 

 

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RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

 

Share-based compensation by type of award follows (in thousands).

 

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

Options

In the three months ended September 30, 2022, holders forfeited options for the purchase of up to 2,901 shares of common stock (average $19.30 per share exercise price, average 6.9 years remaining life). In the three months ended June 30, 2022, holders forfeited options for the purchase of up to 44,5474,455 shares of common stock (average $2.14$21.42 per share exercise price, average 6.8 years remaining life). In the three months ended March 31, 2022, holders forfeited options for the purchase of up to 9,703970 shares of common stock (average $1.85$18.48 per share exercise price, average 7.7 years remaining life).

 

In the three months ended March 31, 2022, warrants for the purchase of up to 6,142,980 shares of common stock ($0.96 per share exercise price) expired.Stock Units

 

We have outstanding (i) restricted stock units (RSUs) issued under the 2014 Plan to employees and directors and (ii) other stock units (SUs) issued to a service provider. Each RSU and SU represents a contingent right to receive one share of common stock. Summaries of nonvested and vested restricted stock unit (RSU)and activity follow.

 

		Number of RSUs				Unrecognized Stock Compensation (in thousands)				Weighted Average Expense Period (Years)
Nonvested at December 31, 2021			1,266,033			$	(658	)			0.9
Granted			370,000				(153	)			2.0
Forfeited			(10,000	)			7				0.7
Vested with Service			(224,751	)			-				0.0
Expensed			-				212
Nonvested at March 31, 2022			1,401,282				(592	)			0.9
Impact of Modification:
Before modification			(114,680	)			125
After modification			114,680				(60	)
Forfeited			(94,535	)			55				0.0
Vested with Service			(344,040	)			-				0.0
Expensed			-				125
Nonvested at June 30, 2022			962,707			$	(347	)			0.9

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RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

		Restricted Stock Units (Issued under 2014 Plan)												Stock Units Issued to Vendors
		Number of Units				Unrecognized Stock Compensation (in thousands)				Weighted Average Expense Period (Years)				Number of Units				Unrecognized Stock Compensation (in thousands)				Weighted Average Expense Period (Years)
Nonvested at December 31, 2021			126,603			$	(658	)			0.9				-			$	-				-
Granted			37,000				(153	)			2.0				-				-				-
Forfeited			(1,000	)			7				0.7				-				-				-
Vested with service			(22,475	)			-				-				-				-				-
Expensed			-				212				-				-				-				-
Nonvested at March 31, 2022			140,128				(592	)			0.9				-				-				-
Impact of Modification:															-				-				-
Before modification			(11,468	)			125				-				-				-				-
After modification			11,468				(60	)			-				-				-				-
Forfeited			(9,454	)			55				-				-				-				-
Vested with Service			(34,404	)			-				-				-				-				-
Expensed			-				125				-				-				-				-
Nonvested at June 30, 2022			96,270				(347	)			0.9				-				-				-
Granted			402,276				(1,458	)			2.8				38,968				(65	)			3.0
Vested with Service			(63,607	)			-				-				-				-				-
Expensed			-				464				-				-				-				-
Nonvested at September 30, 2022			434,939			$	(1,341	)			2.5				38,968			$	(65	)			3.0

 

		Number of RSUs
Vested at December 31, 2021			865,05286,505
Vested with Serviceservice			224,75122,475
Issued at Vestingvesting			(224,75122,475	)
Vested at March 31, 2022			865,05286,505
Vested with Serviceservice			344,04034,404
Issued at Terminationtermination of Serviceservice			(483,87948,386	)
Vested at June 30, 2022			725,21372,523
Vested with service			63,607
Vested at September 30, 2022			136,130

 

Each RSU represents a contingent right to receive one share of common stock. The RSUs granted in the firstthree months of 2022 vest within two years of the grant. As of JuneSeptember 30, 2022, issuance of 725,213136,130 shares of common stock subject to the vested RSUs is deferred to the date the holder is no longer providing service to our company.

 

In April 2022, we modified 114,680 RSUs held by resigning directors such that the awards vested on the date of their termination of service. Prior to the modification, the unvested RSUs would have been forfeited on the date of the resignations. As a result of the modifications, we adjusted cumulative expense on the RSUs to equal the fair value of the awards on the date of the April 28, 2022, modification ($0.52 per unit), in accordance with applicable accounting guidance.

In the three months ended JuneSeptember 30, 2022, we issued a total of 483,879 shares of common stock pursuant to the terms of vested RSUs, which included the114,680 modified RSUs discussed in the preceding paragraph. Issuance of the shares of common stock subject to these RSUs was deferred to the date the holder was no longer providing service to our company. Infollowing under the three2014 months ended March 31, 2022, we issued a total of 224,751 shares of common stock upon the vesting of RSUs.Plan:

 

On July 14, 2022, shareholders approved a 6,000,000 share increase in the number of shares of common stock authorized for issuance under our Amended and Restated 2014 Equity Incentive Plan (2014 Plan). On July 14, 2022, we granted RSUs with a total grant date fair value of $1.4 million ($0.38 per unit). The grants are listed below.

●

2,781,498278,151 RSUs, the issuance of which was subject to shareholder approval of the increase in the shares of common stock authorized for issuance under the 2014 Plan. The RSUs vest over an average of forty-nine months from the July 14, 2022, grant date.

●

657,89565,790 RSUs to our directors which vest on July 14, 2023, or one day prior to the next annual meeting of our shareholders.

●

190,02419,003 RSUs to our directors on July 14, 2022, which were immediately vested, in lieu of paying board fees in cash.cash for the quarter ended June 30, 2022.

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

●

30,279 RSUs to our directors on September 30, 2022, which were immediately vested, in lieu of paying board fees in cash for the quarter ended September 30, 2022.

●

9,053 RSUs to employees. The RSUs vest over an average of 8 months from the date of grant.

 

AsWe issued 38,968 SUs to a service provider in September 2022 and an additional 121,032 SUs in November 2022, which the service provider elected to purchase with a $0.2 million cash signing fee. The SUs vest in three annual installments ending in September 2025, and we are expensing the fair value of the SUs over three years. The service provider may also earn performance-based cash compensation beginning October 1, 2022, if certain performance criteria are met. The performance compensation will be paid quarterly in an amount of cash which may then be used to purchase, at the election of the service provider, a number of fully vested SUs equal to (a) the performance compensation, divided by (b) the volume weighted average closing price of our common stock over the 90 consecutive trading days ending on the last day of the applicable performance period. The aggregate number of SUs purchased by the service provider, including the initial 38,968 units and 121,032 units may not exceed 1,000,000.

In April 2022, we modified 11,468 RSUs held by resigning directors such that the awards vested on the date of this filing, 2,645,122their termination of service. Prior to the modification, the resigning directors would have forfeited the unvested RSUs on the date of the resignations. As a result of the modifications, we adjusted cumulative expense on the RSUs to equal the fair value of the awards on the date of the April 28, 2022, modification ($5.20 per unit), in accordance with applicable accounting guidance.

In the three months ended June 30, 2022, we issued a total of 48,386 shares of common stock remain availablepursuant to the terms of vested RSUs, which included the 11,468 modified RSUs discussed in the preceding paragraph. Issuance of the shares of common stock subject to these RSUs was deferred to the date the holder was no longer providing service to our company. In the three months ended March 31, 2022, we issued a total of 22,475 shares of common stock upon the vesting of RSUs.

Warrants

In the three months ended September 30, 2022, warrants for issuance underthe purchase of up to 25,000 shares of common stock ($9.60 per share exercise price) expired and as further discussed in Note 12, the exercise price of an outstanding liability warrant (Warrant A) for the purchase of up to 230,769 shares adjusted to $2.72 per share from $10.00 per share. In the 2014three Planmonths ended March 31, 2022, warrants for the purchase of up to 614,298 shares of common stock ($9.60 per share exercise price) expired.

 

Subsequent Offering

In October 2022, we issued and sold 675,000 shares of our common stock for $1.50 per share and prefunded warrants (the Prefunded Warrants) exercisable into 325,000 shares of our common stock for $1.4999 per warrant, in a registered direct offering.  The Prefunded Warrants had an exercise price of $0.0001 per share and were exercised in full after the offering. In a concurrent private placement, we issued and sold warrants for the purchase up to 2,000,000 shares of our common stock at an exercise price of $1.60 per share, which are exercisable April 20, 2023, and expire October 20, 2025. The net proceeds from the offering totaled $1.2 million, after deducting placement agent fees and other cash offering expenses of $0.3 million. We determined the exercise price of the Prefunded Warrants was nominal and, as such, we will consider the shares underlying those warrants to be outstanding effective October 20, 2022, for the purposes of calculating basic EPS. We intend to use the net proceeds from the offering for general corporate purposes, which may include funding capital expenditures, working capital and repaying indebtedness. 

In addition, we issued warrants for the purchase of up to 63,000 shares of our common stock to the placement agent at an exercise price of $1.875 per share, which expire October 20, 2027.

NOTE 10. INCOME TAXES

 

Our tax expense for the three and sixnine months ended JuneSeptember 30, 2022 and 2021, differs from the tax expense computed by applying the U.S. statutory tax rate to net loss from continuing operations before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of JuneSeptember 30, 2022, we had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards. We provided a full valuation allowance against our deferred tax assets as future realization of such assets is not more likely than not to occur.

 

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 11. LOSS PER SHARE (EPS)

 

We calculate basic EPS under the two-class method under which all earnings (distributed and undistributed) are allocated to each class of common stock and participating securities based on their respective rights to receive dividends. Our outstanding convertible preferred stock are considered participating securities as the holders may participate in undistributed earnings with holders of common shares and are not obligated to share in our net losses.

 

We calculate diluted EPS by dividing the net income attributable to RiceBran Technologies common shareholders by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the impact of assumed exercises and conversions is dilutive. We calculate the dilutive effects of outstanding options, warrants, and nonvested RSUsstock units that vest solely on the basis of a service condition are calculated using the treasury stock method. We calculate the dilutive effects of the outstanding preferred stock using the if-converted method.

 

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RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

Reconciliations of the numerators and denominators in the EPS computations follow.

 

 

No effects of potentially dilutive securities outstanding were included in the calculation of diluted EPS for the three and sixnine months ended JuneSeptember 30, 2022 and 2021, because to do so would be antidilutive as a result of our net loss. Potentially dilutive securities outstanding during the three and sixnine months ended JuneSeptember 30, 2022 and 2021, included our outstanding convertible preferred stock, options, warrants and nonvested RSUs.

stock units.

NOTE 12. FAIR VALUE MEASUREMENTS

 

The fair value of cash and cash equivalents, accounts and other receivables, accounts payable and commodities payable approximates their carrying value due to shorter maturities. As of JuneSeptember 30, 2022, the fair values of our operating lease liabilities were approximately $0.4$0.5 million higherlower than their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements). As of JuneSeptember 30, 2022, the fair values of our debt and finance lease liabilities approximated their carrying values, based on current market rates for similar debt and leases with similar maturities (Level 3 measurements).

 

The following tables summarize the fair values by input hierarchy of items measured at fair value on a recurring basis on our consolidated balance sheets (in thousands):

 

 

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables summarize the changes in level 3 items measured at fair value on a recurring basis for the three and sixnine months ended JuneSeptember 30, 2022and 2021 (in thousands):

 

 

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RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

The derivative warrant liability relates to a warrant issued in September 2021, for the purchase of up to 2,307,693230,769 shares of common stock (Warrant A),. The initial $1.00current $2.72 per share exercise price of Warrant A is subject to adjustment in September 2022, and again in September 2023 ifto 110% of the 5-day volume weighted average price of our common stock, if that price is less than the then-currentthan $2.72 per share. The initial $10.00 per share exercise price.price of Warrant A is carriedadjusted in September 2022 to $2.72 per share. We classify Warrant A in our consolidated balance sheets as derivative warrant liability because the holder may elect cash settlement of this warrant in the event of a change of control. We estimated the fair value of Warrant A as of JuneSeptember 30, 2022, using the Black-Scholes value of a warrant with an exercise price of $2.72 per share. We estimated the fair value of Warrant A as of and December 31, 2021, using the Black-Scholes value of a warrant with an exercise price of $1.00$10.00 per share. The changes in the estimated fair value of Warrant A are included in other income (loss) in our consolidated statements of operations. The assumptions used in valuing Warrant follows.A follow.

 

 

The fair value of Warrant A approximates the cash settlement the holder could elect to be paid in the event of a change in control. At JuneSeptember 30, 2022, a $0.10an $0.18 (approximate 10%) increase in our stock price would have resulted in an approximate $0.2 million$32 thousand increase in the Black Scholes fair value of Warrant A.

NOTE 13. COMMITMENTS AND CONTINGENCIES

 

PPP Audit Contingency

 

In April 2020, we received $1.8 million on a Small Business Administration (SBA) Payroll Protection Program (PPP) loan as provided for in the Coronavirus Aid, Relief and Economic Security Act, (CARES), enacted into U.S. law in March 2020. Under certain conditions, the loan and accrued interest were forgivable, if we used the loan proceeds were used for maintaining workforce levels. TheWe used the loan proceeds were used for maintaining workforce levels and the SBA forgave the entire loan, and related accrued interest was forgiven, in its entirety in January 2021. The SBA may audit any PPP loan at its discretion through January 2027, six years after the date the SBA forgave the loan. The SBA may review any or all of the following when auditing a PPP loan: whether the borrower qualified for the PPP loan, whether the PPP loan amount was appropriately calculated and the proceeds used for allowable purposes, and whether the loan forgiveness amount was appropriately determined. WeThe SBA could be deemeddeem us ineligible for the PPP loan received in 2020 upon audit by the SBA. We believe the SBA’s stated intention is to focus its reviews on borrowers with loans greater than $2 million, thereby mitigating our future risk of an audit. The SBA continues to develop and issue new and updated guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program.

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RiceBran Technologies

Notes to Unaudited Condensed Consolidated Financial Statements

 

Employment Contracts and Severance Payments

 

In the normal course of business, we periodically enter into employment agreements which incorporate indemnification provisions. While the maximum amount to which we may be exposed under such agreements cannot be reasonably estimated, we maintain insurance coverage, which we believe will effectively mitigate our obligations under these indemnification provisions. No amounts have been recorded in our financial statements with respect to any obligations under such agreements.

 

We have employment contracts with certain officers and key management that include provisions for potential severance payments in the event of without-cause terminations or terminations under certain circumstances after a change in control. In addition, vesting of outstanding nonvested equity grants would accelerate following a change in control.

 

Legal Matters

 

From time to time, we are involved in litigation incidental to the conduct of our business. These matters may relate to employment and labor claims, patent and intellectual property claims, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations. When applicable, we record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position or results of operations. We expense defense as incurred. Defense costs, when incurred, are included in selling, general and administrative expense.

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RiceBran Technologies
Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 14. FAILURE TO COMPLY WITH NASDAQ LISTING REQUIREMENTS

 

On September 15, 2021, we received a notification letter from The Nasdaq Stock Market LLC (Nasdaq) indicating that we have failed to comply with the minimum bid price requirement of Nasdaq Listing Rule 5550(a)(2). Nasdaq Listing Rule 5550(a)(2) requires that companies listed on the Nasdaq Capital Market maintain a minimum bid price of $1.00. To regain compliance with this listing rule, the closing bid price of our common stock hashad to be at least $1.00 for a period of Nasdaq’s discretion, of at least 10, but not to exceed 20, consecutive business days. As of the date of this filing,On September 12, 2022, Nasdaq notified us that we have nothad regained compliance with the minimum bid price requirement however, we were eligible for and obtained from Nasdaq an additional 180-day compliance period, which extends through September 12, 2022. We are committed to taking actions that would enable us to regain compliance, including, if necessary, completing a reverse split of our common stock to increase its share price above the $1.00 minimum bid price. On July 14, 2022, our shareholders approved amendments to our articles of incorporation that would effect a reverse stock split, pursuant to which either five, ten, fifteen, twenty, or twenty-five outstanding shares of our common stock would be combined into one share of such stock, and to authorize our board of directors, at its discretion, to select and file one such amendment which would effect the reverse stock split at one of these five reverse split ratios on or before July 14, 2023, if deemed appropriate.matter was closed.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations - Three Months Ended JuneSeptember 30, 2022, Compared to Three Months Ended JuneSeptember 30, 2021

 

Revenues of $10.2$10.3 million in the secondthird quarter of 2022 increased $2.6$3.3 million, or 34.5%48.3%, compared to the secondthird quarter of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to continued production issues.operations.

 

Gross loss was $0.5$0.7 million in the secondthird quarter of 2022, a $0.6$0.4 million decreaseincrease in gross profitloss compared to the secondthird quarter of 2021. The declineincrease in gross profitloss was attributable to lower sales and significant cost overruns for our value-added SRB derivatives business and higher gross losses at our Golden Ridge milling operation versus a year ago, with profitsoffset in part by improved profitability from our core-SRB business flat with a year ago and lower losses from Golden Ridge offset by a decline in profitability at MGI due to efforts to work around capital improvements.milling operation.

 

Selling, general and administrative (SG&A) expenses were $1.7$1.8 million in the secondthird quarter of 2022 a 1.6% decline fromand the secondthird quarter of 2021 as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and higher contract employee expense, as well as a double-digit increase in insurance expenses.

We recognized a gain on the involuntary conversion of assets of $0.1 million in the second quarter of 2022, when we finalized our insurance claim for hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property.premiums.

 

Due to the declineincrease in gross profits,losses, operating losses were $2.0$2.5 million in the secondthird quarter of 2022, up from $1.8$2.1 million in the secondthird quarter of 2021. In Junethe third quarter of 2022, we recognized a $0.4$0.6 million chargegain for the change in the fair value of a warrant liability. As a result of higher operating losses andbeing offset by this charge,gain, net loss in the secondthird quarter of 2022 was $2.6$2.0 million, or $0.05$0.38 per share, compared to a net loss of $1.9$2.2 million, or $0.04$0.47 per share, in the secondthird quarter of 2021.

 

Results of Operations – SixNine Months Ended JuneSeptember 30, 2022, Compared to SixNine Months Ended JuneSeptember 30, 2021

 

Revenues of $20.7$31.0 million in the first halfnine months of 2022 increased $4.6$8.0 million, or 28.2%34.7%, compared to the first halfnine months of 2021. This year-over-year increase was due to higher core-SRB sales and strong growth from our MGI and Golden Ridge milling operations, offset in part by lower value-added SRB derivative product revenues due to production issues.issues in the second quarter of 2022.

 

The $0.8$1.2 million decrease in gross profit in the first halfnine months of 2022, compared to the first halfnine months of 2021, was primarily attributable to lower gross profits from our value-added SRB derivative products and a modest declineincrease in gross profits from our core-SRB business, offset by lower losses from Golden Ridge, andoffset in part by a modest increase in gross profits atfor our core-SRB business and MGI.

 

SG&A expenses were $3.4of $5.2 million in the first halfnine months of 2022 a 7.5% decline fromdecreased $0.3 million, or 5.7%, compared to the first halfnine months of 2021, as reductions in corporate support headcount and outside professional services were offset in part by higher wage rates and insurance expenses.premiums.

 

We recognized a gain on the involuntary conversion of assets of $0.1 million in the first halfnine months of 2022, when we finalized our insurance claim for hurricane damage that occurred in August 2020 to our Lake Charles, Louisiana property.

 

Operating losses were $3.2$5.7 million in the first halfnine months of 2022, up from $2.9$5.0 million in the first halfnine months of 2021, due to lower gross profits. In the first half of 2022, we recognized a $0.6 million charge for the change in the fair value of a warrant liability, and in January 2021, we recognized a $1.8 million gain on extinguishment of our Small Business Administration (SBA) Paycheck Protection Program (PPP) loan (see Note 13 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the loan). As a result of higher operating losses, and these charges,lower SG&A, the impact of the gain on involuntary conversion of assets and the nonrecurring gain on the extinguishment of debt in the first halfnine months of 2021, net loss in the first halfnine months of 2022 was $4.1$6.2 million, or $0.08$1.17 per share, compared to a net loss of $1.3$3.5 million, or $0.03$0.38 per share, in the first halfnine months of 2021.

 

COVID-19 Assessment

The COVID-19 pandemic is a worldwide health crisis that is adversely affecting the business and financial markets of many countries, disrupting global supply chains, and creating volatility in the financial markets. The pandemic could adversely affect the demand for our products, and it poses the risk that we, or our customers, suppliers, and other business partners may be disrupted or prevented from conducting business for an uncertain period of time. The extent to which this would impact our financial results is unknown as it is dependent on future developments, which are highly uncertain and cannot be predicted. As such, it is difficult to estimate the exact magnitude of the COVID-19 pandemic on our business.

 

We have not had, and we do not expect, any of our facilities to be closed subject to government-mandated closures, and we have informed our customers that we anticipate operating throughout the COVID-19 outbreak. Disruption in the supply chain of raw materials used to produce our products, as a result of the COVID-19 outbreak, has not caused us to close any of our facilities, and to date, our employees have been reporting to work, either remotely or in-person without any material change in attendance or productivity. However, we cannot ensure that the COVID-19 outbreak will not cause disruptions to our business in the future.

Liquidity, ,GoingGoing Concern and Capital Resources

 

We had $5.1$4.4 million in cash and equivalents as of JuneSeptember 30, 2022, a decrease of $0.7$1.5 million from $5.8 million on MarchDecember 31, 2022.2021. During the first halfnine months of 2022, we were able to offset higher operating losses and negative working capital management with increased borrowing.

 

Cash used in operating activities in the first sixnine months of 2022 was $1.7$3.9 million, up from $1.4$2.0 million in the first sixnine months of 2021, driven principally by higher net losses. Cash used in investing activities in the 2022 period consisted of $0.4 million in capital expenditures, primarily for the purchase and installation of capital equipment at our MGI facility offset by $0.1 million in insurance proceeds. Cash from financing activities in the 2022 period was $1.3$2.7 million, which included the $1.8 million borrowingnet borrowings on a line of credit offset in part by $0.2 million in net payments on debt and financing agreements and a $0.2$0.9 million reduction in borrowing underover-advance on our factoring facility.facility (see Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion of the over-advance).

 

Management believes that despite the multi-year history of operating losses and negative operating cash flows from continuing operations, there is no substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements included in this Quarterly Report are issued. Factors alleviating this concern include the reduction in historical operating losses beginning in 2021, $5.1$4.4 million in cash and cash equivalents as of JuneSeptember 30, 2022, and our ability to procure additional capital if needed through a variety of sources. Most notably, subsequent to the end of the third quarter of 2022, we were able to raise approximately $1.2 million, net of costs, through a direct placement of our common stock, and common stock equivalents, and in late September 2022, we received a $0.9 million over-advance on our factoring facility, pending a restructuring of our mortgage promissory note secured by our real property in Wynne, Arkansas.

 

On March 30, 2020, we entered into a sales agreement with respect to an at-the-market (ATM) offering program, under which we may offer and sell shares of our common stock having an aggregate offering price of up to $6.0 million, which we currently have $2.8 million remaining. Under the terms of the securities purchase agreement related to the September 2021 offering, we are prohibited from entering into an agreement to effect any at-the-market issuance until September 13, 2023.

 

Critical Accounting Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the financial statements. On an ongoing basis, we evaluate the estimates, including, but not limited to, those related to revenue recognition, inventory valuation, and long-lived asset impairment. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates.

 

Recent Accounting Pronouncements

 

See Note 3 in the Notes to Unaudited Condensed Consolidated Financial Statements for further discussion.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the 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 financial disclosures. As of JuneSeptember 30, 2022, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2021 Annual Report on Form 10-K.

 

We evaluated, with the participation of our executive chairman, and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our executive chairman and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Control over Financial Reporting

 

During the most recently completed fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations or cash flows. We record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition, liquidity or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the quarter ended JuneSeptember 30, 2022, we issued the securities described below without registration under the Securities Act. The description below does not include issuances that werewe disclosed previously on Current Reports on Form 8-K. Unless otherwise indicated below, the securities were issued pursuant to the private placement exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended. All issuancesamended (the Securities Act). We made the issuance below were made without any public solicitation, to a limited number of sophisticated persons and were acquired for investment purposes only.

 

During the quarter ended JuneOn September 30, 2022, we issued 6,000600 shares of common stock to a service provider, which is not a natural person, as compensation for service provided. The shares were valued at an aggregate of $2,100.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

NoneItem 3.02 Unregistered Sales of Equity Securities

On November 1, 2022, we amended the terms of our engagement of Gander Foods, LLC, a New Jersey limited liability company (the Operator), to perform services in connection with our rice milling operations and those of Golden Ridge Rice Mills, Inc., our wholly owned subsidiary. The engagement was described in our Current Report on Form 8-K filed on September 29, 2022 (the Original 8-K).

As amended, the Operator’s initial cash compensation of $200,000 (the Initial Compensation) will be used by the Operator to purchase an aggregate of 160,000 (rather than 38,968) unvested restricted stock units (SUs), each representing the contingent right to receive one share of our common stock. All other terms of the engagement remain the same and are unchanged, and the total amount of SUs that may be purchased by the Operator with the Initial Compensation or the Performance Compensation (as defined in the Original 8-K) may still not exceed 1,000,000.

The SUs are being offered and sold in a private placement to an eligible investor pursuant to Section 4(a)(2) of the Securities Act. The SUs and underlying shares of our common stock have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States absent registration under or an applicable exemption from registration under the Securities Act and any applicable state securities laws.

 

 

Item 6. Exhibits

 

The following exhibits are attached hereto and filed herewith:

 

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File No.

Exhibit Number

Filing/Effective Date

Filed Here-with

31.1

Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2

Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1

Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS (1)

Inline XBRL Instance Document

X

101.SCH (1)

Inline XBRL Taxonomy Extension Schema Document

X

101.CAL (1)

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF (1)

Inline XBRL Taxonomy Extension Calculation Definition Linkbase Document

X

101.LAB (1)

Inline XBRL Taxonomy Extension Calculation Label Linkbase Document

X

101.PRE (1)

Inline XBRL Taxonomy Extension Calculation Presentation Linkbase Document

X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

File No.

Exhibit Number

Filing/Effective Date

Filed Here-with

3.1

Certificate of Amendment of Articles of Incorporation as field with the California Secretary of State effective August 25, 2022

8-K

001-36245

3.1

August 25, 2022

31.1

Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2

Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X

32.1

Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101.INS (1)

Inline XBRL Instance Document

X

101.SCH (1)

Inline XBRL Taxonomy Extension Schema Document

X

101.CAL (1)

Inline XBRL Taxonomy Extension Calculation Linkbase Document

X

101.DEF (1)

Inline XBRL Taxonomy Extension Calculation Definition Linkbase Document

X

101.LAB (1)

Inline XBRL Taxonomy Extension Calculation Label Linkbase Document

X

101.PRE (1)

Inline XBRL Taxonomy Extension Calculation Presentation Linkbase Document

X

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

(1)

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: August 11,November 3, 2022	RiceBran Technologies
	/s/ Peter G. Bradley
	Peter G. Bradley
	Director and Executive Chairman

 

	/s/ Todd T. Mitchell
	Todd T. Mitchell
	Chief Financial Officer and Chief Operating Officer