RIBT RiceBran Technologies (PK)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements (interim financial statements) of RiceBran Technologies and its subsidiaries were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (the SEC) for reporting on Form 10-Q; therefore, they do not include all of the information and notes required by GAAP for complete financial statements. The interim financial statements contain all adjustments necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented of a normal and recurring nature necessary to present fairly the interim results of operations, financial position and cash flows for the periods presented.

These interim financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2023, which included all disclosures required by generally accepted accounting principles.

The results reported in these interim financial statements are not necessarily indicative of the results to be expected for the full fiscal year, or any other future period, and have been prepared based on the realization of assets and the satisfaction of liabilities in the normal course of business.

Certain reclassifications have been made to amounts reported for the prior period for discontinued operations to achieve consistent presentation with the current period. Such reclassifications had no impact on previously reported net loss or shareholders’ deficit. See Note 3 in the Notes to Unaudited Condensed Consolidated Statement of Operations for further discussion of our discontinued operations.

NOTE 2. GOING CONCERN AND MANAGEMENT’S PLAN

The Company has incurred losses and generated negative cash flows from operations since its inception. As of March 31, 2024, the Company had an accumulated deficit of $335.1 million and cash and cash equivalents of $0.4 million.

Our history of operating losses and negative operating cash flows from continuing operations raises substantial doubt about our ability to continue as a going concern within one year from the date of this filing. Due to these historical losses and negative cash flows, management has considered various strategic alternatives. Specifically, we recently completed a refinancing in December 2023, as further described below.

On December 1, 2023, an entity owned by Cable Car Capital LLC, Funicular Funds, LP (Funicular), purchased $0.4 million of shares of common stock of the Company and lent the Company $4.1 million.

Related to this financing, Funicular was also granted warrants to purchase up to 5.0 million shares of common stock of the Company. If Funicular exercised all its warrants, it would own 49.8% of the Company. The Company also exchanged existing warrants with other investors to purchase an aggregate 2.2 million shares of common stock of the Company for an aggregate of approximately 0.6 million shares of common stock of the Company and new warrants to purchase 1.2 million shares of common stock of the Company.

With the proceeds of this financing, the Company repaid its $1.5 million mortgage note (see Note 9) and will use the remaining balance to fund its current and future general working capital and operating, investing, and financing cash flow needs.

On January 25, 2024, the Company sold Golden Ridge for $2.2 million. As a result of the sale, the Company has streamlined its business and balance sheet, eliminating unprofitable operations. 

The Company also believes additional cash can be secured through other debt or structured equity financing, if necessary. However, there can be no assurance that equity or debt financing will be available to the Company should it need it or, if available, that the terms will be satisfactory to the Company and not dilutive to existing shareholders. The Company’s failure to raise capital as and when needed could have significant negative consequences for its business, financial condition, and results of consolidated operations.

NOTE 3. DISCONTINUED OPERATIONS

We continuously assess the composition of our portfolio to ensure it is aligned with our strategic objectives and positioned to maximize return to our shareholders.

Golden Ridge Rice Mills, Inc. Business

On January 25, 2024, we completed the sale of our assets related to the Golden Ridge Rice Mills, Inc. business (GRR Business) for $2.2 million in cash and the assumption of $18,000 of finance leases. The sale agreement contains customary representations, warranties, and covenants. In consideration of a lender's consent to the sale and release of securities interests and liens on the GRR Business assets, we paid a fee of $86,000. The buyer of the GRR Business did not acquire accounts receivable generated by the operation of the GRR Business assets and generally did not assume any accounts payable or accrued expenses related to the operation of the GRR Business through the January 25, 2024, date of sale.

As summarized in the following table (in thousands), the net carrying value of the GRR Business assets and liabilities assumed as of the date of sale were $2.2 million resulting in a loss on sale of $0.2 million. The estimated loss on sale includes no provision for income taxes as it is anticipated the tax benefit for the expected tax loss on disposition will not be realized based on our current U.S. valuation allowance position.

We determined that the disposal met the criteria for presentation as discontinued operations in the first quarter of 2024. Accordingly, the GRR Business results are presented as discontinued operations in our unaudited condensed consolidated statements of operations and are excluded from continuing operations for all periods presented. In addition, the GRR Business assets and liabilities are classified as held for sale in our condensed consolidated balance sheet as of December 31, 2023. 

The following table summarizes the major line items included in loss from discontinued operations related to the GRR Business and divestiture (in thousands).

The following table summarizes the major line items included in cash flows from discontinued operations related to the GRR Business and divestiture (in thousands).

The following table summarizes the carrying amounts of major classes of GRR Business assets and liabilities classified as held for sale as of December 31, 2023 (in thousands).

Stabilized Rice Bran Business

On June 23, 2023, we completed the sale of our assets related to the stabilized rice bran (SRB Business) for $1.8 million in cash and the assumption of $1.7 million of real estate operating leases and other liabilities. The sale agreement contained customary representations, warranties, and covenants.

The proceeds, net of expenses, of $1.4 million, and the net carrying value of the SRB Business assets and liabilities assumed as of the date of sale at $10.0 million resulted in our recognition of a loss on sale of $8.6 million. The loss on sale includes no provision for income taxes as it is anticipated the tax benefit for the expected tax loss on disposition will not be realized based on our current U.S. valuation allowance position.

In consideration of the Lender’s (as defined below) consent to the sale and release of securities interests and liens on SRB Business assets, we paid a portion of the amount outstanding on our mortgage promissory note, not exclusively related to the SRB Business, from proceeds of the sale. In addition, we paid liabilities for accumulated paid time off to the employees of the SRB Business. The following table summarizes the distribution of proceeds (in thousands).

The following table summarizes the carrying amounts of the SRB Business as of June 23, 2023, the date of sale (in thousands).

The buyer of the SRB Business did not acquire accounts receivable generated by the operation of the SRB Business assets and generally did not assume any accounts payable or accrued expenses related to the operation of the SRB Business through the June 23, 2023, date of sale.

We determined that the disposal met the criteria for presentation as discontinued operations in the second quarter of 2023. Accordingly, SRB Business results are presented as discontinued operations in our unaudited condensed consolidated statements of operations and are excluded from continuing operations for the three months ended March 31, 2023. The operations of the SRB Business are included in our results for the three months ended March 31, 2023. The following two tables represent activity as of March 31, 2023.

The following table summarizes the major line items included in loss from discontinued operations related to the SRB Business and divestiture (in thousands).

The following table summarizes the major line items included in cash flows from discontinued operations related to the SRB Business and divestiture (in thousands).

NOTE 4. ACCOUNTS RECEIVABLE AND REVENUES

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.

The following table presents disaggregated revenues (in thousands).

NOTE 5. INVENTORIES

The following table details the components of inventories (in thousands).

NOTE 6. PROPERTY AND EQUIPMENT

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

NOTE 7. INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands).

The customer relationship intangible is amortizing over the 15-year period of expected future economic benefit, in proportion to the discounted expected future cash flows used to estimate the value of the intangible at acquisition in 2019. It is amortizing at a more rapid rate in the earlier periods than in later periods. Other finite-lived intangible assets are amortizing on a straight-line basis.

As of March 31, 2024, the weighted-average remaining amortization period for intangibles is 8.6 years and future intangible amortization is expected to total the following (in thousands):

NOTE 8. LEASES

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

As of March 31, 2024 and 2023, variable lease payments do not depend on a rate or index. As of March 31, 2024, property and equipment, net, includes $0.5 million of finance lease right-of-use-assets, with an original cost of $0.6 million. As of March 31, 2023, property and equipment, net, includes $0.6 million of finance lease right-of-use-assets, with an original cost of $1.1 million. During the three months ended March 31, 2023, we financed the purchase of $0.2 million of property and equipment in noncash finance lease transactions.

As of March 31, 2024, 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 March 31, 2024, follows.

Maturities of lease liabilities as of March 31, 2024, follow (in thousands).

NOTE 9. DEBT

We finance certain amounts owed for annual insurance premiums under financing agreements. As of March 31, 2024, amounts due under insurance premium financing agreements are due in monthly installments of principal and interest through September 1, 2024, at an interest rate of 9.95% per year and an outstanding principal balance of approximately $47,000.

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

The Funicular note

On December 1, 2023, we entered into a new secured promissory note with Funicular, guaranteed by its subsidiaries Golden Ridge Rice Mills, Inc. and MGI Grain, Incorporated (MGI) in the aggregate principal amount of $4.1 million, funded on December 1, 2023. A portion of the proceeds from the note were used to pay amounts owed under the previous mortgage promissory note. The note has a stated maturity date of December 1, 2028. Interest accrues at a rate per annum equal to 13.50%. On each quarterly interest payment date, the accrued and unpaid interest shall, at the election of the Company in its sole discretion, be either paid in cash or paid in-kind. In addition, the note requires payment of a $50,000 fee on account of costs and expenses of Funicular, which fee was in-kind at the Company’s election as per the agreement.

Arkansas mortgage promissory note

In January 2023, we entered into agreements with the Lender to effect a modification of the terms of the mortgage promissory note. This modification involved us entering into a new mortgage promissory note in the principal amount of $2.5 million. We received $0.3 million in cash, and the lender applied the remainder of the new principal to the $1.3 million then outstanding on the prior mortgage promissory note and the $0.9 million Over-advance (as defined below). Under the terms of the January 2023 note, (i) interest accrued at the same rate as the prior note, an annual rate which is the greater of 7.0% above the 1ender’s prime rate and 10.3%, and (ii) principal and interest are payable in equal monthly installments through January 2025, under the January note. Prior to the January 2023 modification, principal and interest were payable in equal monthly installments through December 2023. The note is secured by a mortgage on our real property in Arkansas. The current portion of long-term debt on the condensed consolidated balance sheet as of December 31, 2023, reflects the terms of the January 2023 modification. As of March 31, 2024, the balance was paid.

Factoring facility

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 to use as collateral as defined in the agreement. The facility had an initial two-year term and automatically renews for successive annual periods until delivery of a proper termination notice. The facility term automatically extended to October 2024. 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 a security interest in our assets and the right to demand repayment of the advances at any time. As of March 31, 2024, and December 31, 2023, we had an outstanding payable balance of $0.6 million and $1.9 million, respectively.

The Lender also 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 accrued interest at an annual rate which is the greater of 7.0% above the Lender's prime rate (14.5% at December 31, 2022) and 10.3% until it was repaid in January 2023. As of December 31, 2023, the Over-advance was classified as long-term debt in our condensed consolidated balance sheet as it was refinanced on a long-term basis in January 2023, as discussed below.

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

As of  March 31, 2023, we had $1.9 million outstanding under a line of credit with a bank. The borrowing was secured by our cash on deposit with the bank and bears interest at prime (7.8% at  March 31, 2023). There were no stipulated repayment terms for the line as long as we maintained sufficient cash collateral. We repaid the amounts borrowed under the line of credit in full in April 2023. Our borrowings under the line of credit averaged $1.8 million in the three months ended  March 31, 2023, at an average annual interest rate of 7.7%.

Future principal maturities of long-term debt outstanding at March 31, 2024, follow (in thousands).

NOTE 10. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

A summary of equity activity for the three months ended March 31, 2024 and 2023, follows (in thousands, except share amounts).

Summaries of nonvested and vested restricted stock unit activity follow.

As of March 31, 2024, we do not have any outstanding restricted stock units issued under the Amended and Restated 2014 Equity Incentive Plan or any other restricted stock units held by any service providers.

NOTE 11. INCOME TAXES

Our tax expense for the three months ended  March 31, 2024 and 2023, differs from the tax expense computed by applying the U.S. statutory tax rate to loss before income taxes as no tax benefits were recorded for tax losses generated in the U.S. As of March 31, 2024, 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.

NOTE 12. 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 the Company’s 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 restricted stock units that vest solely on the basis of a service condition using the treasury stock method. We calculate the dilutive effects of outstanding preferred stock using the if-converted method.

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 months ended March 31, 2024 and 2023, because to do so would be antidilutive as a result of our net loss. Potentially dilutive securities outstanding at March 31, 2024, included our outstanding convertible preferred stock, options, warrants and nonvested restricted stock units.

NOTE 13. COMMITMENTS AND CONTINGENCIES

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.

In  January 2023, we received $0.3 million in restitution payments from a former employee. The payments were ordered by a federal court in 2012. Other income in the three months ended March 31, 2023, includes a $0.3 million gain as a result of collecting the restitution payment. 

Item 5. Other Information

None